Winning strategies for the long term

Organizational Capabilities

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The people and capabilities that brought a business to where it is today may not be appropriate to take it to the next stage. Tomorrow's winners require new abilities, as part of a more agile and dynamic organizational structure and culture that embraces constant change.

Key to driving change is a capabilities assessment to determine needs and gaps. Along with a fresh look at talent management to attract and retain the right people and reward the right behaviors, organizations need to think hard about how they can access new capabilities.

Organizational capabilities matter

These capabilities—the collective skills, abilities, and expertise of an organization—are the outcome of investments in staffing, training, compensation, communication, and other human resources areas. They represent the ways that people and resources are brought together to accomplish work. They form the identity and personality of the organization by defining what it is good at doing and, in the end, what it is. They are stable over time and more difficult for competitors to copy than capital market access, product strategy, or technology.

What are organizational capabilities?

11 Generic capabilities
that future-ready organizations have

There is no magic list of capabilities appropriate to every organization. However,
11 listed capabilities below are what well-managed companies tend to have:

5. Collaboration

Organizations are good at working across boundaries to ensure both efficiency and leverage. Collaboration occurs when an organization as a whole gains efficiencies of operation through the pooling of services or technologies, or through the sharing of ideas and talent across boundaries

4. Accountability

Organizations are good at obtaining high performance from employees. Performance accountability becomes an organizational capability when employees realize that failure to meet their goals would be unacceptable to the company

6. Learning

Organizations are good at generating and generalizing ideas with impact

8. Customer connectivity

Organizations are good at building enduring relationships of trust with targeted customers

7. Leadership

Organizations are good at embedding leaders throughout the organization. Companies that consistently produce effective leaders generally have a clear leadership brand—a common understanding of what leaders should know, be, and do. These companies’ leaders are easily distinguished from their competitors

9. Strategic unity

Organizations are good at articulating and sharing a strategic point of view. Strategic unity is created at three levels: intellectual, behavioral, and procedural. To monitor such unity at the intellectual level, make sure employees from top to bottom know what the strategy is and why it is important

11. Efficiency

Organizations are good at managing costs. While it’s not possible to save your way to prosperity, leaders who fail to manage costs will not likely have the opportunity to grow the top line

10. Innovation

Organizations are good at doing something new in both content and process. Innovation—whether in products, administrative processes, business strategies, channel strategies, geographic reach, brand identity, or customer service—focuses on the future rather than on past successes

2. Speed

Organizations are good at making important changes rapidly. Speed refers to the organization’s ability to recognize opportunities and act quickly. Speed may be tracked in a variety of ways: how long it takes to go from concept to commercialization

1. Talent

Organization are good at attracting, motivating, and retaining competent and committed people. Competence comes as leaders:
- buy: acquire new talent
- build: develop existing talent
- borrow: access thought leaders or partnerships
- bounce: remove poor performers
- bind: keep the best talent

3. Shared mindset and coherent brand identity

Organizations are good at ensuring that employees and customers have positive and consistent images of and experiences with our organization

Conducting a capabilities audit

A capabilities audit can help you monitor your company’s intangible assets. It will highlight which ones are most important given the company’s history and strategy, measure how well the company delivers on these capabilities, and lead to an action plan for improvement. You can follow steps below to assess:

Step 3

The leaders discuss the survey findings with management team. For example, to address the strategic-unity gap, companies can develop a clearer statement of strategy that sharpens the company’s focus on service and profitability. Then, before forming an overall improvement plan, it is advised to define the capabilities that would be most critical to executing that strategy

Step 2

Next is to evaluate the organization’s performance on these capabilities. For each capability, respondents are asked to rate on a scale of one to five the company’s current performance as well as the level of achievement the division would need in order to meet its goals. This exercise shows gaps between current and desired capability

Step 1

The first step is to identify the areas that were critical in meeting the company’s goals. Using the 11 generic capabilities defined above as a starting point

Lessons learned

✓ Get focused

It’s better to excel at a few targeted capabilities than to diffuse leadership energy over many. Leaders should choose no more than three on which to spend their time and attention; identifying which capabilities will have the most direct impact on the execution of strategy.

✓ Create a virtuous cycle of assessment and investment

A rigorous assessment helps leaders figure out what capabilities will be required for success, so they can in turn decide where to invest. Over time, repetitions of the assessment-investment cycle result in a baseline that can be useful for benchmarking.

✓ Match capability with delivery

These questions below should be considered in action plan to align capabilities with delivery:
-  What measurable outcome do we want to accomplish with this capability?
-  Who is responsible for delivering on it?
-  How will we monitor our progress in attaining or boosting this capability?
-  What decisions can we make immediately to foster improvement?
-  What actions can we as leaders take to promote this capability?

✓ Don’t confuse capabilities with activities

An organizational capability emerges from a bundle of activities, not any single pursuit. So leadership training, for instance, needs to be understood in terms of the capability to which it contributes, not just the activity that takes place. Instead of asking what percent of leaders received 40 hours of training, ask what capabilities the leadership training created.

The best capability plans specify actions and results that will occur within a 90-day window. HR professionals may be the architects, but managers are responsible for executing these plans.

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