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Strategy, Investment and New Services Development Path in Retail Industry by using Dynamic Capabilities in the Aspects of

Path Dependency and Real Options: The Case of KOCTAS

Özcan Çavuşoğlu, cavusogluo@itu.edu.tr

Istanbul Technical University, Faculty of Management, Department of Industrial Engineering

Maçka, 34367, Istanbul, Turkey

Abstract

In this paper first of all detailed literature review has been done. For this purpose

first of all capability and core competencies are defined by other writers. Then dynamic capabilities and path dependency concept are defined relation between these concepts are stated. Then real options are defined and relation between dynamic capability-real options and real options-path dependency are stated. Then new definition about these concept and terminologies are defined. After that a new framework is proposed to define relationship between core competencies, capabilities, dynamic capabilities, path dependency, and real options. Finally, to better understand framework, a case study is examined in the leader home improvement retailing company called KOCTAS. Findings, results and further implications for researcher and manager are stated.

Key words: Strategy Development, Investment Development, New Service Development, Dynamic Capabilities, Path Dependency, Real Options, Retail, Home Improvement. 1. Introduction

The main of this paper is stated relationship between core competencies, capabilities, dynamic capabilities, path dependency, and real options. For this purpose detailed literature review is stated. Then a new framework is designed. This new framework is examined in case study of KOCTAS. Finally, results and further implications for researcher and manager are stated. 2. Literature Review

Literature review is continued by basic definitions and terminologies.

2.1. Core Competencies and Capabilities

A core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

1. It is not easy for competitors to imitate. 2. It can be leveraged widely to many products and markets.

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3. It must contribute to the end consumer's experienced benefits [27].

Firms are constantly seeking to create new combinations of the product, process, organization and technology, and rivals are continuously attempting to improve their competencies or to imitate the competencies of their most qualified competitors' [20].

The concept of ‘core competence’ is a powerful one for businesses’ strategic development and competitive advantages. It drives restructurings, divestitures, mergers and strategic partnerships to produce new levels of profitability and shareholder value [28].

The competencies of the company were developed through the process of acquiring and deploying resources in a dynamic way to seek for entrepreneurial rents [20].

By understanding the effect of core competencies and capabilities, dynamic capabilities must examine carefully.

2.2. Dynamic Capability

A dynamic capability is the firm’s potential to systematically solve problems,

formed by its propensity to sense opportunities and threats, to make timely and market-oriented decisions, and to change its resource base [29]. This is the most recent and complete definition, integrating most of the past scattered research on the topic. To explaining more deeply and to understanding the other meaning of this concept, what the others saying about dynamic capability is carefully examined.

According to Eisenhardt and Martin, 2000, the firm’s ‘processes to integrate, reconfigure, gain and release resources—to match and even create market change.’ manipulate resources may be very hard to replicate [17].

Also Teece et al., 1997, states that, this allows the firm to generate rent by achieving new forms of competitive advantage [18].

By adding Milgrom and Roberts, rent, in turn, is a return received ‘in excess of the minimum needed to attract resources’ [19].

Dynamic capabilities have another important theoretical implication, reinforcing the recognition that firm-specific methods of coordinating resources may result in the heterogeneous behavior of firms in the same industry [20].

How firms strategically respond to institutional changes is a function of the resource sets possessed by firms and their capacities to “purposefully create, extend, or modify their resource bases”. These capacities for changing resource bases of firms are labeled as dynamic capabilities [21].

According to the dynamic capability view of the firm, the company consists of human, physical and financial resources and its knowledge base, which, in turn, consists of already existing and routinely exploited, i.e. static and not yet fully developed or exploited dynamic capabilities, which both can be produced either internally by the firm itself or externally through the open market or networks [22].

David J. Teece, 2007, defines a framework that explains foundations of dynamic capabilities and business performance in Figure-1.

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Figure-1. Foundations of dynamic capabilities and business performance [23]

On the other hand, Violina and others, 2001, state a model which defines

relationship between continuous improvement and competitive advantage by using dynamic capability and strategic flexibility in Figure-2.

Figure-2. Dynamic Capability and Competitive Advantage Model [24]

2.2.1. Core Competencies / Capabilities and Dynamic Capabilities Relationship

Relation between core competencies/capabilities and dynamic capabilities

states by Teece et al., 1997, as, dynamic capabilities consist of ‘‘the firm’s ability to

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integrate, build and reconfigure internal and external competencies/capabilities to address rapidly changing environments [18].

