Blog: Capability & Strategy

When we think of business capabilities, most of us refer to the skills embedded in our people, processes, and institutional knowledge.  In any competitive environment, a company must be good at what it does and possess skills that make it stand out. Distinctive competencies allow growth companies not only to make more money from existing businesses but also to extract greater value from new opportunities.

Yet, entrepreneurs that succeed in sustaining growth tend to think more broadly about capabilities. A broader definition of capability is one that includes all resources useful in gaining competitive advantage. Let’s focus on three other classes of resources: unique assets, growth drivers, and leverage relationships.

1. Unique Assets

Unique assets are physical or intangible assets that are hard to replicate and confer competitive advantage on their owner. They include infrastructure, intellectual property, distribution networks, brands and reputations, and customer information.

2. Growth Drivers

Growth drivers include acquisition know how, deal structuring, financing skill, risk management, and capital management.  These all are necessary in creating and sustaining growth. These growth skills are usually transferable from one market or business unit to another.

3. Leverage Relationships

The other important capability involves relationships.  Ties with existing customers and suppliers that can provide growth opportunities should be nurtured. Those with powerful individuals, businesses, and governments can unlock opportunities that can make a significant difference in the rate of expansion into new markets or product lines.

How well an entrepreneur assembles these additional capabilities that a new business requires determines how successful the venture is at gaining and keeping positional advantage.

Some capabilities are more important than others, and combinations are generally harder to imitate than individual capabilities. The business builder’s challenge begins with the need to assemble the capabilities most critical to making money.  Lasting competitive advantage comes only when companies assemble difficult-to-imitate combinations of capabilities into groups.

For every entrepreneurial idea or opportunity, it is important to distinguish the capabilities that influence competitive success from those that are merely necessary to play the game.  Capabilities that are less critical can be outsourced or controlled by others.  Operational excellence is a necessary ingredient, but will not likely drive success.  What counts in the end is the set of unique assets, growth drivers, and leverage relationships that the entrepreneur can assemble in pursuing their dream.