Introduction
Firms use their resources and capabilities to operate and develop viable products that fit the market and serve specific customer and consumer needs. Using various capabilities, including organizational, innovative, dynamic, operational, and strategic capacities, helps a company gain a competitive advantage, earn a good market share, attain its goals and objectives, maximize cost, and maximize profits. While assessing firms’ capabilities, it is important to consider culture, research and development, knowledge and skills, and available resources, including the workforce. Innovation will enable a business to use technology effectively and create unique, high-quality, differentiated products that stand out in the market. The paper focuses on defining key terms, building innovation capabilities, showing how core capabilities, resources, and path dependencies affect innovation capabilities, protecting capabilities from competition, the role of dynamic capabilities and the interplay between intangible and tangible assets, and skills and knowledge.
Definition of Key Terms and Their Applicability
There are some key concepts and terms to consider when building a competitive advantage, and they are part and parcel of success. Interaction between these concepts will guide an organization in making wise and informed choices and using the best practices to attain its goals and gain a good market share (Farida & Setiawan, 2022, p. 163). Some are resources (intangible and tangible), capabilities (innovative, operational, core competencies, organizational, and dynamic capabilities), path dependencies, and skills and knowledge.
Resources
Resources are the business’s assets. There are two major types of resources: intangible and tangible resources. Tangible resources are quantifiable, physical in nature, touchable, and visible. Some are materials, company property, equipment, furniture, buildings, and plants (Indeed, 2023, p. 3). Intangible resources are unquantifiable and difficult to touch and see—for example, employees’ skills, expertise, knowledge, culture, and the firm’s reputation. Resources are essential for the entire operation of an organization. The company can only succeed with sufficient resources. Combining the two categories or resources enables the firm to produce quality products using a skilled workforce. For example, an organization can use its experts with innovative, creative manufacturing and design to develop a new line of products using available resources such as equipment, plant, raw materials, and infrastructure.
Capabilities
Capabilities are the capacity and ability to utilize a firm’s resources appropriately and efficiently. Appropriate capabilities are paramount to using an organizational resource effectively. They are often more specific when comparing them with resources. Other firms need help to measure, copy, or trade capabilities easily. Therefore, they are suitable barriers and hindrances against competition and thereby help different organizations attain sustainable and viable competitive advantage (Kennedy et al., 2020, p. 4). Some examples of capabilities are technical knowledge and managerial ability; most usually contain a human foundation. Capabilities help managers utilize the firm’s resources effectively and efficiently. Different categories of capabilities include innovative, operational, organizational, and dynamic capabilities. Using technical knowledge and skills in a firm will help create creatives and develop new iconic products.
Organization Capabilities
Organizational capabilities are crucial to a firm’s performance; purely intangible resources create this category. These intangible assets include skills, enterprise expertise, values, abilities, attitudes, and behaviors. Different organizations capitalize on them to meet customers’ tests and needs and attain their objectives. Understanding the need for and essentiality of these assets aids companies in driving positive and desirable business results. Organizations use their resources well by eliminating waste and focusing on the productive part of a business. A good use of capabilities helps firms develop to remain viable and competitive in the market because it takes work to replicate them (Indeed, 2023, p. 4). For example, the Coca-Cola Company has been famous for its products for decades and has built a good connection with its customers. Even when other brands come with similar or substitute products, they do not succeed like Coca-Cola because it has exceptional customer trust and loyalty.
Operational Capabilities
Firms create operational capabilities using a combination of tangible and intangible assets like technologies, skills, infrastructure, knowledge, materials, and processes. They focus on the organization’s synchronization ability to differentiate its business functions and operating methods according to industrial standards. Every company has diverse operational capabilities that, with time, become more defined and clearer. The more a firm defines itself in terms of meeting its business goals and needs, the more complex and challenging it is for others to replicate (Andersen et al., 2021, p. 19). Every organization develops unique and differentiated operational capabilities. A firm can utilize the two categories of resources and use its qualified personnel to improve and streamline processes.
Core Capabilities
Core capabilities are also known as core competencies or strategic capabilities. They are capabilities and resources comprising a business’s strategic advantage. Core competencies also make an individual or a company stand out and become relevant in a competition. They combine knowledge, resources, and processes that enable a firm to perform better in its chosen segment or domain. Core capabilities are synergistically, collectively, and integrated (Saunila, 2020, p. 263). It relates to a firm’s ability to effectively bring its ideas into reality using available resources to devise various strategies to set the company apart from competitors. These capabilities are unique, differentiated, and stable. For example, the core capabilities of Apple are customer loyalty, research, and design (Dolata et al., 2017, p. 2). Due to the proper use of its core competencies, the firm is among the market leaders in the technology industry.