On the another hand, Blomqvist and Kylaheiko, 2000, define a framework which defines relationship between resources, capabilities, core capabilities, dynamic capabilities and other factors see an Figure-3.

Figure-3. DCV (dynamic capability view) of the firm [26]

2.3. Path Dependency

Sydow and other (2009) define path dependency in 3 states as shown in Figure-

4. Phase I called as Preformation Phase can be characterized as an open situation with no significantly restricted scope of action. Phase II called as Formation Phase is characterized by the gradual emergence of an organizational path. The transition from Phase II to Phase III called as Lock-in Phase is characterized by a further restriction of the scope [16].

Figure-4. The constitution of a path [16]

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On the other hand, Jaeho and Jim, 2007, stated that, the notion of ‘path

dependency’ explicitly allows for firms to have developed different capabilities through the unique histories and strategic trajectories [20].

Omar R. Malik, 2008, explains that, existing path dependencies both in terms of physical investments and managerial cognitive schemas constrain and shape the potential for organizational transformation. Knowledge creating capabilities are rooted in the historical technological and human resources choices of these firms and are strongly path dependent [21].

Kylaheiko and others, 2002, stated the most distinctive features that constitute the competitive advantage of the firm can now be identified. They are (i) the continuously changing knowledge base, (ii) resources, and (iii) learning-induced replication processes, which together generate a path-dependent firm trajectory [22].

2.3.1. Dynamic Capabilities and Path Dependency Relationship

Jaeho Lee, Jim Slater, 2007, states that, rather, RBV (Resourced Based View) posits that a firm with appropriate resources and capabilities may sustain competitive advantage through FDI, but, though achieving this may be path dependent, there is no prescribed path [20].

Also Omar R. Malik, 2008, presence of appropriate dynamic capabilities allows firms to compensate for path dependencies and implement organizational change in effective ways [21].

By adding that, Jaeho Lee, Jim Slater, 2007, explain that, dynamic competitiveness and locational strategy of the firms in those countries, and in particular, the path-dependency of their upgrading of core competencies [20].

Jean-Philippe Vergne and Rodolphe Durand, 2010, detailed explained that, path dependence can be a property of capabilities when a contingently-triggered capability path is subject to self-reinforcement (i.e., a set of positive and negative mechanisms that increases the attractiveness of a path relative to others). It conceives of path dependence as a property that can (but need not) characterize dynamic capabilities [25].

2.4. Real Options

K. Kylaheiko, J. Sandstrom, V. Virkkunen, 2002, defines real options as, the real options perspective has the potential of helping dynamize existing theories of the firm.

Also adding some beneficial information such as, the implicit managerial and operating flexibilities that are embedded in many non-financial assets and liabilities are known as real options. They represent management’s ability to delay an irreversible decision until after some uncertainty has been resolved [22].

2.4.1. Path Dependency and Real Options Relationship

Kylaheiko and others, 2002, stated that, many path-dependencies typical for

human behavior in general (remember our story about the emergence of routines

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and capabilities) and technological development in particular also automatically reduce the amount of alternative options. [22].

On the other hand, Omar 2008, make a research about LDC (Low Developed Country) firm's evolutionary fitness and stated a model which explain a dynamic capabilities-based model of LDC firm's evolutionary fitness shown as Figure-5.

Figure-5. A dynamic capabilities-based model of LDC firm's evolutionary fitness [21]

According to the these model;

• LDC firms with strong core and complementary capabilities should choose scale and scope building strategies, and build an acquisition dynamic capability to enhance evolutionary fitness.

• Alliances with MNEs are recommended strategies for LDC firms with weak core and strong complementary capabilities, along with structuring alliances in ways that create relational rents, and building a relational dynamic capability.

• LDC firms with weak core and complementary capabilities will display a propensity to deploy political strategies, which combined with a political dynamic capability, will reduce the negative impact of these weak capabilities on evolutionary fitness [21].

3. Methodology

In this article KOCTAS is focused. We believe that the case study methodology is best suited to investigating the uniqueness of strategy, investment and service development dynamics capabilities.

A case study can be employed when it rises the question of what specially can be learned about even the single case [30] and, conventionally used, the case

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methodology can shed light on understanding the development process that KOCTAS has experienced in terms of its pertinence to Resourced Based View theories and the strategy, investment and service development phases.

