LECTURE SIX: CORE CAPAPBILITIES, DISTINCTIVE AND

REPRODUCIBLE CAPABILITIES; INTERORGANISATIONAL

STRUCTURES AND THEIR INFLUENCES; KEY SUCCESS FACTORS

Subject Page

1. An Understanding of Core Capabilities and Key 2

Success Factors
2. Identifying the Bases of Primary Distinctive 3
Capability
3. Core Competencies can be seen as a Unique 4
Combination of Knowledge, Technology and
Relationship Management
4. The Value Chain Enables Capabilities to be Shared 5
– Particularly Intangibles
5. The Competency/ Capability Balance Sheet 6

6. Key Success Factors 7

7. Intra- and Inter-Organisational Processes 8

8. Process Management Extends Beyond Departments 9

Within Organisations to Include External
Organisations
9. Generic Value Chain Processes 10

10. Guide to Selecting Partnership Options in Value 11

Chain Decisions
11. Summary 12

12. Discussion Questions 12

13. References / Reading List 12

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1. An Understanding of Core Capabilities and Key Success Factors
Hamel and Prahalad (1994) cited in Walters (2002) have defined a core competence
as:
“…a bundle of skills and technologies that enables a company to provide a particular
benefit to customers”.
They suggest that competencies that are most valuable are those offering a gateway to
a wide variety of potential product markets. This contention is argued by citing Sony
(for who miniaturisation has led to a wide range of personal electronic products);
Hewlett-Packard (with competencies in measurement, computing and
communications), and 3M, whose core competencies lie in adhesives, substitutes and
advanced materials which have been the basis for numerous products.
“In the concept of core competence there is no suggestion that a company must make
everything it sells…although Cannon has a very clear sense of its core competencies,
it buys more than 75% of components that go unto its copiers. What a company
should seek to control are those core competencies that make the biggest contribution
to customer value”.
Rumelt (1994) cited in Walters (2002) argues:
 Core competencies support several businesses and products.
 Products and services are only a temporary manifestation of core competence –
the latter develops more slowly and is more stable than products.
 Competence is knowledge and therefore increases with use.
 In the long run, competence, not products will determine who succeeds in
competition.
Competitive advantage is determined by capabilities, and these vary. Kay (2000)
cited in Walters (2002) identify two categories: distinctive capabilities such as
institutional sanctioned items; patents, copyrights, statutory monopolies, etc., but also
feature “…powerful idiosyncratic characteristics…built by companies in competitive
markets”. These are; strong brands, patterns of supplier and/ or customer
relationships, specialist skills, knowledge and processes. Reproducible capabilities
can be created (or purchased or leased) by any company with reasonable management
skills, skills of observation and financial resources. Both process and product
technologies are reproducible.

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2. Identifying the Bases of Primary Distinctive Capability
A name for high quality in “intangible”
characteristics that cannot be easily
monitored. Enables contracts to be
made on more favourable terms than
Reputation
otherwise would be possible.
 Brands
 Market influence and acceptance
Distinctive  User experience
Capability

Innovation Architecture

New products, processes or styles of A distinctive collection of relational

relationship. It includes managerial and
economic innovations as well as purely
technological.
 Alternative value propositions
 Alternative value creation, production by establishing an ethic of cooperation
and delivery
Source: Adapted from Walters (2002)
contacts that develop organisational
knowledge, flexibility in response and
information exchange within or
between organisations. This is achieved
and establishing organisational routines.
 Internal
 External
 Networks

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 Identification of knowledge requirements
Creation and/ or acquisition of knowledge
Transfer and conversation
distribution

Development
Application

Source: Walters (2002)

Knowledge
Management

Core
competencies
Technology and Relationship Management

for
competitive
advantage

Relationship External
Technology
Information Management
management
technology

Capabilities ‘Market entities’

Capacities Coordination
3. Core Competencies can be seen as a Unique Combination of Knowledge,

Internal
Product technology Co destiny
Operations Cost transparency
Process technology

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technology
4. The Value Chain Enables Capabilities to be Shared – Particularly
Intangibles
Quinn (1992) cited in Walters (2002) emphasised the need to cultivate a core
competency and suggests that manufacturing companies are becoming more and more
dependent within the value chain on links consisting of services or intellectual
activities. Oliver et al (1997) cited in Walters (2002) suggest that the underlying
driver of long term strategic performance is intellectual capital and use Stewart’s
(1997) definition to give the term meaning, that is ‘packaged and useful knowledge’,
and suggest it is due to this approach that a company may be valued at more than the
sum of its ‘hard’ assets. Other approaches suggest the term ‘intangible assets’ and this
has the advantage of including or detailing specifics seen as brand values, R & D, and
management and development. The concern is to understand the relationship between
intellectual capital and its influence on core competencies.

