The Subtle Art of Competitive Advantage
In 1962, Andy Warhol was looking to stand out in a crowded art scene. Abstract expressionism dominated galleries, but Warhol saw an opportunity in the everyday images of American consumer culture. His exhibitions of Campbell’s Soup cans and Coca-Cola Bottles that year marked a pivotal moment for his career. By taking mass-produced icons and transforming them through repetition and subtle variation using an innovative silkscreen method, he created something both familiar and revolutionary. Warhol’s innovation and risk-taking helped establish his standing in the art world. By the end of 1962, his first solo exhibitions would mark him as a leading figure in the relatively new pop art movement. The durability of what he established remains today — his 1964 Shot Sage Blue Marilyn piece sold for $195M in 2022, marking the highest auction price for any artwork created in the last sixty years. Two decades later, in 1985, Michael Porter introduced the concept of competitive advantage, characterizing one aspect of what one could say Warhol had achieved.
Green Coca-Cola Bottles, one of Warhol’s key works in 1962, has more to say about the nature of competitive advantage. It represents the same print of a Coca-Cola bottle, over and over. Yet the closer and more carefully you observe it, the more you see crucial differences in tone, clarity, and presence. Some bottles command attention while others recede into shadow. They are all unique, but a viewer can be forgiven for seeing them as similar. This tension between sameness and difference mirrors a crucial challenge facing strategy leaders today: helping the leaders in their organizations distinguish capabilities, assets, and characteristics that are strong or unique from true competitive advantages. It’s a distinction that can prove surprisingly elusive — a 2015 study of C-Suite leaders heavily involved in strategic management found that nearly half — 42% — were unable to identify the existence of competitive advantage, and may not have been aware of the concept at all. What’s more, 87% of them seemed to overestimate their company’s ability to develop it. Given that strategy is fundamentally about making and realizing choices to build or leverage competitive advantage to create and capture value, strategy leaders cannot afford to ignore this gap.
The strategy leader’s imperative
Among the many responsibilities of strategy leaders, one stands out as foundational: building their organization’s capacity to understand, build, and act on true competitive advantage. This isn’t merely about strategic analysis or frameworks — it’s about developing leaders’ strategic intelligence and judgment. Even organizations with sophisticated strategy processes and highly experienced leadership teams regularly stumble here. The confusion between competitive advantage and its enablers has become so endemic that many strategy discussions proceed without anyone noticing the distinction has been lost.
The stakes are particularly high in today’s environment. As competitive landscapes shift ever more rapidly and traditional barriers continue to fall, the window for capitalizing on advantages narrows while the cost of misidentifying them grows. Strategy leaders who can’t help their organizations make the crucial distinction between true competitive advantage and merely strong or unique capabilities, assets, or characteristics face three risks: investing precious resources in building capabilities that won’t create lasting advantage, allocating resources to efforts without any competitive advantage, and missing opportunities to strengthen and extend genuine sources of competitive superiority.
Strategy leaders must therefore approach this as both an educational challenge and a leadership one. The task isn’t just to spot true competitive advantage themselves, but to help their organizations develop this capability and maintain high standards in identifying and acting on it. The challenges aren’t just analytical — it’s also a people problem.
The challenge of recognition
Why do even experienced executives struggle with this distinction? Research reveals a pattern: when asked to identify their competitive advantages, many senior executives instead list common organizational capabilities, assets, or characteristics. They might point to a sophisticated manufacturing process, an innovative product feature, or a talented team. While these may be valuable capabilities — even requirements to compete in a hard-to-enter industry — they aren’t necessarily competitive advantages, which must enable a firm to consistently outperform competitors in capturing opportunities or neutralizing threats.
Two cognitive biases compound this challenge. The first is overconfidence bias, which can manifest as leaders overestimating our strengths relative to competitors. This bias leads leaders to see advantage in any capability where they excel, regardless of whether that excellence translates into marketplace superiority. The second is the curse of knowledge — when leaders understand their own capabilities deeply, they struggle to see them as others do. Together, these biases create a kind of organizational myopia around competitive advantage.
The overconfidence bias is particularly insidious in strategy work because it operates at multiple levels. Individual executives overestimate their personal contributions, teams overrate their collective capabilities, and organizations as a whole tend to view their strengths through rose-tinted glasses. This cascading effect helps explain why even organizations with sophisticated strategy processes can fall into the trap of mistaking capability for advantage. When everyone in the room shares the same inflated view of the organization’s strengths, critical questioning becomes harder.
