Building on Organisation Capabilities
(A brief review of the article "Capitalizing on Capabilities")
by Dave Ulrich and Norm Smallwood, HBR June 2004


Ms. Suruchi Pandey
MPM, MCOM, ADCA, DIP T&D (Pursuing), Phd (Pursuing)
Lecturer HR
Alard Institute of Management Sciences
(Affiliated to Pune University, Approved by AICTE)

Today economy is driven by market forces. The sustenance of an organizations depends on its performance, Not only that but a great deal of focus is on performance of organization and on excelling this performance. It is interesting to observe the success of organizations and compare why some organizations are doing magic while others are not. Many researchers are investigating the topic, Dave Ulrich and Norm Smallwood are one of those. Dave Ulrich and Norm Smallwood are of opinion that organization capabilities are the key intangible assets that produce superior market value. The organizations need to concentrate on the building up these collective abilities rather than only looking at tangible assets like plants and equipments. These capabilities are categorized in two broad senses by the authors. The first one is technical capability, which includes individual's functional competence and organisation's core competence. The second one is Social, which includes individual's Leadership or organisation's leadership and culture. Organisation capabilities are effective when organizations deliver on combined competencies and skills of the individual members.

According to Dave Ulrich and Norm Smallwood following twelve capabilities by and large can effect organisation's competitive positioning:

1. Talent:  Attracting, motivating and retaining competent and committed people.
2. Speed:  Making improvement changes rapidly.
3. Shared mindset and coherent brand equity: Ensuring that customers and employees have positive and consistent images of and experiences with the organization.
4. Accountability: High Performance orientation at all levels.
5. Collaboration:  Working across boundaries to ensure efficiency and leverage.
6. Leadership:  Identifying, developing and embedding leaders across levels.
7. Customer Connectivity:  Building enduring trust relationships with the targeted customers.
8. Strategic Unity:  Articulating and sharing strategies.
9. Innovation: Doing something new in both content and processes.
10. Efficiency:  Effectively managing costs.

Sadri and Jayshree in Geometry of HR also mentioned that in order to implement the business strategy we need to develop the critical organizational capabilities? These include speed, a competitive mindset, innovation and quality.

Various methodologies are adopted to find out the level of capability required by the organization to create superior market value. Dave Ulrich and Norm Smallwood have conducted "capability audits" for various organizations and mapped their critical abilities.

The recommendations of the authors emphasized that to gain competitive edge above the others organisation's need to focus on specific capabilities that would make a difference and contribute for the success of an organization. Organisations should analyse the independent and interdependent capabilities in the basket of capabilities. Organisations should "soar on their strength" i.e. build on the capabilities in which they are already good at rather than primarily focusing on weak capabilities. The interdependence of such capabilities needs to be recognized and accordingly they have to be combined and improved. Barely concentrating on few independent capabilities and neglecting the impact of others on them may not lead to a desired result and goals. Research carried out by Rajdeep Grewal and Patrya Tansuhay indicated that Thai firms classically focused on interdependence on market orientation and strategic flexibility successfully emerge out of the Asian Crisis.

The assessment and analysis of organisation's capability is crucial and careful process. For this author rightly recommended data collection from across all levels within the organization. As focusing only on the perceptions of the top management may not be based on ground reality. Customers, Suppliers and investors are important party for organisation's success; the knowledge of their perceptions forms an important part of the assessment of organization's capability. The information collected has to be synthesized appropriately for better understanding of connectivity and contradictions. This helps in identifying the hidden patterns. Such pattern may lead to identification of most important organizational capabilities in relation to their interdependence.

Not only mere Research & Development but also leveraging acquired knowledge to develop other products and to create organization learning across businesses could be an important organization capability. The organisation's problem solving routines and governance process for conflict resolution could also form part of the "organizational capabilities basket" as emphasized by Giovanni Dosi, Richard Nelson and Signey Winter 2000. If the organization does not have a process to look at complex issues, address them appropriately; effectively resolve related conflicts then translating ability into delivery may get affected.

After the identification of capabilities the next step is to build on them for the achievement of desired results and goals.

