The Strategic Position3: Strategic Capability

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Learning Outcomes (1)

Distinguish elements of strategic capability in organisations: resources, competences, core competences, and dynamic capabilities

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

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

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Learning Outcomes (2)

Diagnose strategic capability by means of value chain analysis, activity mapping, benchmarking, and SWOT analysis

Consider how managers can develop strategic capabilities of organisations

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Core Concepts in Strategic Capability

Foundations Cost efficiency

SustainabilityOrganisational

knowledge

Analysis Development

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What is Strategic Capability?

Strategic capability refers to the resources and competences

of an organisation needed for it to survive and prosper.

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Exhibit 3.1 Strategic Capabilities and Competitive Advantage

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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.

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Resource Categories

Physicalresources

Financialresources

Humanresources

Intellectualcapital

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The Terminology of Strategic Capability

Threshold resources

Threshold competences

Unique resources

Core competences

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What are 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.

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Exhibit 3.3 Sources of Cost Efficiency

Costefficiency

Economiesof scale

Experience

Productdesign

Supply costs

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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

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Exhibit 3.4 The Experience Curve

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Capabilities for achieving and sustaining competitive advantage

Value

Rarity

Inimitable

Substitution

Dynamic

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Rarity of Strategic Capabilities

Ease of transferability

Sustainability

Core rigidities

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Core Competences Lead to Competitive Advantage When…

They relate to an activity that underpins the value in the product features

They lead to levels of performance that are significantly better than competitors

They are difficult for competitors to imitate

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Strategic Capability for the Royal Opera House

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Exhibit 3.5 Criteria for Inimitability

Robustness of strategic capability

Complexity Culture andhistory

Causal ambiguity

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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.

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Dynamic Capabilities at HMD Clinical

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What is Organisational Knowledge?

Organisational knowledge is the collective experience accumulated

through systems, routines, and activities of sharing across the

organisation.

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Diagnosing Strategic Capability

Activity maps

Benchmarking SWOT analysis

Value chain/Value network

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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.

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Exhibit 3.6 The Value Chain

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What is a Value Network?

A value network is the set of interorganisational links and

relationships that are necessary to create a product or service.

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Exhibit 3.7 The Value Network

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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?

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Exhibit 3.8 An Activity System Map

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Lessons Learned from Activity Maps

Consistency and reinforcement

Difficulties of imitation

Trade-offs

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Approaches to Benchmarking

Historical benchmarking

Industry/sector benchmarking

Best-in-class benchmarking

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SWOT Analysis

Strengths Weaknesses

Opportunities Threats

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Limitations in Managing Strategic Capabilities

Competences valued but not understood

Competences are not valued

Competences are recognised, valued, and understood

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Developing Strategic Capabilities

Add and change

Extend

Stretch

Exploit

Cease

Develop externally

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Case Example: eBay

Analyse eBay’s strategic capability.