Developing and Nurturing Strategic Capabilities

Abstract

Brief discussion of resources and capabilities, their importance, and their role in the creation of competitive advantage. Excerpt UVA-S-0167 January 11, 2010 DEVELOPING AND NURTURING STRATEGIC CAPABILITIES Strategic management involves creating uncommon value for all stakeholders, including customers, employees, shareholders, and suppliers. Managers focus on the means and resources needed to develop products and services that provide desirable and distinctive benefits for as many stakeholders as possible; organizations work to deliver consistently uncommon value through integrated systems of durable relationships, resources, and routines. As systems are developed, managers work to strengthen and guard the processes and knowledge underpinning these combinations to retain, protect, and enhance this value to their stakeholders and to ensure that competitors will find them difficult to replicate. Capabilities may involve deceptively simplistic, routine procedures or policies, or codified, detailed analytical frameworks or tools. Managers can best add value when they address: Which combinations of elements are necessary to create the most value for stakeholders? How can our organization develop these combinations? What investments need to be made to achieve product and service superiority in the eyes of multiple stakeholders? How can these bundles of knowledge and resources be paired with complementary systems within and outside of the organization? With these questions as guides, managers can focus on the resource and knowledge investments necessary to produce superior products or services, and thus, competitive advantage. Accounting for Capabilities A simplified model of value creation involves (1) an organization’s use of inputs, (2) the processes used to refashion those inputs into outputs, and (3) the placement of these outputs in the marketplace. Accounting measures can approximate the raw material inventory an organization holds in its warehouses, the labor output (measured in hours) to produce a finished product, and the piece and market values of final products. An organization’s capabilities, however, are valued assets that may not appear on its balance sheet. An approach to measuring capabilities involves critically evaluating whether they are valuable, rare, inimitable, and nonsubstitutable (VRIN attributes). Integration with Other Strategy Frameworks . . .