distintive capabilities of idlc
TRANSCRIPT
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Distinctive Capabilities of IDLC Finance Ltd.
By
Sk. Sabbir Ahmed
ID 1028018
Submitted to the name of the Independent University,
Bangladesh (IUB) as a partial fulfillment of the
requirement for the Course Strategic Marketing
Supervisor:
Prof: Dr. Serajul Haque
School of Business
Independent University, Bangladesh (IUB)
Submission Date: September 16, 2011
DECLARATION
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I, do hereby declare that the report titled: Distinctive Capabilities of IDLC
Finance Ltd. submitted to the Independent University, Bangladesh (IUB) forthe course Strategic Marketing. This is an original work of both of us. No part
of it, in any form, has been submitted to any University or Institute for any
degree, diploma or for other similar purposes.
Sk. Sabbir Ahmed
ID No. 1028018
Independent University, Bangladesh
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September 16, 2011
CERTIFICATE
I have the pleasure to certify that the dissertation titled Distinctive
Capabilities of IDLC Finance Ltd has been prepared under my supervision
and guidance. To the best of my knowledge, it is the researchers original
work.
I also certify that I have gone through the draft and final hand-written
version of the dissertation and now I approve it for submission to the
Independent University, Bangladesh as a partial fulfillment of the
requirements for the course Strategic Marketing.
Prof: Dr. Serajul Haque
School of Business
Independent University, Bangladesh
Basundhra R/A, Dhaka.
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Acknowledgement
At first, I would like to express our gratitude to almighty Allah for enabling
me the strength and opportunity to complete the report within the scheduletime successfully.
At the very first we wish to tender our sincere gratitude deep indebtedness
to Mr. Prof: Dr. Serajul Haque, faculty of Business, Independent
University, Bangladesh, for his valuable advice and guidance. Without his
support it would have been very difficult for us to complete this report.
I would also like to thank all people who helped us for our report & their
dedication who had been given us their valuable time to fill up our
requirement.
Finally, we are grateful to our University. Independent University Bangladesh
department of EMBA for given us an opportunity of prepared report on the
topic of Distinctive Capabilities of IDLC Finance Ltd
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Introduction
History
IDLC was initially established in Bangladesh in 1985 through thecollaboration of International Finance Corporation (IFC) of the World Bank,
German Investment and Development Company (DEG), Kookmin Bank and
Korean Development Leasing Corporation of South Korea, the Aga Khan Fund
for Economic Development, the City Bank Limited, IPDC of Bangladesh
Limited, and Sadharan Bima Corporation. As the company evolved, initial
foreign shareholding of 49% was gradually withdrawn and the last foreign
shareholding was bought out by local sponsors in 2009.
Although IDLC initially started with Lease Financing as our core product, IDLC
has grown to become the largest multi-product Non-Bank Financial
Institution of Bangladesh, with almost equal focus in Corporate, Retail and
SME sectors. Moreover , IDLC has a significant presence in the Capital
Markets through our Merchant Banking Division, the activities of which will
be carried out in future by our wholly-owned subsidiary, IDLC Investments
Limited, subject to approval from the Securities and Exchange Commission.
Our Brokerage Services are carried out by IDLC Securities Limited, another
wholly-owned subsidiary of IDLC.
Over the years, IDLC has become a significant presence in the corporate
sector of Bangladesh. IDLC is highly respected by our clients, peers,
employees and regulators for our strong corporate governance, statutory
compliance, high ethical standards, a progressive and enabling working
environment, and strong commitment to environmental and social
development.
IDLC continues to play a pioneering role in introducing and popularizing a
variety of financial instruments suiting ever-changing requirements of its
fast-growing clients. IDLC are continuously expanding our presence to ensure
the best quality of service to our clients at all times.
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Corporate Governance of IDLC
Corporate governance is the system by which companies are directed and
controlled by the management in the best interest of all the stakeholders,
thereby ensuring greater transparency and better and timely financial
reporting.