While it is likely that quantitative methodology would yield ambiguous empirical results about KOCTAS's emergence and performance, it was expected that the case study would provide a more in-depth and clear analysis of the factors which led to success in terms of Dynamic Capabilities accounts of strategy and competitive business environment.

In methodology, first of all main terminologies which are discussed in Literature Review, are defined. Then according to the definitions, a new framework is defined for KOCTAS business model.

- Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies.

- Capability is the sum of expertise, capacity and all core competencies of firm.

- Dynamic Capabilities are firms’ current and unexplored abilities, capabilities and competencies which are using to get advantages in all kind of environments. Consist of 3 sub capabilities, such as;

Strategy Development Capability is ability to create newest, effective and sustainable advantages in rapidly changed environments.

Investment Development Capability is ability to having investment and entrepreneurship capability in risky times.

New Service Development Capability is ability to create and serve new, innovative, customer based and profitable services based on strategies.

- Path Dependency is set of decisions and milestones which are allow for companies develop new capabilities based on firm history, strategy and current situation.

- Real Options are set of decisions and/or alternatives about firms, which are chosen or will be chosen.

According to the new definitions, a new framework is proposed shown as

Figure-6. When framework is analyzed, these main results can be stated. 1. Firm’s current core competencies and capabilities depend on firm’s current

situation, historical decisions and main strategic which are given before. Thus, path dependency and capabilities have positive relation.

2. If firm choses path dependent way of alternative, real options for firm is decrease. Thus, path dependency and real options have negative relation.

3. On the other hand, firm has some real options, and if number of real options is increasing, firms capabilities are increasing or vice versa.

4. In another side, some firms have Dynamic Capabilities, which consist of 3 sub capabilities, such as Strategy Development Capability, Investment

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Development Capability and New Service Development Capability. If firms can use and develop its Strategy Development Capability, it will positively affect both of Investment Development Capability and New Service Development Capability. To sum up, firms Dynamic Capability power will be increasing.

5. If Dynamic Capability of firm increases, these situation will affect the others component in a different way, such as;

a. Dynamic Capability will affect positively firm’s capability. Thus, Dynamic Capability and capabilities have positive relation.

b. Dynamic Capability will decrease the probability of choosing path dependent alternatives or strategies. Thus, Dynamic Capability and path dependency have negative relation. Also because of negative relationship between path dependency and real options, strategic alternatives and/or options will be increased for firms.

c. Dynamic Capability will affect positively firm’s real options. Thus, Dynamic Capability and real options have positive relation. Also because of increasing alternatives of firm, this will affect positively firms capability positively, and firms capabilities will increase.

Figure-6. Proposed Dynamic Capability Using and Development Framework

Capabilities

Firm Capabilities

Real

Options Path

Dependency

+

+

-

-

+

+

Strategy Development

Capability

New Service

Development

Capability

Investment

Development

Capability

Dynamic Capabilities

+ +

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To sum up, firms capabilities and strategic options are dependent not only current situation but also chosen ways for future. Thus, using and creating dynamic capabilities are become important issue for companies.

4. Implementation

4.1 Overview of KOCTAS

KOCTAS has founded by Vehbi Koç in 1955. Actually, KOCTAS was one of the first companies of Koç Holding, with a history dating back to the 1930s as a wholesaler of construction materials [1].

The company entered the retail sector in 1995, opening its first store in 1996 in İzmir Bornova. This was followed by stores in Antalya, İzmir Balçova, and Bodrum. In 2000, a joint venture contract was signed with Kingfisher Group - B&Q which is the market leader in Europe in the home improvement sector [2].

Store openings continued, and KOCTAS now operates stores in Istanbul Kartal, Şişli, Yenibosna, Eyüp and Optimum Mall, in Ankara Ankamall and Çankaya 365 Mall, İzmir Bornova, Balçova and Mavişehir, as well as in Antalya, Alanya, Edremit, Kuşadası, Bodrum, İzmit, Bursa Korupark Mall, Forum Mersin Mall, Eskişehir, Forum Trabzon Mall and Konya KOCTAS stores offer many domestic and foreign brands to consumers, with affordable prices and easy payment options through its strong supply chain and international buying power. Total sales area of the 21 KOCTAS stores is almost 112,600 square meters.

