116 Part Il « The Strategic Position The resource-based view of strategy: the competitive advantage of an organisation is elaned by the dstnctiveness of ts capabties INTRODUCTION Chapter 2 outlined how the extemal environment in which an organisation is operating can create both strategic opportunities and threats. But successful strategies are also dependent on the organisation having the intemal strategic capability requited for survival and success, which is the focus of this chapter. Strategy development can be driven by opportunities afforded by a changing environment. Sometimes known as the search for strategic fit, such development implies the change of internal strategic capabilities to better fit such opportun- ities. The major upheavals in many manufacturing industries in the last ten years or so have been examples of such adjustments in strategic capability, requiring the search for major improvements in labour productivity and the adoption of new technologies. The early twenty-first century is also dominated in industry, commerce and the public services by the struggle to keep pace with develop- ‘ments in IT even just to stay in business. However, understanding strategic capability is also important from another perspective. An organisation's strategic capability may be the leading edge of strategic development. New opportunities may be created by stretching and exploiting capabilites either in ways which competitors find difficult to match or to create quite new market opportunities, or both. For example, to continue the IT’ theme, stretching IT capabilities has been the basis on which organisations have sought to create new services and areas of economic activity. In either case, be it through strategic fit or stretch, a key concept to bear in mind is that if an organisation is to achieve competitive advantage over others, it will do so because it has capabilities that the others do not have or have difficulty in obtaining. These capabilities could be the resources the organisation has. They could also be the way these resources are used or deployed and this is known as the organisation's competences. This explanation of competitive advantage in terms of strategic capabilities is sometimes called the resource-based view of strategy:' that the competitive advantage of an organisation is explained by the distinctiveness of its capabilities. In turn this helps explain how some businesses are able to achieve extraordinary profits or returns compared with others. They have resources or competences that permit them to produce at lower cost or generate a superior product or service at standard cost in relation to other businesses with inferior resources or capabilities This chapter therefore focuses on the strategic capabilities of organisations: ‘what they are, how they can be understood, analysed and managed. The chapter haas six sections as follows: © Section 3.2 discusses the foundations of strategic capability. Specifically, it con- siders what is meant by tangible and intangible resources and what is meant by competences. It then explains the importance of threshold capabilities both in terms of resources and competences. It concludes by introducing the concepts of unique resources and core conmpetences that are central to an understanding of bases of competitive advantage. © Section 3.3 is concerned with a vital basis of strategic capability of any organisa- tion: namely the ability to achieve and continually improve its cast efficiency.Chapter 3 + Strategic Capability © Section 3.4 considers what sort of capabilities might allow organisations to sus- tain competitive advantage over time (in a public sector context the equivalent concern is how organisations might sustain ‘demonstrable excellence’). The section discusses the criteria regarded as vital to achieve this. The importance Of value to customers is briefly revisited. Uniqueness or rarity of resources or com- petences is discussed. So too is the importance of robustness or non-imitability; and here the concept of core competences is discussed more fully. The section also considers the criterion of non-substitutability of strategic capability by competitors. There is then a consideration of the extent to which these expla- nations of strategic capability to achieve sustainable competitive advantage are suited to organisations in fast-changing business environments. The argument is made that in such situations dynamic capabilities that allow the organisation, to learn and adapt to new conditions may become more significant, © Section 3.5 discusses how the concept of organisational knowledge relates to strategic capability and how it might contribute to competitive advantage of organisations © Section 3.6 moves on to consider the ways in which strategic capability might be analysed. First it considers the concept of the value chain and value network as ways of understanding which activities add value and which do not. The section then moves on to explain how managers might seek to understand strategic capabilities through activity mapping. This is followed by considering how managers might monitor the extent and comparability of their strategic capability through benchmarking. The section concludes by revisiting SWOT (see Chapter 2, section 2.5.2) from the point of view of understanding strate- gic capability in relation to competitors. © The chapter concludes in section 3.7 by discussing how managers might be able to develop the strategic capability through internal and external develop- ‘ment, the management of people and the building of dynamic capabilities. FOUNDATIONS OF STRATEGIC CAPABILITY This chapter employs some important concepts that need to be defined. This is not only to make it easier to follow the argument in the rest of the chapter, but also because different writers, managers and consultants use different terms and con- cepts in explaining the importance of strategic capability: so, given such differences, it is important to understand how the terms are used here. Overall, strategie capabil- ity can be defined as the adequacy and suitability of the resources and competences of an organisation for it to survive and prosper. Exhibit 3.1 shows the elements of strategic capability that are employed in the chapter to explain the concept. 3.2.1 Resources and competences Perhaps the most basic concept is that of resources. Tangible resources are the phys- ical assets of an organisation such as plant, labour and finance. In contrast, Strategic capability 's the adequacy and suitably ofthe resources and competences of an organisation fort to survive and prosper Tangible resources are the physical asses of an ganisaton such as plant, labour and tnance 7