Question

Identify and explain at least four risks associated with relying too heavily on any one source of competitive advantage. Provide an example of a company that has suffered significant losses or even failed as a result of over-reliance on a single source of competitive advantage. In your analysis, be sure to discuss the specific factors that contributed to the company's downfall, and suggest what steps the company could have taken to avoid or mitigate these risks.

Answer 1

Reliance on a single source of competitive advantage can lead to vulnerability, loss of market share, and failure to innovate. For instance, Blockbuster heavily depended on physical rentals and failed to adapt to digital trends, leading to its decline. Diversification and technological investment might have prevented this.

Step-by-step explanation:

Risks of Over-Reliance on a Single Source of Competitive Advantage

Relying too heavily on one source of competitive advantage can leave a company vulnerable in several ways:

• Market dynamics might shift, rendering the competitive advantage less effective.
• Competitors may imitate or outmaneuver the firm's advantage, leading to a loss of market share.
• The company might become complacent, failing to innovate or diversify its strategy.
• Regulatory changes could undermine the competitive advantage.

An example of a company facing such a setback is Blockbuster. Blockbuster's substantial reliance on physical rental stores became a liability with the rise of digital streaming services like Netflix. The contributing factors to its downfall included the company's slow adaptation to technological changes and failure to recognize the shift in consumer preferences towards on-demand digital content. Proactively investing in digital platforms and diversifying its business model could have mitigated Blockbuster’s risks.