With the advantages of geographical prevalence, its wide range of high quality products, brand recognition, confidence of being a company in the Koç Group, and international supply synergy with its partner, KOCTAS has repositioned itself as a “home improvement retailer” rather than a “DIY brand” and provides consumers with “one stop shopping”. KOCTAS distinguishes itself from its competitors by introducing new global trends and ideas through its partner, adapting them as appropriate to the Turkish market based upon its great experience within the sector.

In KOCTAS stores, ten thousands of products are sold; from decorative products to furniture, home textile products, kitchen items, bathroom fixtures, ceramics, garden furniture, lighting products, room sets, ready-made curtains, carpets, paint and flooring.

Consumers who would like to beautify their homes and desire to improve their standards of living can receive turn-key home remodeling service from KOCTAS. After conducting an evaluation to establish a mutually acceptable scope of work, KOCTAS prepares a detailed project plan and budget for the customer. Friendly, expert KOCTAS employees support the customer throughout the decision-making process regarding home decoration, and answer all their questions regarding the recommended products and services. KOCTAS, believing that each house has its own characteristic story, closely monitors global trends and determines all the basic details for redecorating a home according to the needs and tastes of its customers.

KOCTAS who initiated an order by phone/internet service with their new system named “Call us/ Just click to our web site, Let Us Deliver!” delivers products to all provinces and districts in Turkey. Products can be ordered through 0216/0212 444 0 884 (the KOCTAS Customer Line) or the KOCTAS web site (www.koctas.com.tr).

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In today, repositioning itself as a ”home improvement and home refurbishing” provider in the industry, KOCTAS stands at the top of sector with the total sales area of over 170.000 m2 in 31 stores, in 19 cities, while offering products to fit customer choices from 1.794 domestic and foreign suppliers [2].

4.2 Strategic Changes and Strategy Development Phase

Between 1955-1996, KOCTAS was one of the best players who worked as construction and building material wholesale dealer. At the beginning of 1995, the company has decided to enter the retail sector, because of the market suitability and customer needs. In 1996, first store opened in Bornova / İzmir as retail concept. This is the first strategic changes for KOCTAS.

After this strategic change, in 1998, 3 new stores have opened. Antalya store opened in Antalya, Balçova store opened in İzmir, Bodrum store opened in Muğla.

Second and the most important strategic revolution for KOCTAS, was occurred in 2000. Joint Venture agreement with KOÇ Group and Kingfisher Group has been made. B&Q (Kingfisher Group’s firm) (%50) and KOÇ Group (%50) have signed a new contract to making only “home improvement business” as KOCTAS brand. To understand why this joint venture is so important, we must look at Kingfisher and B&Q.

Kingfisher is Europe's leading home improvement retail group and the third largest in the world, with leading market positions in the UK, France, Poland, Turkey and China. Kingfisher operates over 800 stores in eight countries in Europe and Asia. Its main retail brands are B&Q, Castorama, Brico Dépôt and Screwfix. Kingfisher also has a 21% interest in, and strategic alliance with Hornbach, Germany's leading DIY (Do it yourself!) warehouse retailer, with over 120 stores across Europe [3].

B&Q is the UK's leading DIY and garden center retailer, offering over 45,000 inspirational home improvement and garden products for the homemaker, occasional to serious DIY'er, and trade professionals. B&Q is the number one DIY retailer in Europe and the third largest in the world, with more than 60 stores opened internationally, including B&Q Beijing, which is now the largest B&Q store in the world. B&Q is the biggest home improvement retailer in the UK, with 14.8% of the repair, maintenance and improvement market share (includes DIY and builders merchant sales) [4].

After the Joint Venture, first large format store in Kartal / İstanbul on 10.000 m2, opened in 2001.

KOCTAS has redefined its strategic frameworks such as Vision/ Mission/ Values as shown in Figure-1.

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Figure-1. Vision, Mission, Purpose and Values of KOCTAS [1]

Second store in İstanbul opened in Cevahir Shopping Center in Şişli and has been brought new ground in home improvement retail sector in 2005. Further years, until 2010, 18 new stores opened.

In 2010, Kingfisher and its group companies have prepared a new strategic plan as shown in Figure-2.

•To be the leading company in home improvement retailing at international standards in Turkey and neighborhood countries.

Vision

•To help our customers to improve their homes and living conditions by providing them wide range of products, affordable prices, suitable payment methods and expert service; in this manner to make the home improvement retailing sector grow.

Mission

•To provide opinions and solutions for people to help them improve their homes and their lifestyles.

