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Strategic
Position

Environm
ent

Strategic Strategy Strategic

choices Capability Purpose
in Action Position

Culture

Step 1 – The Strategic Position

Strategic Capabilities

Strategic capabilities: the key issues

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Resource-based strategy
 The resource-based view (RBV) of strategy: the
competitive advantage and superior performance of
an organisation are explained by the distinctiveness
of its capabilities.

 contends that internal resources are more

important for a firm than external factors in
achieving and sustaining competitive advantage

 It is sometimes also called the ‘capabilities view’

The Resource-Based View (RBV)

 For a resource to be valuable, it must be either
◦ rare,
◦ hard to imitate, or
◦ not easily substitutable.

 These three characteristics of resources enable a

firm to implement strategies that improve its
efficiency and effectiveness and lead to a sustainable
competitive advantage.

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Resources and competences

 Strategic capabilities are the capabilities of an
organisation that contribute to its long-term survival
or competitive advantage.

 ….also the resources and competences of an

organisation needed for it to survive and prosper

Resource Categories

Physical Financial
resources resources

Human Intellectual
resources capital

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Resources and competences

 Resources: assets that organisations have or can call
upon (e.g. from partners or suppliers),
that is ‘what we have’ (noun)
 Competences: ways (skills/abilities) those
assets/resources are used or deployed effectively,
that is ‘what we do well’ (verb)

❖Tangible Resources: physical assets of an

organisation such as plant, people and finance

❖Intangible resources: non-physical assets such as

information, reputation and knowledge

Components of strategic capabilities

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Strategic capability: the terminology

Threshold v.s distinctive capabilities

 Threshold capabilities are those needed for an
organisation to meet the necessary requirements
to compete in a given market and achieve parity
with competitors in that market –
‘qualifiers’.

 Distinctive capabilities are those that are

required to achieve competitive advantage.
Unique capabilities that are of value to customers
and which competitors find difficult to imitate –
‘winners’.

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Core competences
Core competences are the linked set of skills,
activities and resources that, together:

 deliver customer value

 differentiate a business from its competitors
 Provides competitive advantage in ways that
others cannot imitate or obtain

The VRIO model

 VRIO framework is the tool used to analyze firm’s
internal resources and capabilities to find out if they can be
a source of sustained competitive advantage.
 The four key criteria by which capabilities can be assessed
in terms of providing a basis for achieving sustainable
competitive advantage are:

 value
 rarity
 inimitability and VRIO
 organisational support

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VRIO

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V – Value of strategic capabilities

Strategic capabilities are of value when they:

 take advantage of opportunities and neutralise

threats
 provide value to customers
 are provided at a cost that still allows an
organisation to make an acceptable return.

R – Rarity
 Competitive advantage might be achieved if a competitor possesses
a unique or rare capability. (unique/rare resources and
competences)
 Ease of transferability - Rare capabilities are those possessed
uniquely by one organisation or only by a few others.
(E.g. a company may have patented products, have supremely
talented people or a powerful brand.)
 Sustainability - Rarity could be temporary. (E.g. Patents expire,
key individuals can leave or brands can be de-valued by adverse
publicity.)

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I – Inimitability
Inimitable capabilities are those that competitors find difficult and
costly to imitate, to obtain or to substitute.
 Competitive advantage can be built on unique resources (a key
individual or IT system) but these may not always be sustainable
(key people leave or others acquire the same systems).
 Sustainable advantage is more often found in competences
(the way resources are managed, developed and deployed) and
the way competences are linked together and integrated.

 Non-substitutability of strategic capabilities

(product/service substitution & Competence substitution)

O – Organisational support

 The organisation must be suitably organised to support the

valuable, rare and inimitable capabilities that it has.
◦ Suitable and appropriate management systems, processes, policies,
organizational structure and culture to be able to fully realize the
potential

 If not there is NO sustainable competitive advantage to be

gained from strategic capabilities

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The VRIO framework

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Benchmarking
 ….. is a means of understanding how an organisation’s
strategic capability, in terms of internal processes, compare
with those of other organisations.

 regarded as a process for gaining momentum for

improvement and change.

Types of Benchmarking
 Historical benchmarking - Organisations may consider their
performance in relation to previous years in order to identify
any significant changes.

 Industry/sector benchmarking – comparing performance

against other organisations in the same industry/sector against a
set of performance indicators
 Best-in-class benchmarking – comparing an organisation’s
performance or capabilities against ‘best-in-class’ performance –
wherever that is found even in a very different industry.
(E.g. BA benchmarked its refuelling operations against Formula 1)

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The value chain

 The value chain describes the categories of activities within
an organisation which, together, create a product or service.
 every activity performed within an organisation adds some
value to the final product or service
 The value chain consists of 5 primary activities (which are
directly concerned with the creation or delivery of a product
or service) and 4 support activities (which help to improve the
effectiveness or efficiency of primary activities).

 Competitive advantage can be analysed in any of these

activities.

The value chain (2)

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by
Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved.

