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Question 7 (a) Explain the four specific criteria of sustainable competitive advantages that a company can use to determine the capabilities that are core competencies. (5 Marks) (b) Start-ups rarely aim for stability strategy. While agreeing with the statement or otherwise, support your point of view by briefly stating as to when the stability strategy is meaningful. State the major reasons for FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT considering stability strategy as one of the corporate strategies by a company. (5 Marks)

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(a) Four specific criteria of sustainable competitive advantage that firms can use to determine those capabilities that are core competencies. Capabilities that are valuable, rare, costly to imitate, and non- substitutable are core competencies. i. Valuable: Valuable capabilities are the ones that allow the firm to exploit opportunities or avert the threats in its external environment. A firm created value for customers by effectively using capabilities to exploit opportunities. Finance companies build a valuable competence in financial services. In addition, to make such competencies as financial services highly successful require placing the right people in the right jobs. Human capital is important in creating value for customers. ii. Rare: Core competencies are very rare capabilities and very few of the competitors possess this. Capabilities possessed by many rivals are unlikely to be sources of competitive advantage for any one of them. Competitive advantage results only when firms develop and exploit valuable capabilities that differ from those shared with competitors. iii. Costly to imitate: Costly to imitate means such capabilities that competing firms are unable to develop easily. iv. Non-substitutable: Capabilities that do not have strategic equivalents are called non-substitutable capabilities. This final criterion for a capability to be a source of competitive advantage is that there must be no strategically equivalent valuable resources that are themselves either not rare or imitable. (b) Agree with the given statement. Start-ups rarely aim for a stability strategy because they are in the early stages of ideation and development, where speed and agility are critical. Stability strategy is more relevant for businesses that have reached maturity, where maintaining current operations and market share becomes a priority. Start-ups, however, focus on rapid growth and market penetration, and stability is usually considered when a business has expanded to full capacity. A stability strategy is meaningful in the following scenarios: • When a firm continues serving the same markets with the same products and services. • Firms whose products are in the maturity stage of the product life cycle or who have a substantial market share may opt for stability to retain their position. • Stability helps consolidate gains after rapid expansion, optimize returns on committed resources, and enhance functional efficiencies. Major reasons for choosing a stability strategy include: • Maturity of products in the life cycle. • Comfort of staff with fewer changes and risks. • Stable external environment. • A need to consolidate after rapid growth or expansion. • Where it is not advisable to expand as it may be perceived as threatening.

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