Internal Factors
Company Capabilities
Capability management uses the organization’s customer value proposition to set goals for capabilities based on value contribution.
LEARNING OBJECTIVES
KEY TAKEAWAYS
Key Points
- An organization capability refers to the way its people and systems work together. A company’s culture is defined by how management fosters talent, mindsets, and collaboration.
- Social and technical competencies and capabilities intersect in different ways. Organization capabilities such a talent management, collaboration, and accountability interact with and bring together all parts of the company.
- shows four types of capabilities: essential capabilities, business necessity capabilities, strategic support capabilities, and advantage capabilities. These are all necessary, in different degrees, to the running of a business.
Key Terms
- business capability: a collection or container of people, process and technology that is addressable for a specific purpose.
- process: in reference to capabilities, a process is how the capability is executed.
- competency: while organizations have capabilities, individuals have competencies.
Defining Business Capability
A business capability is what a company needs to be able to do to execute its business strategy. Another way to think about capabilities is as a collection of people, process, and technology gathered for a specific purpose. Capability management uses the organization’s customer value proposition to establish performance goals for capabilities based on value. It reduced inefficiencies in capabilities that contribute low customer impact, and focus efficiencies in areas with high financial leverage, while preserving or investing in capabilities for growth.
Capability vs. process
A process is how the capability is executed. Much of the reengineering revolution, or business process reengineering, focused on how to redesign business processes.
Business vs. organizational capability
An organization capability refers to the way systems and people in the organization work together to get things done. The way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and learn and hold each other accountable define the company’s culture and leadership edge.
Capability vs. competency
Although often used interchangeably, “capability” and “competency” are quite different. Individuals have competencies while organizations have capabilities. Both competencies and capabilities have technical and social elements (see ).
Competencies and Capabilities: Individuals have competencies while organizations have capabilities.
At the intersection of the individual and the technical, employees bring functional skills and competencies such as programming, cost accounting, electrical engineering, etc. At the intersection of the individual and the social, leaders also have a set of competencies or skills such as setting a strategic agenda, championing change, and building relationships. At the intersection of the organizational and the technical are business capabilities. For example, a financial service firm must know how to manage risk and design innovative products.
Organization capabilities include talent management, collaboration, and accountability. They are the underlying DNA, culture, and personality of a firm, integrating all the other parts of the firm and bringing it together. When a group of leaders have mastered certain competencies, organization capabilities become visible. For example, when a group of leaders master “turning vision in to action” and “aligning the organization,” the organization a whole shows more “accountability. ”
Capability value contribution
Firms should assess the capabilities necessary to operate the business by examining the financial impact as well as the customer impact (see ).
Capability Value Contribution to Strategy: Different capabilities have different financial and strategic impacts.
Some capabilities directly contribute to the customer value proposition and have a high impact on company financials. These “advantage capabilities” are shown in the upper right. Value contribution is assured when performance is among the best in peer organizations at acceptable cost. In the top left quadrant, strategic support capabilities have high contribution in direct support of advantage capabilities. Value contribution is assured when performed above industry parity at competitive cost. Other capabilities shown in the bottom right are essential. They may not be visible to the customer, but contribute to company’s business focus and have a big impact on the bottom line. Value contribution is assured when performed at industry parity performance below competitors ‘ cost.