The Meaning of Capabilities

WE’VE ALREADY SAID that capabilities are the most important factor for reducing costs while growing stronger. So let’s begin by discussing the nature of these capabilities, and why they are so critical.

These days, any discussion about great companies and what they’ve done well usually turns to capabilities. “Procter & Gamble wins,” someone might say, “because it knows how to innovate.” Or “Renault has taken advantage of its ability to manage joint ventures.” Or “Haier is unmatched in customer service in China.” To a great extent, capabilities have bypassed assets (such as technology, capital, facilities, property rights, or brand names) as most companies’ means of creating value.

There are a few reasons ...

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