Assembling the right capabilities

- Success, in any business requires that the company assemble the needed set of capabilities in such a way that the capability bundle would give it competitive advantage over other players. Consider Honda, one of the world's most successful car companies. In 2014, Honda launched fit EV, an all electric car. The bundle of core capabilities, essential to the electric car is very different from that essential to the gasoline powered cars. Honda strength in engine technology are totally irrelevant for the electric car business. Instead, what Honda needs is strength in battery technology Similarly, the manufacturing capabilities needed for electric cars are radically different from those needed for gasoline powered cars. Even the capabilities needed, for after sale service, are very different for electric cars, than for gasoline powered ones. If Honda hopes to be as successful in all electric cars, as it has been in gasoline powered ones, it must figure out how to put together the new bundle of required capabilities. Every company contemplating diversification into a new product line faces this type of challenge. These key questions are universal. What set of capabilities are essential for success in the new product line? Within this set, which capabilities are common to the new and the current business? How should we transfer or leverage these common capabilities to help us succeed in the new business? How should we fill the gaps in the required bundle of capabilities for the new business? Should we do so, by building these capabilities from the ground up? Or, should we build strategic alliances with other companies which have these capabilities? Alternatively, should we acquire an existing company which has the needed capabilities? Finally, how should we integrate the current and the new capabilities so that the whole is greater than the sum of the parts? As reflected in these questions, gaps in the required capability bundle for the new business can be filled in one of three ways. One approach is to build these capabilities from scratch. So far, this has been Honda's preferred approach. It followed this approach when diversifying from motorbikes into cars, and later into other products, including, most recently, the all electric car. A second approach is to engage in a strategic alliance with a complimentary partner. Phillips, was a pioneer in launching compact discs. However, these discs are made from polycarbonate a chemical, which was DuPont strength. Not surprisingly, Phillips and DuPont set up a joint venture to pool their complementary strengths. A third approach is to acquire a company with the needed capabilities. This is exactly how both Coke and Pepsi diversified into the orange juice business. Coke by acquiring Minute Maid and Pepsi by acquiring Tropicana. which approach would be best for your company? The answer depends on the specifics of the context. How easily and speedily can you build the needed capabilities from scratch? Does that exist? The right partner for a strategic alliance, and, is there a suitable candidate available for acquisition at the right price? As it's clear, the optimal approach for assembling the needed bundle of capabilities varies from one context to another.