Relationships

A firm’s relationship system can be the source of its distinctive capabilities. Relationships among employees, between the firm and its network of collaborating organizations, and between the firm and its suppliers and customers, can give rise to bundles of specialized knowledge and competencies, unique organizational routines, and proprietary processes and practices – capabilities, in a word.

Because these capabilities are based on tacit learning and knowledge accumulated through numerous interactions over time, they are extremely difficult for rivals to copy and replicate. Capabilities which are distinctive, because they are difficult for rivals to replicate, can give rise to sustainable competitive advantage when they are applied to markets and segments where they are valued by customers.

Distinctive capabilities based on a firm’s relationship system cannot be created. If they could, they would not be distinctive since entities other than the originating firm would be able to recreate the capability. Instead, such distinctive capabilities, because they are the product of tacit relationships, must evolve over time. The ongoing accumulation of the learning and knowledge which results from the relationship system is what makes the resulting capabilities difficult to replicate.

Too often firms are seduced into trying to replicate distinctive capabilities developed by other firms which result from relationship systems. The Toyota Production System is one example I often cite, although there are many others. While the superficial aspects of Toyota’s distinctive capability in production can be copied, the capability as a whole cannot because it is the product of the firm’s relationship system. The underlying lesson here is that if you are trying to copy a distinctive capability derived from a another firm’s relationship system, you are likely to fail.

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