Unique capabilities and popular brands are important in sustaining the competitive advantage of companies. However, they are not built through the process of imitation. Managers who portray a high degree of creativity use their organizational processes and design to identify, build on, and leverage their asymmetries, contacts, or assets. However, the processes are most of the time hidden and unlinked to value creation. This makes it important for organizations to adopt new strategies and organizational approaches in order to discover, develop, and apply them. The aim of this article is to show the strategies managers can use in order to grow capabilities that sustain competitive advantage by continuously identifying and growing asymmetries, embedding and empowering them within the design of an organization, and shaping the focus of the market to use them.
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In 1991, Citibank was faced with a hard time due to the plummeting of its stocks. The CEO, John Reed, tried to use many strategies to solve the problem but he always found himself at a disadvantage. The local rivals had better government and industry contacts that Citibank could not duplicate. The competitors of the company found ways of neutralizing every effort is made. The major problem at Citibank was its inability to grow sustainable capabilities. Large firms like Citibank were not the only firms that had potentially valuable asymmetries. A look at Shana corp. indicated a similar path of asymmetry identification and capability development within small and new firms that had no relationship with Citigroup or assets that were anywhere close to it. The lessons learned from the cases of Citibank and Shana were similar. The first one was that competitive advantage could not be achieved from the use of organizational processes and designs to identify emerging asymmetries and build them into capabilities. The second one was that asymmetries were hard-to-copy ways through which firms differed from their rivals. Asymmetries are advantageous in that they are accessible. The only negative implication they have is that they are not resources or key competencies. For instance, characteristics like aggressiveness or shyness can either be advantages or disadvantages.
Three imperatives are central to the development of the inside-out strategy. The process of developing the strategy is characterized by trial and error, exploitation of chance, and iteration between imperatives. The first imperative is to discover asymmetries and their potential. In order for firms to do well, they are supposed to develop important capabilities or resources that cannot be developed by their rivals. However, it is not easy for them to do this unless they possess some realized or potential edge. The process involves discovering the asymmetries that underlie the edge since capabilities or unrecognized resources do not have great importance. Identification of asymmetry takes two forms. The first one is a re-framing insight, spotting pre-existing but unexplained assets while the second one is evolutionary and calls for managers to recognize an emerging edge, frequently in intangible assets like knowledge, relationships, and reputation.
The second imperative is creating capability configurations by design. The evolvement of asymmetries into sustainable core capabilities occurs through organizational design, which builds and supports capabilities by embedding them in a cohesive configuration. In addition, the design promotes such configurations by setting up virtuous circles of enhancing capability. Capability configurations have got two aspects. The first one is that they are constituted by a cohesive combination of resources and capabilities that cannot be imitated. The second valuable aspect is that they are embedded within a design infrastructure that leverages, sustains, and develops them.
The third imperative is pursuing market opportunities that build on and leverage capabilities. The most integrated configurations and deepest capabilities are valueless if they do not extract superior returns. As a result, they are supposed to meet the needs of audiences that are large enough to make enough payments. At the same time, it is important to unearth and evaluate emerging capabilities constantly in order to leverage them across a set of opportunities and a wider audience. Markets are perceived as a set of opportunities and niches that firms need to choose from in order to leverage their capabilities in the best way possible. Managers should not only ask where the opportunities are but also the reasons that make their firms be able to seize and exploit them better than their potential competitors. The attractiveness of niches should be evaluated on the basis of the uniqueness of the firm and its capabilities over its rivals. In addition, it is important for market niches and opportunities to be complementary or related in that they derive benefits from similar capabilities.
The value of capabilities is achieved when they have the capacity to be leveraged across a broadening set of market opportunities. It is important for such leveraging to be a continuous exercise. Virtuous cycles become useful in this process. They make current capabilities strong, but they are also involved in the pushing of asymmetries and capabilities into new areas. As learning takes place, firms acquire the ability to use capabilities or resources obtained in one situation to serve a different one. This is usually done in several ways.
The first way is to apply similar capabilities across different industries and products. The second one is to use customer-related expertise and reputation created around one output to sell others to the same output while the third one is to use segment related expertise created with one customer with others in the same segment.
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Eventually, most capabilities become useless. The major causes of their uselessness include eroding of value by a rival imitator, product lines reaching maturity, and significant transformations in industry technology. Imitation threats can be dealt with by virtuous cycles that build on capabilities fast enough to remain ahead of the competitors. Product uselessness is reduced by leveraging capabilities across new or related product areas. However, knowledge or technological uselessness is only dealt with by continually looking for new asymmetries that have the capacity to be developed into capabilities that can be linked with a new set of opportunities.
As managers pursue strategy from the inside out, it is important for them to learn both to trade-off and pursue seeming opposites. Specifically, in building, discovering, and leveraging capability, they must strike a balance between action and reflection, variation and selection, opportunities, and resources. In addition, firms must create an organizational design as their competitive advantage source in order to make trade-offs in a superior and quick manner. It is important for them to empower their units to develop and discover capabilities and leverage them across the right opportunities. They must also create sound infrastructure and leadership at the center in order to collaborate to carry out this effectively and rapidly. There are three types of tradeoffs. The first one is balance reflection and action: discovering asymmetries and capabilities. The second one is balance variation and selection: developing and embedding capabilities while the third one is balance capabilities and opportunities: leveraging capabilities in the market.