The Complete Guide to Stakeholder Management

 "Successful projects have support from stakeholders across the organization. That’s why stakeholder management is essential for any initiative." 

Stakeholder management allows you to identify and meet leaders’ needs while keeping communication open.

In this article, you’ll learn what stakeholder management is, why it's important, and how to create a stakeholder management plan.

Table of Contents

• What is stakeholder management?
• Why is stakeholder management important?
• Benefits of Stakeholder Management
• Inside the Stakeholder Management Process
• Tips for Stakeholder Management

What is stakeholder management?

Stakeholder management is the process of identifying, assessing, and managing the interests and needs of stakeholders. An effective stakeholder management strategy should be backed by data and paint a clear picture of everyone involved.

Why is stakeholder management important?

Projects fail when the interests and needs of stakeholders are ignored. This leads to a lack of buy-in from key stakeholders, which can jeopardize the success of the project.

When stakeholders feel their needs are being met, they're more likely to support the project. On the other hand, if their needs are not met, they may try to block your initiative. Stakeholder management helps build positive relationships that keep your project running smoothly.

An effective stakeholder management strategy can help you:

• Avoid or resolve conflicts between stakeholders.
• Secure buy-in and support from key stakeholders.
• Communicate effectively with stakeholders.
• Manage expectations of stakeholders.
• Monitor stakeholder engagement throughout the project.

Benefits of Stakeholder Management

There are many benefits of an effective stakeholder management strategy, including:

• Improved communication. By identifying the interests and needs of stakeholders, you can tailor your communications to their specific needs. This ensures that your messages are received and understood.
• Increased buy-in. According to KPMG, 61% of projects have highly involved sponsors. When stakeholders feel their interests and needs are being considered, they're more likely to support the project.
• Reduced risks. By engaging with stakeholders, you can identify potential risks early and take steps to avoid or mitigate them. This can help reduce the overall risk of the project.
• Improved performance. An effective stakeholder management strategy can help you optimize resources and align project activities with stakeholder interests. This can lead to improved project performance.

Inside the Stakeholder Management Process

While stakeholder management may seem intuitive for some, you can start building trust systematically with a more formal roadmap.

The following six steps can help you understand stakeholder priorities and how you can address these needs.

1. Identify stakeholders.

Stary by identifying all the individuals and groups who can impact your project, both positively and negatively. This includes internal stakeholders (such as team members) and external stakeholders (such as customers or suppliers).

To identify your stakeholders, ask yourself the following questions.

• Who will be impacted by your project?
• Who has an interest in your project?
• Who has the power to influence your project?
• Who wants your project to fail?
• Who wants your project to be successful?

2. Prioritize stakeholders.

After you've identified all your stakeholders, the next step is prioritization. This will help you focus your attention on the stakeholders most important to your project's success.

You should identify where their expectations lie, their level of influence, what information they will want from you, and how often they want reporting from your team. You can use stakeholder mapping to help you prioritize key leaders.

Run a Stakeholder Mapping Exercise

The above stakeholder mapping exercise asks you to plot leaders on a two-by-two grid. One axis is labeled power and the other interest.

On the power axis, you rate each stakeholder on their ability to influence the project. On the interest axis, you rate each stakeholder on their level of interest in the project. This will give you a clear picture of which stakeholders are the most important to engage with and how best to do so.

There are several different ways to map stakeholders, including:

• RACI matrix. This is a popular stakeholder mapping method that uses the letters R (responsible), A (accountable), C (consulted), and I (informed) to rate stakeholders on their level of involvement in the project.
• Power/interest grid. This is a simple way to map stakeholders that can be used to prioritize engagement. It is also known as the Salience model.
• Influence/impact matrix. This is a more detailed stakeholder mapping method that can be used to assess the potential impact of each stakeholder on the project.

3. Assess stakeholder needs and interests.

The key to a successful stakeholder management plan is understanding your stakeholders. This will help you assess what they want from the project and how best to engage with them.

At this stage, ask yourself the following questions.

