Chapter 4 Questions

Kimberly Carulli

BUSS 450: Strategic Management

Bryant & Stratton College

Dr. David Flannery

March 23, 2014

1).What are the primary implications of the material discussed in this chapter for strategy

formulation?

In this chapter there are several key implications for strategy formulation. First, it indicates the

critical role played by efficiency, quality, innovation, and customer responsiveness in building a

competitive advantage. A company should direct its strategies toward achieving excellence in

each of these areas. It should also do not just with functional-level strategies, but also with

business, global, and corporate strategies. In addition, the key role assigned to capabilities in

maintaining a competitive advantage suggests that barriers to imitation are higher and

competitive advantage is more durable when that advantage is based on organizational

capabilities. Companies should pay close attention to strategies that help build a high-

performance culture. A further implication concerns the durability of competitive advantage.

Ultimately, all competitive advantages can be imitated or become obsolete due to the changing in

environmental conditions. To be continually successful, companies need to continually improve

their efficiency, quality, innovation, and customer responsiveness, and they need to constantly

adapt to new situations.

2). When is a company’s competitive advantage most likely to endure over time?

Competitive advantage is a function of three main factors the height of barriers to imitation, the

capability of competitors, and the dynamism of the environment. Competitive advantage is more

durable when barriers to imitation are high, the company lacks capable competitors, and the

environment in which it is based is not very dynamic. One should also note that barriers to

imitation will be higher when a company’s distinctive competencies, and hence competitive

advantage, are based on capabilities as opposed to resources. Barriers to imitation will be lowest,

and competitive advantage most fleeting, when distinctive competencies are based on tangible
resources. Therefore, to maintain its advantage over the long run, a company must embrace the

concept of continuous improvement, constantly upgrading its efficiency, quality, and customer

responsiveness and constantly seeking innovations, in order to stay one step ahead of its

competitors.

3). It is possible for a company to be the lowest-cost producer in its industry and

simultaneously have an output that is the most valued by customers. Discuss this statement.

Yes, this is certainly possible, and it can happen as the result of features of the product itself, or

as a result of the low cost of the production process. For example, Swatch watches are made of

inexpensive plastic components, but command premium prices as compared to watches made of

more durable, traditional materials. Consumers are paying for features of the product other than

quality, including styling, fashion, and so on.

4). Why is it important to understand the drivers of profitability, as measured by the

return on invested capital?

Ultimately, the success or failure of a profit-making corporation will depend upon its ability to

provide adequate returns to shareholders. All other measures of success, such as motivated

employees, innovative products or satisfied customers, are secondary because they are not

absolutely vital to the firm’s survival, as profits are. When a company achieves profits and is

able to make adequate returns to shareholders in the form of dividends or enhanced share value,

the firm will continue to attract financing, enabling it to continue its operations. When returns are

inadequate for an extended period of time, funds will become unavailable, and the firm will be

forced out of business.

5). Which is more important in explaining the success and failure of companies:

strategizing or luck?

Both strategy and luck are undoubtedly important in explaining success and failure. However,

although luck may explain a company’s success in particular cases, it is an unconvincing

explanation for a company’s persistent success. Keep in mind also that competition is a process

in which companies are continually trying to outdo one another in their ability to achieve high

productivity, quality, innovation, and customer responsiveness. Given this, although one may

imagine a company getting lucky and coming into possession of resources that allow it to

achieve excellence in one or more of these dimensions, it is difficult to conceive how sustained

excellence in any of these four dimensions could be the product of anything other than conscious

effort, that is, of strategy.