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

Sundaram Electronics outsources its logistics, which it considers a non-core activity, and concentrates its investment on design, where it leads the market. In its internal analysis, which capability classification is applied to design, and how does it differ from logistics?

Design is a distinctive capability because it lets the firm outperform rivals and sustain advantage, while logistics is a threshold capability, merely the minimum required to compete in the market. Threshold capabilities do not differentiate a firm, which is why outsourcing them is reasonable.

  1. ADesign is a distinctive capability giving competitive advantage; logistics is only a threshold capability needed to competeCorrect
  2. BDesign is a threshold capability; logistics is a distinctive capability
  3. CBoth are threshold capabilities with no effect on advantage
  4. DBoth are distinctive capabilities that rivals can freely copy

Explanation

Threshold capabilities are the minimum needed to stay in the market, while distinctive (unique) capabilities let a firm outperform rivals and sustain advantage. Design is where the firm leads, so it is distinctive. Logistics, being outsourced and non-core, is merely threshold. Reversing them contradicts the scenario.

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