• Do you understand their needs, priorities, and issues?
• Do they have the power to influence the project?
• What financial or emotional interest do they have in the outcome of the project?
• What motivates them?

By understanding the answers to these questions, you can better develop a stakeholder management plan that fits each leader.

4. Define stakeholder motives.

Once you've identified and assessed your stakeholders, you can begin to define their motives. This will help you understand what they want from the project and how best to engage with them.

There are several ways you can define stakeholder motives, including:

• Interviews. You can interview stakeholders to get their views on the project. This can be done in person, over the phone, or via email.
• Surveys. You can send out surveys to stakeholders to get their feedback on the project. This is a quick way to gather data from a large number of stakeholders.
• Focus groups. You can hold focus groups with stakeholders to get their input on the project. This can be used to generate ideas and identify issues.

By understanding stakeholder motives, you can develop an effective stakeholder management plan that meets their needs and interests.

5. Develop a plan for engagement.

The goal of stakeholder engagement is to manage expectations and build relationships. This can be done through several different methods, including:

• Frequent communication. This is the most important aspect of stakeholder engagement. You must regularly communicate with stakeholders to update them on the project and get feedback. This can be done through face-to-face meetings, phone calls, emails, or online tools like a project management software. Each stakeholder may need their own communication strategy.
• Consultation. This involves consulting stakeholders in decision-making. This can be done through meetings, surveys, or focus groups.
• Collaboration. This involves working with stakeholders to complete tasks or achieve objectives. This can be done through co-creation, joint planning, or shared decision-making.

The best way to engage with various leaders will depend on the stakeholder and the project. You should tailor your engagement plan to each individual.

Stakeholder Management Plan Templates

After you’ve identified stakeholders, it’s time to develop management plans for each group.

The below templates can help you create engagement plans and organize your stakeholder communication.

Asana

If you’re new to stakeholder management, this template from Asana offers a simple way to stay organized. In this plan, you write down each stakeholder, their level of interest in your project, and how influential they are to your work.

Then, you can check a box to identify their communication preferences. That includes how often they want to hear from your team and how they want you to get in touch.

What we love: With this template, you know which of your leaders prefer a quick Slack versus a formal email at a glance.

Project Management Docs

If you’re looking for a more detailed engagement plan, consider this option from Project Management Docs. With this document, you can fully lay out the vision of your project and which departments your initiative will affect.

What we love: This template includes charts and tables that you can use to determine each stakeholder's level of importance to your project. You can use this document to brainstorm and outline your final draft.

KnowledgeHut

If you’re looking for a complete guide to writing an engagement plan, KnowledgeHut is here to help. This template includes sections that help you identify stakeholders and create a timeline for each person’s involvement. You can also keep track of costs and human resources involvement.

What we love: This template features charts that you can fill out with stakeholder data. If you get stuck, each section comes with helpful questions for self-reflection to guide you along the way.

PM-Training

If you’ve been searching for a simple spreadsheet to manage your stakeholders, look no further. This template from PMTraining offers a straightforward approach to managing stakeholders.

What we love: This template lays out who is involved, what they need to do for your project, and how you plan to keep them engaged. If you’re looking for a quick way to develop a one-page stakeholder management guide, this is it. Plus, everything can be edited in Google Docs.

Tips for Stakeholder Management

Formalizing stakeholder management can feel like an overwhelming process. Whether you’re just getting started or have years of experience, the following tips can help you ensure successful stakeholder management.

1. Define the purpose of the project.

According to PMI, 44% of projects fail because of a lack of alignment between business and project objectives.

Before you begin engaging with stakeholders, it is crucial to define the purpose of the project. This will help you identify who you need to engage with and their objectives.

2. Define roles and responsibilities.

At the start of a project, clearly define each stakeholder's roles and responsibilities. This will help ensure that everyone is clear on their involvement in the project.

3. Communicate regularly.

Regular communication is essential for successful stakeholder management. You should update stakeholders on the project regularly and solicit their feedback.

