Strategic Capabilities Purpose

Strategy
Session 2 & 3
Strategic Capabilities and Purpose
Indika Liyanahewage
MBA (PIM - SriJ), B. Sc. (Mgt. Sp.) Hons. (SriJ),
FCMA (UK), CGMA (UK),
Certified NLP Practitioner (Aus.), Certified NLP Coach (Aus.),
Time Line Therapy® Practitioner (Aus.), Hypnosis Practitioner (Aus.)
Session outline
• Strategic Capabilities
• Strategic Purpose
Strategy indika.liyanahewage@gmail.com 2
Strategic Capabilities
Strategic capability refers to the resources and Competences of
an organisation needed for it to survive and prosper.
Different to
Same as Competitor
Competitor and
and easy to copy
difficult to copy
Resources Basic Unique
Competences Threshold Core
• Resources: Physical, Human, Financial, Intangible.
These can be identified by 5M’s model.
Man, Methods, Money, Machinery, Material
• Competences: This is how resources are deployed.
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 .
Strategic capability should have VRIO
Do capabilities exist, that are valued by customers and

Valuable enable the organisation to respond to environmental
opportunities and threats?
Rare Do capabilities exist, that no (or few) competitors

possess?
Are capabilities difficult and costly for competitors to

Inimitability obtain and imitate?
Organisational support Is the organisation appropriately organised to exploit

the capabilities?
• Dynamic capabilities are an
organisation’s abilities to
renew and recreate its
strategic capabilities to meet
the needs of a changing
environment.
• Organisational knowledge is
the collective experience
accumulated through systems,
routines, and activities of
sharing across the
organisation.
If firms within the same industry tend to bunch together in
terms of profitability (as per 5 forces), it is industry that is
accounting for the greater proportion of profitability:
An external approach to strategy is supported (Generic

strategies).
If firms within the same industry vary widely in terms of

profitability, it is the specific skills and resources of the
firms that matter most:
An internal approach is most appropriate (Competency

based strategies).
Case study 3 (p. 81)
indika.liyanahewage@gmail.com Strategy 9
Diagnosing Strategic Capability
Value chain/
Activity maps
Value network
Benchmarking SWOT analysis
Value
Value Vs. Price
“Value is the amount buyers are willing to pay for

what a firm provides them”
- Michael E. Porter
Porter’s Value Chain (VC) Value chain/
Value network
Activity maps
Primary activities
• Inbound logistics: Refers to goods being obtained from the
organisations suppliers ready to be used for producing the end product.
• Operations: The raw materials and goods obtained are manufactured
into the final product. Value is added to the product at this stage as it
moves through the production line.
• Outbound logistics: Once the products have been manufactured they
are ready to be distributed to distribution centres, wholesalers, retailers
or customers.
• Marketing and Sales: Marketing must make sure that the product is
targeted towards the correct customer group. The marketing mix is
used to establish an effective strategy; any competitive advantage is
clearly communicated to the target group by the use of the promotional
mix.
• After sales Services: After the product/service has been sold what
support services does the organisation have to offer. This may come in
the form of after sales training, guarantees and warranties.
Support Activities
The support activities assist the primary activities in helping the organisation achieve its
competitive advantage. They include:
• Procurement: This department must source raw materials for the organisation and obtain
the best price for doing so. For the price they must obtain the best possible quality
• Technology development: The use of technology to obtain a competitive advantage
within the organisation. This is very important in today’s technological driven
environment. Technology can be used in production to reduce cost thus add value, or in
research and development to develop new products, or via the use of the internet so
customers have access to online facilities.
• Human resource management: The organisation will have to recruit, train and develop the
correct people for the organisation if they are to succeed in their objectives. Staff will have
to be motivated and paid the ‘market rate’ if they are to stay with the organisation and
add value to it over their duration of employment. Within the service sector eg airlines it is
the ‘staff’ who may offer the competitive advantage that is needed within the field.
• Firm infrastructure: Every organisations needs to ensure that their finances, legal
structure and management structure works efficiently and helps drive the organisation
forward.
Margin is the difference between total value and the collective cost of performing
the value activities
Value chain/
VC can be used to understand the strategic

Activity maps
Value network
position of an Organisation and analyse Benchmarking SWOT analysis
Strategic capabilities in three ways
1. As a general description of activities
2. In analysing competitive position of the organisation

using VRIO
3. To analyse cost and value of activities
• A value network is the set of
Value chain/
Activity maps
Value network
interorganizational links and relationships that Benchmarking SWOT analysis
are necessary to create a product or service.
a) Which activities are

central important to
organisation’s
strategic capability?
b) Where are the profit

pools?
c) What should be
outsourced?
d) Who might be the

best partners in the
parts of the value
network?
Activity map Value chain/
Value network
Activity maps
Benchmarking Value chain/
Value network
Activity maps

