Competing on Capabilities: The New Rules of Corporate Strategy

Stalk, Evans & Shulman, 1992

A Critical Review
Introduction
Whilst there is no universally accepted explanation, generally speaking, strategy is the long-
term scope and direction of an organisation (Johnson et al, 2005, pp. 9). Most notably,
Porter identifies strategy as the race to the ideal position, which in essence is one of superior
and sustainable financial performance in relation to competitors (Porter, 1991). However,
this article suggests a fundamental shift in the logic behind competition, in which a firms
internal capabilities become the basis for attaining a competitive advantage. The position of
the article in the wider debate of strategy will be explored together with the key strength and
weakness of the article.

Position of the article in the wider debate of strategy

Undeniably, whilst the article could be accredited to other strategic debates, the Resource
Based View (RBV) versus Positioning approach is most applicable. In essence, this debate
reflects opposing views of how firms achieve and sustain competitive advantage. An
argument is made as to whether strategy is internally or externally driven (Hooley et al,
1998). Stalk et al (1992 p.62) argue that competition is no longer the war of position
instead the war of movement in which a firms success is determined by their ability to
integrate processes into hard-to-imitate capabilities which deliver superior value to the
consumer. Undeniable, this article is predominately sided with the RBV.

It is important to recognise that whilst the article explicitly refers to capabilities-based

competition such approach can be ascribed to the umbrella term of RBV. Essentially, Grant
(1991) distinguishes capability as merely a firms ability to bundle together a team of
resources to drive efficiencies in a task or process, which are in turn, more difficult for rivals
to replicate. Thereby, in essence the RBV emphasises that a firms competitive advantage is
determined by their internal resources and capabilities as opposed to their position in the
external environment (Barney, 1995).

The article argues when the environment was characterised by stable consumer needs,
defined markets and so forth, strategy too could afford to be static. However, Stalk et al
(1992) question the sustainability of the positioning approach in the dynamic environment.
They site, Kmart as an example of established companies locked into the old approach to
strategy, being rapidly overtaken by opposing rivals ability to anticipate market trends and
better satisfy customer needs. The article credits Wal-Marts remarkable success and above
average returns (Schoemaker, 1990, p.1179) to the implementation of its complex cross-
docking system. Whilst this process requires substantial investment, the extent of its
complexities means it is difficult for competitors to imitate and therefore yields a sustained
advantage (Barney, 1991; Meyer, 1991).
Additionally Stalk et al (1992, p.59) assume Kmarts average performance is a result of the
classic textbook approaches failure to recognise the bigger picture. The company
subcontracted their fleet and consistently switched suppliers in the search of quick wins to
capitalise on the perceived imperfections of the industry (Lpez, 2005). In comparison,
Walmarts focus on long term return by strategically understanding processes, heavy
investment in infrastructure to support capabilities and integration from the top-down allowed
them to attain a superior advantage.

Equally, the article recognises such success is not confined to the retail industry and the
RBV allows firms to capture a first mover advantage, transforming themselves from a
relative insignificance to a key player in the industry. For example, the robustness and
flexibility of Hondas processes allowed them to exploit opportunities in new markets and
businesses. Finally, whilst Stalk et al (1992) recognise the RBV may only create
competitiveness temporarily, for the time being, it allows companies to lead the industry
creating products that customers need but have not yet imagined (Prahalad & Hamel,
1990, p.80).

Strength & Weakness of the article

A key strength of this article is the extent to which authors identify and support the
integration and the sharing of capabilities across business units and functions as a critical
success factor of the RBV. As mentioned by the previous example of Kmart and Wal-Mart
success requires processes that look beyond merely a single activity and instead its place in
the entire value chain.

Stalk et al (1992, p.62) argue a capability is only strategic when it begins and ends with the
customer in which the organization serves as a giant feedback loop. The example of
Medequips on-site representatives and their integration with the sales team is discussed.
The article recognises front-line employees had become experts in the field of customer
operations and thereby were significantly receptive to customer needs which allowed them
to advise the Sales department accordingly. Such relationship could be accredited to Grants
(1996, p.112) suggestion that integration enhances each nodes ability to efficiently perform
its role.

