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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment

Ravi Auto Components applies the four tests for a core competence to its precision casting skill. Which finding would show the skill FAILS the 'nonsubstitutable' test?

The skill fails the nonsubstitutable test when rivals can reach the same customer outcome using a different, cheaper method such as 3D printing. A capability is nonsubstitutable only if no strategically equivalent alternative exists. The other findings show inimitability, breadth of use and customer value instead.

  1. ARivals cannot easily copy the skill because it grew from years of shop-floor learning
  2. BThe skill is used in several of the firm's product lines
  3. CCustomers value the castings and pay a premium for them
  4. DRivals can obtain equal results using a cheaper 3D-printing method that serves the same customer needCorrect

Explanation

Nonsubstitutable means no strategically equivalent resource or capability can achieve the same result. If rivals get equal results using 3D printing, substitution is possible and the test fails. The other options relate to inimitability, extendability and value, which are passed.

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