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01Summary of Chapter

20. 0Distinctive competencies are the firm-specific strengths of a company. Valuable distinctive competencies enable a company to earn a profit rate that is above the industry average. 30. 0The distinctive competencies of an organization arise from its resources (its financial physical human technological and organizational assets! and capabilities (its s"ills at coordinating resources and putting them to productive use!. #0. 0$n order to achieve a competitive advantage a company needs to pursue strategies that build on its e%isting resources and capabilities and formulate strategies that build additional resources and capabilities (develop ne& competencies!. '0. 0The source of a competitive advantage is superior value creation. (0. 0To create superior value a company must lo&er its costs or differentiate its product so that it creates more value and can charge a higher price or do both simultaneously. )0. 0*anagers must understand ho& value creation and pricing decisions affect demand and ho& costs change &ith increases in volume. They must have a good grasp of the demand conditions in the company+s mar"et and the cost structure of the company at different levels of output if they are to ma"e decisions that ma%imize the profitability of their enterprise. ,0. 0The four building bloc"s of competitive advantage are efficiency -uality innovation and responsiveness to customers. These are generic distinctive competencies. .uperior efficiency enables a company to lo&er its costs/ superior -uality allo&s it to charge a higher price and lo&er its costs/ and superior customer service lets it charge a higher price. .uperior innovation can lead to higher prices particularly in the case of product innovations or lo&er unit costs particularly in the case of process innovations.

Three factors seem to contribute to failure3 organizational inertia in the face of environmental change the nature of a company+s prior strategic commitments and the $carus parado%. 0$f a company+s managers are to perform a good internal analysis they need to be able to analyze the financial performance of their company identifying ho& the strategies of the company relate to its profitability as measured by the return on invested capital. . 110. 02ailing companies typically earn lo& or negative profits. 04voiding failure re-uires a constant focus on the basic building bloc"s of competitive advantage continuous improvement identification and adoption of best industrial practice and victory over inertia. 100.00. 120. 0The durability of a company+s competitive advantage depends on the height of barriers to imitation the capability of competitors and environmental dynamism.