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Comparative Advantage in Your Business

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Comparative Advantage in Your Business

Applying Ricardo’s Law

David Ricardo was one of Britain’s pre-eminent economists during the early part of the 19th Century. His Theory of Comparative Advantage of Nations is well known.

In its simplest terms, it says that finding the thing that gives you the best advantage is the most profitable. This is similar to the 80-20 rule in that you want to focus more of your effort on what will bring you the most value.

From Nations to Your Business

While this theory was developed in application to the economics of an entire country, it can also be applied to your business. Whatever you invest in your company – time, money, energy – should be done to accomplish the tasks that will give you the most comparative advantage. To do this in an area where another company has the advantage could lead to a great loss of opportunity.

It is easy to hope to become a company that is the best in all areas. But in doing that, you can start spreading yourself too thin. Instead of trying to be all things to all customers, decide what you excel at and let that be the product you put most of your effort into. Know your strengths and keep honing them so that you can have the greatest impact for your customers and your business.

There is little reward when you attempt to juggle many different components in order to become the best of the best. You inevitably end up dropping a ball or two. Instead, utilize your resources to their best advantage and find new ways to strengthen the areas of your business where you already excel. You will eliminate a lot of complexity for your company and reap more rewards for your efforts.

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