When will Strategic Capabilities Bring Sustainable Competitive Advantage?

1.0 Introduction

Today’s business environment is highly competitive, challenging and complex, a reason why every firm has to focus on defeating competition, and attracting and retaining customers. This requires having strategic capabilities (resources and competences) that offer a competitive advantage over rivals. This implies that a firm must look for ways of acquiring resources and competences that will enable it have such competitive advantage over a long period of time—competitive advantage should be sustainable.

The most valuable strategic capability is knowledge and is given key attention in this article in section 2.0, subsection 2.2. Within the section, the article also discusses threshold resources and competences, and unique resources and core competences as components of strategic capability. After the discussion, conclusion is given in section 3.0. Then references are provided at the end of the article.

2.0 Using Strategic Capabilities to Achieve Competitive Advantage

2.1 Strategic Capability and Competitive Advantage

Strategy and strategic capability optimise a firm’s performance in its competitive business environment since they can create competitive advantage. This depends on how the firm neutralises threats and exploits opportunities in the present and future business environment while using its strengths and minimising its weaknesses. Such opportunities will be higher and threats lower in attractive industries as shown by Porter’s Five Forces. Strategic capability includes resources and competences that a firm utilises to compete in its business environment. It can therefore constitute a firm’s strengths and weaknesses, and be a source of competitive advantage or disadvantage over its rivals. Strategic capability can be grouped into two categories: threshold resources and competences, and unique resources and core competences. These are discussed in the next subsections.

2.1.1 Threshold resources and competences

Threshold resources and competences are the basic inputs in a given process/activity required to meet customers’ minimum expectations.

Firm resources can be described as the firm’s tangible/intangible strengths/assets that the firm controls and utilises to implement its strategies and achieve stated outcomes. They are therefore inputs to processes/activities. Examples of resources include: land; labour/manpower; information; location; patents; knowledge; organisational culture and reputation; equipment; brands; etc. Patents and brands are some of the examples of intellectual capital, an intangible resource which is very vital in a knowledge-based economy.

2.1.2 Unique Resources and Core Competences

These are the sources of competitive advantage and superior performance to a firm that possesses them. This is the basis of resource-based view (RBV) of strategy/competitive advantage which considers a firm’s source of competitive advantage and superior performance as its resources and competences that its rivals do not possess and find it hard to acquire or imitate. Such superior performance will be possible if a firm’s product/service offering possesses critical success factors (CSFs)—features which are highly valued by customers to the extent that the firm must excel at them in order to outperform its rivals. Examples of CSFs include: reputation, aftersales service, delivery reliability, technical quality, etc. This requires the firm to have unique resources and core competences which are discussed next.

Unique resources

Unique/distinctive resources are a firm’s strengths which distinguish it from its competitors and thus become a source of its sustainable competitive advantage and superior performance. Such sustainable competitive advantage will only be achieved when its resources and competences have VRINO features i.e. when they are valuable, rare, inimitable, non-substitutable and the firm is able to organise them to achieve superior performance. According to resource-based view of competitive advantage, without these features, resources cannot be a source of a firm’s core competence and hence sustainable competitive advantage and superior performance. Since these are assumed to be different across firms and can be so over a long period of time, they can be a source of sustainable competitive advantage to the firm that has them and a source of competitive disadvantage to the firm that lacks them. They can be a source of sustainable competitive advantage when: they take long to be developed (path dependence); if the way they are developed is not clear (causal ambiguity); or they are cannot be easily bought or sold i.e. have social complexity.

Core competences

Core competence refers to a firm’s know-how (collective learning and awareness) that allows it to integrate its resources to offer its best services, processes and products thus obtaining competitive advantage and achieving superior performance. This implies that core competences are a source of competitive advantage, for example, interfirm social relationships and organisation culture facilitate innovation within firms. Since they are from a firm’s experience and learning (tacit knowledge), they are difficult to imitate since their actual cause and competitive advantage is unclear to rivals: they have causal ambiguity.

There are three classifications of core competences:

Market access competences. These include: brand management, sales and marketing, technical customer support, customer service orientation, etc.—competences that link the firm to customers.

