Examples of Table-Stakes Capabilities
For every industry, as we noted in chapter 5, there are table-stakes capabilities. Also called competitive necessities, these are the capabilities that every company has to develop, simply to remain current in its industry. They vary from one industry to the next, but they are found in every company within a sector.
Other capabilities are distinctive: difficult for others to copy, and providing competitive advantage. These become the elements of a differentiating capabilities system: the group of three to six mutually reinforcing capabilities that support a company’s value proposition in a way that is difficult for other companies to copy or match.
In this appendix, for three industries, we show the table-stakes capabilities common to each and some ways (in italics) in which they could be adapted into distinctive capabilities. We hope these examples will be useful in helping you describe the table-stakes capabilities in your own industry and imagine ways in which you can develop some of them to a distinctive level.
Drug discovery: Every pharma enterprise that engages in drug research must be able to identify biological pathways and drug-discovery platforms; evaluate and prioritize candidate drugs; manage academic and research partnerships; identify and develop the necessary life sciences talent to do this work; and manage the discovery program end to end. This could become a distinctive capability for a company in a highly specialized field or with a unique group of patents.
Clinical capabilities: All life sciences companies conduct clinical trials: identifying nuances in the regulatory and market landscape; designing trials for the appropriate geographic footprint (increasingly, a global footprint); managing contract research organizations; gathering competitive intelligence; and recruiting patients for testing. A breakthrough innovation in clinical testing methods, if it could withstand regulatory scrutiny, might develop into a distinctive capability.
Specialized production: Pharmaceutical companies have operational capabilities that include designing commercially scalable and compliant processes; optimizing costs and managing assets for global supply; and managing the supply chain and distribution channels, including track-and-trace processes and risks. Highly efficient, cost-conscious production can, in some companies, become a distinctive capability if it leads to significant value or solutions-providing competitiveness.
Market introduction and launch of new products: Biopharma companies depend on their ability to maintain a stream of new drugs. This capability includes the design of value- and risk-based pricing and accounting; managing commercial partnerships, including relationships with health-care providers and systems, such as integrated delivery networks (IDNs); engaging with physicians; outreaching to patients (to ensure they are taking the medications); and using new channels and digital platforms for these connections. Working with particular categories of customers—for instance, being able to profitably deliver drugs for relatively rare diseases—could be a distinctive capability.
Customer development: All pharma companies must have a basic capability in taking their products to market. This includes managing accounts; providing value-added services for patients (in part, to engage them); adapting the value proposition for different providers; and designing and performing outcome studies that will be used in the marketing campaigns. For a company that combines this capability with drug development and market launch capabilities, targeting a particular group of patients or health-care providers, this capability could lead to distinction.
Regulatory and medical affairs: Most biopharma companies must demonstrate this capability in proving their legitimacy. It might include managing research on health economics and outcomes; maintaining academic and research partnerships; contributing medical information to the industry; and demonstrating value to payers and providers to improve patient access. In an opaque regulatory environment, some companies’ insights or access could give them a distinctive capability.
Retail Companies
Market insight: Retailers depend on their ability to connect with customers to understand their needs and tastes; predict future demand trends; select the most popular products that customers will want; and understand nuances at a local or store level. Increasingly, this capability involves consumer data and sophisticated analytics. Some retailers go further, gaining privileged access to customers as discussed in chapter 6.
Assorted management: Product development and merchandising combine in a capability common to all retailers, which involves designing the right set of products that match customer preferences (often working closely with manufacturers to do so); selecting them in an appropriate assortment for each venue; keeping the assortment on trend through new product introductions and/or seasonal changes; assembling the optimal mix of sizes, units, colors, flavors, fabrics, fits, and other factors; and developing innovative features at the retail level to augment what manufacturers have given them. A retailer like Apple, IKEA, Inditex, or Starbucks that manufactures some of its offerings will often seek to develop a distinctive capability in this area.
Supply chain logistics: Every retailer must manage a vendor base to ensure quality of product and competitive cost; develop an agile supply chain that can react to demand and avoid understocking or overstocking; design a pipeline that can deliver a localized assortment, with different product mixes to different stores; manage optimal inventory levels across supply nodes, providing end-to-end visibility down to the stock-keeping unit (SKU) level; deliver an omnichannel experience (matching online and brick-and-mortar venues); and replenish shelves on a just-in-time basis to optimize sales. A few companies, like Inditex—and on the consumer products manufacturing side, Frito-Lay and Natura—have taken this capability to the level of operational excellence where it becomes distinctive.