The platform on which corporate governance principles are structured is that
the Board of Directors is responsible for proper governance, which includes
setting out Companys strategic aims, providing the necessary leadership to
implement such aims, supervising the management of the business and
reporting to the shareholders on their stetwardship.
IDLC is committed to continually reviewing all corporate governance policies
and practices to ensure the ongoing transparency of the companys practices
and the delivery of high standards and quality information to stakeholders.
The maintenance of effective corporate governance remains a key priority of
the Board of IDLC Finance Limited. To exercise clarity about directors
responsibilities towards the shareholders, corporate governance must be
dynamic and remain focused on the business objectives of the Company and
create a culture of openness and accountability. Keeping this in mind, clear
structure and accountabilities supported by well understood policies and
procedures to guide the activities of the Companys management have been
instituted.
IDLC considers that its corporate governance practices comply with all the
aspects of the SEC Notification No. SEC/CMMRRCD/2006-158/Admin/02-08dated February 20, 2006 and all aspects of Bangladesh Banks DFIM Circular
No. 7 dated September 25, 2007. In addition, to establishing high standards
of corporate governance, IDLC also considers best governance practices in
its activities. The independent role of Board of Directors, separate and
independent role of Chairman and Chief Executive Officer, distinct role of the
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Company Secretary & Chief Financial Officer and Chief Compliance Officer
and different Board committees allows IDLC to achieve excellence in best
corporate governance practices.
As a listed Company, IDLC Finance Limited must comply with the SEC Listing
Rules, which require the Company to provide a statement in the Annual
Report disclosing the extent to which the Company has complied with the
SEC Corporate Governance circulars.
Vision, Mission and Values
IDLC Vision
IDLC will be the most preferred financial institution in the country by
exceeding stakeholders expectations.
IDLC Mission
IDLC will be one of the top three financial institutions in terms of profitability
and brand image through quality growth and superior client services.
IDLC Corporate Philosophy
Discharge functions with proper accountability for actions and results and
bind ourselves to the highest ethical standards.
Strategic Objectives
Create high quality and strategically balanced portfolios;
Provide a range of financial products and services to our customers
under one roof;
Strengthening our position in capital market operation;
Balanced diversification of funding sources;
Maximize corporate value through sustained high quality growth;
Strengthening corporate governance practices;
IDLC Core Values
Integrity
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Walk the talk, no hidden agenda, never compromise own code of
conduct
Customer Focus
IDLC live for customers
Trust & Respect
IDLC keep promises; IDLC are honest, transparent & compliant
Environment Friendly
IDLC respect the environment and own culture
Simplicity
Be direct, simple & consistent, no jargons, transparent
Passion
One team one goal, exceed customer expectation, deep understanding
of market.
Equal Opportunity
Gender/age/racial/religious equality and meritocracy
Objectives of the Report
The report is prepared for the purpose of acquainting the general functions
of the company, IDLC. As well as I here tried to articulate extensively the
financial distinctive capabilities of IDLC.
The broad objectives of IDLC are as follows:
To make an introduction of the ground of NBFI in Bangladesh and
specifically IDLC and its service offering.
To introduce the functional departments of IDLC as well as functions of
each department and brief idea about lease operational procedure.
Specifically to articulate the nature of Job and different aspects of Job
performance in IDLC.
Evaluating financial distinctive capabilities of IDLC
To bring out the position of IDLC in the industry.
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Scope of the Report
The report mainly analyzes the existing services of IDLC and four other
leading NBFIs. The report also analyzes the financial performance of the
above four companies over three years and evaluates the distinctive
capabilities of IDLC with them and also with the industry average.
Methodology
In order to make the report as perfect as possible I here used data collection
procedures which articulate the way that I have followed in my report.
Data Collection Procedures: Data were collected in two ways.
Primary ways.
