The Strategic Position3: Strategic Capability
Exploring Corporate Strategy 8e, © Pearson Education 2008 3-2
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.