Strategic Capabilities

Strategic capabilities refer to the resources and competences of a firm that it uses to compete with rivals in the market. These usually comprise a firm’s strengths and weaknesses and could serve as a source of competitive advantage (or disadvantage) for the firm.

Here we take a look at what strategic capabilities are, how they contribute to competitive advantage and superior performance, and how to manage the development of strategic capabilities in a firm.

• Resources: Assets that a firm has
• Competences: Skills that a firm has
• Capabilities: Adequacy & suitability of resources & competences to enable the organization to survive & prosper

Core Competences

A core competence is an activity or process that critically underpins competitive advantage & ability to add value.

• what is done better
• why these are done better
• why secondary processes are done

Core Competences

Examples of core competences:

• Expertise in integrating multiple technologies
• Know-how in creating operating systems
• Speeding new/next-generation products to market
• Better after-sale service capability
• Skills in manufacturing a high quality product
• Capability to fill customer orders accurately & swiftly

Strategic Capabilities

• Threshold – required to be able to compete in a market. This is about qualifying to ‘compete today’.
• Distinctive – required to achieve competitive advantage. This is required to ‘win today’.
• Dynamic – ability to keep learning to adapt to changing conditions. This is needed to ‘win tomorrow’.

Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete and achieve parity with competitors.

Distinctive capabilities are those that are required to achieve competitive advantage & are difficult to imitate.

Dynamic capabilities are the means by which an organisation has the ability to renew & recreate its strategic capabilities to meet the needs of changing environments.

• Dynamic capabilities are distinct from ordinary capabilities
• Types of dynamic capabilities
• Sensing capabilities
• Seizing capabilities
• Reconfiguring capabilities

Redundant capabilities: Capabilities, however effective in the past, can become less relevant as industries evolve and change. Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness.

Strategic capability required for long-term survival and competitive advantage:

Resources: what a firm has (nouns)

• Physical: Machines, buildings, raw materials, products, patents, databases, computer systems
• Financial: Balance sheet, cash flow, suppliers of funds
• Human: Managers, employees, partners, suppliers, customers

Competences: what a firm does well (verbs), e.g.

• Physical: Ways of achieving utilisation of plant, efficiency, productivity, flexibility, marketing
• Financial: Ability to raise funds and manage cash flows, debtors, creditors, etc.
• Human: How people gain and use experience, skills, knowledge, build relationships, motivate others and innovate.