Basic Purpose

•To Focus On The Customer

•Work towards what is best and right for the customer

•Simplicity

•Sincerity

•Consistency

•To Create Values•Effectiveness and Efficiency •Honesty-Reliability •Respect for People and Environment

•To Succeed Together •Team Spirit •Frankness and Openness •Creativity •Continuous Improvement

Basic Values

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Figure-2. Kingfisher Group New Strategic Plan [5]

According to this plan, KOCTAS has taken some corrective actions.

Due to group financial objectives is to have the best sales densities and consistent double digit profit growth, KOCTAS has changed its products range, type, and quantity. For example, KOCTAS has stopped to selling white goods, TV, telephones. At the end of the 2011, KOCTAS is planning fully come out these range products.

Also KOCTAS has increased the quantity and sales ratio of import products which are profitable, in its product range. Finally, for getting two digits profit growth, number of SKU (stock keeping unit) has increased and has focused more profitable products.

•Our purpose in life is to help people create homes they feel good about

•Our ambition- The leading local home improvement retailer, for our customers, teams, communities and shareholders.

•Our financial objectives is to have the best sales densities and consistent double digit profit growth.

•A growth strategy based on one core business model, LFL sales growth and new store expansion.

•We lead in makng it easier for customers, in innovation and in sustainability.

Main Plan

•One core business model- 80%common proposition, 20% local flexibility.

•Destination home improvement

•Multi-specialist across 4 core categories- building/technical, showroom, decor and seasonal.

•Value led, sales in volume

•Two store formats-Big Box & Brico

Defining core

proposition

•Promote our homemade talent

•Fundementally self-service

•Multi-channel development

•Only profitable services

•Data driven

Principles for growth

•Grow space in all existing markets

•New geographical acqusition based on 3 criteria- ability to lead, supporting our financial objective and avaible homemade talent.

•3 potential futher opportunties for growth:

•1.Take Brico model to new markets

•2.Develope a Franchise model

•3.Develope a single European online business model

Expansion

•Positive intent

•Protect each others reputations at all times

•Real conversations

•Diversity

•Improve each market together

•Financial freedom

Group Executive

Values

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4.3 Investment Strategy and Investment Development Phase

As we mention, first store opened in Bornova / İzmir on 3.800 m2 in 1999, after

entered into home improvement retailing business in 1995. Three years later, in 1998, Antalya store opened in Antalya on 2.700 m2. In same year, Balçova store opened in İzmir on 5.000 m2 and Bodrum store opened in Muğla on 5.000 m2. These tree stores was the change to see how home improvement retailing business is going on.

Two years later, Joint Venture agreement with KOÇ Group and Kingfisher Group has been made. B&Q (Kingfisher Group’s firm) (%50) and KOÇ Group (%50) have signed a new contract to making only “home improvement business” as KOCTAS brand. By following these Joint Venture agreement, first large format store in Kartal / İstanbul on 10.000 m2 opened.

After this period, not only effect of Joint Venture Agreement, but also rivals aggressive store opening strategy, such as IKEA and Bauhaus as global competitor, also Tekzen as local competitor, KOCTAS has changed its store opening strategy.

According to the new strategy, some crucial criteria’s were determined, such as GDP, Urban population, etc. for choosing city where stores will be opened. For example, if GDP is over 30 bn. and urban population is over 2.500 K, these types of cities, such as Istanbul, Ankara and Izmir, defined as Top 3 Cities. If GDP is over 5 bn. and urban population is over 400 K, these types of cities, such as Kocaeli, Bursa, Eskisehir, etc. defined as Big Cities. If GDP is between 3-5 bn. and urban population is over 400 K, these types of cities, such as Manisa, Samsun, Malatya etc. defined as Medium Cities. If GDP is over 1 bn. and urban population is over 200 K, these types of cities, such as Edirne, Çanakkale, Balikesir etc. defined as Small Cities. The other cities, which are out of ranges, are defined as Unsuitable Cities for investment.

Based on this new investment strategy, for Top 3 Cities, at least 3 stores can be opened. For Big Cities, at least 2 stores can be opened. For Medium Cities, at least 1 store can be opened. For Small Cities, if conditions are available, 1 store can be opened in the future. For Unsuitable Cities, investment is not an option, but if further conditions change, investment option can be revised.

