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Organisational capabilities

Every successful organisations is capable enough to fit into their competitive environment. In this section, we shift the emphasis from the external to the internal context of strategy: the resources that an organisation possesses, or needs to possess, as the basis for a robust strategy. We will be looking at:
  1. what are the organisational capabilities, and its important networks of relationships
  2. how relevant they are to the objectives of the organisation
  3. what new capabilities and relationships may be needed over time
  4. how these should be built or acquired.

Organisational capabilities are also often referred to as organisational competencies, although strictly a capability refers to the potential and competence suggests an applied and well-practised capability. By capabilities we mean an organisation's capacity to engage in a range of productive activities. All organisations possess unique bundles of resources, and it is how these resources are used that determines differences in performance between organisations. Resources are not productive in themselves - they need to be converted into capabilities by being managed and co-ordinated.

It is these resultant capabilities that, if hard to imitate, are the main source of competitive advantage. Strategy, from the resource perspective, is therefore about choosing among and committing to long-term paths of capability development. Best organisations always possess a hand-in-hand relationship between resources, capabilities and competitive advantage.

To confer competitive advantage on an organisation, organisational capabilities need to have a number of properties:
  1. Inimitability

    They should be difficult for other organisations to imitate or acquire. For example, if key capabilities rest on the competence of particular individuals, other organisations may tempt them away with a better offer. By contrast the capability to generate effective learning within the organisation may be rather harder to copy or buy.
  1. Durability

    They should be durable. For example, many technological innovations are quickly superseded by new developments. An individual technological innovation may be too short-lived to confer real advantage. However, the capability to generate technological innovations may confer a more lasting advantage.
  2. Relevance

    They should be relevant. For example, in the banking sector, the size of the branch network used to be a key source of strategic advantage. Those banks that were able to deliver services geographically close to the customer were more likely to secure their business. As telephone and Internet banking become more prevalent, branch networks become less strategically relevant.
  3. Appropriability

    Not all profits generated by a resource flow to the owner of that resource. The division of the value generated is subject to negotiation between the organisation, its employees, customers, suppliers, distributors and partners. For example, a farming business that develops organisational capabilities to produce more cheaply may reap some benefits in increased profitability but, faced with powerful retail chains as its customers, it may come under pressure to pass on much of the cost savings to them. This will result partly in increased profits for the retail chains and partly in reduced prices for the consumer. Similarly, capabilities that rest on the skills of individual employees may result in the organisation having to pay a large proportion of the value generated to those employees in order to keep them from taking jobs elsewhere.
John Kay (an influential economist and writer on business strategy) identifies three main classes of organisational capability that meet the above criteria: innovation, architecture and reputation.
  1. Innovation

    : Innovation is an obvious source of distinctive capability, but it is much less often a sustainable or appropriable source because successful innovation quickly attracts imitation. Maintaining an advantage is most easily possible for those few innovations for which patent protection is effective. There are others where process secrecy or other characteristics make it difficult for other firms to follow. More often, turning an innovation into a competitive advantage requires the development of a whole range of supporting strategies.
  2. Architecture

    : What appears to be competitive advantage derived from innovation is frequently the return to a system of organisation capable of producing a series of innovations. This is an example of a second distinctive capability which I call architecture. Architecture is a system of relationships within the firm, or between the firm and its suppliers or customers, or both. Generally the system is a complex one and the content of the relationships implicit rather than explicit. The structure relies on continued mutual commitment to monitor and enforce its terms. A firm with distinctive architecture gains strength from the ability to transfer information which is specific to the firm, product or market within the organisation and to its customers and suppliers. It can also respond quickly and flexibly to changing circumstances. It has often been through their greater ability to develop such architecture that Japanese firms have established competitive advantage over their American rivals.
  3. Reputation

    : A third distinctive capability is reputation. Reputation is, in a sense, a type of architecture but it is so widespread, and so important, that it is best to treat it as a distinct source of competitive advantage. Easier to maintain than create, reputation meets the essential conditions for sustainability. Indeed an important element of the strategy of many successful firms has been the transformation of an initial distinctive capability based on innovation or architecture to a more enduring one derived from reputation.

Marketing decision models


Business strategies definition

  1. Market and product development
    1. Beta testing
    2. Market research testing
    3. Commercialization of a product
      This is often considered post-NPD (New Product Development).
  2. Business and revenue model
  3. Positioning and differentiation
  4. Multi channel distribution
    'With each new sales channel, a company expands its sales and market coverage'.
  5. Multi channel communication
    The goal of writing multi channel communication plan is to get an audience to invest their time, money or efforts in a product or service.
  6. Marketing communication mix
    The importance of online service for some organisations are indicated by bank Nationwide.
  7. Organisational capabilities
  1. Idea generation
    1. Opportunity analysis
      The strategy of assessing the potential for a change or enhancement to enhance the generation of revenue.
  2. Idea screening
  3. Business analysis
    1. Break even analysis
    2. Benefits of break even analysis
    3. Fourt Woodlock equation
      The tool used to determine whether the product idea will be profitable or not.
  4. Critical path analysis
  5. How to make critical path analysis?
  6. Critical path in business
  7. Logistics strategic plan
    Logistics is how to get raw materials, move them in the system, distribute and replace them.
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