Innovative Capabilities
Innovation is an organization’s ability to use technology and resources, including a skilled workforce, to create new, durable, high-quality, and unique products and services. Innovation helps firms improve their internal operations and processes, making them more effective and efficient in delivering the best outcome. It unlocks the company’s entry into new, emerging, and fruitful markets. It can also enable a firm to access new customer segments. Organizations should hire professionals with the right skills, good leadership, infrastructure, and technology and use appropriate design for innovation to work.
Innovation capabilities are the firm’s ability to identify a variety of new ideas for doing business and transform them into improved and new processes, services, or products benefiting the firm (Chatzoglou & Chatzoudes, 2018, p. 44). The ability to innovate permanently resides in people. Innovation capabilities entail all the resources, processes, and strategies that enable organizations and individuals to solve problems, generate multiple ideas after brainstorming, and turn them into high-quality tangible services or products. It encompasses resource acquisition, use, and deployment, including informational, human, technological, and financial, to enable the implementation and creation of innovative processes and ideas. For example, Alibaba implements the latest and newest technology improvements using artificial intelligence and machine learning to optimize its e-commerce platform and track market trends and customer behaviors (Tidd & John, 2020, p. 6). Due to such innovative technology, the firm adapts quickly to changing consumer tests, giving it international recognition and making it a market leader in China.
Dynamic Capabilities
Dynamic capabilities mainly focus on a firm’s ability and readiness to adapt quickly to any change over time. Companies sometimes face situations that demand the implementation of change, such as innovation requirements, evolving trends, market necessities, and stakeholder concerns. For instance, whenever an organization has a process in place and dynamic capabilities, it may analyze the market for more insights and predict future patterns and trends. It enables companies to deliver services and goods ahead of their market competitors (HU et al., 2022, p. 966653). Dynamic capabilities help companies integrate, build, and modify external and internal resources and competencies to shape, tailor, and address a rapidly changing business environment (Rauter et al., 2019, p. 226). For example, Netflix uses its dynamic capabilities of tracking viewer behaviors and preferences to respond faster to changing audiences’ test shows, series, and movies by developing and creating new content tailored to meet those new requirements.
Path Dependencies
Path dependencies usually explain a firm’s continued utilization of a practice or product based on its historical use or preference. An organization can persist and continue to use a specific practice or item even if there are some more efficient and newer alternatives. It occurs in various situations because it is more cost-effective and accessible to continue with the existing path than create a new one (Lorenzo et al., 2022, p.101182). Resistance to change sometimes refers to the persistence of historical practices since they matter. An organization may fail to adopt change due to policymakers often making unformed and cautious decisions or due to financial implications.
Skills and knowledge
Skills and knowledge work together with human resources. Staff can perform professionally and deliver the best innovative and creative results. Workers must do their tasks properly and develop a quality and highly competitive product or service that suits the market (Kennedy et al., 2020, p. 4). These products also meet the customers’ tests, needs and preferences. Skilled employees understand how operations and processes work. They are also highly flexible and adaptive to change (Ahmad et al., 2022, p. 177). For example, Samsung has employed development programs to develop a highly skilled and creative workforce to drive growth and innovation. It trains its employees in marketing, management, engineering, and design.
Building Innovative Capabilities Over Time
Innovation capabilities are the firm’s ability to identify multiple new ideas for doing business and transform them into improved and new processes, services, or products that benefit the firm. It also includes all the resources, methods, and strategies that enable organizations and individuals to solve problems, generate multiple ideas after brainstorming, and convert them into high-quality, tangible services or products. In deploying innovative capabilities over time, a firm must first analyze existing technology, manufacturing processes, and available resources. Organizations must develop talent by creating knowledge, skills, and capabilities to drive innovation. Training and talent development will enable everyone in the firm to innovate. It includes skills and expertise required to be creative and others to manage and inspire innovation (Lee & Yoo, 2019, p. 0223405). If a firm lacks the skills, values, and knowledge to innovate, it should develop them to be ready for innovation.
Examining current development resources, equipment, materials, and infrastructure through an innovation lens is essential. The firm should determine whether it has the financial and resource muscle to accommodate the development of new products in innovative ways. If the company needs more resources for innovation, then the organization should look for better means of getting them to accommodate it. It is also vital to analyze the existing technology and processes to understand whether they are up-to-date and able to allow innovation. The company needs to implement a better, more flexible technology to adopt innovation faster (Saunila, 2020, p. 263). An organization also requires good research and development for it to be able to innovate. Implementing any new technology will require thorough research and the gathering of market data, as well as awareness of the tests and needs of the customers.
