Using Advantage
Identify, deepen, broaden, and defend the asymmetries that give you an edge
Advantage is rooted in asymmetries among rivals. In a world of identical competitors on a featureless plain, no one has an advantage. Real competitive advantage comes from identifying which asymmetries are critical and can be turned into durable edges. Rumelt identifies four ways to manage advantage: deepening it, broadening it, creating higher demand for your offerings, and strengthening the isolating mechanisms that prevent competitors from duplicating your position.
Deepening advantage means improving the fit among components of your existing position. Resistance to resistance training: as competitors push back, use that pressure to become even stronger. Broadening advantage means extending your existing strengths into new but related domains. Creating demand means actively shaping buyer preferences to value what you uniquely provide.
Critically, Rumelt introduces the concept of isolating mechanisms, which are barriers that prevent competitors from duplicating your product or the resources underlying your advantage. These include patents, brand loyalty, proprietary knowledge, network effects, and the tacit know-how embedded in organizational routines. The most durable advantages combine multiple isolating mechanisms.
- Advantage is rooted in differences and asymmetries among rivals, not in absolute capabilities
- No one possesses advantage in general; advantage is always relative to a specific competitor in a specific context
- Isolating mechanisms protect advantages from imitation; without them, any advantage is temporary
- The four ways to increase the value of advantage are: deepen it, broaden it, create demand for it, and strengthen its isolating mechanisms
- A competitive advantage you cannot explain is an advantage you may not be able to sustain
- Identify Your AsymmetriesDetermine what you do differently from competitors and which differences create value for customers. Not all differences are advantages. An advantage must produce sustainably higher returns or allow you to defend against competitive pressure. Focus on asymmetries that are hard to replicate.Pro tipThe 'silver machine' test: if someone offered to sell you a machine that produced silver, how much would you pay? The answer is the value of the silver minus the cost of running the machine. Similarly, the value of a business is not its gross revenue but the excess returns it generates above the cost of the resources it uses.WarningHaving a unique resource or capability is not an advantage unless it translates into value that customers will pay for. Many organizations have distinctive capabilities that create no competitive advantage because customers do not value the difference.
- Assess and Strengthen Isolating MechanismsIdentify what prevents competitors from duplicating your advantage. Common isolating mechanisms include patents, brand loyalty, network effects, proprietary knowledge, and embedded organizational routines. Actively invest in strengthening these barriers.Pro tipThe most powerful isolating mechanisms are those based on collective know-how embedded in groups rather than individuals. This type of advantage is nearly impossible to replicate because even the organization that possesses it often cannot fully articulate how it works.WarningNo isolating mechanism is permanent. Patents expire, brands can be tarnished, and organizational knowledge can dissipate through turnover. Constant renewal of isolating mechanisms is required.
- Deepen, Broaden, or Create DemandChoose which dimension of advantage to pursue: deepen the existing advantage by improving the fit among components, broaden it by extending into adjacent markets where your capabilities create value, or create new demand by shaping customer preferences to value what you uniquely provide.Pro tipPOM Wonderful created demand for pomegranate juice by funding medical research on its health benefits. This was not product improvement but demand creation: making customers value something that already existed. Disney extended its brand from animated films to theme parks, merchandise, and cruise lines, broadening its advantage across related domains.WarningBroadening advantage into unrelated domains usually fails because the isolating mechanisms that protect the original advantage do not transfer to new contexts.
Stewart and Lynda Resnick purchased a large pomegranate orchard and found that the existing market for fresh pomegranates was small. Rather than competing for market share, they created new demand by funding medical research on pomegranate health benefits, developing POM Wonderful juice, and investing in distinctive bottle design and advertising. They shaped customer preferences to value a product category that barely existed.
Disney took its core advantage in animated storytelling and beloved characters and broadened it across multiple domains: theme parks, consumer merchandise, television, cruise lines, and live-action films. Each extension leveraged the same core asset (beloved characters and stories) but created value in a new domain.
Rumelt developed his understanding of competitive advantage through decades of academic research and consulting. The concept of isolating mechanisms was his major theoretical contribution to the field of strategy, published in academic work that influenced the resource-based view of the firm. The practical framework emerged from consulting engagements where he helped companies understand not just whether they had an advantage but whether they could sustain it against competitive erosion.