Strategic Capability

Learning Outcomes Distinguish elements of strategic

capability in organizations: resources, competences and core competences.

Recognize the role of continual improvement in cost efficiency as a strategic capability

Analyze how strategic capabilities might provide sustainable competitive advantage on the basis of their value, rarity, inimitability, and nonsubstitutability

What is Strategic Capability?

Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper.

Strategic Capabilities and Competitive Advantage

What are Resources?Tangible resources are physical assets of an organisation such as

plant, labour, and finance.Intangible resources are non-

physical assets such as information, reputation, and knowledge.

Resource Categories

Physicalresources

Financialresources

Humanresources

Intellectualcapital

The Terminology of Strategic Capability

Threshold resources

Threshold competences

Unique resources

Core competences

Threshold Resources

The resources need to meet customers minimum requirements and therefore to continue to exist.

To an athlete : The athletic ability suited to a chosen event

Threshold Competencies

Activities and processes needed to meet customers minimum requirements and therefore to continue to exist.

Healthy body, Medical facilities, training venues and equipments and food supplements.

Important issues in Threshold Capabilities

Threshold level of Capability will change With the changes of CSF’s

Trade offs Redundancy of capabilities Complementary level of Resources and

Competencies.

Unique resources

Resources that underpin competitive advantage and are difficult for competitors imitate or obtain.

Exceptional heart and lungs, Height or weight, World class coach.

Core Competences

Core competences are the skills and abilities by which resources are deployed through an organisation’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain.

A combination of dedication, tenacity, time to train and will to win.

Cost efficiencyCost efficiency is an important strategic capability for any organization. This involves having both appropriate resources and competencies to manage cost.

Lower price for product More product features for the same price

Cost efficiency as a threshold Capability

Customers do not value product features at any price.Appropriate level of value should offer at an

acceptable price

Competitive rivalry will continually require the driving down of costs.

Sources of Cost Efficiency

Costefficiency

Economiesof scale

Experience

Productdesign

Supply costs

Economies of scale: production level should be such so as to meet the cost of the plant setup, capacity and resources which is very high.

Supply cost is influenced by location, ownership of raw material, etc.

Capacity fill, labour productivity, working capital utilization can be considered under the product/process design.

The Experience Curve Competences in activities develop over

time based on experience, resulting in cost efficiencies

Growth may not be optional Unit costs should decline year on year First mover advantage is important

The Experience Curve

Capabilities for achieving and sustaining competitive advantage

Value Rarity Inimitable Substitution Dynamic

Value of strategic capability

The strategic capabilities must be able to deliver what the customer values in terms of product or service.

customer values (CSF’s) Reputation After sales service Delivery reliability Technical quality

Rarity of Strategic CapabilitiesThe organization need to possess some unique or rare capability, providing competitive advantage.

Some libraries have unique books, powerful brands, good location can be taken as rarity.

Years of experience, brand management, good relationship with key customers are some rare competencies.

Criteria for Inimitability

Robustness of strategic capability

Complexity Culture andhistory

Causal ambiguity

Non- substitutability

Substitution can be viewed in two ways Product or service as a whole might be

a victim of substitution.Email substituted postal system

Competencies also can be substitutedExpert systems have substituted many

qualities of the expert persons

What are Dynamic Capabilities?

Dynamic capabilities are an organisation’s abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment.

What is Organisational Knowledge?

Organisational knowledge is the collective experience accumulated through systems, routines, and activities of sharing across the organisation.

Diagnosing Strategic Capability

Activity maps

Benchmarking SWOT analysis

Value chain/Value network

What is a Value Chain?A value chain describes the

categories of activities within and around an organisation, which together create a product or

service.

Exhibit 3.6 The Value Chain

What is a Value Network?

A value network is the set of inter-organisational links and relationships

that are necessary to create a product or service.

The Value Network

Understanding the Capabilities in Relation to the Value Network

Which activities are central important to organisation’s strategic capability?

Where are the profit pools? What should be outsourced? Who might be the best partners in the

parts of the value network?

Benchmarking Strategic Capability

– Historical – performance compared to previous years

– Industry/sector – comparative performance of other organisations

– Best in class – wider search for best practice• Increased expectations due to improved performance in another

sector

• Breaking the frame about performance standards to be achieved

• Spot opportunities to outperform incumbents in other markets – stretch core competences

Benchmarking Issues If the basis of benchmarking is flawed

then it can set off a re-orientation of strategy that is flawed . Eg university sector.

Does not identify the real reason (s) for good performance, merely highlights the consequence

Benchmarking against who?…

SWOT Analysis

Strengths Weaknesses

Opportunities Threats