Integrity related competences. These include: quality and knowledge management, just in time systems, etc.—competences that enable faster delivery of high quality products and services.

Functionality related competences. These include: innovation management, more added customer value, exceptional after sales services, etc.—competences that enable the firm to offer more functional products and services.

2.2 Knowledge as a Key Strategic Capability

Knowledge can be in two forms: tacit and explicit knowledge. It can be described as:

an information-based intangible resource which includes insights, understanding, and skills (know-how) acquired through reasoning/thinking, learning, experience, and social interaction that increases ability to make wise decisions and take appropriate action (Atukwase, 2018, p.10).

Knowledge is part of the DIKW pyramid: Data, Information, Knowledge, and Wisdom hierarchy. The DIKW pyramid is shown in Figure 1.

image

Data refers to observable properties of objects/things, events/situations and environment. When data are processed and summarised, they become information that enables answering questions like what, where, which, etc. Information is analysed and synthesised into knowledge that will enable managers to make wise decisions. For example, data can be ‘who customers are and what items bought are’ and this can processed into information such as ‘what the most and least bought items are’ and this can enable synthesis of knowledge such as ‘how to predict customers’ purchase behaviour’ from which ‘ability to make effective judgement/decision on how to meet such behaviour with satisfactory products/services’ and ‘why certain steps are inappropriate’ becomes the derived wisdom (Atukwase, 2018). This implies that the more one moves up the DIKW pyramid, the more useful the component becomes. However, knowledge depends on context since it is socially constructed and interpreted subjectively since it depends on past experience. This implies that wisdom which is derived from knowledge is also subjective, personal and inimitable thus making it a source of sustainable competitive advantage.

Having knowledge other firms do not have and cannot easily acquire is a core competence and thus a source of sustainable competitive advantage and superior performance. For example, “know-how of employees generates more durable returns than any other resource due to the complexity and tacit nature of the notion” (Kawshala, 2017, p.255). This makes knowledge intangible, inimitable and valuable. This means that when knowledge is shared and transferred faster across all levels of firm than its rivals, it becomes a source of competitive advantage for the firm. Therefore, knowledge needs to be created, captured, stored and utilised by the firm in its innovation processes. This is especially important for service firms that have no products to offer to customers. In fact, individual and organisational knowledge is replacing physical and financial resources fast as the most valuable strategic capability and source of sustainable competitive advantage and superior performance. According to Khan (2014), such significance of knowledge is due to the following factors:

  • survival and success of a firm depends on a firm’s ability to manage new and old knowledge;
  • knowledge enables product and service quality improvement;
  • redesigning product and service offerings to meet market requirements utilises knowledge;
  • knowledge of past successes and failures enables effective/wise decision making;
  • knowledge facilitates extension of best practices along the value chain; and
  • Knowledge is a source of competitive intelligence.

The above factors imply that individual/organisational knowledge is both a strategic resource and an integrating competence for other resources hence very vital in achieving a firm’s sustainable competitive advantage and superior performance. Similarly, it is both an input and output of a firm’s transformation process as it operates and learns from those operations. Such “learning involves knowledge acquisition, knowledge sharing, knowledge utilization and also new success (Gilaninia, Rankouh and Gildeh, 2013, p.45). This makes knowledge management a key strategic process and core competence.

3.0 Conclusion

A firm’s resources and competences constitute its strategic capability. These can offer the firm the minimum requirements for survival (threshold resources and competences) or they can be the source of competitive advantage i.e. unique resources and core competences. These can enable the firm to meet critical success factors. However, competitive advantage will only be sustainable when strategic capabilities have VRINO features/attributes due to path dependence, causal ambiguity and social complexity. One of such sources of sustainable competitive advantage is knowledge—the most valuable strategic capability in a knowledge economy.

The above mentioned article is a concise version of the full academic article that is available exclusively to the iQualify UK students in our Teaching Zone.

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The article is based on:

LRN Level 7 Diploma in Business Management (603/1359/6)

Unit: Business Strategy, Planning and Management

6.1 Identify the capabilities that allow organisations to achieve competitive advantage.