Secondary ways
Primary ways of collecting data: The primary data are those which are
collected for the first time and thus happen to be original in character. These
types of data were collected from personal conversation with the personnels
of IDLC and from the various financial documents which were not publicly
published by performing my internship program there. These are shown
below in diagram-
Secondary ways of collecting data: The secondary data are those which
have already been collected by someone else and which have already been
passed through the statistical process. From my report purpose, secondary
Primaryways
Conversationwith
Personnels ofIDLC
Financialdocuments
( not publiclypublished)
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data were collected mainly from internet to collect annual reports as well as
financial highlights of the company. Another important source was the
annual reports of the companies and also from the Year book of Leasing
finance association which publishes NBFIs financial data. So it has been
shown in diagram below-
Limitations
There exist some limitations in making the report. These are stated
below:
There were some restrictions in disclosing some information as it was
assumed to be confidential. Therefore I could not include those in my
report.
Some of the information that I got from secondary sources were not
arranged consistently.
As some companies do not update their web site, therefore it was
difficult to get the most recent data.
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Since Annual report of 2011 yet to be published almost of all
companies so I was in trouble to select time period for financial data
analysis.
Literature Review
The distinctive capabilities
The literature on strategic management suggests distinctive capabilities
or competencies as an important part of an organizations resources and
competitive advantage. Mintzberg and Quinn (1991) noted that the
theoretical relevance of distinctive capabilities as a source of competitive
advantage can be traced back to the early work by Selznick (1957).
Aaker (1989) noted that the assets and skills of the firm, which are the
basis for competition, provide the foundation for sustainable competitive
advantage. Furthermore, Aaker pointed out that it is the essence of
strategic management to develop and maintain these assets and skills as
well as to choose these strategies so that they can be turned into
sustainable competitive advantages.
Basically, resources can be grouped into tangible and intangible assets.
Ansoff (1965), Wheellen and Hunger (1995), and Price (1996) classier
business functional areas into general administration, operations/
production, marketing, finance, human resource management,engineering and r&d and public relations. Hitt and Ireland (1985)
developed a distinctive capabilities instrument comprising 55 capabilities
grouped according to seven functional areas; (a) general administration,
(b) production/operations, (c) engineering, research and development, (d)
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marketing, (e) finance, (f) personnel, and (g) public and governmental
relations. The distinctive capabilities variables used in this study are
adopted from this literature review.
Organizational Processes:
Devision, Product & Service:
Corporate:
IDLC have extensive knowledge, expertise and experience to offer a range of
financial solutions in response to the needs of a broad spectrum of clientele,
comprising of local and multinational corporate houses in Bangladesh.
1. Lease Financing
Asset backed financing against industrial machinery, commercial
equipments, office equipments, generators, vehicles, vessels,
engines, etc.
Financing may be extended up to 100% of the cost
Usually for a tenure of 3 to 5 years
Repayment through monthly or quarterly rentals
Rentals may be equal or structured (step-up, step-down, bullet, etc.)
Legal ownership remains in the name of IDLC throughout lease
period
Ownership is transferred to the client at the end of term
Sale & Lease Back
Financing against any of the existing (already procured/in-use)
industrial machinery, commercial equipments, office equipments,
generators, vehicles, vessels, engines, etc.
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The ownership of the asset comes to IDLC at the of financing
Financing may be extended up to 100% of the written down value
(cost net of depreciation) depending on the condition of the
machine
Usually for a tenure of 3 to 5 years depending on original date of
purchase and current condition of the asset
Repayment through monthly or quarterly rentals
Rentals may be equal or structured (step-up, step-down, bullet, etc.)
Ownership is transferred to IDLC at the time of financing and
remains in the name of IDLC throughout lease period
Ownership is re-transferred to the client at the end of term
2. Term Loan Financing
Term Loan
For meeting various regular capital/fixed expenditures like balancing of
production line, modernization of manufacturing process, expansion of
capacity and space, etc.
Usually for a tenure of 1 to 5 years Repayment through monthly or quarterly installments
Installments may be equal or structured (step-up, step-down, bullet,
etc.)
