Strategic capabilities

Strategic capabilities include 4 various dimensions of company resources:

• economic capabilities - productive factors, investment projects and market ventures, management strategies, financial policy, marketing activities, division of labour, adaptation processes, business capabilities
• human capabilities - employees of the company, employee mobility, work efficiency and production capacity, work atmosphere, professional qualifications, career and managerial care system, quality of work, labour costs, organizational development, development of managerial staff
• information capabilities - communication system, databases, reporting, management information system
• technical capabilities - research and development competences, quality of products and processes, operational activity efficiency, organizational capabilities

Strategic capabilities in support of competitive advantage

Management needs strategic capabilities to support value-creating strategies to establish competitive advantage, with the goal of creating a sustained financial performance. Porter argues that companies use strategic capabilities to create three key functions that allow them to obtain a sustained competitive advantage:

• Operational effectiveness, which means performing certain activities better than competition (faster or with fewer resources),
• Strategic positioning, which is a unique and valuable position in the market place that allows a company to differentiate from competition. Strategic positioning is key as it is aimed to "achieve sustainable competitive advantage by preserving what is distractive about a company." Simply put, it means engaging in different activities than competition or engaging in similar activities but in different ways,
• Operational "fit," which is necessary to ensure that processes interact and reinforce each other.

Not all strategic capabilities or firm resources have the potential to create a competitive advantage or sustained financial performance. Barney argues that a firm resource must have the following key attributes to be able to accomplish that:

• It must be valuable - the resource exploits opportunities (helps in executing new strategies that improve efficiency and effectiveness) or protects from threats from the external environment,
• it must be rate - the current or future competition does not have it. This could entail a bundle of resources that are unique to the company and which competitors lack,
• it is "imperfectly imitable" - competitors are not able to copy the idea/resource. These resources are present when a company is innovating, and competitors are not able to copy the innovation because they lack appropriate technological capabilities to do so,
• there are no substitutes for the resource

Studies have been completed to determine the impact of a firm's environment on its competitive position. Certain studies suggest that companies must continuously change or evolve their strategic capabilities when faced with technological uncertainties and rapidly changing environment. Teece argues that only those companies that have dynamic capabilities may create a sustained competitive advantage. Management must be willing to update and redesign existing strategic capabilities to be able to seize opportunities arising from technological and environmental changes and keep up with evolving customer needs.

Limitations of Strategic capabilities

Strategic capabilities include four various dimensions of company resources: physical assets, human resources, knowledge resources, and organizational processes. Limitations of these capabilities include:

• Physical assets: Companies may lack the necessary physical assets to compete in their industry, such as new production machinery or a large enough facility.
• Human resources: Companies may not have the right personnel to implement the strategy, or may not be able to retain skilled employees.
• Knowledge resources: Companies may not have the data or information needed to develop a successful strategy.
• Organizational processes: Companies may lack the organizational structure to effectively implement their strategy, or may not have a process for assessing the success of their strategy.

Other approaches related to Strategic capabilities

This list presents four various dimensions of company resources related to strategic capabilities:

• Human resources - Human resources are the people that make up the workforce of an organization, business sector, or economy. This includes the capabilities, knowledge, and experience of the individuals within the organization, as well as the collective capabilities of the organization as a whole.
• Financial resources - Financial resources is a term used to describe the financial assets of an organization, such as cash, credit, investments, and other capital. This can also include the ability to access capital markets and credit.
• Physical resources - Physical resources include the tangible assets that a company owns, such as equipment, buildings, and machinery.
• Organizational resources - Organizational resources are the processes, policies, and structures that enable a company to operate and to achieve its goals. This includes the organization's culture and its organizational design.

These four various dimensions of company resources are important components of strategic capabilities, as they enable companies to make the most of their available resources and to develop strategies to achieve their goals. By understanding these resources and how to use them strategically, companies can position themselves for success.

Strategic capabilities — recommended articles

Organizational strategy — Learning and development perspective — Importance of knowledge — Growth potential — Sustainable competitive advantage — Learning organization — Knowledge capital — Resource based view — Chief innovation officer

References

• Barney, J. (1991). Firm Resources and Sustained Competitive Advantage, Journal of Management, Vol. 17, No. 1. Defining key concepts, 99-100, 105-108.
• Di Benedetto, C. A., DeSarbo, W. S., & Song, M. (2008). Strategic capabilities and radical innovation: an empirical study in three countries. IEEE Transactions on Engineering Management, 55(3), 420-433.
• Porter, M. (1996). What Is Strategy?, Harvard Business Review. November - December 1996 Issue. The idea in brief, The idea in practice, 3.
• Teece, D. (2007). Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance, Strategic Management Journal, 28: 1319-1350. Introduction, Conclusion, p. 1319, 1346.

Footnotes

Author: Urszula Szydłowska