Page 107 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 6: Organisational Appraisal: Internal Assessment 2

Capabilities Notes

Resources are not very productive on their own. They need organisational capabilities.
Organisational capabilities are the skills that a firm employs to transform inputs into outputs.
They reflect the ability of the firm in combining assets, people and processes to bring about the
desired results. Prahalad and Hamel describe an organisational competence as a “bundle of
skills and technologies”, which are integrated in people skills and business processes.
Capabilities are, therefore a function of the firm’s resources, their application and organisation,
internal systems and processes, and firm specific skill sets. Capabilities are rarely unique, and
can be acquired by other firms as well in that industry. Some of these capabilities may become
“distinctive competencies”, when a firm performs them better than its rivals.

Core Competence

Superior performance does not merely come from resources alone because they can be imitated
or traded. Superior performance comes by the way in which the resources are deployed to create
competences in the organisation’s activities. For example, the knowledge of an individual will
not improve an organisation’s performance unless he or she is allowed to work on particular
tasks which exploit that knowledge. Although an organisation will need to achieve a threshold
level of competence in all of the activities and processes, only some will become core competences.
Core competence refers to that set of distinctive competencies that provide a firm with a
sustainable source of competitive advantage. Core competencies emerge over time, and reflect
the firm’s ability to deploy different resources and capabilities in a variety of contexts to gain
and sustain competitive advantage.
Core competences are activities or processes that are critically required by an organisation to
achieve competitive advantage. They create and sustain the ability to meet the critical success
factors of particular customer groups better than their competitors in ways that are difficult to
imitate. In order to achieve this advantage, core competences must fulfill the following criteria.
It must be:

1. an activity or process that provides customer value in the product or service features.
2. an activity or process that is significantly better than competitors.
3. an activity or process that is difficult for competitors to imitate.

Task Enlist at least five types of resources that all organisations have.

An organisation uses different types of resources and exhibits a certain type of organisational
capabilities to leverage those resources to bring about a competitive advantage, as shown in
Figure 6.3.
It is important to emphasize that resources by themselves do not yield a competitive advantage.
Those resources need to be integrated into value creating activities. Thus the central theme of
RBV is that competitive advantage is created and sustained through the bundling of several
resources in unique combinations. Thus,
1. Competence is something an organisation is good at doing.
2. Core competence is a proficiently performed internal activity.

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