The Strategic Position

3: Strategic Capability
 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 2008 3-2

 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 2008 3-3

 Core Concepts in
Strategic Capability

Foundations Cost efficiency

Organisational
Sustainability
knowledge

Analysis Development

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 What is Strategic Capability?

Strategic capability refers to

the resources and competences
of an organisation needed for it to
survive and prosper.

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 Exhibit 3.1 Strategic Capabilities and
Competitive Advantage

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 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.

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 Resource Categories

Physical Financial
resources resources

Human Intellectual
resources capital

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 The Terminology of
Strategic Capability

Threshold resources

Threshold competences

Unique resources

Core competences

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 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 2008 3-10

 Exhibit 3.3 Sources of
Cost Efficiency

Economies
Experience
of scale

Cost
efficiency

Supply Product
costs design

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 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

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 Exhibit 3.4 The Experience Curve

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 Capabilities for achieving and
sustaining competitive advantage

Value
Rarity
Inimitable
Substitution
Dynamic

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 Rarity of Strategic Capabilities

Ease of transferability

Sustainability

Core rigidities

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 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

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 Strategic Capability for the
Royal Opera House

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 Exhibit 3.5 Criteria for
Inimitability

Complexity Culture and

history
Robustness
of strategic
capability

Causal
ambiguity

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 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.

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 Dynamic Capabilities at HMD Clinical

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 What is
Organisational Knowledge?

Organisational knowledge is the

collective experience accumulated
through systems, routines, and
activities of sharing across the
organisation.

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 Diagnosing Strategic Capability

Value chain/
Activity maps
Value network

Benchmarking SWOT analysis

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 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.

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 Exhibit 3.6 The Value Chain

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 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.

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 Exhibit 3.7 The Value Network

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 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?

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 Exhibit 3.8 An Activity System Map

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 Lessons Learned
from Activity Maps

Consistency and reinforcement

Difficulties of imitation

Trade-offs

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 Approaches to
Benchmarking

Historical benchmarking
Industry/sector benchmarking
Best-in-class benchmarking

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 SWOT Analysis

Strengths Weaknesses

Opportunities Threats

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 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 2008 3-32

 Developing
Strategic Capabilities

 Add and change  Exploit

 Extend  Cease

 Stretch  Develop externally

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 Case Example: eBay

 Analyse eBay’s strategic capability.

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