Distinctive capabilities continue to add value only if both the capability, and the distinctiveness, are sustainable. In this chapter I draw on case studies and statistical evidence to show that many companies are indeed successful in building sustainable competitive advantages from their distinctive capabilities. Of the primary distinctive capabilities, reputation is generally the easiest to sustain, innovation the most difficult, but each poses its own particular problems. Strategic assets can often be defended over very lengthy periods, but may be suddenly at risk when there are changes in regulation or market conditions. For a firm with strategic assets, skills in handling public policy may be as important as those of business management.
In the second part of the chapter I use the test of sustainability to explain why some factors which are often cited as sources of competitive advantage rarely yield substantial added value in the long run. I look at the role of scale, of market share, of business portfolio diversification, and of market positioning in achieving corporate success. Sometimes size or scale are themselves the product of distinctive capabilities. Sometimes diversification or positioning is the reflection of a distinctive capability. But if these factors are not based on distinctive capabilities, then competitive advantages derived from them rarely persist in the face of entry by firms which do enjoy true distinctive capabilities based on architecture, reputation, or innovation.
BMW, Honda, and Glaxo built effective strategies in support of their competitive advantages. BMW has added a powerful additional source of competitive advantage in branding and reputation to its initial distinctive capability. In the last few years, it has become possible for Japanese companies to attempt to match the BMW architecture. They have an equivalent network of suppliers, and a production-line labour force of comparable quality. At the same time the growth of sophisticated production control systems has reduced the number of workers required, and the complexity of relationships