Bridge Financing
For meeting the funding requirements of the borrower for any interim
period
Usually for shorter term Generally through bullet payments
Loan to Corporate Houses to Procure Commercial Space
Financing to corporate clients for procuring office/commercial space
Loan term may be up to 7 years or so
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Repayment can be made every quarter or month through equal or
structured installments
Long Term Finance for Real Estate Developers
Financing to developers for meeting the capital
expenditures/construction costs of any specific real estate project,
both residential and commercial
A debt-equity ratio is maintained
Disbursements are usually made in phases with progress of
construction work
Tenure of loan can be up to 7 years depending on nature of the project
Repayment can be made every quarter or month through equal or
structured installments
3. Working Capital Financing
IDLC offering working capital financing to assist companies in carrying
out day-to-day business operations
The financing modes include time loan, STL, work-order financing and
many other forms of short-term loan facilities IDLC offers its clients competitive interest rates at simple terms
against these facilities
4. Project Financing
Project Financing - Fixed Cost
For setting up of a new unit as addition to the existing
product line and capacity, a new concern of an existing group, a
new Joint Venture project of an existing company, etc.
Required debt-equity ratio is maintained
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Financial solution for the entire project may be provided
through mix of different financial tools from wide range of services
offered by IDLC.
Loan tenure varies based on product type. For fixed portion
loan period may be up to 7 years
Different repayment structure is available depending on
financial product
Club Financing for Relatively Larger Projects
For relatively larger amount of financing IDLC, given its
long track record, position and reputation in the financial industry,
arranges funds in partnership with other FIs/Banks for the client.
Type of facilities range from simple lease financing to a
mix of lease and traditional banking products.
Preferred Equity Investments
If clients raise funds through preferred share, IDLC corporate
division makes financing by purchasing the shares
IDLC gets payments usually through redemption of the preferred
shares over the tenure
5. Structured Finance
Fund-Raising
Asset backed financing against industrial machinery, commercial
equipments, office equipments, generators, vehicles, vessels,
engines, etc.
Advisory Services
For meeting various regular capital/fixed expenditures like
balancing of production line, modernization of manufacturing
process, expansion of capacity and space, etc.
Securitization of Assets
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IDLC offering working capital financing to assist companies
in carrying out day-to-day business operations
Personal Finance:
1. Deposit
IDLC offer various attractive Deposit Schemes
Cumulative Term Deposit
Annual Profit Term Deposit
Monthly/Quarterly Earner Deposit
Double / Triple Money Deposit
Millionaire/Multimillionaire Scheme
Term Deposit
2. Home Loan
As one of the leading Home Loan providers in the country, IDLC offer
you the most convenient Home Loan facility to suit your needs. With so
many attractive benefits, the home you always wanted is no longer a dream.
Key Benefits
IDLC consider all applications equally, irrespective of any profession
IDLC provide a dedicated and supportive service both before and after
the disbursement
Customer have the option to choose either Fixed or Variable rate of
interest
IDLC sanction the loan within the shortest possible time, and also
before starting construction of the building or purchase of the
apartment
Customer can have early pre-payment option, either in part or full, with
convenient conditions
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Customer can avail Income Tax Rebate on annual interest payment on
Home Loan up to Taka 20 Lacs
Customer can avail Municipality Holding Tax rebate
IDLC offer maximum loan facility to Non-resident Bangladeshi (NRB) Customer can enjoy competitive interest rate and lower fees
Availability of Home Loans
For purchase of apartment/house/commercial space/approved housing
plots
For construction of residential/commercial buildings
For renovation or extension of residential complex
As Home Equity loan against mortgage of property3. Personal Loan
Product Features
IDLC understand all out efforts to improve the quality of life, but
necessities no longer wait for your savings to accumulate. Sometimes, it
gets harder to meet ever changing needs. IDLC Finance Limited, the
largest financial institution of the country, can help customer achieve
aspirations with a Personal Loan that is suitable for customer. IDLCPersonal Loan - financing for all need!
4. Car Loan
Product Features
In todays age, owing car is no longer considered a luxury; rather it has
become a vital part of our everyday life. A car is now a useful investment
that improves your quality of life. With our Car Loan facility, you can own
your dream car and add more excitement to your life.
