Why do firms exist? Why should a particular firm be in business? Call it mission. Call it vision. Call it strategic intent. Whatever it is, a firm needs such a rationale to justify its existence. And that rationale, we believe, is to create value and win. To create value better than rivals can; to contribute to the society in ways that are unique and indispensable. That, in the end, is what winning in business is really about. Just look at pioneering firms like GE, Ford, and Microsoft, which have in this century changed and shaped the way we live, work, and play; or look at winning firms like Proctor & Gamble, Coca-Cola, or Merck that so many people find their daily lives depend on.
If the economics, the environment, or our abilities determine that we can’t get there, we must take the same spirited action to disengage ourselves from that which we can’t make better than the best (Jack Welch, CEO, General Electric).

For great business firms, winning is not a one time or now and then thing. Winning is a habit. To be a winner, a firm has to create, exploit, and sustain its competitive advantages vis-à-vis rivals. And it has to do so consistently if it wants to be a perennial winner. Where do competitive advantages come from? What are their contents and effects? Where do they reside inside or outside the firm? In what form can we observe them? How sustainable are they? These are all important questions concerning the multiple facets of the anatomy of competitive advantage. Competitive advantage comes in various shapes and sizes. Understanding the anatomy of competitive advantage helps general managers improve their firms’ chance of gaining and sustaining of competitive advantage hence their chance of winning.

This paper advances an integrative framework to help general managers systematically analyze six facets of competitive advantage: its substance, expression, locale, effect, cause, and time-span. Strategy is about winning. Strategy involves choice. It involves choice of a firm’s scope of product-market activities (Porter, 1980) as well as the combination of its resources and capabilities (Barney, 1991; Prahalad and Hamel, 1990). It is ultimately about the choice of matching resource commitment with changing opportunities for gaining and sustaining competitive advantages. As such, it is only fitting that the framework we use to dissect the anatomy of competitive advantage should be termed in acronym as SELECT, a tool designed to help a firm choose the right configuration of its competitive advantages.
I’ve been in this business for 33 years, and it seems that every decade, we get reminded what this business is all about – providing better value to customers (John Pepper, CEO, Procter & Gamble).

In his now classic treatise on competitive advantage, Porter (1985, p. 3) insightfully observes that: “Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price.” Building on Porter’s definition, we define competitive advantage as the asymmetry or differential in any firm attribute or dimension that allows one firm to better serve the customers than others and hence create better customer value.
A SELECT framework

Now let us examine respectively the six facets of the anatomical make-up of a competitive advantage (Figure 1). Although we attempt to be complete as well as parsimonious in advancing the SELECT framework, it is obvious that, due to the complex and often elusive nature of competitive advantage as a practical phenomenon and a theoretical concept, these six dimensions are not necessarily mutually exclusive and exhaustive.
The real thing: substance of competitive advantage

What is the actual substance or content of competitive advantage? What is its nature and basic type? Two basic schemes can be used to categorize the substance of competitive advantage: the dichotomies between positional and kinetic and between homogeneous and heterogeneous.
Positional versus kinetic advantages

Positional advantages derive from a firm’s attributes and endowments that in themselves generate economic profits and from a firm’s position in its environment and relationships with other players. They are primarily ownership-based or access-based and are often static. For instance, the superior locations of the 7-Eleven chain, as compared to those of smaller rivals in the urban markets, facilitate its sales because of its greater convenience to the customers. Or consider the dominance of Procter & Gamble over rivals in shelf space in retail stores which provides favorable access to customers.

In general, examples of positional advantage include superior endowments – managerial talents, skilled and dedicated employees, superior corporate culture (Barney, 1991); size-based advantages – market power, economy of scale, and economy of experience (Ghemawat, 1986); good relationship with complementor or collaborator (Brandenberg and Nalebuff, 1996); better control of supply and favorable access to distributors (Porter, 1980); and owning industry’s technological standard, e.g. Wintel in PC (Hill, 1997).

Kinetic advantages allow a firm to actually perform its business activities more effectively or efficiently than rivals. They are often knowledge and capability based, as competitive advantages in motion. For instance, Sony’s superior capability in miniaturization helps strengthen its leadership in personal and portable electronics worldwide (Stalk et al., 1992). Toyota’s flexible manufacturing capability allows it to respond to market changes more quickly than rivals. In the credit card business, MBNA America has the superior capability in identifying and serving large groups of customers who have great revenue and profit potential for MBNA (Reichheld, 1996).

Kinetic advantages often feature the following capabilities (and knowledge and competence): entrepreneurial capabilities – ability to locate valuable customers and to create or identify new market opportunities; technical capabilities that enhance creativity, efficiency, flexibility, speed, or quality in a firm’s business process; organizational capabilities that help mobilize employees, foster organizational learning, and facilitate organizational changes; and strategic capabilities that enable the firm to create, integrate, coordinate its multiple streams of knowledge and competencies and reconfigure and redeploy them along changing market opportunities.

Positional advantages and kinetic advantages often influence and derive from each other. On the one hand, kinetic advantages could stem from positional advantage, e.g. FedEx’s endowment of vast and sophisticated air (and ground) transportation systems insure its capability in fast and reliable delivery of overnight packages. On the other hand, kinetic advantages can also help strengthen positional advantages, e.g. Canon’s R&D and manufacturing capability helped secure its dominant positions and solid reputation worldwide in the office automation business (Ghoshal, 1992).