Costly To Imitate

Capabilities are costly to imitate when other companies are unable to develop them except at a cost disadvantage relative to companies that already have them. This usually is a result of one or a combination of three conditions:

Unique historical conditions: such as establishing facilities in a key location that preempts competition when no other locations have the same or similar value related characteristics or developing a unique organisational culture in the early stages of the company’s life that cannot be duplicated by cultures developed at different times. A unique culture can not only serve as a source of competitive advantage, but also may be a source of competitive disadvantage. The latter may be the case when a company’s culture prevents it from recognizing or successfully adapting to changes in a turbulent environment. At the same time, a unique culture may be a source of sustainable competitive advantage.

Causal ambiguity: also may prevent competitors from perfectly imitating a competency if the link between a company’s resources, capabilities, and core competencies is not identified or understood. Also, competitors may not be able to identify or determine how a company uses its competencies to achieve a sustainable competitive advantage.

Social complexity: means that a company’s capabilities are the product of complex social phenomena such as interpersonal relationships within the company or between The Company and Its Customers and Suppliers.

Non-substitutable

A company’s capabilities are no substitutable when they do not have strategic equivalents. In addition, if capabilities are invisible, it is even more difficult for competitors to identify viable substitutes. Examples of capabilities that can be difficult to identify or to find suitable substitutes for include company specific knowledge and trust based working relation- ships.

The relationship between the characteristics of company capabilities, the sustainability of competitive advantage, and performance implications

Valuable Rare	Costly to   Imitate	Non-   substitutable	Competitive   Consequences	Performance Implications
Yes /No	No	No	Competitive   Disadvantage	Below   Average Returns
Yes /No	No	Yes/No	Competitive   Parity	Average   Returns
Yes / Yes	No	Yes/No	Temporary   Competitive Advantage	Average /   Above Average Returns
Yes /Yes	Yes	Yes	Sustainable   Competitive Advantage	Above   Average Returns

Major Inferences that you can Draw

Resources and capabilities that are neither valuable, rare, costly to imitate, nor non substitutable mean that the company will be at a competitive disadvantage and will earn below average returns

Resources and capabilities that are neither valuable, rare, costly to imitate, nor non-substitutable mean that the company will be at a competitive disadvantage and will earn below average returns. Resources and capabilities that are valuable, but are neither rare nor costly to imitate and may or may not be non substitutable mean that the company can achieve competitive parity and earn average returns

Resources and capabilities that are both valuable and rare, but are not costly to imitate and may or may not be non-substitutable, may enable the company to achieve a temporary competitive advantage and will earn above average to average returns.

Company	Country of Origin	Original core Business	Key skills	Growth path
Honda	Japan	Motor   cycles	Piston engine   design and development	Cars,   Lownmowers, small generators
Gillette	USA	Shaving   products	Advertising   effectiveness	Other toiletries,   e.g. deodorants
Hanson	UK	Textiles	Financial   control; acquisition evaluation	Post-acquisition   cash maximization in low technology businesses
McDonald’   S	USA	Hamburger   restaurants	Site selection;   Quality standardization	Extension of   opening hours to include breakfast; product innovation (fish, pizza, salads)
Marks &   Spencer	UK	Clothes   retailing	Supplier   management; value-for- money branding	Diversification   into food, furniture, flowers
Sony	Japan	Transistor   radios	Production   innovation; evaluation of future customer desires	Broad consumer   electronics; TV cameras; computer components

Because they are generally knowledge based, capabilities that are company’s core competencies become more valuable as they are used over time. For example: Sharing knowledge, across people, jobs and organizational functions, may result in an increase in the value of that knowledge in ways that are competitively relevant.

Core competencies can also become core rigidities (or core in competencies).

Core competencies must be strategically relevant, which means that companies must continually strive to develop new competencies.