Strategic Capability

Chris Kariyawasam
BBA (hons), MBA, MCIM, MSLIM, CPM (Asia Pacific)
Learning Outcomes for Today
1. Recap – summary of Lesson 1

2. Develop the capability of students to identify sources of

Competitive advantage as a basis formulating business strategy

3. Identify means of sustaining competitive advantage for an

organisation to continue delivering superior profit compared to
competition

Case Examples :
◼ Smak vs MinuteMaid
◼ Video learning – What is Strategy
HBR article: Resource based view of the firm
◼ Sustainable competitive advantage: VRIO framework
 The Basic Strategy Framework:
the Link between the Firm and its
Environment

THE FIRM THE

• Goals & INDUSTRY
Values ENVIRONMENT
STRATEGY
STRATEGY
• Resources & • Competitors
Capabilities • Customers
• Structure & • Suppliers
Systems
 The Micro & Macro Business Environment

THOMPSON, A. and STRICKLAND, A (2001) Crafting and Executing Strategy. 12th ed. New York: McGraw-Hill, p.74

Lion Brewery Annual Report Five Competitive Forces – Michael Porter

 Revisited
Environment
The Holistic view of Business

Structure
Fit
Strategy Systems

Vision

Skills Culture

Staff
Source: Mintzberg, H. and Quinn, J.B. (2010) The Strategy Process: Concepts and Contexts. New Jersey:
Prentice-Hall pp.136.
Definition of Strategy

Strategy is the direction and scope of an organsiation

over the long term which achieves advantage in a
changing environment through its configuration of
resources and competencies with the aim of fulfilling
stakeholder expectations (Johnson & Scholes, 2011. p9)
The Strategic Management
Process

7
Key Strategic Management
Questions
◼ Where does the firm compete (which industry, sector or
segment)?

◼ What unique value do we bring (relative to competition)?

◼ What Resources and Capabilities do we utilise do deliver that

value?

◼ Capabilities - What can we do using the resources we have?

◼ How do we sustain our ability to provide that unique value?

◼ What factors allow us to continue to win over time?

3.36
What is Strategy
 Strategic Capability

◼ Strategic Capability is the skills and abilities by which

resources are deployed through an organisation’s activities and
processes to achieve competitive advantage in ways that others
cannot imitate. E.g. P&G capability in Hair Care

◼ E.g. Toyota has the strategic capability of manufacturing the

worlds most fuel efficient hybrid car. Honda is nowhere close.

◼ Strategic capability refer to the resources and competencies of

an organisation needed for it to acquire an unmatchable
competitive advantage
https://www.youtube.com/watch?v=cHmIQqVyHaM&t=218s
Strategic Capability explained
Strategic Capability
Resources & Capabilities

The resource-based view of strategy: the competitive advantage and superior

performance of an organisation is explained by the distinctiveness of its capabilities
Resources & Capabilities
 Examples of a Company’s Resources and
Capabilities
RESOURCES CAPABILITIES

Finance Product
Development
Technology Purchasing

Engineering
Plant and
equipment Manufacturing
Location Financial
Management
Distribution R&D

Brands Marketing and

Sales
Government
Key question:
Does the organisation have the required Resources Relations
And Capabilities that will provide a competitive advantage Strategic
In the market place that will lead to superior returns to Management
shareholders ?
https://www.youtube.com/watch?v=U-9BH5JrRzE R&C Explained
 How Resources and Capabilities
create competitive advantage
https://www.youtube.com/watch?v=ZKPyhoPwuhA

Source: Grant 2010

– Strategy is the overall plan for deploying resources to establish a favorable

position (competitive advantage) in the market . E.g. Cargills strategy
– Important. – to be in the right business at the right time to take advantage of
profitable business opportunities
Resources, Capabilities, and Competencies

https://www.youtube.com/watch?v=RZ4SmWvXu3w
Competitive Advantage
◼ An advantage that a firm has over its competitors, allowing it to
generate greater sales or margins and / or retain more
customers than its competition.

◼ There can be many types of competitive advantages:

◼ the firm's cost structure,

◼ product offerings,
◼ distribution network
◼ and customer support & others.

◼ A Competitive advantage gives a company an edge over its rivals and

an ability to generate greater value for the firm and its shareholders.

◼ The more sustainable the competitive advantage, the more difficult it is

for competitors to neutralize the advantage.
Competitive Advantage
◼ A competitive advantage is a set of advantages the Company
possesses that its competitors find difficult to imitate (copy)

E.g. Nestle’s know-how in Nutrition both in baby and adult

Unilever’s marketing capability – brand building
Colgate know-how in Oral Care

◼ The competitive advantage should provide a substantial benefit

(solution to a problem) to customers and the Company should
be able to sustain that advantage over a long period. E.g
Clogard vs Signal

◼ A competitive advantage of a company are unique benefits that

its brands provide that creates greater perceived value to
customers than that offered by competitors
 Nature and sources of competitive
advantages
What is “competitive advantage” and what is its nature ?

Competitive advantage of a company is the

unmatchable set of advantages it possesses to compete.
Such advantages and product features resulting from
these advantages provide more value to the customer.

Competitive advantage is like a shield. It holds back

competitors and attracts more and more customers.
The end result of competitive advantage(s) is stability,
growth, and a “joyful organizational culture”
What is Competitive Advantage?