Your strategic objectives should always be clear in stakeholder communication. This allows your team to manage stakeholder expectations and create positive relationships.

4. Be transparent.

It is important to be transparent with stakeholders about the project. This will help build trust and ensure everyone is on the same page.

5. Seek feedback.

Feedback is essential for successful stakeholder management. You should seek feedback from stakeholders at every stage of the project.

Keep track of their suggestions and implement their insights. You can then report back on how you implemented their solutions to further gain their support.

6. Choose the right software.

Today, only one in four teams uses a project management software. Implementing one of these tools can help you keep organized.

That ranges from project management software, like Basecamp or Asana, to collaboration software, like Google Drive or Trello. Choose a tech stack that best fits the needs of your project.

7. Be flexible.

Stakeholder management is not a one-size-fits-all process. You should be flexible and tailor your approach to each individual you work with.

Create an Effective Stakeholder Management Plan

Stakeholders hold the power to influence your project, so engaging leaders while keeping their needs at the forefront will help keep things running smoothly.

Keep these tips in mind as you develop your stakeholder management strategy to stay on track.

Stephanie Trovatohttps://cutt.ly/R2pQUV

55 Business Model Patterns. #10 Customer Loyalty

 

Customers are retained and loyalty assured by providing value beyond the actual product or service itself, i.e., through incentive-based programs. The goal is to increase loyalty by creating an emotional connection or simply rewarding it with special offers. Customers are voluntarily bound to the company, which protects future revenue.

How they do it: Lufthansa’s loyalty program ”Miles & More” allows customers to collect status tier and reward points for each flight or spend with the airline. This allows the company to tie frequent flyers to them by offering rewards which can be physical products or flights as well as access to exclusive lounges and priority treatment at the airport.

Top Industries

Pattern Co-Occurrence

Below, the pattern "Customer Loyalty" is analyzed based on co-occurrence, in order to get insights into how this business model pattern is applied in combination with other patterns within the firms we studied.

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Loyalty business model

The loyalty business model is a business model used in strategic management in which company resources are employed so as to increase the loyalty of customers and other stakeholders in the expectation that corporate objectives will be met or surpassed. A typical example of this type of model is: quality of product or service leads to customer satisfaction, which leads to customer loyalty, which leads to profitability.

The service quality model

A model by Kaj Storbacka, Tore Strandvik, and Christian Grönroos (1994), the service quality model, is more detailed than the basic loyalty business model but arrives at the same conclusion.^[1] In it, customer satisfaction is first based on a recent experience of the product or service. This assessment depends on prior expectations of overall quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction is likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer's expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality). Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service is priced very high and the transaction provides little value.

This loyalty business model then looks at the strength of the business relationship; it proposes that this strength is determined by the level of satisfaction with recent experience, overall perceptions of quality, customer commitment to the relationship, and bonds between the parties. Customers are said to have a "zone of tolerance" corresponding to a range of service quality between "barely adequate" and "exceptional". A single disappointing experience may not significantly reduce the strength of the business relationship if the customer's overall perception of quality remains high, if switching costs are high, if there are few satisfactory alternatives, if they are committed to the relationship, and if there are bonds keeping them in the relationship. The existence of these bonds acts as an exit barrier. There are several types of bonds, including: legal bonds (contracts), technological bonds (shared technology), economic bonds (dependence), knowledge bonds, social bonds, cultural or ethnic bonds, ideological bonds, psychological bonds, geographical bonds, time bonds, and planning bonds.

This model then examines the link between relationship strength and customer loyalty. Customer loyalty is determined by three factors: relationship strength, perceived alternatives and critical episodes. The relationship can terminate if:

1. the customer moves away from the company's service area,
2. the customer no longer has a need for the company's products or services,
3. more suitable alternative providers become available,
4. the relationship strength has weakened,
5. the company handles a critical episode poorly,
6. unexplainable change of price of the service provided.