When we look the implementation of this strategy, we can clearly see the parallel actions with strategy. Second store in İstanbul opened in Cevahir Shopping Center in Şişli and has been brought new ground in home improvement retail sector in 2005 on 6.700 m2. Same year Edremit store opened in Balıkesir. In 2007, Kuşadası store opened in Aydın on 2.300 m2, the largest KOCTAS store opened in Ankara on 11.000 m2 and third store in Yenibosna / İstanbul opened on 10.000 m2.

In 2007, store openings have gone on. İzmit store opened in Kocaeli on 6.500 m2, Bursa store opened in Bursa on 3.700 m2, Eskişehir store opened in Eskişehir on 4.000 m2 and second store in Antalya opened in Alanya on 6.500 m2. Also in this period, Balçova store in İzmir has moved to its new place on 6.000 m2.

2008 was one of the best years for KOCTAS. Second store in Ankara opened in Çankaya on 4.000 m2, Trabzon store opened in Trabzon on 4.000 m2, third store in İzmir opened in Çiğli on 5.400 m2, Konya store opened in Konya on 5.800 m2, and forth store in İstanbul opened in Yenisahra on 4.700 m2.

In 2009, 5 new stores opened. 5th store in Istanbul opened in Beylikdüzü on 7.500 m2, 3rd store in Antalya opened in Dokuma on 6.500 m2, Kayseri store opened

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in Kayseri on 4.800 m2, Malatya store opened in Malatya on 3.800 m2, and Denizli store opened in Denizli on 4.200 m2.

Also in 2010, store opening strategy has been implemented continuous. In this period, Bodrum store has moved to its new place on 5.000 m2, Afyon store opened in Afyon on 4.300 m2, Adapazarı store opened in Sakarya on 4.000 m2, Gebze store opened in Kocaeli on 6.400 m2 and second store called Bursa-2 store opened in Bursa on 8.100 m2.

Finally, in 2011, Adana store opened in Adana and total indoor area in 31 stores of KOCTAS is almost 170.000 square meters as shown in Figure-3.

Figure-3. KOCTAS and Competitor’s Store Distribution in Turkey (end of 2010)

4.4 Innovation and New Service Development Phase

Koçtaş was one of the first companies of Koç Holding, with a history dating back to the 1930s as a wholesaler of construction materials. In earlier stages, KOCTAS has gave services as construction and building material wholesale dealer, and gave service to big construction companies and retail dealers. KOCTAS main customer were many KOC Group company, such as Migros, TAT, etc. also the other out of KOC Group firms. By using its purchasing power and supply chain ability, KOCTAS had continued this business model until 1995.

The company entered the retail sector in 1995, opening its first store in 1996 in İzmir Bornova. In this period, KOCTAS has enlarged its selling products quantity and increased number of department. In KOCTAS stores, five thousands of products are sold; from decorative products to furniture, home textile products, kitchen items,

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bathroom fixtures, ceramics, garden furniture, lighting products, room sets, ready-made curtains, carpets, paint and flooring.

On the other hand, KOCTAS has introduced two new services in 1996. Firstly, Transportation Service has started. In Izmir, this service has begun, and has offered to customers. Transportation service was increased the quantity of selling products.

Another innovative service was Special Sales Service. This service was used some special products and departments such as doors, cabinets, kitchen cabinets, bath cabinets, shower bath etc. In this service, customers chose a product, and then producer firm goes to customer address to take the measurements where to product will be implemented, and finally after constant time, for example 20-30 days, products are installed. By launching this service, KOCTAS stock area was decreasing and selling area was increasing. Also customer were satisfied, the service quality and deadline. This was followed by stores in Antalya, İzmir Balçova, and Bodrum. In the new stores and in the new places, customers have taken an interest in these two services.

By 2000 year was one of the turning points for KOCTAS. This year, a joint venture contract was signed with Kingfisher Group - B&Q which is the market leader in Europe in the home improvement sector. B&Q (Kingfisher Group’s firm) (%50) and KOÇ Group (%50) have signed a new contract to making only “home improvement business” as KOCTAS brand. Because of this agreement, many new innovative and DIY (Do it yourself!) concept services has launched. In 2011, Transportation Service has fallowed in cash out system and has become reportable. Cities where KOCTAS stores were, has divided 3 main regions and for each region constant Transportation prices have set up. Also by campaign, such as if total basket reaches 500 TL, transportation service is free, transportation service using has tried to increase. For this service, KOCTAS got agreement with a third party transportation firm, and gave all operational works to this firm.