SME Finance
1. Small Business
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Small Business is a loan facility designed to finance small scale trading,
manufacturing and service ventures, especially to help small and medium
entrepreneurs to meet their short-term cash flow shortages and bridge
the fund-flow gaps.
2. Medium Business
SME-Mid segment offers mid and longer term financial solutions to a wide
range of clienteles who are in their journey to emerge as promising
corporate houses in near future.
3. Supplier Finance
Factoring of Accounts Receivable is a mode of financing receivables
arising out of supply of goods or delivery of services on credit.
4. Women Entrepreneur Loan
Women Entrepreneur Loan is a loan facility for small and medium sized
business, which are operated by women entrepreneurs. The product
offers terminating loan facilities for the purpose of working capital finance
and/or fixed assets purchase.
Capital Market:1. Portfolio Management
MAXCAP is a personalized discretionary investment account designed for
high net worth clients, both individuals and institutions.
2. Investment Banking
With a rich experience in Investment Banking, we assist our clients to our
best throughout the IPO process, along with sustained market support.
3. Brokerage Services
Trade Execution in Dhaka and Chittagong Stock Exchange Limited
Appointment of dedicated and skilled sales representative
Opportunities for trading through different financial instruments
Custodial Services
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Safe keeping of securities
Exclusive arrangement for clients to keep their shares in safe custody
in our vaults
Some Special Issues
There are some issues which are inherently related with the lease proposal.
These particulars should be assessed carefull by IDLC as well as aplicants.
The issues are started as below:
CIB (Credit Information Bureau) Report: A request has to send to Credit
Information bureau of Bangladesh bank for the credit worthiness of the
applicant. After getting CIB report IDLC could get assurances about the credit
worthiness of the applicant.
Inspection Report: After getting the application of the client IDLC send its
personnel for inspecting the details of the client. If the inspection report is
find satisfactory then further procedure are taken.
Documentations Fees: The applicants need to pay the required
documentation fees to IDLC. This fess varies 1% to 1.25% on loan amount &
type of the client etc.
Delinquent Charge: If the client will not pay the rental as specified date
the he is charged a delinquent charge as a penalty. The charge is 20% of the
overdue rentals and is charged for the deferred days.
Management Transfer: If the client is unable to continue the lease facility
then he may transfer the asset to another persone. Therefore the new client
gives an assurance that he
will pay the remaining rentals to IDLC and the previous client give the
assurance that he will have no claim over the asset.
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Transfer of the Asset: After paying all the liabilities to IDLC by the client,
the lessor (IDLC) transfer the asset to the client by charging 1% of the
acquisition cost of the asset as a transfer price.
Repossess of Asset: If the client could not pay the rental regularly, then
IDLC repossess the lease asset by employing repossess representative.
Repossess Representative: IDLC assigns a representative to repossess
the leased asset. This representative repossesses the assets on behalf of
IDLC as the assets title owns to IDLC.
IDLCs Business Activities
From a business perspective, both existing businesses and new projects in
the country suffered from serious energy shortages in 2010. Not surprisingly,
new and viable investment opportunities were relatively scarce. With
everybody running after the same clients, the smaller Non-Banking-Financial-
Institution sector faced even more competition from the much larger
Commercial Banking sector than in previous years. The investment climate
was further impacted newer challenges e.g. increases in global food prices,
shortages of important raw materials such as oil and cotton, slow-down of
overseas remittances, etc.
Traditional term-lending and leasing businesses, particularly in the corporate
clients segment, struggled to grow. However, an expanded sale and credit
team and seven new branches helped the SME segment to grow customer
assets signifi cantly while retail home-loans also grew very well for most of
2010. IDLCs Treasury took advantage of inter-bank liquidity and was
successful in managing down the cost of funds. The Capital Market segment
leveraged off the massive stock market growth and has generated record
revenues.