• This is the ‘establishment, through data gathering, of targets
and comparators, through whose use relative levels of
performance (and particularly areas of underperformance)
can be identified. By adoption of identified best practices it
hopes that performance will improve. – CIMA Official
terminology.
• According to Saber there are three basic types of

benchmarking;
a) Internal
b) Competitor / Industry
c) Process / Activity / Best practice / Functional
SWOT Value chain/
Value network
Activity maps
• Confrontation Questions (TOWS Matrix)

• For each Opportunity - which strength helps us to take advantage of
this, and which weakness inhibits us from doing so.
• For each Threat - which strength helps us to fight this, and which
weakness inhibits us from doing so.
S W
Strategic Purpose
How external pressures and internal aspirations interact in a setting of
organizational purpose?
Ownership
Stakeholders
Strategic
purpose
Social Responsibility
Governance
Strategic Purpose (Goals hierarchy)
Long term
Values
Vision
Mission
Goals
Objectives
Short term
Terms Definition
Desired future state. The aspirations of the organisation

 “We Have Just Begun" – Apple Inc.
Vision  “To become the world's leading company for automotive
products and services”. – FORD motor corporation

Overriding purpose in line with the values and expectations of

the stake holders. What business are we in?
 "To produce high-quality, low cost, easy to use products
that incorporate high technology for the individual. We are
Mission proving that high technology does not have to be
intimidating non computer experts." – Apple Inc.
 We are a global, diverse family with a proud heritage,
passionately committed to providing outstanding products
and services. – FORD motor corporation

General statement of aim or purpose

Goals  Increase market share

Quantification (if possible) or more precise statement of the
Objectives goal. (SMART)
 Increase market share by 10% in 2011 in the European market

• Values – What is considered to be important to you
(underlying principles that guide an organization’s strategy)
• Ethics – What is considered to be good or bad (Code of Conduct)
• Believes – What is considered to be true or false
• Morals – What is considered to be right or wrong
• Norms – Guidelines of individual behavior
Long term
Values
Vision
Mission
Goals
Objectives
Short term
Corporate
Centre of
Corporate strategy Corporate starategy
organization
Business/Tactical strategy Tactical/Business

SBU strategy
SBU SBU
Functional/Operational strategy Finance Marketing

Operational/FunctionalHR
strategy
strategy
strategy strategy
Individual performance targets
Business Ownership
Sole Proprietorship
Partnership
Corporation
Co-operative
Stakeholders
• Stakeholders are
those individuals or
groups who depend
on an organisation to
fulfil their own goals
and on whom, in turn,
the organisation
depends
• Anyone who is
interested in activities
of an organization
• Internal
• Connected
• External
What is Stakeholder Mapping?
Stakeholder
mapping identifies
stakeholder
expectations and
power and helps in
understanding
political priorities.
Mendelow Matrix
Questions Addressed with Stakeholder Mapping
• In determining purpose and strategy, which stakeholder

expectations need to be most considered?
• Do the actual levels of interest and power reflect the

corporate governance framework?
• Who are the key blockers and facilitators of strategy?
• Is it desirable to reposition certain stakeholders?
• Can level of interest or power of key stakeholders be

maintained?
What is Power?
Power is the ability of individuals or groups to persuade, induce, or

coerce others into following certain courses of action.
Sources of Power- French and Raven
Resolving competing stakeholder objectives
Cyert and March suggest four ways to resolve conflicting stakeholder

objectives.
• Satisficing involves negotiations between key stakeholders to arrive at an acceptable

compromise.
• Sequential attention is when management focus on stakeholder needs in turn. For

example, staff may receive a pay rise with the clear implication that it will not be their ‘turn’
again for a few years and so they should not expect any further increases.
• Side payments are where a stakeholder’s primary objectives cannot be met so they are
compensated in some other way. For example, a local community may object to a new
factory being built on a site that will cause pollution, noise and extra traffic. The firm
concerned may continue to build the factory but try to appease the community by also
building local sports facilities.
• Exercise of power is when a deadlock is resolved by a senior figure forcing through a

