Analyzing our own capabilities
This is the third in a compilation of stories drawn from my learnings on the Fundamentals of Business Strategy from the University of Virginia’s course.
One of the most important steps while defining the Business Strategy, is to analyze our own capabilities. We need to identify those distinctive capabilities that might provide a competitive advantage for our firm or organization.
Let's mention, once again, the fundamental principle of business strategy:
In a perfectly competitive market, no firm realizes economic profits or rents.
Step #1 — Analyze our capabilities
The first critical step is to identify the value chain as a way to identify specific resources and capabilities that create value. The value chain describes all the steps necessary to bring a product to market.
The value chain is a classic idea in strategy and it’s based on the idea of how you bring a product or service to fruition.
Consider the automobile. Any automobile that you purchase on the market goes through a number of steps, arguably with a number of different organizations. So you start off with the processing of raw materials, iron ore that is turned into steel. Eventually that steel might be stamped into various body parts in the engine of the automobile. It might then eventually go to an assembler who pools all these components and parts together. Then it makes its way to a distributor, in this case an auto dealership. And ultimately to the buyer, who then might also receive service and other types of things on the back end of that purchase. This, together, makes the value chain.
What we want to ask ourselves is for the organization we’re analyzing, where are they positioned within this value chain?
Once we ended with the value chain, we should identify those capabilities that are critical to the organization. We first use the value chain to articulate the capabilities of the firm, and then unpack those capabilities by understanding the people, processes, and systems that under-ride the ability to deliver those capabilities.
Step #2 — Assess the alignment of those capabilities
Once we identified our capabilities, we need to understand if they are aligned in providing value for the customers. We analyze two types of alignment:
- Internal alignment: Are our processes, people, and systems aligned with each other?
- External alignment: Are capabilities aligned with the value proposition?
Step #2 — Analyze sustainability of the capabilities
Once we identified capabilities and we assessed their alignment, we should understand their sustainability: imitability and durability. If we keep our capabilities sustainability, we have better chances to keep our strategic advantage in the market longer.
The Strategist Toolkit
The Capability Analysis is a set of calculations used to assess whether a system is statistically able to meet a set of specifications or requirements. To complete the calculations, a set of data is required, usually generated by a control chart; however, data can be collected specifically for this purpose.