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.
