Strategy, Capabilities – and The Beatles

It’s 50 years since the Beatles first appeared on the Ed Sullivan show and took the USA by storm.What it takes to develop a dynamic capability

At that time I was 12 years old, living in Scotland and proud of my collection of Beatles songs, all of which were recorded on the EMI label.

Now EMI was an interesting company. For example, during World War 2, they built the first airborne radar.

And in 1971 one of EMI’s engineers introduced the first commercial CT scanner. However, like many other companies, it never profited from its invention.

Why? EMI knew the market of CT scanners lay in the US, but it didn’t have manufacturing capabilities there. In the time it took to build a plant, GE and Siemens had reverse-engineered the CT scanner – and the rest is history.

This is a classic example of a company having a good strategy, but not the capabilities to exploit it.

Clearly, capabilities are crucial to success. But what are they and why are they so important?

David Teece¹  defines a capability as “a set of learned processes and activities that enable a company to produce a particular outcome”.

Ordinary capabilities are like best practices. They start in 1 or 2 companies but spread throughout an industry.

Dynamic capabilities are, on the other hand, unique to each company. They’re based on things a company has done successfully in its past and captured in business models developed over many years. As a result they’re difficult to imitate.

A business owner must do 3 things to make a capability dynamic.

First, identify and evaluate opportunities in the market. Then quickly mobilize the company’s resources to capture the value in those opportunities. Finally create an environment of continuous renewal.

Why are dynamic capabilities crucial?

EMI discovered the hard way that spotting an opportunity isn’t enough. The resources must be in place to quickly take advantage of the opportunity.

And Nokia is an example of what can happen when even market leaders aren’t in continuous renewal. Teece believes they missed the smartphone revolution because they relied on R&D which took place in Finland. Apple, based in San Francisco, was much more in touch with North American consumers’ wants and emerging technologies.

Developing dynamic capabilities could be a way to survive in a world where change is taking place more quickly than ever before.

¹ “The Dynamic Capabilities of David Teece”, Strategy + Business, 11 Nov 13


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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn


Tags: business owners, capabilities, change, continuous renewal, execution, Jim Stewart, Leadership, opportunities, Planning, processes, ProfitPATH, resources, strategy, success, value


  1. Making dynamic capabilities profitable first rests on management’s ability to communicate with all involved in the initiative and to clearly delegate each phase of the implementation. Based on the urgency of the competitive threat, well-capitalized companies may quickly spend on new technology and hope the time they save in working up their dynamic capability is worth the financial cost. Key to all of this is having an almost intuitive sense of the broader landscape and being able to look into the future. Or, being very lucky. That’s when CEO’s and other leaders really earn their bonuses.

  2. Jim Stewart says:

    Evan, I don’t believe in luck. I like Gary player, the South African golfer’s response when he was asked what was key to his consistent success. He started out by saying he thought he was lucky – but he noticed that the more he practised the luckier he became. Jim

  3. Pierre Gagne says:

    I have worked in the insurance industry globally for the major part of my life. As business capabilities are common to all insurance companies, you are right by saying that dynamic capabilities are what makes one company be successful while another one is not. This is why we have developed Panorama 360 for the insurance industry. It provides a lanscape where insurance companies can identify the capabilities that they need to develop to be different from the others.

  4. Jim Stewart says:

    Pierre, thanks for taking time to comment. I don’t normally publish comments when they contain a promotional element but, since yours is a fairly gentle “plug” and you did provide some perspective about the insurance industry, we’ll let it through this time. Jim

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