The final link in the model is the effect of customer loyalty on profitability. The fundamental assumption of all the loyalty models is that keeping existing customers is less expensive than acquiring new ones. It is claimed by Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of net present value) depending upon the industry. However, Carrol and Reichheld (1992) dispute these calculations, claiming that they result from faulty cross-sectional analysis.^[2]

According to Buchanan and Gilles (1990), the increased profitability associated with customer retention efforts occurs because:

• The cost of acquisition occurs only at the beginning of a relationship: the longer the relationship, the lower the amortized cost.
• Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
• Long term customers tend to be less inclined to switch and also tend to be less price sensitive. This can result in stable unit sales volume and increases in sales volume.
• Long term customers may initiate free word of mouth promotions and referrals.
• Long term customers are more likely to purchase ancillary products and high-margin supplemental products.
• Long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors' market share gains difficult.
• Regular customers tend to be less expensive to service because they are familiar with the processes involved, require less "education," and are consistent in their order placement.
• Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction in a virtuous circle.

For this final link to hold, the relationship must be profitable. Striving to maintain the loyalty of unprofitable customers is not a viable business model. That is why it is important for marketers to assess the profitability of each of its clients (or types of clients), and terminate those relationships that are not profitable. In order to do this, each customer's "relationship costs" are compared to their "relationship revenue". A useful calculation for this is the patronage concentration ratio. This calculation is hindered by the difficulty in allocating costs to individual relationships and the ambiguity regarding relationship cost drivers.

Expanded models

Schlesinger and Heskett (1991) added employee loyalty to the basic customer loyalty model. They developed the concepts of "cycle of success" and "cycle of failure". In the cycle of success, an investment in your employees’ ability to provide superior service to customers can be seen as a "virtuous circle". Effort spent in selecting and training employees and creating a corporate culture in which they are empowered can lead to increased employee satisfaction and employee competence. This will likely result in superior service delivery and customer satisfaction. This in turn can create customer loyalty, improved sales levels, and higher profit margins. Some of these profits can be reinvested in employee development thereby initiating another iteration of a virtuous cycle.

Fred Reichheld (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors.

Duff and Einig (2015) expanded the model to debt issuers and credit ratings agencies to investigate what role commitment plays in issuer-CRA relations.

Satisfaction-profit-chain (SPC) model

The satisfaction-profit chain is a model that theoretically develops linkages and then enables researchers to test them statistically for a firm using customer data (both from surveys and other sources). The satisfaction-profit-chain was tested in the context of banking industry showing that product and services improvements indeed were associated with customer perceptions, which led to beneficial customer behaviors such as repurchase, and desirable financial outcomes such as increased sales and profitability ^[3] The satisfaction-profit-chain, as a methodology for managing customer loyalty and firm profitability, is also applicable in business-to-business markets, irrespective of whether the B2B firm sells goods and/or services.

The satisfaction-profit-chain refers to a chain of effects whereby increased performance on key attributes leads to improvements in overall satisfaction, which in turn affects loyalty intentions and behaviors. The increased customer loyalty is shown to affect short- and long-term financial outcomes including sales, profitability, and stock price. More recently, some studies show that especially in the context of services such as retailing and financial services, employee satisfaction can play a critical role in enhancing customer loyalty. This happens because both customer satisfaction and employee satisfaction can mutually reinforce each other, and promote stronger customer loyalty. More specifically, for a given level of overall satisfaction, customer loyalty is disproportionately stronger when customers perceive that employees are also satisfied.

