Wednesday, November 18, 2015

Capabilities-driven strategy is the key to sustainable success

Capabilities-driven strategy is the key to be  a winner

Many executives across several industries and geographical regions are struggling with developing and executing their business strategy. One important I think is because they have been asking incorrect questions. Lieu of asking "Where should we grow? " executives should be asking "Who are we? What are our capabilities? How can we create value that our competitors cannot?" It's very important that companies look inside first and figure out what they do best.  Capabilities-driven strategy helps companies to become coherent and to gain a right to win in the markets in which they have decided to compete. I think long-term sustainable success comes from marriage of carefully considered unique capabilities and appropriate market opportunities.

I think leading companies know what they excel at, how those capabilities create value, and which are the markets where those capabilities can earn them a right to win.  Take for example Apple. Apple epitomizes capabilities driven strategy. Towards the end of 1990's Apple focused on capabilities in which it excelled, and which differentiated it clearly from peers:
1.     An exceptional consumer experience
2.     Intuitive user interfaces
3.     Sleek product design
4.     Iconic branding
Instead of investing on raw technology development and expanding more broadly into personal computing, Apple invested in a providing a true value add of integration, design and branding that has made very product extension from MAC to IPhone a success. In the early 1990s its efforts to do everything itself, building capabilities as varied as cutting-edge hardware development and volume manufacturing, led to huge losses and massive layoffs. With better focus and alignment, they are able to innovate more effectively, bring their innovations to market more efficiently. The results speak for themselves. Apple’s profitability and market capitalization are well above the industry average.
Finally, it is important to note that the job of corporate strategists isn't just to choose which capabilities to focus on. They also have to decide which ones don't matter.  Many successful companies like Apple, IBM, Google, 3M , Microsoft, Intel are investing in areas where they differentiate. These companies are particularly good at understanding emerging technologies and also skilled at managing product life cycles.  These companies ensure that their capabilities align with their value proposition and they sell products and services which fit to the carefully choses markets. Clearly, capabilities driven strategy is helping these companies out perform and out innovate the competition. After all focus on critical and differentiating capabilities is what innovation and corporate strategy is all about and key to achieve sustainable success.

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