Strategist's Toolkit: Capabilities Analysis

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Foundations of Business Strategy

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University of Virginia

Foundations of Business Strategy

1149 ratings

Course 1 of 5 in the Specialization Business Strategy

Develop your ability to think strategically, analyze the competitive environment, and recommend firm positioning and value creation. In this course, we will explore the underlying theory and frameworks that provide the foundations of a successful business strategy and provide the tools you need to understand that strategy: SWOT, Competitor, Environmental, Five Forces, and Capabilities Analyses, as well as Strategy Maps. We'll apply these tools in case studies of industry leaders Google, Redhook, Piaggio and Apple.

From the lesson

Analyzing Firm Capabilities

Welcome! In this module, we'll examine the tangible and intangible assets that form an organization's strength. We'll show you in depth how to complete a capabilities analysis and how to use this analysis to guide decision making. In the Apple case study you'll get a chance to apply this tool. Happy analyzing!

Strategist's Toolkit: Capabilities Analysis2:51

Meet the Instructors

Michael Lenox
Senior Associate Dean and Chief Strategy Officer
Darden School of Business
Jared Harris
Samuel L. Slover Research Chair in Business Administration
Darden School of Business

Let's discuss capabilities analysis.

A capability analysis is one of the critical tools in any strategic analysis.

It is our primary tool for analyzing the internal capabilities of an organization.

There are three primary steps to thinking about a capabilities analysis.

The first is to identify those capabilities.

The first way to do that is by identifying the value chain, understanding how

does a company take various raw material and turn that into products and services?

What are the steps along the way?

And then what are the secondary activities,

be it human resource practices, research and development and

the like that then supports the creation of those goods and services.

These become the capabilities.

Once we outline these capabilities, we want to unpack them further and

understand, what are the underlying people, processes, and

systems that generate these capabilities at the end of the day?

So, for example, Apple might have a capability of being creative.

And, the question is, what are the people people, processes, and systems that they

have in place to allow for this creative capability that they possess?

Once we've identified the capabilities and the underlying people, processes, and

systems that generate them, then we need to ask ourselves about alignment.

To what degree does this set of capabilities work together as a cohesive

system internally, as well as create value that creates value for

those externally to the organization.

So alignment both internally and externally.

Last but not least, we wanna ask ourselves a set of sustainability questions here.

And by this we mean do these sets of capabilities first

create competitive advantage, and

second, whether that competitive advantage can be sustained over time.

So the first question you want to ask is about imitability.

Are these capabilities imitable by other organizations or other companies?

The second thing you want to ask, is are these capabilities durable?

Will they persist into the future, will they last, or will they degrade over time?

We can think of both human and

physical assets as both of the things that will eventually degrade over time.

There might be other challenges to durability,

such as whether there's a change in the need for that capability moving forward.

So to summarize, capability analysis is a critical tool in your toolkit.

It helps us understand the internal environment of the organization,

it helps us identify the capabilities the firm has, and ultimately

assess whether these capabilities provide competitive advantage or not,

and whether they're sustainable moving forward.

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