Organizational Development

Nº 66

Capability Building

One of the top issues keeping CEOs awake at night is organizational capability.

According to a May 2014 McKinsey & Company study, capability building ranks as a top-three priority for many CEOs. When we speak to CEOs and other upper executives in leading organizations, we hear they are well aware of any significant capability gaps in their organizations and, for the most part, know which direction they need to head. More than half the executives, though, struggle to translate capability building into operations – they have a hard time translating such an exercise into performance improvement measures at an individual and organizational level.

This should not come as a surprise, as capability building is one of the most complex activities of organizational development work.

When done well, capability building can result in bottom line benefits. Those can include maximizing organizational potential as a means of increasing competitive advantage, establishing service functions (yes, including human resources ☺) as a strategic partner, and improving stakeholder and customer satisfaction all around. However, there is very little in the research and summaries on how organizations build their organizational capability. This is what we will try to address in this article (and follow-up pieces).

What is ‘Organizational Capability’?

According to Leonard-Barton (1992, p. 113-4), organizational capability “is the knowledge set that distinguishes and provides competitive advantage” to an organization.

You may think of it as your organization’s core competencies (not an individual competency, but as a competency overall).

Implications for Building Organizational Capability

An organization that is clear about its core organizational capabilities can focus more effectively toward its business strategy, and can communicate what it values now…and in the foreseeable future. By strengthening the enablers to support core organizational capabilities, at least three impactful benefits can be achieved:

1. Stronger competitive advantage and reduced risks – When an organization is clear about its core capabilities, it is better focused on its investment areas and better supported in making trade-off decisions. That, in return, provides greater flexibility and innovation to respond to changing external influences.
2. Greater stability and alignment – Organizations are better equipped to function productively and make measured changes when their domains are well aligned. When the enablers are overtly aligned, adjustments that may be necessary can be more readily made. It is far easier to modify the alignment of existing processes and systems than to create new ones.
3. Individuals are more informed and empowered – The higher levels of stability, systems thinking, and alignment result in the workforce taking responsibility for their individual areas, expectations, careers, etc., which drives engagement levels up.

How To Think About Building Organizational Capability?

There are several models to organizational capability building. We tend to see no absolute right or wrong here. That said, with any model leveraged, an organization should be interested in advancing these 3 domains:

1. Strategic Intent
2. System Stability
3. Individual Know-How & Accountability

Strategic Intent: This relates to understanding the business direction to align capabilities to strategy. Because strategy is dependent on day-to-day operational excellence, it is critical you validate your strategic vision against select capabilities. That way, can make trade-off decisions as necessary to mature your competitive advantage. Ensuring you have a clear and concise logic to investment and resources choices will only help you become laser focused on your end-goal.

System Stability: This is about establishing the right processes and structure. There are several organizational thinking/assessment models an organization can use here. No matter what theoretical approach you take to assess your system’s integrity and stability, you will need to consider structure, leadership, culture, process, and technology as a part of that approach.

Individual Know-How & Accountability: This is not only about selecting the best talent available for key positions that comprise strategic work within the select few capabilities. It also includes growing technical & social competence across the organization to be most effective within the context of your culture.

Leaders need to consider measures and metrics to monitor individual efforts toward developing appropriate technical and social competencies, since capabilities are an integral part of shareholder value creation.