▪ “Competitive advantage is a company’s ability

to perform in one or more ways that competitors
cannot or will not match.”
Philip Kotler
▪ “If you don’t have a competitive advantage,
don’t compete.”
Jack Welch, GE
 Competitive Advantage
• Competitive Advantage
– A firm’s profitability is greater than the average profitability
for all firms in its industry.
• Sustained Competitive Advantage
– A firm maintains above average and superior profitability and
profit growth for a number of years.

The Primary Objective of Strategy

is to achieve a
Sustained Competitive Advantage
which in turn results in
Superior Profit and Profit Growth.
 Nature of competitive advantages

The competitive advantage(s) act as a shield,

preventing competitors penetrate the
company’s market share. It can also
discourage new entrants. A superior
competitive advantage should be substantive
and sustainable.

Competitive advantage is linked to Strategic

Capabilities and Unmatchable Customer
Service
 Competitive advantage

Competitive advantage of a company is a set

of unique features of its products which
provides a greater perceived value to
customers than what competitors offer
Seeking Competitive Advantages

▪ Positions of advantage
 Superior customer value
 Lower relative total cost

▪ Performance advantages
 Customer satisfaction, Loyalty, Market Share, Profit

▪ Sources of advantages
 Superior skills & knowledge, Superior resources,
Superior business process
 Sources of competitive advantage

 Superior assets which can provide

strategic capabilities

 Unmatchable key success factors

(KSFs)

 First mover advantages

 Difficult to imitate by competitors

 A model for competitive
advantages

Unique resources

Distinctive Cost leadership, Value

competencies differentiation, cost focus creation

Technology
 The Emergence of Competitive Advantage

How does competitive

advantage emerge?

External sources of
change e.g.: Internal sources
•Changing customer demand of change
•Changing prices
•Technological change

Some firms
Resource heterogeneity Some firms faster have greater creative
among firms means and more effective and innovative
differential impact in exploiting change capability

E.g. MinuteMaid launch by Coke E.g. Hemas - Velvet vs Lux

Smak Vs MinuteMaid
Sources of Competitive Advantage

COST
ADVANTAGE

COMPETITIVE
ADVANTAGE

DIFFERENTIATION
ADVANTAGE
 Porter’s Generic Strategies

SOURCE OF COMPETITIVE ADVANTAGE

Low cost Differentiation

Industry-wide COST DIFFERENTIATION

COMPETITIVE LEADERSHIP
SCOPE
Single Segment FOCUS
 Features of Cost Leadership and
Differentiation Strategies

Generic strategy Key strategy elements Resource & organizational

requirements
COST Scale-efficient plants. Access to capital. Process
LEADERSHIP Design for manufacture. engineering skills. Frequent
Control of overheads & reports. Tight cost control.
R&D. Avoidance of Specialization of jobs and
marginal customer functions. Incentives for
accounts. quantitative targets.

DIFFERENTIATION Emphasis on branding Marketing. Product

and brand advertising, engineering. Creativity.
design, service, and Product R&D
quality. Qualitative measurement
and incentives. Strong
cross-functional
coordination.
 Sources of competitive advantage

 Cost effectiveness

 Operational excellence

 Product leadership

 Customer relationships
 The Concept of Value Creation

At business level, applying the value creation principle is key to achieving

competitive advantage Case Dove – Unilever India
Value Creation and Competitive
Advantage
◼ Target customers will not pay any price that you charge for a
given set of product benefits

◼ If the price that you ask is perceived to be higher than

perceived value, they will opt for lower priced products

◼ Therefore we need to keep costs low as possible consistent with

the value to be provided while earning a substantial profit
margin
How do organisations Sustain
Competitive Advantage
◼ Given that a competitive advantage erodes over time, sustaining
it takes focused effort and considerable resources.

◼ Building and sustaining a competitive advantage requires a

company to achieve superior: efficiency, innovation, quality and
responsiveness to customers.

◼ Also to sustain competitive advantage its capabilities needs to

pass the VRIN test:
Building Blocks of Competitive
Advantage

Source: Grant 2017

Sources of Competitive Advantage
◼ Superior assets that provide strategic capabilities E.g. Nestle
acquires Pfizer Baby Food unit for US $ 11.9 billion

◼ First-mover advantage e.g. Ninja over Mortein

◼ Cost effectiveness e.g. Cargills value chain vs others

◼ Operational excellence e.g execution ability of the strategy

◼ Customer relationship

◼ Innovation (NPD) and Brand leadership Anchor PaediaPro

◼ Benefits provided by your brand that is difficult for competitors to

imitate (inimitability)
Nestle Acquires Pfizer
Value Chain as a Source of
Competitive Advantage

A value chain describes the categories of activities within and around an

organisation which together create a product or service
 Defining Key Terms

Organizational Capabilities = firm’s capacity for

undertaking a particular activity. (Grant)

Distinctive Competence = things that an organization

does particularly well relative to competitors. (Selznick)

Core Competence = capabilities that are fundamental to a

firm’s strategy and performance. (Hamel and Prahalad)

https://www.youtube.com/watch?v=tC27FOOs4kM
Key Terms
◼ Dynamic capabilities are an organisation’s abilities to renew and
recreate its strategic capabilities to meet the needs of a changing
environment

◼ Unique resources are those resources that critically underpin

competitive advantage and that others cannot easily imitate or
obtain

◼ 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. E.g. CBL

◼ Competences are the skills and abilities by which resources are

deployed effectively through an organisation’s activities and
processes