A. Although some successful companies adopt strategies that involve low risk, a company that does not take risks will not be very innovative. Superior innovation is one of the four factors derived from a company's distinctive competencies that create competitive advantage. (The four factors are superior efficiency, superior quality, superior innovation, and superior customer responsiveness.)Innovation in products and processes is perhaps the most important component of competitive advantage. Competition is driven by innovations. Product innovations give the innovator something that is unique, and this uniqueness provides differentiation which in turn allows the company to charge a premium price for its product. Process innovation can reduce unit costs below those of the competition.

B. The company in a leadership position has developed and pursued strategies that succeed in its own marketplace and that build competitive advantage. The strategies that a company pursues can build new resources and capabilities or strengthen existing ones and thus can enhance the company’s distinctive competencies. At the same time, distinctive competencies shape the strategies that a company uses, and those strategies in turn lead to a competitive advantage and superior profitability.

So the relationship between a company’s distinctive competencies and its strategies is a circular one. Strategies help build and create distinctive competencies, and distinctive competencies in turn shape strategies.

There are typically five steps in the strategic planning process:

1. Defining the company’s mission and addressing the key corporate goals;

2. Analyzing the organization’s external competitive environment in order to identify the opportunities and threats;

3. Analyzing the internal operating environment to identify the strengths and weaknesses of the organization;

4. Formulating and selecting strategies that, consistent with the organization’s mission and goals, will optimize the organization’s strengths and correct its weaknesses for the purpose of taking advantage of external opportunities while countering external threats (SWOT analysis); and

5. Developing and implementing the chosen strategies.

C. Success does not rest on becoming a multi-divisional organization.

D. Success does not rest on adopting a formal strategic planning process with many steps (there are typically five steps in the process).