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Competing on capabilities in a global world: the RAT/CAT framework
Published on April 1, 2014 31 min
Other Talks in the Series: Global Strategy
I'm Don Lessard. I'm a professor at the MIT Sloan School. Today I'm going to talk about a framework for competing on capabilities in a global world. What I call the RAT/CAT Framework.
There are really three parts to my presentation. The first is a discussion of the sources of competitive advantage. The second is really defining capabilities. The third is laying out the RAT/CAT process in an international context. There I will use a specific example of CEMEX, the Mexican cement corporations.
If you think about the keys to global success for a corporation, there are really two. The first, of course, is a ready market. A great deal of the literature on international management and international strategies is about identifying large, rapidly growing markets. The second part that is equally critical is a relevant value proposition that is rooted in something you can do that cannot be readily imitated by others. I'm actually saying two things there. One, a relevant value proposition, something that creates value for the client and something that is rooted in something you can do that cannot be readily imitated, so you can capture that value.
This is quite easy to understand if you think of the sources of competitive advantage, let's say, in big oil and gas, you can think about companies having the advantaged assets. You can think about companies having distinctive capabilities. Typically, we think of large international oil companies, IOCs, as combining advantaged assets, big reserves, big fields, existing refineries, pipeline facilities, et cetera, and capabilities, the know-how regarding drilling, know-how regarding reservoir management, know-how regarding fuel supplies, et cetera. But clearly, there are some firms that have capabilities with no significant attached assets. A very obvious example is Schlumberger. Schlumberger does just fine. It doesn't own any oil fields, it doesn't own any reserves. It makes a lot of money because it's a capabilities company. Similarly, you could think about a company like First Reserve, which is really just a private equity company that owns oil and gas assets. It does not have any distinctive management capabilities. You could imagine competing only on capabilities. You could imagine competing only on distinct advantaged assets. But in general, in most industries, you will want to compete on some combination of the two. We can think about the advantaged assets, asset scale, shared infrastructure, and intellectual property as things we own. We can think about capabilities as what we do. Once you see it this way, it's common sense. Competitive advantage comes from a combination of things we own and things we do.