Analysing Strategic Capabilities

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Foundations of strategic capabilities Cost efficiency Diagnosing Strategic Capability Develop the strategic capabilities

Foundations of Strategic capabilities

What is strategic capabilities? Strategic capabilities is the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper. What is competences of an organisation? Competences are the activities and processes through which an organisation deploys its resources effectively.

Strategic capabilities and competitive advantage

Resources
Threshold capabilities
Threshold resources -Tangible - Intangible

Competences
Threshold competences

Capabilities for competitive advantage

Unique resources - Tangible resources - Plant, labor and finance -Intangible resources - Patents - Brand - Business system - Customer database

Core competences

Strategic capability terminologies

Term Strategic capability Definition The ability to perform at the level required to survive and proper. It is underpinned by the resources and competences of the organization. The resources needed to meet customers minimum requirements and therefore to continue to exist. Activities and processes needed to meet customers minimum requirements and therefore to continue to exist. Resources that underpin competitive advantage and are difficult for competitors to imitate or obtain . Activities that underpin competitive advantage and are difficult for competitors to imitate or obtain.

Threshold resources Threshold competences Unique resources Core competences

Threshold capabilities
Threshold capabilities are those capabilities essential for the organisation to be able to compete in a given market. i.e. Information technology is very much essential for high street retailers to understand consumer behaviour and arrange store layout on that basis.

Unique resources and core competences

What is unique resources? Unique resources are those resources that critically underpin competitive advantage and that others cannot easily imitate or obtain. i.e. Grameen Phone build strong Mobile Phone network in very part of the country over its rivals helps to gain maximum market shares.

What is Core competences? Core competences are the activities and processes through which resources are deployed in such a way as to achieve competitive advantage in ways that others cannot imitate or obtain. i.e. Global banking experience of Standard Chartered and high class customer services attract upper and middle upper end customers to access banking services from the bank and gain sustainable growth in the local market.

Cost efficiency
Cost efficiency is determined by number of cost drivers

Economic of scales
Cost efficienc y

Experience

Supply cost

Product /process design

Economic of scales
Economies of scales are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.[1] Diseconomies of scale is the opposite. The simple meaning of economies of scale is doing things efficiently.

The common sources of economies of scale are: - Purchasing (bulk buying of materials through long term contracts) - Managerial (increasing the specialization of managers), - Financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), - Marketing (spreading the cost of advertising over a greater range of output in media markets), - Technological (taking advantage of returns to scale in the production function).

Supply costs

Supply costs are of particular importance to organizations which act as intermediaries, where the value added through their own activities is low and the need to identify and manage inputs costs is critically important to success. Example: in commodity or currency trading the key resources is knowledge of how prices might move in the market.

Product / Process / Service design

Product or Process or Service design efficiency can be achieved by many organization over a number of years through improvements in capacity-fill, labour productivity, yield (maximum utilization of materials), or working capital utilization. For example: Canon gained advantage over Xerox Photocopiers as Canon design a copier that needed far less servicing than Xerox.

Experience
Long term experience at market is a key source of cost efficiency and provide competitive advantage over the market competition. Experience curve for mass production:

The experience curve influences an organisations competitive position: - Materialise continuous growth over rivals - Real unit costs to decline year on year - First mover advantage - Sustained advantage through experience curve benefits are not high - Continual reduction of average production cost is necessity

Diagnosing Strategic Capability

1. The value chain: The value chain describes the activities within and around an organisation which together create a product or service. It is the cost of these value activities and the value that they deliver that determines whether or not best value products or services are developed.

Value chain is depending on two types of activities: a. Primary activities for manufacturing companies - Inbound logistics - Operations - Outbound logistics - Marketing and sales - Service deliver

b. Support activities - Procurements - Technology development - Human resources management - Infrastructure

2. Value network The value network is the set of interorganisational links and relationships that are necessary to create a product or service.

3. Activity mapping Activity maps try to show how different activities of an organisation are linked together. Activity mapping helps to diagnose of all activities of an organisation are working properly, how competitive advantage is achieved. Find relationship between competences and competitive advantages include: a. Consistency of service providing b. Reinforcement of all activities c. Difficulties of imitation d. Trade-offs

Activity mapping of Walmart Everyday Low Price

Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time, and cost. Learning through benchmarking can provide assurance as to the effectiveness of existing arrangements as well as identifying improvement points. Improvements mean doing things better, faster, and cheaper in future. Example: Software Engineering follows process of all engineering field activities to benchmark the standard.

Types of benchmarking

Historical benchmarking Industry / sector benchmarking Best in-class benchmarking

SWOT analysis
SWOT analysis summarizes the key issues from the business environment and the strategic capabilities of an organization that are most likely to impact on strategy development.

Managing Strategic Capabilities

Stretching and adding capabilities - Extending best practices - Adding and changing activities - Stretching competences - Building on apparent weakness - ceasing activities - Trade-offs - External capability development

Managing people for capability development - Targeted training and development - HR policies - Develop people awareness

Building dynamic capabilities

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Socialization Externalization Combination Internalisation

Offering Question

Reference books

Johnson, Scholes at el., Exploring Corporate Strategy, FT, Prentice Hall, 8th edition, 2008.

Fred R. David, Strategic Management: Concepts and Cases, Prentice Hall, 12th edition, 2009