The degree, to which the article consistently states the positioning approaches diminishing
relevance in the dynamic environment, is a key limitation. The language and examples
illustrated accredit the remarkable success of companies to the adoption of the RBV in
isolation. The article fails to recognise that the RBV builds on but does not replace the
positioning approach. Instead, authors make an assumption that strategy is now more
concerned with the dynamics of a companys behaviour rather than the structure of their
products and markets.

Additionally Stalk et al (1992) identify the success of Hondas entrance into new markets and
indeed businesses on the basis of replication and cloning of capabilities in quality and dealer
management processes alone. In contrast, the research of Fuchs et al (2000) argues that all
too often companies fail because they fundamentally do not consider the integration of the
execution of strategic capabilities with marketing positioning. In this respect, it is important to
recognise strategy is not black or white and essentially both Porters framework and the RBV
constitute to two sides of the same coin (Wernerfelt, 1984, p.171). In essence, resources
are not valuable in a vacuum, instead their value is determined by their ability to exploit
opportunities and minimise threats in the external environment. Consequently, success in
strategy requires a combination of both internal and external perspectives and
environmental analysis- no matter how rigorous is only half the story (Barney, 1995,
p.49).

Conclusion
A strong argument is made that positioning whilst once at the heart of strategy is no longer
applicable in the dynamic environment, in which rivals can quickly replicate your position
(Porter, 1996, p.10). However, firms must not be lulled into a false sense of security that
capabilities-based competition alone is the key to competiveness. Instead, success requires
integration of the two schools of strategy in which superior capabilities can become a basis
of competitive advantage when matched appropriately to environmental opportunities
(Peteraf, 1993).

References

Barney, J. (1995) Looking Inside For Competitive Advantage, Academy of Management

Executive , 9 (4), pp.49-61.

Barney, J. B. (1991) Firm Resources and Sustained Competitive Advantage, Journal of

Management, 17(1), pp.99-120.

Fuchs, P.H., Mifflin, K.E., Miller, D., Whitney, J. (2000) Strategic Integration: Competing in
the age of capabilities, California Management Review, 42 (3), pp.118-148.

Grant, R. (1996) Toward a knowledge-based theory of the firm, Strategic Management

Journal, 17 (Winter), pp.109-122.

Grant, R. M. (1991), The Resource-Based Theory of Competitive Advantage: Implications

for Strategy Formation, California Management Review, 33 (3), pp. 114-135.

Hooley, G. J. and Broderick, A. J. and Mller, K. (1998) Competitive positioning and the
resource based view of the firm, Journal of strategic marketing, 6 (2), pp. 97-116.
Johnson, G., Scholes, K., Whittington, R (2005). Exploring Corporate Strategy: Text and
Cases. 7th ed. Essex: Prentice Hall, Pearson Education.

Lpez, S.V. (2005) "Competitive advantage and strategy formulation: The key role of
dynamic capabilities", Management Decision, 43 (5), pp.661 669.

Meyer, A.D. (1991) What is strategy's distinctive competence?, Journal of Management,

17, pp. 821-823.

Peteraf, M. A. (1993). "The cornerstones of competitive advantage: A resource-based view",

Strategic Management Journal, 14 (3), pp. 179.

Porter, M.E. (1991) Towards a Dynamic Theory of Strategy, Strategic Management

Journal, 12 (Winter), pp.95-117.

Porter, M.E. (1996) What is Strategy, Harvard Business Review, November-December,

pp.61-78

Prahalad, C.K., Hamel, Gary (1990): The core competence of the corporation, Harvard
Business Review, Vol. 68, No. 3, p79-91

Schoemaker, P. J. H. (1990) Strategy, complexity and economic rent, Management

Science, 36: 1178-1192.

Stalk, G., Evans, P. and Shulman, L. E. (1992) Competing on Capabilities: The new rules of
corporate strategy, Harvard Business Review, March-April, pp.57-69.

Wernerfelt, B. (1984) A Resource-based view of the firm. Strategic Management Journal, 2

(April-June), pp. 171-180.