If capabilities satisfy this four criteria, they can be considered core competencies.

• A. Valuable; Rare; Costly to imitate; Nonsubstitutable
• B. Valuable; Common; Easy to imitate; Nonsubstitutable
• C. Rare; Valuable; Readily substitutable; Costly to imitate
• D. Valuable; Rare; Readily adaptable; Nonessential

Answer: (A)

Capabilities become core when they meet four tests: they are valuable, rare, costly to imitate, and nonsubstitutable. Valuableness means the capability creates real value for customers or the firm, improving offerings or efficiency. Rarity indicates not many rivals possess it, so it distinguishes the company. If competitors can copy it cheaply, the advantage erodes quickly, so the ability to imitate must be costly—in terms of time, money, or organizational barriers. Finally, nonsubstitutability means there aren’t readily available substitutes that deliver the same benefit, so the advantage isn’t easily bypassed by changing to a different approach. The option that lists these four characteristics—valuable, rare, costly to imitate, and nonsubstitutable—best captures what makes a capability a true core competency. Choices that include common, easy to imitate, readily substitutable, or nonessential attributes would not sustain a lasting competitive edge.