A key question we often raise with our Strategy Explorer clients when they are thinking about their strategy is: what should that strategy be built on ?
Should it be built on market opportunity or the strategic capabilities of the organization ?
In Exploring Corporate Strategy, we show how the identification of competences can be linked to an analysis of the competitive position of an organization. Separately, there is a white paper on competitor analysis on this website. What follows are edited extracts from chapter 3 of Exploring Corporate Strategy on competence analysis.
Unique resources and core competences
Having or creating a basis competitive advantage in a market is likely to be the basis of superior performance. Competitive advantage is dependent on an organisation having distinctive or unique capabilities that competitors will find difficult to imitate. This could be because the organisation has unique resources that underpin competitive advantage and that others cannot imitate or obtain – a long established brand, for
example. It is, however, more likely that an organisation achieves competitive advantage because it has distinctive, or core, competences.
The concept of core competences was developed, most notably by Gary Hamel and C.K. Prahalad. While various definitions exist, here core competencesi are taken to mean the skills and abilities by which resources are deployed through an organisations’s activities and processes such as to achieve competitive advantage in ways that others cannot imitate or obtain. For example, a supplier that achieves competitive advantage in a retail market might have done so on the basis of a unique resource such as a powerful brand, or by finding ways of providing service or building relationships with that retailer in ways that its competitors find difficult to imitate – a core competence. But how can executives identify such competences?
Managers often find it difficult to identify with any clarity the strategic capability of their organisation. Too often they highlight capabilities not valued by customers but seen as important within the organisation, perhaps because they were valuable in the past. Or they highlight what are, in fact, critical success factors (product features particularly valued by customers) like ‘good service’ or ‘reliable delivery’, whereas strategic capability is about the resources, processes and activities that underpin the ability to meet such critical success factors. Or they identify capabilities at too generic a level. This is not surprising given that strategic capability may well be embedded in a complex set of linked activities. But if they are to be managed proactively, finding a way of identifying and understanding capabilities and the linkages that are likely to characterise competences is important.
One way of undertaking such diagnosis is by means of an activity map that tries to show how the different activities of an organisation are linked together. In chapter 3 of Exploring Corporate Strategy we use the example of a plastics manufacturer we refer to as Plasco. There are computer programs in existence that can be used for activity mapping; or it can be done more basically, for example by drawing network diagrams, as shown in Exhibit 1. This map was generated by groups of managers from within the organisation, working with a facilitator, mapping the activities of their organisation on a large blank wall initially by using Post-its®.
Exhibit 1:An Activity Systems Map (extract)