The SPC model has become the basis of a large body of empirical research showing the strong impact of customer satisfaction on customer loyalty. Research has clearly shown that one of the best ways to increase customer loyalty—measured as repurchase intentions and/or repurchase behavior—is by increasing customer satisfaction (more satisfied customers are more loyal, in general).^[4][5][6] Though the relationship is positive, research shows there are many differences:

1) The effect of customer satisfaction on customer loyalty can vary based on customer demographics and segments, such that it is stronger for some demographic groups and segments than others.^[7][8]

2) The effect of customer satisfaction and customer loyalty, and subsequent financial outcomes for firms, can vary based on industry. Specifically, factors such as—goods versus services industry, degree of competition or concentration in the industry, the utilitarian or hedonic nature of products, and customers' switching costs can affect the nature (non-linearity) and strength of the link between customer satisfaction and customer loyalty.^{[9][10][11][6]}

3) The measurement of loyalty—especially for customers is multi-faceted. Customer loyalty includes a variety of outcomes—intentions and behaviors associated with repurchase including word-of-mouth,^[12][13] complaint behaviors,^[14] share-of-wallet or the relative proportion of purchasing from a single firm relative to customer's total purchasing,^[15] and likelihood to recommend.^[16]

4) Customer loyalty is influenced, not only by customer satisfaction but also employee satisfaction. Customer loyalty is a function of customer satisfaction. In many firms, especially service-oriented industries such as retailing, health-care, financial services, education, and hospitality the level of satisfaction experienced by front-line employees is a critical component. The level of employee satisfaction influences customer satisfaction as shown in a large-scale study of managers, front-line employees, and customers of a DIY retailer in Europe:^[17] results showed that managers affected overall job-satisfaction of front-line employees, which in turn affected the satisfaction of customers they interacted with. Most surprisingly, the level of customer loyalty was much higher among those customers who were themselves more satisfied, but also interacted with more satisfied employees. Highly satisfied customers who dealt with relatively less satisfied employees were relatively less loyal.

Commitment-loyalty model

The customer commitment approach to loyalty is based on the idea that customers with higher commitment toward the brand are also more likely to be loyal toward the brand. Earlier models of customer commitment conceptualized it as a unidimensional construct (e.g., Garbarino and Johnson 1999; Moorman et al. 1992).^[18][19] More recently, scholars have developed a five dimensional scale to measure customer commitment and relate it to customer loyalty. The five commitment dimensions include:

• Affective commitment
• Normative commitment
• Economic commitment
• Forced commitment
• Habitual commitment

Data collection

Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires by software providers such as Confirmit, Medallia, and Satmetrix.^[20] However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse. This approach is described in Buckinx, Verstraeten & Van den Poel (2006).

All historical trends for different segmentations and their standard of living may also be very helpful in developing customer retention strategy. Lifestyle is also a very powerful tool, can be used for better customer retention and to know his/her needs in better way.