The curse of knowledge, meanwhile, manifests in strategy discussions through what might be called “capability blindness.” After years of developing and refining particular capabilities, executives can lose perspective on how those capabilities compare to competitors’ alternatives or how customers actually value them. This familiarity breeds a form of contempt for the difficulty of building these capabilities — “if we can do it, surely others can too” — while simultaneously leading to an overvaluation of their uniqueness — “no one else does it quite like we do.” This paradoxical thinking makes it particularly difficult to assess whether a capability truly constitutes a competitive advantage.
Why this matters
The cost of this confusion extends far beyond semantic precision. When organizations can’t identify true competitive advantages, they make systematically flawed strategic decisions. Resources flow to initiatives that build impressive but non-advantaged capabilities. Strategic planning becomes an exercise in capability enhancement rather than advantage building. Perhaps most dangerously, organizations develop a false sense of security about their competitive position. This leads to overly optimistic projections, and finger-pointing when they aren’t achieved.
Consider how this plays out in managing a portfolio of strategy moves. Without a clear understanding of competitive advantage, organizations tend to spread resources like peanut butter across too many priorities, each building potentially valuable but not necessarily advantaged capabilities. The result is a diluted strategy that achieves competence in many areas but superiority in none. In contrast, organizations that maintain a high bar for competitive advantage can focus their resources on initiatives that truly move the needle, and deprioritize or stop those that do not.
The consequences ripple through every aspect of strategy execution. Investment decisions become disconnected from true sources of competitive strength. Marketing messages blur the distinction between what makes the organization truly special and what merely makes it competent. Innovation efforts scatter across multiple fronts rather than building on unique strengths. Even talent development suffers, as organizations struggle to articulate what capabilities truly deserve outsized investment.
These challenges become particularly acute during strategic inflection points — when new technologies emerge, customer preferences shift, or competitive landscapes are reshaped. Without a clear understanding of their true competitive advantages, organizations can react by trying to build every emerging capability they see competitors developing. This reactive posture not only strains resources but can actually erode existing advantages by diverting attention and investment from their maintenance and extension.
For strategy leaders, this creates an urgent imperative. Their role isn’t just to guide strategic planning or manage strategy processes — it’s to build their organization’s capacity to recognize, develop, and leverage true competitive advantages. This requires both educating their peers about the nature of competitive advantage and creating processes that maintain high standards for identifying and acting on it.
Leading for competitive advantage
True competitive advantage can be tested in several ways. Two worth mentioning are: customers demonstrate superior economic value through their behavior — paying more, buying more, churning less — or competitors (if theoretically asked) would acknowledge your superior position and their struggle to match it. This provocative bar for identifying competitive advantage matters because it forces organizations to be ruthlessly honest about their strategic position. Many capabilities that look like advantages when viewed in isolation fail this test in the marketplace.
For new strategy leaders — whether CEOs, CSOs, or other executives with meaningful strategy ownership — an essential early priority is to invest time understanding how well their organization understands and makes decisions based on its competitive advantages. What they often find is a gap, and a real opportunity.
Strategy leaders can act on this gap in three ways:
First, invest in rigorous analysis, especially if you are new in your role and it does not exist. Dedicate focused time and effort to building a detailed understanding of competitive advantage. This means mapping relevant value chains, establishing consistent definitions across the organization, and maintaining disciplined analysis of where and how advantage manifests. This is not the end-all and be-all of understanding competitive advantage — not everything can be measured, and intangibles matter — but it is an important foundation, without which discussions of competitive advantage can remain abstract and unreliable.
Second, create the right dialogue and culture. Strategy leaders must foster an environment where competitive advantage is discussed with both rigor and honesty. This means regular forums where claims are tested through evidence rather than assertion, where the recognition of where advantage doesn’t exist is valued as much as where it does, and where teams feel safe acknowledging when capabilities, assets, or characteristics, however impressive, don’t constitute competitive advantage. These discussions should feel more like scientific inquiry than advocacy sessions — hypothesis-driven, evidence-based, and open to challenge.
Third, embed competitive advantage in strategic management. Each strategy move should be evaluated not just for its ability to build valuable capabilities, but for its contribution to competitive advantage. Explicitly document how each choice is meant to build or sustain competitive advantage, creating a clear basis for testing whether reality matches intent in execution. This discipline helps raise the bar in designing strategy, and unlocks learning and adaptation in execution.
Like Warhol’s underpainted silkscreen prints, competitive advantage reveals itself through careful and critical observation and reflection. Many capabilities, assets, or characteristics may look similar at first glance, but only some will prove truly advantaged in the competitive arena. Strategy leaders who help their organizations develop this discernment enable better strategy choices and more strategic execution. In doing so, they fulfill one of their most essential responsibilities: ensuring their organization’s strategy builds and builds on genuine advantage.
This was originally posted on November 27, 2024 in my LinkedIn newsletter The Strategy Executive’s Craft: The Art and Science of Strategy Leadership.
