Strategic Capabilities

Strategic CapabilitiesStrategic capability is the adequacy and suitability of the resources and competences of an organization for it to survive and prosper(Resource are tangible or intangible)Elements of Strategic CapabilitiesResources and competences: Perhaps the most basic concept is that of resources. Tangible resources: are the physical assets of an organization such as plant, labor and finance. intangible resources: are non-physical assets such as information, reputation and knowledgePhysical resources such as the number of machines, buildings or the production capacity of the organizationFinancial resources such as capital, cash, debtors and creditors, and suppliers of moneyHuman resources including the number and mix (e.g. demographic profile) of people in an organization.Intellectual capital is an important aspect of the intangible resources of an organization. This includes patents, brands, business systems and customer databases.2. Threshold capabilities: Threshold capabilities are those essential for the organization to be able to compete in a given marketIf an organization does not have threshold resources then it will be unable to meet customers minimum requirementsthreshold competences required to deploy resources so as to meet customers requirements and support particular strategies

Arising from these are other important issues:Threshold levels of capability will change and will usually rise over time as critical success factors change and through the activities of competitors and new entrants.

One of the challenges that firms face is the trade-offs that they may need to make in order to achieve a level of threshold capability required for different sorts of customers

It is important to recognize that the threshold level required is likely to involve complementary resources and competences3. Unique resources and core competencesUnique resources are those resources that critically underpin competitive advantage and that others cannot imitate or obtainCore competences are the activities and processes through which resources are deployed in such a way as to achieve competitive advantage in ways that others cannot imitate or obtain

COST EFFICIENCYThis will involve having both appropriate resources and the competences to manage costs

For many organizations in many markets this is becoming a threshold strategic capability for two reasons:because customers do not value product features at any price.competitive rivalry will continually require the driving down of costsCost efficiency is determined by a number of cost drivers

Supply locations, ownership of raw materials, PRODUCT DESIGN: labour productivity, working capital utilisation9The Experience curve

Implication of experience curve concepts that can influence competitive position First mover advantage can be importantSustained advantage through experience curve benefits are not highContinual reduction in costs is a necessity for organizationsIt may be possible to reduce cost by outsourcingCAPABILITIES FOR SUSTAINABLE COMPETITIVE ADVANTAGEValue of strategic capabilities: The importance of value to the customer may seem to be an obvious point to make but in practice it is often overlooked or ignored.

Having capabilities in terms of resources or competences that are different from other organizations is, of itself, not a basis of competitive advantage if that are valueless in customer termsRarity of strategic capabilities:Competitive advantage cannot be achieved if the strategic capability of an organization is the same as other organizations

Rarity may depend on who owns the competence and how easily transferable it is such as a doctor in leading-edge medicine

Secured preferred access to customers or suppliers

Some competences are situation dependent

Sometimes incumbent organizations have advantage because they have sunk costs (say in set-up) that are already written off and they are able to operate at significantly lower overall cost. Robustness of strategic capabilities:Robustness is sometimes referred to as non-imitability

The competences must lead to levels of performance that are significantly better than competitorsCriteria for the robustness of strategic capability

Non-substitutability: Achieving sustained competitive advantage also means avoiding the risk of substitutionHowever, the organization may still be at risk from substitution. Substitution could take different formsIn other words the product or service as a whole might be a victim of substitution.It could be at the competence level. E.g based on a charismatic leader and the way that individual has developed the management systems in the organizationDynamic capabilities: are an organization's abilities to develop and change competences to meet the needs of rapidly changing environmentsThese capabilities may be relatively formal such asNew product developmentStandardized procedures for agreement for capital expenditureMajor strategic moves, such as acquisitions or alliances by which new skills are learned by the organizationORGANISATIONAL KNOWLEDGEOrganizational knowledge is the collective and shared experience accumulated through systems, routines and activities of sharing across the organization.Organizational knowledge highlights the social and cultural aspects of strategic capability.Exchange of knowledge is more likely to occur in cultures of trust without hierarchical or functional boundariesKnowledge takes different forms:Explicit knowledgeTacit knowledgeArguably, the more formal and systematic the system of knowledge, the greater is the danger of imitationForexample, a driving instructor can drive a car through tacit knowledge, but toteach others requires explicit knowledge18DIAGNOSING STRATEGIC CAPABILITYThe value chain: The value chain describes the activities within and around an organization which together create aPrimary activities:For example, for a manufacturing business product or serviceInbound logisticsOperationsOutbound logisticsMarketing and salesServiceThe value networkThe value network is the set of inter-organizational links and relationships that are necessary to create a product or serviceSome of the key questions they need to address are these:Where cost and value are createdWhich activities are centrally importantWhere the profit pools areThe make or buy decisionWho might be the best partnersActivity Map

BenchmarkingAn organization's strategic capability has to be assessed in relative terms since it concerns the ability to meet and beat the performance of competitorsHistorical benchmarking.Industry/sector benchmarking.Best-in-class benchmarking.MANAGING STRATEGIC CAPABILITYThe limitations of managing strategic capabilitiesCompetences are valued but not understood.Competences are not valued.Competences are recognized, valued and understood.over-formalising or codifying them such that theybecome set in stone232. Stretching and adding capabilitiesExtending best practices.Adding and changing activities.Stretching competences.Building on apparent weaknesses.Ceasing activities.Trade-offsExternal capability development.3. Managing people for capability developmentTargeted training and development may be possibleHR policies might be employed to develop particular competencesTo develop peoples awarenessBuilding dynamic capabilitiesthe recognition of the significance of the intuition of people in the organizationthe acceptance that different, even conflicting ideas and views are to be welcomedexperimentation is the norm and becomes part of the learning process