Avoiding Failure And Sustaining Competitive Advantage

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When a company loses its competitive advantage, its profitability falls. The company does not necessarily fail, it may just have average or below-average profitability and can remain in this mode for a considerable time, although its resources & capital base is shrinking.

Reasons for failure:

a)   Inertia:

The Inertia argument says that companies find it difficult to change their strategies & structures in order to adapt to changing competitive conditions.

b)   Prior strategic commitments:

A company’s prior strategic commitment not only limits its ability to imitate rivals but may also cause competitive disadvantage.

c)   The Icarus Paradox:

According to Miler, many companies become so dazzled by their early success that they believe more of the same type of effort is the way to future success.  As a result, they can become so specialized and inner directed that they lose sight of market realities and the fundamental requirements for achieving a competitive advantage.  Sooner or later, this leads to failure.

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