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Kay's Distinctive Capabilities

Use this framework to add value to your company by identifying distinctive capabilities

John Kay in his book The Foundations Of Corporate Success says that there are three distinctive capabilities that a company can use to achieve a competitive advantage.

According to Kay, the three capabilities within a company that can give it a distinctive capability are:

  1. Architecture – by this Kay means the way that the company is organised. The company should have clear corporate objectives and people within the company should be focused on achieving these. Its distribution channels and networks are also part of the architecture.

  2. Reputation – this is how customers and potential customers see the company. It is clearly important to companies that sell quality products and very often is determined by experience. Advertising messages will help as will warranties.

  3. Innovation – innovation as a source of competitive advantage is quite rare. It is hard to constantly innovate and so improve products or reduce costs.

These three capabilities are difficult to build and maintain. This means that they are also hard for competitors to copy. For them to be effective they need to endure (Kay calls this "sustainability") and be "appropriable" in benefiting the company (Kay calls appropriability the capacity to retain the added value it creates for its own benefit).

 

Kay makes the point that companies can achieve market dominance because they have ownership of a particular resource – such as a utility network, or a licence, or a very expensive asset. These are monopolistic companies that are big because they have ownership of a structural resource rather than because of their distinctive capabilities.

 

Of course, a company can beat the competition and prove successful even though it doesn’t fulfil the three capabilities suggested by John Kay. If it works harder, sells more efficiently, produces more efficiently, and advertises more profusely, it may well gain a competitive advantage.

 

John Kay's model has some similarities and some differences with those of Michael Porter. Porter argues that success comes from cost leadership, differentiation, and focus. Porter's generic strategies model is more based on strategic intent rather than building distinctive capabilities.

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