It encompasses resource acquisition, use, and deployment, including informational, human, technological, and financial, to enable the implementation and creation of innovative processes and ideas. The other way to build innovative capability is to promote a creative culture with new behaviors and shared values that foster collaboration, creativity, and risk-taking. Promoting new behaviors and diverse thinking is imperative because it will help everyone generate better ideas and perspectives. In achieving this, it is essential to eliminate all potential barriers to innovation, creativity, and change, like restrictive processes and policies, while enhancing multiple strengths, such as employee talents and skills. A firm also needs to develop many innovative leaders and managers to challenge teams and support and motivate them to pursue breakthroughs and innovation. For example, Apple has been building its creative and innovative production over decades, making it among the market leaders in the technology industry. The firm invests highly in development and research to stay ahead of its competitors in design and technology (Veti S., 2023, p.1). It allows it to develop cutting-edge designs and innovative products like MacBook and pods.
Ways to Construct Competitive Advantage Through Building Capabilities
Capabilities are the capacity and ability to utilize a firm’s resources appropriately and efficiently. Competitors cannot easily measure, copy, or trade capabilities and are better barriers against competition. They also differ in every organization and help attain sustainable and long-term competitive advantage. Our capabilities include technical knowledge, research and development, and innovative products.
Building capabilities allow firms to construct a competitive advantage. One way to gain a competitive advantage through capabilities is through fostering experimentation and innovative culture, trying new things, and thinking creatively (capability) to develop high-quality and successful products and services (Saunila, 2020, p. 264). For example, through its innovative culture, Google encouraged its employees to spend 20% of their time on exciting projects, contributing to exceptional products like Gmail and Google Search. These Google products are highly competitive in the market.
A company can also use the capability of cutting-edge design and innovative technology and invest in research and development to develop unique, memorable, and differentiated products to build customer loyalty and a firm brand name and reputation. A good example is Apple and its iPhone product.
Another way to use the capability to gain a competitive advantage is through a responsive and faster transportation system with twenty distribution centers in over three thousand companies’ distribution vehicles. A firm can build a good customer experience by promptly providing various goods and services at their locations. This way, a company will build customer loyalty, access a large customer base, and gain a competitive advantage. A good example is Wal-Mart’s transportation and logistics infrastructure. It is a responsive and quick transportation system. The firm has around nineteen distribution centers and two thousand trucks (Kennedy et al., 2020, p. 5). It serves its customers as soon as possible since goods are available at different locations, so Wal-Mart is the leading retailer with a large customer base.
Impacts of Core Capabilities, Path Dependencies, and Relationship to Resources on Innovation Capabilities
Core capabilities are resources comprising a business’s strategic advantage. Core competencies also make a company stand out and become relevant in a competition. They are often a combination of knowledge, resources, and processes that enable a firm to perform better in its chosen segment or domain. Core competencies contribute to innovative capabilities. For example, specialized skills and knowledge in cloud computing and design (core competencies) can contribute to creativity (Lorenzo et al., 2022, p. 101182). Also, core logistics, research and development competencies, innovative culture, and branding contribute to creating sustainable products that fit eco-conscious customers.
Path dependencies and resources lead to innovation capabilities. They explain the firm’s continued utilization of its practices or products based on historical use or preference. An organization can persist and continue to use a specific practice or item even if there are some more efficient and newer alternatives. While using existing paths, firms can use resources and tailor them to improve their products. Companies can add creative features to their products and gain a competitive advantage. For example, Apple keeps putting new features on its products, like the iPhone, where better versions are available nearly yearly, promoting innovative capabilities.
Interplay between Tangible and Intangible Resources and Knowledge and Skills
Tangible resources are quantifiable, physical in nature, touchable, and visible. Materials, company property, equipment, furniture, buildings, and plants are excellent examples. Intangible resources are unquantifiable and difficult to touch and see—for example, culture and the firm’s reputation. The interplay between resources, skills, and knowledge is essential for the organization’s operation (Saunila, 2020, p. 263). The company can only succeed with sufficient resources. For example, a firm’s employees with knowledge and skills in research, design, and product development can use innovative culture (intangible assets) and raw materials and plants (tangible resources) to develop high-quality, healthier, environmentally friendly, and highly competitive products. With such goods and services, companies will provide customers with products that meet their needs and tests. Employees use their skills and resources to pursue the firm’s business objectives and goals (Tidd & Bessant, 2014). Companies can only operate with tangible and intangible resources, skills, and knowledge, as they are part and parcel of every process. A good example is the GE company. The firm uses its resources, including workforce, plant, equipment, and best practices across its business units, to achieve effeteness and greater efficiency in its operations.