In 2001, a new complementary service has launched: Installation Service. Installation Service has used for knockdown products such as, desk, cabinets, shelf, bath products, furniture, etc. Especially people who works until nights and/or people who does not anything about installation a product, has showed an interest in this service. For this service, KOCTAS got agreement with same transportation firm, and gave all operational works about transportation and installation to this firm. Thereby, two complementary services have combined and operational processes were outsourced.

At same year, Expert Consultancy Service has started in Kartal store. KOCTAS offered to customer restoring their home with the recommendations of KOCTAS expert personnel. Also by offering to customer a service through KOCTAS sales representatives who are each experts on their relevant fields. KOCTAS proposed customer to benefit from KOCTAS expertise for specialized ideas and solutions to restore and beatify their home in addition to high quality products and ten thousands of options. KOCTAS was at customers’ disposal to beautify their home with several ideas such as the selection of a suitable wall color for their home and their mood, the care of the plants they purchase, selection of an air-conditioner with technical characteristics that suit their room as well as KOCTAS free architectural service for their bathroom or kitchen. KOCTAS invites everybody who says “I love my home” to benefit from our expertise [6].

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In 2004, KOCTAS has launched professional service to professional’s customer: Trade Card. With this serving Trade Customer Services such as; advising service on technical matters, opportunity to place orders via the phone and fax, delivery within 24 hours, at the latest, following the acceptance of the order. Also winning chance 5% points at Koçtaş with the trade card special for professionals. Expecting all the professionals engaged in construction, hotel management, decoration, paint, and etc. to our stores to take their trade cards. Some benefits of the Trade Card are

%5 money points Opportunity to benefit from all installment options applicable at the store Free shipment for purchases amounting to TRY 1,500 and above (up to 30

km) Opportunity to place orders via the phone and fax [7]. One year later, in 2005, KOCTAS has introduced a new alternative sales channel:

Phone Orders Service. KOCTAS who initiated an order by phone service with their new system named “Call us Let Us Deliver!” delivers products to all provinces and districts in Turkey. Products can be ordered through 0216/0212 444 0 884 (the KOCTAS Customer Line) [8].

In 2006, another alternative sales channel, corporate web site www.koctas.com.tr opened and B2C selling has started. KOCTAS who initiated an order by internet service with their new system named “Just click to our web site, Let Us Deliver!” delivers products to all provinces and districts in Turkey. Products can be ordered through the KOCTAS web site (www.koctas.com.tr) [9].

At the same year, KOCTAS Card has introduced as Customer Loyalty Card. This loyalty system was designed another KOC Group called TANI A.S. As of 2010, there are 2.679.600 KOCTAS cards. 57% of active cards. 53% of KOCTAS total sales with KOCTAS cards. Redemption rate 59%. ATV for transactions with card is around 126 TL and with campaigns around 385 TL. In 2010, 107 CRM campaigns have done and 77.243 customers got benefit from this campaign [10].

In March 2007, KOCTAS has been introduced vSRM-Supplier Relationship Management System. All information between KOCTAS and its suppliers has transferred this platform. By using this system, costs and information time has decreased, customer problems have been done quickly and historical report can be taken. Totally, operational processes between KOCTAS, supplier and customer have been developed by using this system [11].

In 2009, KOCTAS has opened a new B2B firm called DEPOFIX. DEPOFIX opened to directly selling equipment and tools from supplier to buyers such as, big firms, Production Company, etc. in long term agreements and B2B selling has started [12].

At same year, in September 2009, Expert Consultancy Service has been enlarged and developed and announced in “Complete Solutions Service” (Special Projects). KOCTAS expert staff consisting of architects gives customer new ideas to beatify their home, and offers cost-effective solutions to put these ideas into action. Thanks to the architectural projecting and advisory services, you can redesign their home all over or any part of their bathroom or kitchen with several price and installment options. Customers can benefit from the following Koçtaş services when redesigning their home:

Complete home restoration Kitchen restoration

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Bathroom restoration

Water-electric installation replacement Paint applications Ceramic applications Floor covering applications [13].

In 2010, Natural Gas Complete Projects has been launched by KOCTAS. In this

service, detection, projection, capacity plans and product determination, design, project approval, opening gas process, activating combi boiler, delivery and 2 year guaranty activities and process given by KOCTAS. [14].

