A company's right to win in any market depends not just on external market positioning and not just on internal capabilities, but on a coherent strategy that aligns these factors at every level.
Three interlocking elements make up a capabilities-driven strategy.
- Way to Play: How you choose to face the market and create value for your customers.
- Capabilities System: What causes you to choose your way to play and what allows you to deliver on it. This system is made up of three to six distinctive capabilities, the key strengths that set your company apart from its rivals. Each capability is ensured through the right combination of processes, tools, knowledge, skills, and organization, all focused on meeting the desired result.
- Product and Service Fit: Based on your chosen way to play and capabilities system, which elements in your portfolio will grow ... and which should go?
Only a coherent company — one that pursues a clear strategic direction (way to play), builds a system of differentiating capabilities consistent with that direction, and sells products and services that thrive within that system — can reliably and sustainably outpace competitors.
External market positioning or internal capabilities are not enough to create a company's right to win. A coherent strategy that aligns them at every level is essential.
Strategy& has developed thought leadership on the application of Capabilities-Driven Strategy across an array of industries and functions.
Companies that want to grow in a way that fits their capabilities system and way to play can pursue one of four avenues.
Companies that need to reduce costs should treat the challenge as an opportunity to reinforce their key capabilities, while cutting in those activities that do not reflect the business’s strengths or long-term goals.
Key publications on Capabilities-Driven Strategy
Based on extensive research, The Essential Advantage helps you construct a strategically coherent company in which the pieces reinforce one another instead of working at cross-purposes.
“The Coherence Premium” lays out the importance of coherence for sustainable business success and presents that sustainable, superior returns accrue to companies that link capabilities.
For most companies, cost cutting in a down economy means across-the-board slashing that "spreads the pain" of budget reductions across many departments.