Warren Buffett is the second-richest person in the world, just behind Bill Gates. He has built his wealth exclusively through his holding company Berkshire Hathaway - both by buying stocks in companies such as American Express & Coca Cola, and by buying outright companies such as GEICO, Business Wire and See's Candies.

When asked what is the most important characteristic he looks for in a business when assessing it, Buffett says it is:

...the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards... (emphasis added)

This brings us to the question for today: What is the biggest competitive advantage/differentiation of your company and its products or services? How durable is that?

How To Create Competitive Differentiation?
In their excellent book The Discipline of Market Leaders, Treacy & Wiersema say that there are primarily three ways in which a company can build competitive differentiation:

• Operational Excellence aka Cost Leadership
  • Provide middle-of-the-market products at the best price and the least hassle.
  • Example: Wal-Mart.
• Product Leadership
  • Provide the best product, period. Continue to innovate year after year.
  • Example: Intel, Nike.
• Customer Intimacy
  • Provide unique solutions to customers by virtue of intimate knowledge of their needs.
  • Example: IBM.

Treacy & Wiersema further argue that every company that is a leader in its market chooses to differentiate itself on one and only one of these three "value disciplines".

I believe this makes a lot of sense. For example, if a company tries to be the cost leader as well as the product leader in its market - over time, it will end up as neither.

Wal-Mart doesn't sell Armanis, Nike doesn't sell cheap shoes, and IBM sells neither the cheapest nor the best products.

How Durable Is Your Competitive Advantage?
While it is often hard to achieve, it is not enough just to have an advantage over your competitors. Even more important, as Buffett points out is the "the durability of that advantage".

If your company chooses to be a product leader, can you continue to innovate year after year in ways that matter to your customers? Can you continue to keep this leadership product cycle after product cycle?

Intel, for example, has sustained product leadership over a very long period by out-innovating competitors. Dell, likewise, has held cost leadership for the better part of the last two decades.

Differentiate or Die?
If your company's products are not differentiated in ways that really matter to your customers, your products may not necessarily die - but they certainly will be commoditized over time and at best will end up as also-ran products.

If you're in Product Management or Product Marketing - I highly recommend that you make one of your top goals this: Identify areas where your products can have strong, sustainable competitive differentiation and execute to make that the reality. This is one of the biggest values you can add to your company.

To conclude - I will leave you with the following simple, yet thought provoking questions from Treacy & Wiersema:

• What unique value do you provide to your customers?
• How will you increase that value next year?