Retail environment: Large multinational retailers must be proficient in several related activities. These include identifying and securing real estate to balance sales, cost, and brand image; developing and managing a store footprint that optimally serves each geographic market; optimizing backroom (noncustomer-facing) operations for the minimum cost and desired in-stock levels; and managing in-store (customer-facing) operations to deliver the desired store experience at competitive costs; and integrating brick-and-mortar, online, and smartphone-based customer experiences. Innovations (such as IKEA’s warehouse design and Apple’s Genius Bar) and continuous improvement (as at Amazon, Inditex, and Starbucks) can give some retailers a distinctive edge with this capability, especially when it is integrated with insights into customer experience.
Communication: Every retailer must have a threshold level of competence in creating a brand that attracts customers, both face-to-face and online. This includes managing brand coherence across channels; driving customer awareness and traffic to a sales channel; cross-selling or up-selling products to existing customers; incenting new trials for new or lapsed customers; conducting ongoing analytics to continuously improve marketing efforts; and devising effective pricing and promotional strategies that create long-term value. Skilled retailing marketers can create targeted relationships with segments of consumers focused on distinctive experience or a customized value proposition.
Omnichannel sales and service: Retailers must provide an integrated digital offering that allows customers to buy products when, where, and how they want. These retailers must manage an end-to-end customer experience from home to store and back to the home, to improve the customer relationship. They must also develop customer retention and loyalty programs that create long-term value. A few retailers, such as Burberry and Restoration Hardware, have turned this capability into a distinctive art form.
Software Technology
Product development: Software companies are known first and foremost for their offerings. They must capture market and consumer insights, often monitoring customer usage closely to do so; they must identify and translate customer requirements into a compelling product architecture, increasingly a “software-as-a-service” (SaaS)architecture; they must rapidly prototype, test, and beta manage these products in an agile fashion; they must develop clear, predictable product strategies and road maps; they must manage the innovation portfolio and pipeline; and they must do all of this in a timely fashion, maintaining quality in their product releases. The industry has improved its table-stakes capabilities in this regard over the years, so a company can no longer distinguish itself by simply meeting this standard, but a company that has developed new channels or integrated, network-based solutions can still gain a distinctive edge.
Customer segmenting and targeting: Technology companies have learned, over time, how to build a table-stakes branding and customer-awareness capability. This includes developing highly personalized campaigns and offers; optimizing customer segmentation to generate high customer demand and a sense of lifetime value; delivering personalized messaging across channels; creating long-standing, profitable marketing partnerships and alliances; and developing a disciplined ability in pricing, discounting, and promotion. Some software companies—Apple and Google are noted for this—have parlayed this capability to establish distinctive branding capabilities that attract loyal customers to the company’s identity.
Customer management: This table-stakes capability is often unseen outside the industry, but it drives much of its growth. It includes the building of sales teams for specific buyers and account acquisition; developing compensation models based on customer lifetime value, deal size, and margin; managing the lead-generation and sales pipeline, for both direct and indirect customers; managing and executing a robust web presence with sophisticated e-commerce abilities; and having the ability to monitor and model customer engagement. Qualcomm’s licensing prowess is one example of how a company can adapt a sales capability into its own distinctive form.
Quote-to-cash and operations: In the evolving world of cloud-based software, conventional operations and cash-flow capabilities have rapidly moved in new directions for all software companies. These now include automating and streamlining quote-to-cash (QtC) processes for SaaS ordering, billing, and customer management; developing dynamic configurability for personalization and solution selling (also known as “low-touch offers”); and managing operational activities that are often outsourced or offshored, including transaction processing, compliance monitoring, and the production of necessary reports. Amazon’s development of a distinctive operational capability shows what is possible in this domain.
Customer support and service: While this is a table-stakes capability for the entire industry, many companies’ services are still lagging behind customer demand. The capability includes developing compensation models that provide variable, performance-driven incentives for front-line support staff; maintaining and continuously improving service effectiveness (utilizations, cycle times, etc.); developing self-service offerings and capabilities (including user communities) with a viable user interface that is compelling, not frustrating; and executing user education and after-sales consulting. Those focused on service quality or value can turn this into an advantage.