Capability management in business

[3] Core Capabilities are defined as those "built up over time", that "cannot be easily imitated" and therefore "constitute a competitive advantage for a firm".

However, Kay goes further in arguing that in order for a capability to be truly distinctive and the basis for competitive advantage it must meet two further criteria: sustainability and appropriability.

On the basis of analysis of empirical data regarding the performance of companies Kay argues that there are only a few types of distinctive capability that meet the additional criteria.

Core Competencies are identified by three criteria: 1) they are difficult for competitors to imitate 2) they make a substantial contribution to a number of the firm's products (or services) they give the firm access to several markets and 3) they make a substantial contribution to the perceived customer-value of the products (or services).

Several authors consider that the concepts are the same, the differences purely terminological, and use the terms interchangeably while others insist there is a substantive distinction.

Hence some things managers mistakenly identify as "core competencies" may be more properly considered as Enabling or Supplemental Capabilities.

It is these knowledge-creating and knowledge-diffusing (or knowledge-acquiring and knowledge-sharing) activities that make the capability dynamic (change over time) in the Leonard model.

Given that the Leonard model of a capability incorporates elements of skills and knowledge, and is adaptive and intelligent in the sense of importing knowledge from the external context, experimenting and problem-solving, while moving from present to future, it may be considered an ICASOS – an Intelligent Complex Adaptive System-of-Systems – model of an enterprise or firm.

Building on the work of Hamel and Prahalad, and others David Teece and colleagues developed a macro-level theory of Dynamic capabilities and framework for their management.

In this theory a (or perhaps the) "Dynamic Capability" is defined as "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.

"[6] Building on earlier work from the 1960s, the central thesis of the Dynamic Capabilities theory is that "... the real key to a company's success or even to its future development lies in its ability to find or create a competence that is truly distinctive".

In the Dynamic Capabilities Theory, "Resources" are firm-specific assets that are difficult for competitors to acquire or imitate, "Organizational Routines" (based on prior work of Nelson and Winter) or "Organizational Competences" are the low-level capabilities of the firm and "Core Competences" are taken from the Hamel and Prahalad concept.

Citing Dorothy Leonard (or Leonard-Barton), Teece et al. define (higher-level) Dynamic Capabilities as the "ability to integrate, build and reconfigure" these tangible and intangible assets.

"Dynamic Capabilities thus reflect an organizations ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions."

"Path dependencies" refers to the history of development of organizational knowledge embedded in its capabilities, routines and technological assets – echoing the concept from Leonard, but on a macro-scale and explaining why competitive advantage takes time and persistence to build.

These views were standard ways to represent how the capabilities in some segment of the Defence Enterprise (such as the Army, Navy or Air Force) were expected to or planned to evolve over time, given investments by MOD and the UK Government.

Nevertheless, the central thesis that politico-military conflicts or business competitions in markets are contests in which the organisation or enterprise with the superior capabilities wins holds.

The aim of "Through-Life Capability Management" (TLCM) was to promote in defence procurement a shift of perspective away from a focus on military equipment towards what was really required from UK Defence organizations: the capabilities, or abilities to produce effects in the world that enhance UK national security.

TLCM promoted a capability lifecycle perspective, that sought a balanced investment profile in time that would minimise whole-life costs, while efficiently producing effective, coherent and maximally cost-effective Defence capabilities over the medium term – and thereby ensuring maximum Value-for-Money for the UK taxpayer from Defence.

While formally superseded, elements of TLCM live on in MOD's whole-systems, non-equipment-centric System-Of-Systems Approach, which was mandated in UK Defence Strategic Direction in 2013.

Capability-based planning had long been entrenched in the defense realm in the US, UK, Australia, and Canada before it was adopted within Version 9 of The Open Group Architecture Framework (TOGAF).

It is not clear how this view can be rationalised and made coherent with the Leonard model or the Teece theory which places some technology-implemented system at the center of a capability.

[9] The way leaders foster shared mindset, talent, change, accountability, and collaboration across boundaries define the company's culture and leadership edge.

At the individual-technical intersection, employees in the firm bring functional skills and competencies such as programming, cost accounting, electrical engineering, etc.

The basic assumption of the dynamic capabilities framework is that in fast changing markets, firms need to respond quickly and innovatively.

[13] Key additions to the body of work were tools to translate strategic shifts to new sets of capabilities required whether these were core competencies or not.

Building on the types of work ideas, the authors added performance target setting based on the capability value contribution.

They also laid out a framework to continually align capabilities based on strategy shifts and external changes through the project agenda.

These views were standard ways to represent how the enterprise was expected to perform over time, expressed in terms of capabilities.

[15] In 2008, Ric Merrifield, Jack Calhoun and Dennis Stevens, in "The Next Revolution in Productivity" added the use of SOA and its role in supporting capability delivery at breakthrough cost and speed.