Porter’s Five forces is an elemental business strategy tool often overused across the globe. Another framework introduced in the 2nd chapter of his Iconic book, Competitive Strategy, is SoSA or Source of Strategic Advantage framework. This powerful and less frequently used framework blends SWOT with intrinsic company values to determine what is the real source of its competitive edge. This source is tied to company’s DNA and it is critical to determine this source of competitive edge and align the entire organization towards one of the three directions – Cost Leadership, Product/Service Differentiation or Niche Leadership. Also, continually evaluate that alignment for every investment and decision made thereafter. SoSA framework urges you to think about two internal factors and two external factors that define a company’s competitive psyche. Internal factors are company’s intrinsic strengths and its core values that it’s employees and founders subscribe to (e.g. open source, data driven ). External factors are opportunities in the market and environmental implications (e.g. policies, govt, regulations, privacy implications).
What’s magical about this tool is as you comprehensively build it, you realize that you must align to one of the three directions:
- Cost Leadership
- Product/Service Differentiation
- Niche Leadership
It must be one and only one of the above. Picking two can be disastrous. Interestingly enough most upcoming enterprises try to be more than one.
Critics of this framework say hybrid strategies do succeed citing Amazon’s example. In reality, successful hybrid strategies start with spin-ins trying out a new concept that might not be aligned with your most relevant direction. Hybrid strategies might work after you have succeeded and proven a business aligned to on of the above three directions.
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