Executives emphasise different strategic capabilities in different organisations.
The Goddard Space Flight Center
Flight Center NASA’s Goddard Space Flight Center man- ages many aspects of the space agency’s missions and lays claim to some unique resources. For example, its 42-foot-tall acoustic test chamber can produce sounds of up to 150 decibels to allow technicians to expose payloads to launch noise. The high bay clean room, which can accommodate two Space Shuttle payloads, circulates 9 million cubic feet of air every minute through its filters to prevent contaminants damaging spacecraft components – essential to space missions since cleaning of such contaminants in space is highly problematic. And its 120-foot-diameter high- capacity centrifuge with two 1250-horsepower motors can accelerate a 2.5-tonne payload up to 30Gs. 1
Royal Opera House, London
Tony Hall, Chief Executive of the Royal Opera House:
‘ “World-class” is neither an idle nor boastful claim. In the context of the Royal Opera House the term refers to the quality of our people, the standards of our productions and the diversity of our work and initiatives. Unique? Unashamedly so. We shy away from labels such as “elite”, because of the obvious negative connotations of exclusiveness. But I want people to take away from here the fact that we are elite in the sense that we have the best singers, dancers, directors, designers, orchestra, chorus, backstage crew and administrative staff. We are also among the best in our ability to reach out to as wide and diverse a community as possible.’ 2
Infosys
The Indian company Infosys is a global leader in informa- tion technology, outsourcing and consulting. It is listed as one of the world’s most reputable companies with close to 150,000 employees worldwide. Infosys has developed from providing business process outsourcing services including call centres and back office IT operations to offering IT infrastructure management, system integration services and IT consulting. Today
its ‘Infosys 3.0 strategy’ is taking a further step to provide more advanced IT products and services.
The new strategy emphasises innovation and focuses on higher-value software. Innovation abilities are central for this, as stated on the website: ‘The foundation of our innovation capability is our core lab network – Infosys Labs – and the new thinking that our team of over 600 researchers brings to the table.’ The new strategy thus requires human resource and training capabilities including the ability to attract, employ, educate and retain new high-quality engineers. As Srikantan Moorthy, Senior Vice President and Group Head explains: ‘We are currently hiring and developing talent in the areas of cloud, mobility, sustainability and product development. In addition, a key focus is consultative skills. All of these are in line with our Infosys 3.0 strategy. We place significant value on continuous learning and knowledge sharing.’
Infosys CEO S.D. Shibulal explains Infosys capability build-up: ‘We continue to make focused investments in our organisational capabilities.’ ‘Our Infosys 3.0 strategy requires us to focus on our acquisition strategy to enhance our capabilities. . . .’ Accordingly, Infosys acquired the Swiss management and IT consultants Lodestone in September 2012: ‘A key plan of our Infosys 3.0 strategy is to expand our consulting and systems integration business. This acquisition fits perfectly into that strategy.’ 3
Sources : (1) Goddard Space Center website. (2) Annual Review, 2005–6, p. 11 . (3) Financial Times , 13 August 2012; Financial Times , 11 September 2012; http://www.infosys.com © Infosys; http://www. skillingindia.com/ .
Questions
1 Categorise the range of capabilities highlighted by the executives in terms of section 3.2 and Table 3.1 .
2 To what extent and why might these capabilities be the basis of sustained competitive advantage?
3 For an organisation of your choice undertake the same exercise as in questions 1 and 2 above.
FOUNDATIONS OF STRATEGIC CAPABILITY 73
● Sensing . Sensing implies that organisations must constantly scan, search and explore
opportunities across various markets and technologies. Research and development and investigating customer needs are typical sensing activities. For example, companies in the PC operating systems industry, like Microsoft, have clearly sensed the opportunities in and threats from tablets and smart phones.
● Seizing . Once an opportunity is sensed it must be seized and addressed through new
products or services, processes, activities etc. Microsoft, for example, has started to seize opportunities by developing its own tablet device and software and by acquiring the mobile company Nokia.
● Reconfi guring. To seize an opportunity may require renewal and reconfi guration of
organisational capabilities and investments in technologies, manufacturing, markets, etc. For example, Microsoft’s inroad into tablets and smart phones requires major changes in its current strategic capabilities. The company must discard some of its old capabilities, acquire and build new ones and recombine them.
This view of dynamic capabilities above relates directly to the framework for this book: strategic position, strategic choices and strategy in action (see Figure 1.3 ). Sensing capabilities are to do with understanding an organisation’s strategic position; seizing opportunities relate to making strategic choices; and reconfi guration is to do with enacting strategies. Illustration 3.2 provides an example of dynamic capabilities in the context of mobile telephones.
New product development is a typical example of a dynamic capability and strategic plan- ning is another. They both involve activities that can sense and seize opportunities and that are intended to reconfi gure capabilities. Outlet proliferation by chain retailers such as Starbucks
is another example of a dynamic capability as it extends operational capabilities. 6 Dynamic
capabilities may also take the form of relatively formal organisational systems, such as recruit- ment and management development processes and cooperating with others through alliances
or acquisitions, by which new skills are learned and developed. 7
As Teece acknowledges, however, dynamic capabilities are likely to have ‘microfoundations’ 8
in people’s behaviour of organisations, such as the way in which decisions get taken, personal relationships, and entrepreneurial and intuitive skills. This puts the focus on behaviour and the signifi cance of beliefs, social relationships and experience in capability management, which is discussed in the very last section of this chapter on managing capabilities (see section 3.5 ).
In brief, strategic capabilities include both operational capabilities and dynamic capabil- ities that can change operational capabilities in case the environment changes. However, as dynamic capabilities are focused on fi nding solutions beyond and outside current operational capabilities there is a trade-off and tension between the two that can make it diffi cult to achieve an optimal balance between them within a single organisation or unit. This is sometimes referred to as exploration/exploitation trade-offs and they are further discussed in Chapter 14 .
3.2.3 Threshold and distinctive capabilities
A distinction also needs to be made between strategic capabilities that are at a threshold level and those that might help the organisation achieve competitive advantage and superior
performance. Threshold capabilities are those needed for an organisation to meet the
necessary requirements to compete in a given market and achieve parity with competitors in that market. Without such capabilities the organisation could not survive over time. Indeed
many start-up businesses fi nd this to be the case. They simply do not have or cannot obtain the resources or competences needed to compete with established competitors. Identifying