STRATEGIC MANAGEMENT

Topic 4
Strategic Position

STRATEGIC CAPABILITY
 Strategic Capability
 Strategiccapability can be defined as the
resources and competences of an organisation
needed for it to survive and prosper.
 TheResource-Based View (RBV) of strategy
underpins the concept of strategic capability
 Resource-based View
 Suggests that the competitive advantage and superior
performance of an organisation is explained by the
distinctiveness of its capabilities
 Key concepts that underpin the theory are
 organisations are not identical, but have different
capabilities; they are ‘heterogeneous’ in this respect.
 It can be difficult for one organisation to obtain or copy the
capabilities of another.
 an organisation will achieve competitive advantage on the
basis of capabilities that its rivals do not have or have
difficulty in obtaining.
Elements of Strategic Capability
A. Resources – can be stated as
Tangible resources : are the physical
assets of an organisation such as plant,
people and finance.
 Intangible resources are non-physical
:

assets such as information, reputation and

knowledge.
Resources (cont’d)
Categories of resources are:
i. Physical resources – such as the machines, buildings or the
production capacity of the organisation.
ii. Financial resources – such as capital, cash, debtors and creditors,
and suppliers of money (shareholders, bankers, etc.).
iii. Human resources – including the mix (for example, demographic
profile), skills and knowledge of employees and other people in an
organisation’s networks.
iv. Intellectual capital – as an intangible resource – includes patents,
brands, business systems and customer databases
 Elements of Strategic Capability (cont’d)
B. Competences
 These are the skills and abilities by which
resources are deployed effectively through an
organisation’s activities and processes.
 The efficiency and effectiveness of resources do
not only depend only on their existence, but also
on how they are managed
 i.e.how the organisation employs and deploys the
resources
 Elements of Strategic Capability (cont’d)
 Resources and competences can be further
categorised on the basis of their ability to
enable an organisation to gain competitive
advantage and superior performance i.e.
1. Threshold capabilities (i.e. resources and
competences)
2. Unique Resources and Core Competences
 Elements of Strategic Capability (cont’d)

RESOURCES COMPETENCES

THRESHOLD
CAPABILITIES Threshold Threshold
Resources competences
• Tangible
• Intangible
CAPABILITIES
FOR Unique Resources Core Competences
COMPETITIVE • Tangible
ADVANTAGE • Intangible
1. Threshold Capabilities (cont’d)
 Arethose needed for an organisation to meet the
necessary requirements to compete in a given market.
i. Threshold Resources: The resources needed to
meet customers’ minimum requirements and
therefore to continue to exist
ii. Threshold Competences: Activities and
processes needed to meet customers’ minimum
requirements and therefore to continue to exist
Threshold Capabilities (cont’d)

Challenges:
 Threshold levels of capability will change as critical
success factors change or through the activities of
competitors and new entrants
 Trade-offsmay need to be made to achieve the
threshold capability required for different sorts of
customers.
Unique Resources and Core
Competences
 Unique Resources: Are those resources that critically
underpin competitive advantage and that others cannot
easily imitate or obtain
 However, to achieve CA, there is need to have core
competences to deploy the unique resources
 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.
 Cost Efficiency (a strategic capability)
 It is a key strategic capability
 A basis for achieving competitive advantage
 Benefits customers in terms of
 Low prices
 More product features for same price
 However, more of threshold capability for many
organisations because
 Customers do not value product features at any price
 Competitive Rivarly
Cost Efficiency (cont’d)
 Effective management of costs requires attention to
the following cost drivers
i. Economies of scale
ii. Supply costs
iii. Product/Process Design
iv. Experience: key source of cost efficiency
 Described using the Experience Curve: the relationship between
the accumulated experience gained by an organisation and its
unit costs
 suggests that an organisation undertaking any activity develops
competences in this activity over time and therefore does it more
efficiently.
 Cost Efficiency (cont’d)
Experience curve (cont’d) – Implications
Growth is not optional in many markets
Unit costs should decline year on year as a
result of cumulative experience
First mover advantage can be important
 Capabilities for sustaining competitive
advantage
 Having strategic capabilities and manage cost
efficiencies and thereby gaining CA, how can
competitive advantage be sustained?

 Four criteria (RBV) have been suggested that

characterise capabilities for sustainable competitive
advantage:
Capabilities for sustaining competitive advantage
(Cont’d)

i. Valuable: Organisations must have

capabilities of value to their customers
ii. Rare: possession of a unique or rare
capability
iii. Inimitable: identifying capabilities that are
likely to be durable and which competitors
find difficult to imitate or obtain.
iv. Non-substitutable: not subject to
substitution by competitors
 DIAGONISING STRATEGIC CAPABILITY
A. VALUE CHAIN AND VALUE NETWORK
 Enables understanding of how competitive advantage can be
gained by delivering value to customers
 Focus on activities being undertaken to produce product or
service

B. BENCHMARKING
 It is a way of understanding how an organisation’s strategic
capability, in terms of internal processes, compare with those
of other organisations
 Value Chain
 Total revenues minus total costs of all activities undertaken
to develop and market a product or service to yield value
 Important to understand which activities which are important
and which are not
 Firms in a given industry have a similar value chain
 Value Chain Analysis:
 Aims to identify where low cost advantages or disadvantages
exist in the value chain
 Enables firms to better identify own strength and weaknesses
compared to competitors
 Value chain
 Comprises two sets of activities:
 Primary Activities: directly concerned with the creation or delivery of a
product or service
 Inbound logistics
 Operations
 Outbound logistics
 Marketing and Sales
 Service

 Support Activities
 Procurement
 Technology development
 Human resource management
 Infrastructure
 Value chain
 Importance of value chain analysis is that it helps
understand the strategic position of the organisation in
terms of
 Extent to which there is a cluster of activities
providing benefit to customers located within
particular areas of the values chain
 The cost and value of activities
 Benchmarking
 An analytical tool used to determine whether a firms value
chain activities are competitive compared to rivals
 Helps understand strategic capability in terms of internal
processes
 Involves measuring costs of value chain activities across an
industry to determine ‘best practice’ among competing firms
 Enables a firm to take action to improve its competitiveness
in terms of identifying and improving on value chain
activities
Approaches to Benchmarking
1. Historic Benchmarking
 Performance considered in relation to previous years in order to identify
any significant changes
 However, leads to complacency
2. Industry/sector benchmarking
 Performance standards compared with other organisation in the same
industry or sector against a set of performance indicators
 However,
 Whole industry maybe performing badly,
 Industry losing to other industries
 Blurring industry boundaries
Approaches to benchmarking
3. Best-in-class benchmarking
 Compares organisations performance against best-in-
class performance
 Helps challenge mind-set that acceptable improvements
will result from incremental changes in resources and
competences

 Benchmarking therefore should be considered in term of

the impact the comparisons might have on behaviours
i.e. the process for gaining momentum for improvement
and change
 Problems with benchmarking

 Measurement distortion: getting what you

measure but not what is intended strategically

 Surface comparisons: comparison of inputs,

outputs or outcomes but not the reasons for the
good or poor performance
 READING ASSIGNMENT
 SWOT
 MANAGING STRATEGIC CAPABILITY
 Limitations
 Development
 References

 https://www.google.com/search?
q=value+chain+of+a+hospital&tbm