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What Are Your Distinctive Capabilities That Cannot Be Replicated?
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Developed by John Kay, the Distinctive Capabilities Framework captures those capabilities our organization has, which cannot be replicated by competition. Through his research, he identified 3 such “Distinctive Capabilities:”
These 3 capabilities are the source of superior performance and sustainable competitive advantage for successful firms.
This framework was developed after extensive research by Kay into the origin of corporate and industrial success. He interviewed many successful business owners and analyzed corporate earnings, annual reports and case studies. Through his research, he determined success is dependent on the relationship a business maintains with its suppliers, customers, shareholders, and employees. Continuity and stability in these relationships is essential for a flexible and collaborative response to change.
Note that Key’s strategy framework differs from traditional Resource-based Strategy theory, which focus on establishing competitive advantage by commanding strategic assets. The Distinctive Capabilities Framework, rather, takes a Relationship-based Strategy view.
This framework can be used in the process of defining a company’s strategy, to broaden awareness of the sources of competitive advantage, and to find ways to sustain them.
Let’s take a deeper look at each of the 3 distinctive capabilities.
Architecture refers to the structure of relational contacts within or around the organization with customers, suppliers, and employees. Architecture can add value with organizational knowledge and routines, flexible response to change, and an easy and open exchange of information.
Distinctive Capabilities related to Architecture depend on relational contracting. There is a collective interest in coordinating efforts for the benefit of the organization. The structure relies on continued mutual commitment to monitor and enforce its terms
An organization with distinctive architecture gains strength from the ability to transfer firm product and market specific information within the organization and to its customers and suppliers.
If we have possess the Architecture Distinctive Capability, we can respond quickly and flexibly to changing circumstances.
Reputation is the most powerful method of conveying information to consumers in a business relationship and includes customers’ own experience, quality signals (e.g. price, promotion), guarantees, warranties, word of mouth, association with partner brands, etc. When customers search for and experience goods and services, the seller wants to signal quality and to start a sequence of transactions on which to build a relationship.
If a seller has an established reputation, it will help assure the buyer of high quality when unfamiliarity with the product or service means that an informed decision cannot be made.
Reputation is built over time. It is much easier to maintain, than to create.
Innovation is an obvious source of Distinctive Capability. In fact, it is often the most innovative companies who are proven to be the most successful in the long run. However, innovation is less often a sustainable or appropriable source, because successful innovation quickly attracts imitation.
Typically, transforming an innovation into a competitive advantage requires the development of a powerful range of supporting strategies. This is especially true due to the uncertainty of whether demand for a product will remain and whether there will be an increase in competition within the marketplace as a result of the original innovation.
Many successful companies have transformed of an initial Distinctive Capability based on Innovation or Architecture to a more enduring one derived from Reputation.
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"Strategy without Tactics is the slowest route to victory. Tactics without Strategy is the noise before defeat." - Sun Tzu
For effective Strategy Development and Strategic Planning, we must master both Strategy and Tactics. Our frameworks cover all phases of Strategy, from Strategy Design and Formulation to Strategy Deployment and Execution; as well as all levels of Strategy, from Corporate Strategy to Business Strategy to "Tactical" Strategy. Many of these methodologies are authored by global strategy consulting firms and have been successfully implemented at their Fortune 100 client organizations.
These frameworks include Porter's Five Forces, BCG Growth-Share Matrix, Greiner's Growth Model, Capabilities-driven Strategy (CDS), Business Model Innovation (BMI), Value Chain Analysis (VCA), Endgame Niche Strategies, Value Patterns, Integrated Strategy Model for Value Creation, Scenario Planning, to name a few.
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About David TangDavid Tang is an entrepreneur and management consultant. His current focus is Flevy, the marketplace for business best practices (e.g. frameworks & methodologies, presentation templates, financial models). Prior to Flevy, David worked as a management consultant for 8 years. His consulting experience spans corporate strategy, marketing, operations, change management, and IT; both domestic and international (EMEA + APAC). Industries served include Media & Entertainment, Telecommunications, Consumer Products/Retail, High-Tech, Life Sciences, and Business Services. You can connect with David here on LinkedIn.
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