Manufacturology

What are strategic capabilities?

The con­cept of capa­bil­i­ties in strate­gic man­age­ment is appeal­ing because it sug­gests that a company’s com­pet­i­tive­ness depends on how it does what it does, not only what mar­ket it is in. To me and most oth­ers with an engi­neer­ing back­ground this is totally obvi­ous. Any the­ory that sug­gests oth­er­wise seems highly implau­si­ble and is also rejected by numer­ous exam­ples of com­pa­nies with strong and unique engi­neer­ing skills that man­age to cre­ate a mar­ket for them­selves based on their own capabilities.

That is not to say that choice of mar­ket is unim­por­tant, but a bril­liant plan can eas­ily be ruined if the nec­es­sary capa­bil­i­ties are lack­ing. Sim­i­larly, a plan which may appear mediocre on paper may become highly suc­cess­ful if con­ducted by a team with excel­lent capa­bil­i­ties. Oper­a­tions mat­ter, and devel­op­ing capa­bil­i­ties that make oper­a­tions suc­cess­ful is a highly strate­gic issue.

A key ele­ment of the capa­bil­i­ties frame­work is iden­ti­fi­ca­tion of the foun­da­tions on which dis­tinc­tive and difficult–to–replicate advan­tages can be built, main­tained and enhanced (Teece et al. 1997). To my sat­is­fac­tion, the cited authors also found that “The bal­ance sheet is a poor shadow of a firm’s dis­tinc­tive com­pe­tences.” Instead, it is nec­es­sary to develop capa­bil­i­ties that help the com­pany to cre­ate com­pet­i­tive advan­tage. This process takes time, and unique and deeply rooted capa­bil­i­ties can­not be bought off–the–shelf.

I would like to offer the fol­low­ing definitions:

Strate­gic capa­bil­i­ties: High–level rou­tines, resources and com­pe­tences that are recog­nised as impor­tant in order to cre­ate and sus­tain a com­pet­i­tive advantage.

Oper­a­tional capa­bil­i­ties: High–level rou­tines, resources and com­pe­tences that yield the firms oper­a­tional functions.

Dynamic capa­bil­i­ties: High–level rou­tines, resources and com­pe­tences that allows a firm to mod­ify its exist­ing oper­a­tional capabilities.

I’m not tak­ing these def­i­n­i­tions out of thin air, please check out chap­ter 3 of my the­sis (PDF, 931kB) if you’re inter­ested in read­ing more. How­ever, you should not take these def­i­n­i­tions as carved in stone. My view, and oth­ers’ too I think, of this sub­ject is con­stantly evolving.

Essen­tially, strate­gic capa­bil­i­ties express what a firm wants to be able to do, while oper­a­tional capa­bil­i­ties deter­mine what it is actu­ally able to do. Dynamic capa­bil­i­ties express the capa­bil­ity to close the gap between exist­ing oper­a­tional capa­bil­i­ties and desired strate­gic capabilities.

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