Do You Have a Creative Strategic Advantage?

by Jay Deragon on 10/12/2008

The Creative Strategic AdvantageAs the landscape of the social web explodes with developments, new entrants and increased utility, one wonders who will come out on top in the end.

Users are being “pinged” daily with request from different social networks and other social web initiatives vying for the consumers attention with slogans, hype and promises as to why their network is better than the rest.

The market of “social networks” does not have a long enough history to point to one network or more whose strategy has created a significant competitive advantage. Additionally the very dynamics of the medium is creating a new paradigm of human behavior whose dynamics change with every new technological enhancement to the social web. To say the least the market of social networks is a moving target constantly reacting to shifting dynamics discovered as consumer behavior shifts with every new development and sets the stage for the next shift.

The business design and strategic models of the social web are also somewhat unique as well. We have platform operators who enable application developers to create unique functions and features aimed at attracting users. The application developers are left to figure out their own economic models aimed at monetizing their efforts over the long term. Platform operators enable developers with creative ideas to create a business by enabling them with the opportunity of reach.

For the most part operators offer the use of their network to consumers for free leveraging the nets advertising models as the initial revenue means as their primary source of income. Some operators propose schemes with upgraded subscription models which promise increased utility for paying customers. So which strategy is most likely to create competitive advantage for the players in today’s market?

Competitive advantage (CA) is a position that a firm occupies in its competitive landscape. Michael Porter posits that a competitive advantage, sustainable or not, exists when a company makes economic rents, that is, their earnings exceed their costs (including cost of capital). That means that normal competitive pressures are not able to drive down the firm’s earnings to the point where they cover all costs and just provide minimum sufficient additional return to keep capital invested. Most forms of competitive advantage cannot be sustained for any length of time because the promise of economic rents drives competitors to duplicate the competitive advantage held by any one firm.

A firm possesses a Sustainable Competitive Advantage (SCA) when it has value-creating processes and positions that cannot be duplicated or imitated by other firms that lead to the production of above normal rents. An SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated. But these above-normal rents can attract new entrants who drive down economic rents. A CA is a position a firm attains that lead to above-normal rents or a superior financial performance. The processes and positions that engender such a position are not necessarily non-duplicable or inimitable.

Analysis of the factors of profitability is the subject of numerous theories of strategy including the five forces model pioneered by Michael Porter of the Harvard Business School. To be sustainable, a competitive advantage must be:

1. distinctive, and
2. proprietary

According to Porter a company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability of all other companies competing for the same set of customers. While Porter’s definitions and models for determining competitive advantage seem logical the new dynamics of the social web brings yet another critical element to the models of competitive advantage.

That element is human creativity. Creativity is the driving force of competitive advantage for firms wishing to capitalize on the dynamics of the social web. Creativity (or creativeness) is a mental process involving the generation of new ideas or concepts, or new associations between existing ideas or concepts.

Despite, or perhaps because of, the ambiguity and multi-dimensional nature of creativity, entire industries have been spawned from the pursuit of creative ideas and the development of creativity techniques. This mysterious phenomenon, though undeniably important and constantly visible, seems to lie tantalizingly beyond the grasp of scientific investigation.

It may also be beyond the grasp of those that follow old business models and designs. It can be found in a toddlers imagination, in the boundless minds of the youth and within institutions that do not rely on what is previously taught rather they seek what is unknown. “Creativity, it has been said, consists largely of re-arranging what we know in order to find out what we do not know.” George Kneller

Who will come out on top in the end? Those that have the most creative advantage.

What say you?

{ 1 comment }

Scott Andrews December 7, 2007 at 6:41 pm

distinctive, yes… I’m not 100% sure about proprietary – case in point open systems, programming, and social networks in and of themselves. If a group of people start using a social network in a unique way, they gain a competitive advantage – whether or not the technology is proprietary. The process or usage can be proprietary (or even select) and still provide distinctive competitive advantage. It is the process of “cooperation” vs. “competition” in the marketplace. Studies I’ve read are that entrepreneurs and executives alike thrive under the former and stifle ideas under the latter.

Scott
http://www.ARRiiVE.com

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