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IDLCs consolidated assets, at 2010 year-end, stood at BDT 26.9 billion a
19% growth over 2009. An aggressive deposit program was initiated in the
second half of 2010 and by year end, customer deposits had reached the
BDT 12.4 billion mark - 27% higher than the previous year. IDLC earned a
consolidated net profi t of BDT 1,327 million in 2010 - a 61% growth over the
previous year.
Consolidated earnings per share grew by 61% to BDT 221.18 - compared to
previous years BDT 136.98. As at December 31, 2010, the Companys equity
had increased by 54% to BDT 3.7 billion over the previous year.
At IDLC, we believe that superior service delivery, diversifi cation of client
segments and businesses, defi nitive sales and performance focus, strong
risk-management and growth, development and empowerment of staff are
all key to ensuring sustained fi nancial performance. In 2010, the Company
continued to invest in each of these areas.
IDLC Finance Limited opened six new branches at Narayanganj, Savar,
Nandan Kanan(Chittagong), Comilla, Narshingdi and Keraniganj while IDLC
Finances Merchant Banking Division moved to large new premises at Eunoos
Tower in Motijheel. IDLC Securities Limited also opened 6 new branches
during 2010 at Gazipur,
Narayanganj, Khatunganj (Chittagong), Uttara, Banani and Dhanmondi. 109
staff, including 13 of manager and above ranks, were recruited in 2010. In
addition, 50 new sales staff were also recruited. During the year, 606
employees were participated in 91 categories of training programs which is
349% higher than previous year.
The ratio of Non-performing Loans has been further reduced from 4.5% in
2008 and 3.62% in 2009 to 3.07% in 2010 mainly through strengthening of
the credit & collections teams and relevant processes. IDLC has continued
with its prudential policy of building adequate provisions for doubtful
accounts and future losses. It must be mentioned that this provisioning
policy is signifi cantly more conservative than the minimum required by
regulators and followed by almost all competitors. The Companys tax
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policies are also extremely conservative with full provisions having been
made for all conceivable contingencies.
Over the years IDLC has built a merit-based working environment which is
free of discrimination and is focused on maintaining the highest standard of
corporate governance and ethics. IDLC has always sought to differentiate
itself through its human resources and, in 2010, the Company continued to
invest heavily in the development and growth of staff. The Company has
always tried to implement international best-practice employee
compensation policies - aiming at attracting, retaining and rewarding best
talent. In 2010, under the mandate of the Board of Directors, the Companys
employee compensation policies were made even more performance
oriented than in earlier years.
Conclusion:
The more acute phase of the latest financial crisis appears to have passed
and a global economic recovery is under way. The global economic recovery
is broadly proceeding as expected. Most advanced and a few emerging
economies still face major adjustments, including the need to strengthen
household balance sheets, stabilize and subsequently reduce high public
debt, and repair and reform their fi nancial sectors. In many of these
economies, the fi nancial sector is still vulnerable to shocks, and growth
appears to be slowing as policy stimulus wanes. By contrast, in emerging
and developing economies prudent policies, implemented partly in response
to earlier crises, have contributed to a signifi cantly improved medium-term
growth outlook relative to the aftermath of previous global recessions.
However, activity in these economies, particularly those inemerging Asia, remains dependent on demand in advanced economies.
IDLC achieved its remarkable performance because it steadfastly built a
coherent and self-reinforcing system of capabilities based on superior
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intellectual capital and an optimized operating model from front and middle
offices to back office.
Perhaps IDLCs experience offers another lesson as well: In financial services,
apabilities-driven strategies will increasingly be best articulated around client
segments rather than particular products or technologies, with an emphasis
on front and middle office functions. Products are easily copied and
technology can be outsourced in other words, both have become
commodities. As in the case of IDLC, intellectual capital about client
behaviors and needs will often be the glue to a winning capabilities system.
Simply put, a capabilities-driven strategy should be viewed as a way to
establish and sustain competitive advantage. A steadfast commitment by
senior management, with a continuity of vision, and a methodical plan to
build a coherent system of capabilities throughout the value chain are
essential to the successful execution of these strategies.