Capabilities and Competences
Capability-based strategies are based on the notion that internal
resources and core competencies derived from distinctive capabilities
provide the strategy platform that underlies a firm's long-term
profitability. Evaluation of these capabilities begins with a
company capability profile, which examines a company's strengths
and weaknesses in four key areas:
- managerial
- marketing
- financial
- technical
Then a SWOT analysis is carried out to determine whether the
company has the strengths necessary to deal with the specific
forces in the external environment. This analysis enables managers
to identify:
- external threats and opportunities, and
- distinct competencies that can ward off the threats and compensate
for weaknesses.
The picture identified by the SWOT analysis helps to suggest
which type of strategy, or strategic thrust the firm should use
to gain competitive advantage.
Stalk, Evans and Schulman (1992) have identified four principles
that serve as guidelines to achieving capability-based competition:
- Corporate strategy does not depend on products or markets
but on business processes.
- Key strategic processes are needed to consistently provide
superior value to the customer.
- Investment is made in capability, not functions or SBUs.
- The CEO must champion the capability-based strategy.
Capability-based strategies, sometimes referred to as the
resource-based view of the firm, are determined by (a) those
internal resources and capabilities that provide the platform
for the firm's strategy and (b) those resources and capabilities
that are the primary source of profit for the firm. A key management
function is to identify what resource gaps need to be filled
in order to maintain a competitive edge where these capabilities
are required.
Several levels can be established in defining the firm's overall
strategy platform (see figure).
At the bottom of the pyramid are the basic resources a firm
has compiled over time. They can be categorised as technical
factors, competitive factors, managerial factors, and financial
factors.
Core competencies can be defined as the unique combination
of the resources and experiences of a particular firm. It takes
time to build these core competencies and they are difficult
to imitate. Critical to sustaining these core competencies are
their:
- Durability - their life span is longer than individual product
or technology life-cycles, as are the life spans of resources
used to generate them, including people.
- Intransparency - it is difficult for competitors to imitate
these competencies quickly.
- Immobility - these capabilities and resources are difficult
to transfer.
References
- Rowe, Mason, Dickel, Mann, Mockler; "Strategic Management:
a methodological approach". 4th Edition, 1994. Addison-Wesley.
Reading Mass.
- Stalk, G Jnr., Evans, P. and Schulman, LE. 1992. "Competing
on capabilities: the new rules of corporate strategy". Harvard
Business Review, Vol.70, No. 2, March-April, pp. 57-70.
- Prahalad, CK. and Hamel, G. 1990. "The Core Competence
of the Corporation". Harvard Business Review, May-June,
pp. 79-91.
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