Protection of Capabilities from Competitors
There are several ways in which firms can protect their capabilities from their competitors. The first strategy for a company is to differentiate itself and make it more unique. It may involve constantly improving them, creating a value and uniqueness that competitors cannot imitate (Meyer, 2022, p. 369). For example, a firm can use the learning startup and value proposition canvas to develop an innovative and differentiated product that no one can copy. An organization can also take a step ahead in developing secret and highly competitive technical skills and knowledge. A good example is the Coca-Cola company, whose production formula is unique, and few of its technical experts know it.
The other strategy to protect one capability is to build barriers to imitation and entry. One can do it by making entry costly and difficult to imitate and copy the company’s product. Another way to protect capabilities is through evolution and adaptation. They respond very quickly to customer needs and markets, changes that competitors will help and hinder them from copying the product.
Using trademarks and copyrights is also an excellent way to protect one’s capabilities. It will help preserve unique discoveries, formulas, innovative products, and technical skills for specific technologies (Meyer, 2022, p. 370). A firm’s closer monitoring of customers and competitors can also help to protect its capabilities. Keeping track of competitors’ actions and strategies will help one anticipate and predict their next move and develop strong, unique, and differentiated capabilities.
Conclusion
Firms use their resources and capabilities to operate and develop competitive products that fit their market to serve specific customers’ and consumers’ needs. Using different capabilities, including organizational, innovative, dynamic, operational, and strategic capacities, helps a company gain a competitive advantage and a good market share, attain its goals and objectives, maximize cost, and maximize profits. While assessing firms’ capabilities, it is important to consider culture, research and development, knowledge and skills, and available resources, including the workforce. Innovation will enable a business to use technology effectively and create unique, high-quality, differentiated products that stand out in the market. Path dependencies, resources, capabilities, skills, and knowledge are crucial in building a firm’s competitive advantage.
References
Ahmad, A.Y., Osei-Amponsah, C. and Kebede, K.Y., 2022. Introduction to a special issue on ‘Building innovation capabilities for sustainable industrialization in Africa: status and prospects.’ Innovation and Development, 12(2), pp.177-187.
Andersen, M.H. and Lema, R., 2021. Towards a conceptual framework: Renewable electrification and sustainable industrialization. In Building Innovation Capabilities for Sustainable Industrialization (pp. 19-45). Routledge.
Chatzoglou, P. and Chatzoudes, D., 2018. The role of innovation in building competitive advantages: an empirical investigation. European Journal of Innovation Management, 21(1), pp.44-69.
Dolata, U., 2017. Apple, Amazon, Google, Facebook, Microsoft: market concentration-competition-innovation strategies (No. 2017-01). SOI Discussion Paper.
Farida, I. and Setiawan, D., 2022. Business strategies and competitive advantage: the role of performance and innovation. Journal of Open Innovation: Technology, Market, and Complexity, 8(3), p.163.
Hu, P., Hao, Y. and Wang, G., 2022. How does capability reconfiguration impact the innovation performance of Chinese manufacturing firms? Frontiers in Psychology, 13, p.966653.
Indeed (2023). Organizational capabilities: definition and importance. [online] Indeed. Available at: https://uk.indeed.com/career-advice/career-development/organisational-capabilities [Accessed 25 Feb. 2024].
Kennedy, R., Jamison, E., Simpson, J., Kumar, P., Kemp, A., Awate, K. and Manning, K., 2020. Strategic management.
Lee, K. and Yoo, J., 2019. How does open innovation lead to competitive advantage? A dynamic capability view perspective. PloS one, 14(11), p. e0223405.
Lorenzo, D., Núñez-Cacho, P., Akhter, N. and Chirico, F., 2022. Why are some family firms that need to be more innovative? Innovation barriers and path dependence in family firms. Scandinavian Journal of Management, 38(1), p.101182.
Meyer, C.B., 2022. Building Innovation Capacity. The Journal of Applied Behavioral Science, 58(3), pp.369-376.
Rauter, R., Globocnik, D., Perl-Vorbach, E. and Baumgartner, R.J., 2019. Open innovation and its effects on economic and sustainability innovation performance. Journal of Innovation & Knowledge, 4(4), pp.226-233.
Saunila, M., 2020. Innovation capability in SMEs: A systematic review of the literature. Journal of Innovation & knowledge, 5(4), pp.260-265.
Tidd, J. and Bessant, J. (2014) Strategic Innovation Management, Wiley.
Tidd, J. and Bessant, J.R., 2020. Managing innovation: integrating technological, market and organizational change. John Wiley & Sons.
Veti S. (2023). Building Capabilities towards Competitive Advantages. [online] LinkedIn. Available at: https://www.linkedin.com/pulse/building-capabilities-towards-competitive-advantages-sukamtiningtyas [Accessed 26 Feb. 2024].
write