decision simply based on the power they possess.
Social Responsibility
Corporate social responsibility (CSR) is concerned with the ways in
which an organisation exceeds its minimum obligations to
stakeholders specified through regulation.
“Breastfeeding is unparalleled
in providing the ideal food for
infants. The optimal way to
feed a baby is exclusive
breastfeeding for the first
six months followed by
breastfeeding combined
with complementary foods
until the child is two
years old…”
– A 2007 Save the Children

report
Carroll’s CSR model
Governance
• Corporate governance is
concerned with the
structures and systems of
control by which
managers are held
accountable to those who
have a legitimate stake in
an organisation
• In other words, how
organisations are directed
and controlled
• Similar to, Principal –
Agent model. Principals
pay agents to act on their
behalf
Obligations of the Board of Directors
• Critically appraise the firm’s direction, strategy,
and business approaches. Effective corporate
governance requires
• Evaluate the caliber of senior executives’ the board of
directors to oversee
strategic leadership skills.
the company’s
• Institute a compensation plan that rewards top strategic direction,
evaluate its senior
executives for actions and results that serve executives, handle
executive
stakeholder interests—especially shareholders. compensation, and
oversee financial
• Oversee the firm’s financial accounting and reporting practices.
reporting practices
Benefits and Disadvantages of Governance
According to Cadbury report (1992) “This is the system by which
companies are directed and controlled”. Corporate governance has
become an important topic due to several reasons
• Increasing globalisation and internationalisation of businesses

• Deteriorating stakeholder confidence on financial reporting
• Increasing number of high profile corporate scandals
E.g.: Enron, Sakvithi, Golden Key etc…
The principles of Corporate governance code relate to;

• Leadership
• Effectiveness
• Accountability
• Remuneration
• Relations with shareholders
Some of the recommended practices of ensuring good
Corporate Governance (Insights of Combined code)
I. Separating chairman and the chief executive roles

II. Good balance of executive and non-executive directors on the
board
III. Clear formal procedure for appointment and removal of directors
(E.g.: appointment by re-election)
IV. Directors remunerations to be decided by a remuneration
committee
V. Audit committees to liaise with auditors
VI. Regular and proper AGMs and shareholder ratification of key
resolutions
VII. Whistle-blower protection provisions

Strategic Capabilities Purpose

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Strategy

Resources Basic Unique

Competences Threshold Core

• Competences: This is how resources are deployed.

What are Core Competences?

Do capabilities exist, that are valued by customers and

Rare Do capabilities exist, that no (or few) competitors

Are capabilities difficult and costly for competitors to

Organisational support Is the organisation appropriately organised to exploit

An external approach to strategy is supported (Generic

If firms within the same industry vary widely in terms of

An internal approach is most appropriate (Competency

Benchmarking SWOT analysis

Value Vs. Price

“Value is the amount buyers are willing to pay for

Benchmarking SWOT analysis

VC can be used to understand the strategic

position of an Organisation and analyse Benchmarking SWOT analysis

Strategic capabilities in three ways

1. As a general description of activities

2. In analysing competitive position of the organisation

3. To analyse cost and value of activities

interorganizational links and relationships that Benchmarking SWOT analysis

are necessary to create a product or service.

a) Which activities are

b) Where are the profit

d) Who might be the

Benchmarking SWOT analysis

Benchmarking SWOT analysis

• According to Saber there are three basic types of

c) Process / Activity / Best practice / Functional

Benchmarking SWOT analysis

• Confrontation Questions (TOWS Matrix)

Desired future state. The aspirations of the organisation

Overriding purpose in line with the values and expectations of

General statement of aim or purpose

(underlying principles that guide an organization’s strategy)

• Ethics – What is considered to be good or bad (Code of Conduct)

• Believes – What is considered to be true or false

• Morals – What is considered to be right or wrong

• Norms – Guidelines of individual behavior

Business/Tactical strategy Tactical/Business

Functional/Operational strategy Finance Marketing

Individual performance targets

• In determining purpose and strategy, which stakeholder

• Do the actual levels of interest and power reflect the

• Who are the key blockers and facilitators of strategy?

• Is it desirable to reposition certain stakeholders?

• Can level of interest or power of key stakeholders be

Power is the ability of individuals or groups to persuade, induce, or

Sources of Power- French and Raven

Cyert and March suggest four ways to resolve conflicting stakeholder

• Satisficing involves negotiations between key stakeholders to arrive at an acceptable

• Sequential attention is when management focus on stakeholder needs in turn. For

• Exercise of power is when a deadlock is resolved by a senior figure forcing through a

– A 2007 Save the Children

• Increasing globalisation and internationalisation of businesses

The principles of Corporate governance code relate to;

I. Separating chairman and the chief executive roles

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