In first quarter or 2011, two new services have launched: Thermal Insulation and Landscaping Services at some stores. Same as other Project Sales, all activities and processes are made by KOCTAS [15].

5. Conclusion and Future Research

As defined in introduction, in this paper first of all detailed literature review has

been done. For this purpose first of all capability and core competencies are defined by other writers. Then dynamic capabilities and path dependency concept are defined relation between these concepts are stated. Then real options are defined and relation between dynamic capability-real options and real options-path dependency are stated. Then new definition about these concept and terminologies are defined. After that a new framework is proposed to define relationship between core competencies, capabilities, dynamic capabilities, path dependency, and real options.

Main findings, results and further implications for managers and researcher are listed below:

Current capabilities of firm effect positively path dependency and firm can be chose path dependent way or/and strategic options, because of historical effect of capabilities.

If these capabilities can be developed and used as dynamic capability, this relation way changes and probability of chosen path dependent alternative is decreasing.

Dynamic capabilities consist not only strategic but also new service and investment, and they affect each other’s.

Chosen path dependent way or strategy effect real options negatively, and decrease the value or number of strategic options.

If real options value or/and number can be increased by using dynamic capabilities, these effect positively firm capability.

To sum up, firms capabilities and strategic options are dependent not only current situation but also chosen ways for future. Thus, using and creating dynamic capabilities are become important issue for companies.

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Appendix A

Table A1. History of KOCTAS

History of KOCTAS

Years Events

1955 Founded by Vehbi Koç as one of the first firm of KOÇ Group

1955-1995 Worked as construction and building material wholesale dealer, and gave service to big construction companies and retail dealers

1995 Entered into home improvement retailing business

1996 First store opened in Bornova / İzmir

1996 Transportation Service has started

1996 Special Sales Service has started

1998 Antalya store opened in Antalya.

1998 Balçova store opened in İzmir

1998 Bodrum store opened in Muğla

2000 Joint Venture agreement with KOÇ Group and Kingfisher Group has been made. B&Q (Kingfisher Group’s firm) (%50) and KOÇ Group (%50) have signed a new contract to making only “home improvement business” as KOCTAS brand.

2001 After the Joint Venture, first large format store in Kartal / İstanbul on 10.000 m2, opened

2001 Transportation Service has fallowed in cash out system and has become reportable

2001 Installation Services has started

2001 Expert Consultancy Service has started in Kartal store

2004 Trade Card

2005 Second store in İstanbul opened in Cevahir Shopping Center in Şişli and has been brought new ground in home improvement retail sector.

2005 Edremit store opened in Balıkesir.

2005 Phone Orders has started

2006 Kuşadası store opened in Aydın.

2006 The largest KOCTAS store opened in Ankara on 11.000 m2

2006 Third store in Yenibosna / İstanbul opened.

2006 Corporate web site www.koctas.com.tr opened and B2C selling has started.

2006 KOCTAS Card has introduced as Customer Loyalty Card

2007 İzmit store opened in Kocaeli.

2007 Bursa store opened in Bursa

2007 Balçova store in İzmir has moved to its new place

2007 Eskişehir store opened in Eskişehir

2007 Second store in Antalya opened in Alanya

March 2007 vSRM-Supplier Relationship Management System has been used

2008 Second store in Ankara opened in Çankaya

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2008 Trabzon store opened in Trabzon

2008 Third store in İzmir opened in Çiğli

2008 Konya store opened in Konya

2008 Forth store in İstanbul opened in Yenisahra

2009 DEPOFIX opened to directly selling equipment and tools from supplier to buyers such as, big firms, production company, etc. in long term agreements and B2B selling has started.

2009 5th store in Istanbul opened in Beylikdüzü

2009 3rd store in Antalya opened in Dokuma

2009 Kayseri store opened in Kayseri

2009 Malatya store opened in Malatya

2009 Denizli store opened in Denizli

September 2009

Expert Consultancy Service has been enlarged and developed and announced in “Complete Solutions Service” (Special Projects)

2010 Bodrum store has moved to its new place

2010 Afyon store opened in Afyon

2010 Adapazarı store opened in Sakarya

2010 Gebze store opened in Kocaeli

2010 Bursa-2 store opened in Bursa

2010 Natural Gas Complete Projects

2011 Adana store opened in Adana

2011 Thermal Insulation

2011 Landscaping Services

2011-…. Total indoor area in 31 stores of KOCTAS is almost 170.000 square meters

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