SUSTAINABLE COMPETITIVE ADVANTAGES TO SOLVE SOCIAL PROBLEM THROUGH SUSTAINABLE VALUE CREATION IN INDONESIA

Abstract

Sustainable value creation is rare. Competitive forces, including innovation, drive returns toward the cost of capital. Organization should be careful about how much they pay for future value creation. Warren Buffett consistently emphasizes that he wants to buy businesses with prospects for sustainable value creation. A clear understanding of how a company creates shareholder value is core to understanding sustainable value creation in Indonesia, which has minor priority in people-based economy, which should be emphasized on small-medium size organizations. Three broad sources of sustainable value creation is: production advantages, consumer advantages, and external advantages. Sustainable value creation has two dimensions: (1) the magnitude of returns in excess of the cost of capital that a company can generate. Magnitude considers not only the return on investment but also how much a company can invest at an above-cost-of-capital rate. Corporate growth only creates value when a company generates returns on investment that exceed the cost of capital; and (2) the second dimension is how long a company can earn returns in excess of the cost of capital. This concept is also known as sustainable competitive advantage period (SCAP).