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5. The Competency/ Capability Balance Sheet

‘Assets’ ‘Liabilities’
Product characteristics Externally sourced temporary
 Applications competencies
 Impact on customer delivered value  Value production
 Value communication
Customers  Value delivery
 Loyalty relationships  Value materials/ servicing (specialist
services)

Service characteristics Partnership network contributions

 Response time  Production
 Depth of response  Customer liaison
 Value delivery
Product/ service development
 Service management
 Time-to-market
 Specifics
 Customisation
 Uniqueness

Production management
 Flexibility
Own competencies
 Response time
 Design and development
 Costs – lean

Logistics management
 Infrastructure scope
 Response

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Administration
 Order management processes
 Response
 Accuracy
 Empowered staff
Source: Walters (2002)
The Competency/ Capability Balance Sheet illustrates the emerging characteristics of
value-based organisations. It uses financial analogies to show the differences between
the old and new.
6. Key Success Factors
Ashenkas et al (1995) cited in Walters (2002) identifies the changing nature of Key
Success Factors resulting from increasing environmental turbulence. The old success
factors were made up of size, role, clarity, specialisation and control, whereas the new
success factors are speed, flexibility, integration, innovation and coordination.
These ‘new’ success factors advocate flexibility and effectiveness as opposed to
rigidity and efficiency, philosophies more appropriate in the value-chain.

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7. Intra- and Inter-Organisational Processes
Walters (2002) cites Davenport and Short (1990), showing a business process is “…a
set of logically related tasks performed to achieve a defined business outcome”. These
authors suggest that a set of processes forms a business system – or a value chain.
They also suggest processes have two important characteristics. Processes have
defined business outcomes for, which there are recipients that may be either internal
or external to the organisation. They also cross organisational boundaries; that is, they
normally occur across or between organisational (either intra- or inter-) boundaries
and are independent of formal organisational structures.
Inter-organisational processes take place between two or more business
organisations. The authors comment that: “Increasingly, companies are concerned
with co-ordinated activities that extend into the next (or previous) company along the
value added chain”. Davenport and Short explore the role of IT in process redesign,
accordingly their examples emphasise this application. One example they use is that
of DuPont’s concept of ‘effectiveness-in-use’ as the major criterion of customer
satisfaction and suggest it to be “…one leading approach to measuring the
effectiveness of inter-organisational processes”. DuPont goes beyond selling a
product to its customers, it links its internal processes for creating value in a product
to its customers’ processes for using the product. EDI delivered material safety data
sheets with the chemicals the company sells, to ensure safe use.
Intra-organisational processes exist within the organisation crossing functional or
divisional boundaries. These processes achieve important operational objectives, such
as new product development, asset management or production scheduling. It is
interesting to note that since this contribution first appeared (1990) these intra-
organisational processes have, for many organisations, become inter-organisational
processes. Furthermore, they are becoming commonplace, due primarily to the
acceptance of partnership relationships and the increasing role of information sciences
and technology as facilitating agents.

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 Inputs
Capabilities
Resources
Include External Organisations

Implications

Source: Adapted from Walters (2002)

Customer Input Performance Customers
for Value Value chain
expectations Information Activities Metrics
Chain Design stakeholders
Value delivery

Outputs
Products
Services
Information
8. Process Management Extends Beyond Departments Within Organisations to

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 Sourcing
Specifications
Availabilities
Costs
Capacitates

Source: Walters (2002)

Logistics
Manage “stocks and flows”
Availability
Time
Procurement frequency
9. Generic Value Chain Processes

Design and
Production Marketing
Intra-organisational Processes Service
Development

Stakeholder
Expectations

Customer and
Value Delivery

Inter-organisational Processes

Determine required Value positioning

Customer
capabilities and “Brand”
Product and service liaison
capacities development and
specification Distributor
Insource/ management
Infrastructure liaison
outsource? market
support services and Product and
Establish cost development
systems service
profiles channels

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liability
Manage variety, management
quality and costs
 10. Guide to Selecting Partnership Options in Value Chain Decisions

Time and Market Risk

Low Medium High

Outsource as Outsource as Outsource as

Low

required required required

Capability expectations

Ownership/ Ownership/ Outsource as

Medium

partnership partnership required

Own activity or Partnership with

High

Partnership
vertically integrate ‘market specialist’

Source: Walters (2002)

This diagram acts as a guide for supply-chain members in selecting worthy strategic
alliance partners, given a specific situation. This diagram can be useful for value
chain members wanting to maximise the effectiveness of their inter-organisational
processes.

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11. Summary
Within the value chain, companies are finding harder to build and maintain
competitive advantage. The distinctive capabilities once capable of generating
competitive advantage are becoming obsolescent, since key success factors within an
industry are continually changing. In order to minimise the risk associated with value
shifts and to be able to leverage other value chain members’ capabilities and assets,
organisations are increasingly turning to inter-organisational processes. Additionally,
intra-organisational processes are being altered to cope with these changes.

12. Discussion Questions

1. In your own words, describe core capabilities, distinctive capabilities and
reproducible capabilities in a value chain context. Cite examples in your answer.
2. How have key success factors, in a generic sense, changed in recent times? Cite
three additional generic key success factors that you think would be appropriate
for the value chain paradigm and explain why you have chosen them.
3. Explain the difference between inter- and intra- organisational processes. How can
these processes be managed to generate the best result?

13. References/ Reading List

 Walters, D., 2002, “Operations Strategy”, Palgrave Macmillan.

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