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Primary activities
 Inbound logistics are activities concerned with receiving,
storing and distributing inputs to the product or service
including materials handling, stock control, transport, etc.

 Operations transform these inputs into the final product

or service: machining, packaging, assembly, testing, etc.

 Outbound logistics collect, store and distribute the

product to customers, for example warehousing, materials
handling, distribution, etc.

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 Marketing and sales provide the means whereby

consumers/users are made aware of the product or
service and are able to purchase it. This includes
sales administration, advertising and selling.

 Service includes those activities that enhance or

maintain the value of a product or service, such as
installation, repair, training and spares.

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Support activities
 Procurement - the processes that occur in many
parts of the organisation for acquiring the various
resource inputs to the primary activities.

 Technology development - all value activities have

a ‘technology’, even if it is just know-how.
◦ Technologies may be concerned directly with a product
(for example, R&D, product design) or with processes
(for example, process development) or with a particular
resource (for example, raw materials improvements).

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 Human resource management - concerned

with those activities involved in recruiting,
managing, training, developing and rewarding people

 Infrastructure - formal systems of planning,

finance, quality control, information management,
and the structures and routines that are part of an
organisation’s culture

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Primary Inbound logistics Operations Outbound Sales Service

activities logistics
Support
Activities
Organisational just-in- time Wastage Tight stock Invoicing speed Turnaround time
systems ordering monitoring and control systems and accuracy, for customer
control debt collection enquiries/
complaints

Human resources Skilled buyers Skilled Skitted physical Sales force size Training staff in all
management operators& distribution team and skills aspects of
technicians for customer
preventive orientation
maintenance

Technology On-line sup liers Strong process Excellent pallet On-line customer Use of a toll-free
support ordering technology(R & loading system ordering system number for
D) customers

Procurement Low cost, reliable Acquisition of Containers, Quality and Stock of spares
suppliers suitable physical pallets availability of
distribution sales/advertising
equipment brochures and
price lists, etc

Marketing Marketing Inter changeable Freight contracts, Wide disribution Sale or return
research to modules to Fleet network service
identify real create product management
customer needs variety

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The Value Network

 The value network comprises the set of
inter-organisational links and relationships that are
necessary to create a product or service.

 Eg: much of the cost and value creation will occur in

the supply and distribution chains
 how can we manage these linkages and relationships
to improve customer value?
 Competitive advantage can be derived from
linkages within the value system.

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The Value Network

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by
Michael E. Porter. Copyright © 1985, 1998 by Michael E. Porter. All rights reserved.

Uses of the value chain

 A generic description of activities – understanding
how the discrete activities (or clusters of linked
activities) contribute to consumer benefit
 Identifying activities where the organisation has
particular strengths or weaknesses

 Analysing the competitive position of the

organisation using the VRIO criteria – thus identifying
sources of sustainable advantage
 Looking for ways to enhance value or decrease
cost in value activities (e.g. outsourcing)

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Uses of the value Network

 Understanding cost/price structures across the value
system – analysing the best area of focus and the best
business model
 Identifying ‘profit pools’ (i.e. The levels of profit in different
parts of the system) – seeking ways to use existing capabilities
in order to exploit these
 The ‘make or buy’ decision – which activities to do
‘in-house’ and which to outsource
 Partnering – deciding who to work with and the nature of
these relationships.

SWOT analysis

 The analysis of strengths and weaknesses, in

relation to environmental opportunities and
threats is termed as SWOT analysis

 All opportunities give rise to the potential for

an organisation to better satisfy customer needs

 All threats give rise to the potential for an

organisation to be less positioned to satisfy
customer needs
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SWOT analysis
Analysis of
organisational
strengths and
weaknesses
will indicate
the ability of
the organisation
to respond to
these
potentials

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Uses of SWOT analysis

 Major strengths and weaknesses are identified
using the analytic tools.
 Scoring (e.g. + 5 to −5) can be used to assess the
interrelationship between environmental impacts and
the strengths and weaknesses.
 SWOT can be used to examine strengths,
weaknesses, in relation to competitors.

 Focus on strengths and weaknesses that differ in

relative terms compared to competitors and leave
out areas where the organisation is at par with
competitors.

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Uses of SWOT analysis

 Key opportunities and threats are identified using
the different analytical tools
 Focus on opportunities and threats that are directly
relevant for the specific organisation and industry
and leave out general and broad factors.
 Finally, summarise the results and draw concrete
conclusions.

 SWOT can be used to generate strategic options –

using a TOWS matrix.

The TOWS matrix

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Dangers in a SWOT analysis

 Long lists with no attempt at prioritisation.

 Over generalisation – sweeping statements often based

on biased and unsupported opinions.

 SWOT is used as a substitute for analysis – it should

result from detailed analysis using the different
frameworks

 SWOT is not used to guide strategy – it is seen as an

end in itself.

Limitations in Managing
Strategic Capabilities

 Competences valued but not understood

 Competences are not valued
 Competences are recognised, valued, and
understood

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