The Strategic Position 3: Strategic Capability

Exploring Corporate Strategy 8e, © Pearson Education 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

Exploring Corporate Strategy 8e, © Pearson Education 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

Exploring Corporate Strategy 8e, © Pearson Education Core Concepts in Strategic Capability FoundationsCost efficiency Sustainability Organisational knowledge AnalysisDevelopment

Exploring Corporate Strategy 8e, © Pearson Education What is Strategic Capability? Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.1 Strategic Capabilities and Competitive Advantage

Exploring Corporate Strategy 8e, © Pearson Education 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.

Exploring Corporate Strategy 8e, © Pearson Education Resource Categories Physical resources Financial resources Human resources Intellectual capital

Exploring Corporate Strategy 8e, © Pearson Education The Terminology of Strategic Capability Threshold resources Threshold competences Unique resources Core competences

Exploring Corporate Strategy 8e, © Pearson Education 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.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.3 Sources of Cost Efficiency Cost efficiency Economies of scale Experience Product design Supply costs

Exploring Corporate Strategy 8e, © Pearson Education 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

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.4 The Experience Curve

Exploring Corporate Strategy 8e, © Pearson Education Capabilities for achieving and sustaining competitive advantage  Value  Rarity  Inimitable  Substitution  Dynamic

Exploring Corporate Strategy 8e, © Pearson Education Rarity of Strategic Capabilities Ease of transferability Sustainability Core rigidities

Exploring Corporate Strategy 8e, © Pearson Education 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

Exploring Corporate Strategy 8e, © Pearson Education Strategic Capability for the Royal Opera House

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.5 Criteria for Inimitability Robustness of strategic capability Complexity Culture and history Causal ambiguity

Exploring Corporate Strategy 8e, © Pearson Education 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.

Exploring Corporate Strategy 8e, © Pearson Education Dynamic Capabilities at HMD Clinical

Exploring Corporate Strategy 8e, © Pearson Education What is Organisational Knowledge? Organisational knowledge is the collective experience accumulated through systems, routines, and activities of sharing across the organisation.

Exploring Corporate Strategy 8e, © Pearson Education Diagnosing Strategic Capability Activity maps BenchmarkingSWOT analysis Value chain/ Value network

Exploring Corporate Strategy 8e, © Pearson Education 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.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.6 The Value Chain

Exploring Corporate Strategy 8e, © Pearson Education 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.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.7 The Value Network

Exploring Corporate Strategy 8e, © Pearson Education 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?

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 3.8 An Activity System Map

Exploring Corporate Strategy 8e, © Pearson Education Lessons Learned from Activity Maps Consistency and reinforcement Difficulties of imitation Trade-offs

Exploring Corporate Strategy 8e, © Pearson Education Approaches to Benchmarking  Historical benchmarking  Industry/sector benchmarking  Best-in-class benchmarking

Exploring Corporate Strategy 8e, © Pearson Education SWOT Analysis StrengthsWeaknesses OpportunitiesThreats

Exploring Corporate Strategy 8e, © Pearson Education Limitations in Managing Strategic Capabilities  Competences valued but not understood  Competences are not valued  Competences are recognised, valued, and understood

Exploring Corporate Strategy 8e, © Pearson Education Developing Strategic Capabilities  Add and change  Extend  Stretch  Exploit  Cease  Develop externally

Exploring Corporate Strategy 8e, © Pearson Education Chapter Summary (1)  Strategic capability deals with adequacy and suitability of resources and competences required for success  Goal is to establish core competences that lead to competitive advantage  Cost efficiency is vital  In dynamic conditions, dynamic capabilities are important

Exploring Corporate Strategy 8e, © Pearson Education Chapter Summary (2)  Methods of diagnosing organisational capabilities include  Value chain and value networks  Activity mapping  Benchmarking  SWOT analysis

Exploring Corporate Strategy 8e, © Pearson Education Key Debate: The Resource-Based View of Competitive Advantage: Is it Useful to Managers?  Criticisms of RBV  Risk of tautology  Lack of specificity  Defense of RBV  Emphasis on identification and development of critical capabilities in firm

Exploring Corporate Strategy 8e, © Pearson Education Key Debate: Is RBV Useful to Managers? (2)  How specific would the identification of strategic capabilities need to be to permit them to be managed to achieve competitive advantage?  Do you agree that if it were possible to identify and manage such capabilities they would be imitated?  Is the RBV useful?

Exploring Corporate Strategy 8e, © Pearson Education Case Example: eBay  Analyse eBay’s strategic capability.  What capabilities provided eBay’s competitive advantage?  Using the concepts of sustainability and dynamic capabilities, how would you manage this capability given new entrants and the changing nature of eBay?