The authors discuss two case studies of Boston Scientific and Intercontinental Hotels Group. A Boston Scientific, the organization focused on investing in talent to further develop marketing and distribution skills, creation of new leadership model and assessment of leadership pool in relation to this model. At Intercontinental Hotels Group, the leadership aggressively cut costs (15 to 20% higher than industry average) and enhanced operational efficiencies through process improvements. In order to achieve greater collaboration (future capability to attain best in class status), the organization gave up decentralized structure to embrace a unified corporate identity and structure that emphasized on teamwork.

The success of this intervention necessarily lies in linkage of capability to delivery and sustenance of such efforts. Authors have suggested approaches in this regard. Benchmarking for best practices in this area and going through regular assessment cycles would create organization discipline for sustained work in this area. Authors also emphasized on having workshop or executives conducted to link capabilities with delivery measures and following them constantly. The responsibility of implementing action plan lies with line function and in duration 3 months.

As a note of caution authors advised to avoid under investment in intangible organization capabilities and not to get trapped in activities as a delivery measures.

The topic can also be explored whether strong linkage of capabilities with organization strategy and deployment of strategy through balance score card would make the delivery measurement more objective and avoid a trap of looking only at measures that are easily measurable ( Kaplan 2000)

The enhancements of capabilities are strongly linked to strategies and business conditions as we can derive from the industry experience. Various examples from different geographical locations can been sited regarding this. Volberda, Boch, Verwaal 2003 mentioned in Netherlands, the organizations are loosing market share due to lack of new products in market or not been able to translate innovations into commercial propositions. This can be bridge only through development of right capabilities. While in Vietnam sustenance of competitive advantage of joint ventures have been attributed to capabilities of the JVs to acquire property and knowledge based resources from the foreign partners with strong local marketing and environment management skills (Wu Zhan, Chen, Duc Tri Nguyen). Historically few locomotives manufacturers in USA successfully transited from batch size steam loco production to mass produced assembly line production of diesel locos not because of technical expertise but because of their organization culture and management capabilities. The organizations could also look at diversifications as a value creating strategy as against focus on core competencies with a sheer base of management capabilities that cut across businesses and diversifying i.e selecting industries portfolio that are complementary to such capabilities (John E Matsusaka).

Integration of HR processes is a crucial aspect, which cannot be neglected for enhancement of organisation's capabilities. This aspect needs to be viewed strongly while discussing about organisation's capabilities. The reference can also be made on how compensation could drive performance orientation. One can consider the models like People Capability Maturity Model (PCMM from SCI USA) to build strong HR processes that would harness organization capabilities. In India we have many examples of software organizations like Infosys, Wipro, Satyam, L&T Infotech or Intel in USA (PCMM level 5 organisations are cases to the point wherein these organizations have successfully leveraged organizational capabilities created through robust HR practices to achieve market leadership. Development of organizational capabilities can only be generated through strong commitment of employees to collective problem solving. Empowerment and career development could strongly play a role in creating this commitment (Richard Whitley 2003)

Successful knowledge management is the key to sustenance and enhancement of organisatonal capabilities. The organizations do require knowledge infrastructure technology, organization structure and right culture along with knowledge process architecture of acquisition, conversion, application and protection as a precondition to knowledge management system (Gold, Malhotra, Segars). As part of their efforts to build organizational capabilities, organizations need to invest into nurturing effective knowledge management system.

In conclusion, the concept of building organization capabilities is a meaningful way for any organization to achieve its strategic objectives. Three things that need to be taken care of Assessment, Evaluation and Enhancement of organizational capabilities. The organizations need to have a very strong linkage of this though leadership with delivery measures to translate it into a reality. Healthy HR practices can generate desired employee commitment and alignment of their individual objective to organization capabilities and objective, while knowledge management system would provide a foundation to generate value from collection of knowledge assets.

Ms. Suruchi Pandey
MPM, MCOM, ADCA, DIP T&D (Pursuing), Phd (Pursuing)
Lecturer HR
Alard Institute of Management Sciences
(Affiliated to Pune University, Approved by AICTE)

Source: E-mail October 25, 2005


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