Notes

1. ^ Storbacka, K. Strandvik, T. and Gronroos, C. (1994) "Managing customer relationships for profit", International Journal of Service Industry Management, vol 5, no 5, 1994, pp 21-28.
2. ^ Carrol, P.; Reichheld, F. (1992). "The fallacy of customer retention". Journal of Retail Banking. 13 (4).
3. ^ Carr, Nicholas G. 1999. Marketing: The economics of customer satisfaction. Harvard Business Review (March-Apr). 15-18.
4. ^ Lee, Jonathan, Janghyuk Lee, and Lawrence Feick. "The impact of switching costs on the customer satisfaction-loyalty link: mobile phone service in France." Journal of services marketing 15, no. 1 (2001): 35-48.
5. ^ Homburg, Christian, and Annette Giering. "Personal characteristics as moderators of the relationship between customer satisfaction and loyalty—an empirical analysis." Psychology & Marketing 18, no. 1 (2001): 43-66.
6. ^ Jump up to:^a b Gonçalves, Fábio M.R.R.; Cândido, Carlos J.F.; Feliciano, Isabel Maria Pereira Luís (2020-06-11). "Inertia, group conformity and customer loyalty in healthcare in the information age". Journal of Service Theory and Practice. 30 (3): 307–330. doi:10.1108/JSTP-08-2019-0184. hdl:10400.1/14708. ISSN 2055-6225. S2CID 219924463.
7. ^ Homburg, Christian, and Annette Giering. "Personal characteristics as moderators of the relationship between customer satisfaction and loyalty—an empirical analysis." Psychology & Marketing 18, no. 1 (2001): 43-66.
8. ^ Danaher, Peter J. "Customer heterogeneity in service management." Journal of Service Research 1, no. 2 (1998): 129-139.
9. ^ Anderson, Eugene W., Claes Fornell, and Roland T. Rust. "Customer satisfaction, productivity, and profitability: Differences between goods and services." Marketing science 16, no. 2 (1997): 129-145.
10. ^ Gupta, Sunil, and Valarie Zeithaml. "Customer metrics and their impact on financial performance." Marketing Science 25, no. 6 (2006): 718-739.
11. ^ Keiningham, Timothy L., Bruce Cooil, Tor Wallin Andreassen, and Lerzan Aksoy. "A longitudinal examination of net promoter and firm revenue growth." Journal of Marketing 71, no. 3 (2007): 39-51.
12. ^ Kowalski, Robin M. (1996), “Complaints and Complaining: Functions, Antecedents, and Consequences,” Psychological Bulletin, 119 (2), 179–196.
13. ^ Anderson, Eugene W. "Customer satisfaction and word of mouth." Journal of service research 1, no. 1 (1998): 5-17.
14. ^ Fornell, Claes, and Birger Wernerfelt. "Defensive marketing strategy by customer complaint management: a theoretical analysis." Journal of Marketing research (1987): 337-346.
15. ^ Cooil, Bruce, et al. "A longitudinal analysis of customer satisfaction and share of wallet: Investigating the moderating effect of customer characteristics." Journal of Marketing 71.1 (2007): 67-83.
16. ^ Ryu, Gangseog, and Lawrence Feick. "A penny for your thoughts: Referral reward programs and referral likelihood." Journal of Marketing 71, no. 1 (2007): 84-94.
17. ^ Brickley, James A., Frederick Dark, and Michael S. Weisbach (1991),‘‘An Agency Perspective on Franchising,’’Financial Manage-ment, 20 (1), 27-35.
18. ^ Moorman, Christine, Gerald Zaltman, and Rohit Deshpandé (1992), “Relationships Between Providers and Users of Market Research: The Dynamics of Trust Within and Between Organizations,” Journal of Marketing Research, 29 (August), 314-328.
19. ^ Garbarino, Ellen, and Mark S. Johnson (1999), “The Different Roles of Satisfaction, Trust, and Commitment in Customer Relationships,” Journal of Marketing, 63 (April), 70-87.
20. ^ Lester, Aaron (2013-04-23). "Seeking treasure from social media tracking? Follow the customer". SearchBusinessAnalytics. Retrieved 2013-10-01.

Capabilities and Competences

 

Capability vs. Competency

“Competency” and “capability” are two terms that pertain to human ability. They are often mentioned in many Human Resources related materials, as well as in career and job communications.

“Capability” is the term that describes the quality of being capable. It is the condition that permits an individual to acquire the power and ability to learn and do something within their capacity. “Capability” is also known as implied abilities, or abilities that are not yet developed.

A person with a capability has the potential to acquire a specific ability or skill that will be helpful in a task. The learned skill or ability adds to a person’s knowledge bank or skillset. Capabilities also improve the functions of a person, which can lead to more productivity. New skills and abilities make a person more capable to complete a certain task, which in turn makes them a more suitable candidate for certain job positions.

With time and practice, capabilities can develop into competence. Capabilities serve as the starting point of being able to do something and gradually becoming more adept in performing the task.

“Capability” is derived from the Middle French word “capabilité” and Late Latin word “capābili”. The word was first used in 1587; however, its meaning in today’s usage (underdeveloped skill or faculty) only evolved and was used starting in 1778.

On the other hand, “competence” is the state or quality of an individual’s work. A person and their work can be evaluated as competent if the performance is considered “satisfactory” but not “outstanding.” Competence can also be applied to the improvement or development of one’s abilities and skills for the benefit of the person and the group or institution they represent. The improved skills and abilities are applied to tasks or jobs.

