Threshold Capabilities and Core Competencies
Critical to the forming of competitive advantages, capabilities are often based on developing, carrying and exchanging information and knowledge through the firm’s human capital. Because a knowledge base is grounded in organizational actions that may not be explicitly understood by all employees, repetition and practice increase the value of a firm’s capabilities. Capabilities are often developed in specific functional areas such as manufacturing, R&D and marketing or in one part of a functional area like advertising. Core competencies are resources and capabilities that serve as a source of a firm’s competitive advantage over rivals.
Core competencies distinguish a company competitively and reflect its personality. Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. The core competencies of O2 Telefonica extend to the areas of fixed telephony, broadband, wireless telephony, and pay-TV technologies where the company is occupying a dominant position with 228. 53 million customers. Research and Development, and innovation have been the core competence with which the company was able to introduce several new products in the connected technologies. For the year 2007, the company has invested 4,384 million euro as against 4,301 million euro in technological innovation (Annual Report, 2007).
Resources/Capabilities that provide the Organization with a Competitive Advantage
Capabilities that are valuable, rare, costly to imitate and non-substitutable, are considered as core competencies. In turn, core competencies are sources of competitive advantage for the firm over its rivals. Capabilities failing to satisfy the four criteria are not core competencies meaning that although every core competency is a capability not every capability is a core competency.
A sustained competitive advantage is achieved only when competitors are not able to duplicate the benefits of a firm’s strategy or when they lack the confidence to attempt imitation. Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external environment. Rare capabilities are capabilities that few if any competitors possess. Competitive advantage results only when firms develop and exploit capabilities that differ from those shared with competitors.
Robust or costly-to-imitate capabilities are those capabilities that other firms cannot easily develop. Capabilities that are costly to imitate are created because of one reason or a combination of three reasons. The three reasons are:
- firms sometimes are able to develop capabilities because of unique historical conditions
- a second condition of being costly to imitate occurs when the link between the firm’s capabilities and its competitive advantage is casually ambiguous
- social complexity is the third reason that capabilities can be costly to imitate.
Non-substitutable capabilities are capabilities that do not have strategic equivalents. This implies that the strategic value of capabilities increases as they become more difficult to substitute. The capabilities of O2 Telefonica have been found to be tremendous in the digital technology. Due to the commitment and larger investments in Research and Development, the company has emerged as the world leader in the broadband technology in the countries of UK and Germany.
In Czech Republic, the company has pioneered in the IPTV and has become the market leader in this segment. The trials in Mobile TV in Ireland have proved to be a distinctive capability of the company. Integrated management has led to enlarged values through increased sales and product diversity. The customer traffic has increased from 40% to more than 80% since the acquisitions of the company. The company in addition to securing various multinational contracts has garnered synergies over Euro 1 million (Key, 2008).