1. The Strategic Position 3: Strategic Capability

2. 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

3. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-3 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

4. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-4 Core Concepts in Strategic Capability FoundationsCost efficiency Sustainability Organisational knowledge AnalysisDevelopment

5. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-5 What is Strategic Capability? Strategic capability refers to the resources and competences of an organisation needed for it to survive and prosper.

6. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-6 Exhibit 3.1 Strategic Capabilities and Competitive Advantage

7. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-7 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.

8. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-8 Resource Categories Physical resources Financial resources Human resources Intellectual capital

9. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-9 The Terminology of Strategic Capability Threshold resources Threshold competences Unique resources Core competences

10. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-10 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.

11. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-11 Exhibit 3.3 Sources of Cost Efficiency Cost efficiency Economies of scale Experience Product design Supply costs

12. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-12 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

13. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-13 Exhibit 3.4 The Experience Curve

14. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-14 Capabilities for achieving and sustaining competitive advantage  Value  Rarity  Inimitable  Substitution  Dynamic

15. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-15 Rarity of Strategic Capabilities Ease of transferability Sustainability Core rigidities

16. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-16 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

17. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-17 Strategic Capability for the Royal Opera House

18. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-18 Exhibit 3.5 Criteria for Inimitability Robustness of strategic capability Complexity Culture and history Causal ambiguity

19. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-19 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.

20. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-20 Dynamic Capabilities at HMD Clinical

21. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-21 What is Organisational Knowledge? Organisational knowledge is the collective experience accumulated through systems, routines, and activities of sharing across the organisation.

22. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-22 Diagnosing Strategic Capability Activity maps BenchmarkingSWOT analysis Value chain/ Value network

23. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-23 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.

24. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-24 Exhibit 3.6 The Value Chain

25. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-25 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.

26. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-26 Exhibit 3.7 The Value Network

27. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-27 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?

28. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-28 Exhibit 3.8 An Activity System Map

29. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-29 Lessons Learned from Activity Maps Consistency and reinforcement Difficulties of imitation Trade-offs

30. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-30 Approaches to Benchmarking  Historical benchmarking  Industry/sector benchmarking  Best-in-class benchmarking

31. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-31 SWOT Analysis StrengthsWeaknesses OpportunitiesThreats

32. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-32 Limitations in Managing Strategic Capabilities  Competences valued but not understood  Competences are not valued  Competences are recognised, valued, and understood

33. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-33 Developing Strategic Capabilities  Add and change  Extend  Stretch  Exploit  Cease  Develop externally

34. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-34 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

35. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-35 Chapter Summary (2)  Methods of diagnosing organisational capabilities include  Value chain and value networks  Activity mapping  Benchmarking  SWOT analysis

36. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-36 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

37. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-37 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?

38. Exploring Corporate Strategy 8e, © Pearson Education 2008 3-38 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?