Strt Mgmnt Chp 3

Strategic Capabilities
 Strategic 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 Capabilities
Resources and competences: Perhaps the most basic concept is that of
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 knowledge
Physical resources – such as the number of machines, buildings or the production
capacity of the organization
Financial resources – such as capital, cash, debtors and creditors, and suppliers of
Human 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
2. Threshold capabilities: Threshold capabilities are those
essential for the organization to be able to compete in a given
 If an organization does not have threshold resources then
it will be unable to meet customers’ minimum requirements
 threshold competences required to deploy resources so as to
meet customers’ requirements and support particular
Arising from these are other important
 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 competences
3. Unique resources and core competences
 Unique resources are those resources that critically
underpin competitive advantage and that others cannot
imitate or obtain
 Core 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
 This 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:
a. because customers do not value product features at any price.
b. competitive rivalry will continually require the driving down of
Cost efficiency is determined by a
number of cost drivers
The Experience curve
Implication of experience curve concepts
that can influence competitive position
 First mover advantage can be important
 Sustained advantage through experience curve benefits are
not high
 Continual reduction in costs is a necessity for organizations
 It may be possible to reduce cost by outsourcing
Value 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
Rarity 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 competitors
Criteria for the robustness of strategic
 Achieving sustained competitive advantage also means avoiding the
risk of substitution
However, the organization may still be at risk from substitution.
Substitution could take different forms
a. In other words the product or service as a whole might be a
victim of substitution.
b. 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 organization
Dynamic capabilities: are an organization's abilities to
develop and change competences to meet the needs of
rapidly changing environments
These capabilities may be relatively formal such as
 New product development
 Standardized procedures for agreement for capital
 Major strategic moves, such as acquisitions or alliances by
which new skills are learned by the organization
Organizational knowledge is the collective and shared experience
accumulated through systems, routines and activities of sharing across the
 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 boundaries
 Knowledge takes different forms:
1. Explicit knowledge
2. Tacit knowledge
 Arguably, the more formal and systematic the system of knowledge, the
greater is the danger of imitation
The value chain: The value chain describes the activities
within and around an organization which together create a
Primary activities:
For example, for a manufacturing business product or service
 Inbound logistics
 Operations
 Outbound logistics
 Marketing and sales
 Service
The value network
The value network is the set of inter-organizational links and
relationships that are necessary to create a product or service
Some of the key questions they need to address are these:
 Where cost and value are created
 Which activities are centrally important
 Where the profit pools are
 The ‘make or buy’ decision
 Who might be the best partners
Activity Map
An organization's strategic capability has to be assessed in
relative terms since it concerns the ability to meet and beat
the performance of competitors
 Historical benchmarking.
 Industry/sector benchmarking.
 Best-in-class benchmarking.
The limitations of managing strategic capabilities
Competences are valued but not understood.
Competences are not valued.
Competences are recognized, valued and understood.
2. Stretching and adding capabilities
 Extending best practices.
 Adding and changing activities.
 Stretching competences.
 Building on apparent ‘weaknesses’.
 Ceasing activities.
 Trade-offs
 External capability development.
3. Managing people for capability development
 Targeted training and development may be possible
 HR policies might be employed to develop particular competences
 To develop people’s awareness
Building dynamic capabilities
 the recognition of the significance of the intuition of people in
the organization
 the acceptance that different, even conflicting ideas and views
are to be welcomed
 experimentation is the norm and becomes part of the learning process

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