CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment
Mehra Pharma has a strong R&D lab, but its 5 plants run at only 55% capacity, distribution partners complain of late deliveries, and employee attrition is high. Management says it must first diagnose which internal capabilities are truly distinctive before choosing a strategy. Which approach best fits that diagnosis?
Test R&D against the tests of value, rarity, inimitability and non-substitutability before calling it a core competence, and treat low utilisation, late deliveries and attrition as gaps to fix. Internal analysis must separate distinctive strengths from weaknesses rather than treat every area alike.
- ATreat R&D as a core competence only if it also meets the tests of being valuable, rare, hard to imitate and non-substitutable, and treat the other weak areas as capability gaps to correctCorrect
- BTreat all areas equally as strengths because the firm has invested in each
- CTreat the underutilised plants as the core competence because they offer scale
- DDrop the internal review and rely on the industry's external opportunities
Explanation
Core competences are identified by testing capabilities against criteria such as value, rarity, inimitability and non-substitutability. Strong R&D may qualify, while low utilisation, late deliveries and attrition are weaknesses. Treating all areas alike or ignoring internal analysis fails to separate competences from gaps.
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