The importance of capabilities for strategic direction and performance

Abstract

This paper re‐visits the perennial question “Why do some firms perform better than others?” by focusing on the resource‐based view of strategy and in particular the role of generic organisational capabilities in the achievement of overall performance and competitive advantage. Presents findings based on data collected from 194 manufacturing small to medium‐sized enterprises. The analysis confirms the authors’ contention that generic organisational capabilities have a positive impact on strategy deployment and on the achievement of overall performance. The findings indicate that generic capabilities enable firms to manage for the future by focussing on customer’s needs and requirements, while at the same time managing crises and problems arising in their operating environment. A further analysis comparing the emphasis on generic capabilities by both high and low performing firms found that high‐performing firms emphasised capabilities to a far greater extent than low‐performing firms. This implies that generic capability is one of the main drivers of performance. The analysis suggests that firms seeking high overall performance would be well advised to ensure that they actively consider their generic capabilities as the basis of their strategic direction. In short, alignment of the generic capabilities and strategic planning is a prerequisite for high performance.