Competence can also result in an increased quality of work or performance. In return, the work and performance will produce more satisfying and favorable results from other parties like clients, bosses, and other relevant individuals.

Competence starts as a person’s capabilities. In a sense, competence is the proven abilities and improved capabilities. Competence can include a combination of knowledge, basic requirements (capabilities), skills, abilities, behavior, and attitude.

“Competence” as a word has its origins in 1632 in the French word “competence” (meaning of sufficient living in ease) and further in the Latin “competentia” (which means agreement or symmetry). However, the modern meaning of the word (sufficiency to deal with a situation or  task) didn’t come into existence until 1790.

Summary:

1. “Capability” and “competence” are two manifestations of human abilities and skills. Both words are often met in job advertisements or personnel assessments.
2. “Capability” is the condition of having the capacity to do something. Within this condition there is a potential for improvement of skills. On the other hand, “competence” is the improved version of “capability,” and means the degree of skill in the task’s performance.
3. Capabilities lead to competence. An individual with capabilities can acquire a new skillset or knowledge by learning and practicing. Competence serves as a result of the application of capabilities.
4. Capabilities are seen as “generic,” while competence is more in the field of “specialist.”
5. Both “capability” and “competence” are derived from French and Latin roots. Another interesting similarity is that both words have earlier meanings distinct from  their current, modern meanings; competence’s modern meaning only evolved in 1790, but the word was already in usage since 1632. “Capability” has been used since 1587, but it took almost 197 years to come to its new and modern meaning.

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Capability-based strategies are based on the notion that internal resources and core competencies derived from distinctive capabilities provide the strategy platform that underlies a firm's long-term profitability. Evaluation of these capabilities begins with a company capability profile, which examines a company's strengths and weaknesses in four key areas:

• managerial
• marketing
• financial
• technical

Then a SWOT analysis is carried out to determine whether the company has the strengths necessary to deal with the specific forces in the external environment. This analysis enables managers to identify:

1. external threats and opportunities, and
2. distinct competencies that can ward off the threats and compensate for weaknesses.

The picture identified by the SWOT analysis helps to suggest which type of strategy, or strategic thrust the firm should use to gain competitive advantage.

Stalk, Evans and Schulman (1992) have identified four principles that serve as guidelines to achieving capability-based competition:

1. Corporate strategy does not depend on products or markets but on business processes.
2. Key strategic processes are needed to consistently provide superior value to the customer.
3. Investment is made in capability, not functions or SBUs.
4. The CEO must champion the capability-based strategy.

Capability-based strategies, sometimes referred to as the resource-based view of the firm, are determined by (a) those internal resources and capabilities that provide the platform for the firm's strategy and (b) those resources and capabilities that are the primary source of profit for the firm. A key management function is to identify what resource gaps need to be filled in order to maintain a competitive edge where these capabilities are required.

Several levels can be established in defining the firm's overall strategy platform (see figure).

 At the bottom of the pyramid are the basic resources a firm has compiled over time. They can be categorised as technical factors, competitive factors, managerial factors, and financial factors.

 Core competencies can be defined as the unique combination of the resources and experiences of a particular firm. It takes time to build these core competencies and they are difficult to imitate. Critical to sustaining these core competencies are their:

Durability - their life span is longer than individual product or technology life-cycles, as are the life spans of resources used to generate them, including people.

Intransparency - it is difficult for competitors to imitate these competencies quickly.

Immobility - these capabilities and resources are difficult to transfer.

References

Rowe, Mason, Dickel, Mann, Mockler; "Strategic Management: a methodological approach". 4th Edition, 1994. Addison-Wesley. Reading Mass.

Stalk, G Jnr., Evans, P. and Schulman, LE. 1992. "Competing on capabilities: the new rules of corporate strategy". Harvard Business Review, Vol.70, No. 2, March-April, pp. 57-70.

Prahalad, CK. and Hamel, G. 1990. "The Core Competence of the Corporation". Harvard Business Review, May-June, pp. 79-91.

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Marketing Dashboard

 

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