Kay’s distinctive capabilities

BY

MOSES K. KISUBI
 Overview
• Dynamic capabilities concerns with the interaction between the stock of
knowledge, skills and expertise (resources)and organisational rountines,
HR practices and policies (Goldspink & kay, 2009)

• John Kay (1993) argues that successful creation and management of

contracts and relationships within and around the enterprise create added
value

• Kay presents three distinctive relational capabilities allow companies to

achieve competitive advantage: architecture, reputation and innovation.
 Distinctive Relational Capabilities

• Architecture is a network of relational contracts within or around the organization,

with employees (internal), and with suppliers and customers (external).

• Architecture can add value through organizational knowledge and routines,

flexible response to change, and easy and open exchange of information. These
abilities allow for:
 creation and co-ordinated use of organizational knowledge;
 establishment of a co-operative ethic and
 implementation of organizational routines.
• Organizational knowledge, as defined by Kay, is more than the sum of the
expertise of those who work in the firm, and is unavailable to other firms.
• This knowledge could be specific to either a product, or a service, or a process.
• These values develop throughout the history of an organization and cannot be
easily created or changed.
• Distinctive capabilities related to architecture rest on relational contracting:
there is a collective interest to co-ordinate efforts for the benefit of the
organization.
• Organizational routines increase efficiency and improve co-ordination.
However, there is an inherent danger of the ‘not invented here’ syndrome.
 Reputation
• Reputation is the most important commercial mechanism for conveying information to
consumers in the initiation and maintenance of a business relationship. When buyers search
and experience goods, the seller wants to signal quality, so as to start a sequence of
transactions in which to build up a relationship.
• Fair deals is create a long-term relationship.
• Reputation helps assure the buyer of high quality when it cannot easily be determined.
• It is built up over time through:
consumer’s own experience
quality signals (e.g. price, promotion)
demonstrations and free trials
warranty or guarantee
through word-of-mouth
promoting high ratings
brand leveraging
association with other reputations
endorsements by influential people
A good reputation requires few resources to maintain, as long as the underlying quality is not compromised.
 Innovation
• Innovation is the third primary distinctive capability. Innovation is often not successfully
translated into competitive advantage. This failure is rooted in three issues:
costs and uncertainty of innovation process
innovation management
appropriate allocation of rewards.
• There are two types of innovation games
The Chicken Game; if we assume that an innovation will be successful, the outcome of two
competitors’ possible decisions would be ‘best’ only when one decides to hold back. If the
innovation fails, the firm that did not hold back will be ruined. The innovation game is very
common in the pharmaceutical industry. The essence is that someone needs to swerve, as there
is not enough room for all.
The Standard Game occurs in a market where products require complementary products (e.g.
hardware and software). It doesn’t matter which product becomes the standard, everybody loses
as long as there is no standard and everybody wins when there is.
One possible strategy in these games is commitment: boldly announcing that the firm will not
back off. This strategy, however, requires a reputation of doing so.
Another strategy is simply being the first to market.  
 Distinctive capabilities framework (Dottore, 2009)

• Sensing threats and opportunities

• Seizing opportunities
• Managing reconfiguration
• Distinctive capabilities manifest in form of;
 Pro-active as well as a reactive stance
 Gathering and processing of relevant information in a timely manner
 Taking decisions within relevant time constraints
 Suitably endowed top management team, consisting of the entrepreneur, of the
entrepreneurial team, or of senior staff
 Adequate information and knowledge flows between marketplace and decision makers
 Suitably open communication channels within the firm
 An ability for itself to change and improve
 A readiness for continuous, or semi-continuous change, but also discontinuous,
revolutionary change
Kay’s perspective

• Resource based theory

• Systems theory
 Relevance and Criticisms
• Identification of distinctive capabilities allows management to better understand the
successes and failures in the history of the company.

• Helps in identification of SWOT that orchestrate change

• It may also help understand the values currently held as opposed to those that are
desirable in order to increase competitiveness.

• However, Kay’s framework is too abstract since he asserts that distinctive capabilities
when writen down, it can be copied.

• Ignores decision makers ability to understand correctly the context

• Ignores management ability to deploy dynamic capabilities

 Conclusion
• Having distinctive capabilities is not sufficient to achieve superior performance.
This depends on the decision makers ability to understand the context , make
appropriate decisions as well as appropriate deployment of the dynamic
capabilities.
 References
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connecting strategic choice, learning, and competition. Industrial and
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• Winter, S. G. (2003). Understanding dynamic capabilities. Strategic
management journal, 24(10), 991-995.
• Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: what are they?.
Strategic management journal, 21(10‐11), 1105-1121.
• Wamba, S. F., Gunasekaran, A., Akter, S., Ren, S. J. F., Dubey, R., & Childe, S. J.
(2017). Big data analytics and firm performance: Effects of dynamic capabilities.
Journal of Business Research, 70, 356-365.