Building Organizational Capabilities for Excellence
Building Organizational Capabilities for Excellence
Organizational capabilities are rapidly becoming recognized as important keys for the organizational success. Today developing new capabilities is a strategic necessity for an organization. The organization confronts many challenges while developing new capabilities for addressing the demands and opportunities of the present day ever-changing environment. Organizational capabilities entail extensive learning process dispersed across complex activity fields that even extend beyond the activities of the organization.
Organizational capabilities are concerned with the ability of the organization to combine different types of resources, especially organization specific knowledge embodied in the employees, in order to create new resources that enable the organization to achieve and sustain its competitive advantage. Organizational capabilities are viewed as a type of strategic resource since it is rare, valuable, inimitable, non-tradable, and non-substitutable.
Organizational capabilities focus on the ability of the organization to meet customer’s demand and the aspirations of the stake holders. In addition, organizational capabilities are unique to the organization so as to prevent replication by the competitors. These capabilities are anything that the organization does for improving its performance and differentiating it from other competing organizations. Developing and cultivating organizational capabilities can help the organization to gain an advantage in its operating environment by focusing on the areas where it excels.
There are several definitions of organizational capabilities. Some of these definitions state that the organizational capabilities are ‘an all round quality …’ (Stephenson, 1999), ‘ability… to effectively meet… business objectives’ (ANAO, 2001), ‘a process of examining an organization to increase its capacity…’ (Haertsch, 2003), ‘capacity… to deploy existing resources to perform some task’ (Grant, 2004), ‘the embodied knowledge set that supports competitive advantage …’ (Gill & Delahaye, 2004), ‘often referred to as organizational competences, although strictly a capability refers to the potential and competence suggests an applied and well-practiced capability’ (OpenLearn, 2006), ‘those talents… to execute… strategy’ (WCL, 2006), and ‘the sum of all things that enable an organisation to deliver services’ (DFA, 2006).
The need for the development of new capabilities that represent discontinuous change often stems from changes taking place outside the organization. The knowledge and information required to underpin new capabilities many a times originate outside the organization. However the ability of the organization to exploit this external knowledge depends on the absorptive capacity of the organization which depends on the availability of related knowledge within the organization. Acquisition, evolution, and adaptation of capabilities rest on the ability of the organization to learn.
Organizational capabilities emerge when the organization delivers on the combined competencies and abilities of its people. Employees of the organization may be technically literate or demonstrate leadership skills, but the organization as a whole may or may not embody the same strengths. Organizational capabilities enable the organization to turn its technical know-how into the results.
There is no magic list of capabilities which are appropriate for each and every organization. However, there are some capabilities which the well-managed organization tends to have for achieving excellence. The organization seeking excellence is to excel in as many capabilities as it is physically possible for it while maintaining industry parity in the remaining capabilities. In no case the organization should fall below the norm in any of the capabilities to avoid dysfunction and competitive disadvantage.
It is better for the organization to excel at a few targeted capabilities than to diffuse leadership energy over many. The organizational top management must choose a few on which to spend their time and attention to excel in the chosen capabilities. This means identifying which capabilities will have the most impact and will be easiest to implement, and prioritizing accordingly. The remaining capabilities should meet standards of industry parity. It is better for the organization to have a distinct identity in some of the capabilities that aligns with its strategy rather than to be average or slightly above average in every area.
While the organization need to be focused, at the same time it is important to understand that capabilities depend on one another. Even though the organization is targeting some of the capabilities for primary attention in its path to achieve excellence, the most important ones often need to be combined. Further as one of the capability improves, it probably improves others in turn. Often this improvement happens through a chain process. For example, building of a capability needs leaders, so working on the capability builds leadership. As the quality of leadership improves, talent and collaboration issues often surface, and in the process of resolving those issues, the organization normally strengthens its accountability and learning.
An organizational capability emerges from a group of activities, not from any single pursuit. For example leadership training is to be understood in terms of the capability to which it contributes, not just the activity that has taken place. Instead of monitoring what percent of leaders received 48 hours of training, the capabilities that the leadership training have created are required to be monitored.
The following is the list of some of the capabilities (Fig 1) which the organization should aim to excel as a part of their strategy to stay ahead of the competition.
Fig 1 List of organizational capabilities
Accountability – The organization must obtain high performance from its employees for enhancing its capabilities. Performance accountability becomes an organizational capability when employees realize that failure to meet their goals is not acceptable to the organization. For enhancing the accountability, the organization is to examine and modify the tools being used to monitor and manage the performance of the employees.
- Collaboration – It consists of working across boundaries for ensuring both efficiency and leverage. Collaboration occurs when the organization as a whole gains efficiencies of operation through the pooling of services or technologies, or through the sharing of ideas and talent across organizational boundaries.
- Competitive advantage – Organizational capabilities provide the organization with an advantage in the market place. When the organization continues to create new capabilities and develops further the existing ones, it maintains the advantage over its competitors. Capabilities that provide a competitive advantage include knowledge, new and special products and innovative designs.
- Customer connectivity – The organization is to build enduring relationships of trust with the targeted customers. Organizational ability to connect with the targeted customers is considered as one of its major strengths.
- Efficiency – Working with high operational efficiencies enhances the organizational capabilities. The organization is required to improve all those parameters which enhances its operational efficiencies.
- Flexibility and responsiveness – The responsiveness of the organization is its ability to change its response to the changes in its operating environment. Knowledge and skilled employees are organizational capabilities that provide the organization with the ability to respond to the changes in the environment while remaining flexible to these changes.
- Innovation – Innovation is doing something new in both content and process. Whether in products, administrative processes, business strategies, channel strategies, geographic reach, brand identity, or customer service, innovation focuses on the future rather than on past successes. It excites employees, delights customers, and builds confidence among stake holders.
- Leadership – Organizations are frequently distinguished from their competitors because of their leaders. Organizational capabilities are greatly enhanced when the leadership qualities of its employees get improved. The leadership qualities can be embedded in the employees through participation in temporary teams, cross functional assignments, and action based training activities.
- Learning – Through learning the organization generates new ideas. It moves away from the path of generalization and move forward with continuous improvement. The organizational learning can be achieved through training, education and knowledge management. Sharing of experience of successful ex employees or experts in the field also greatly contribute to learning process. Through learning the organization say good bye to old practices and adopt new one to stay ahead in the market.
- Shared mind set and coherent brand identity – The organization is to ensure that the employees and the stake holders have positive and consistent images of and experiences with the organization. The organization is to have a positive image about its brand identity amongst the stake holders. The greater the degree of alignment between internal and external mind-sets, the greater is the value of this capability.
- Speed – It refers to the ability of the organization not only to recognize opportunities but also to act quickly. Whether to exploit new markets, create new products, establish new equipment and technologies, or implement new business processes etc., speed plays an important part to keep the organization ahead of its competitors. Speed is needed in the organization for taking decisions and then implementation of these decisions to demonstrate that the organization is having this capability.
- Strategic unity – Strategic unity in the organization is created at three levels namely intellectual, behavioural, and procedural. To have such unity at the intellectual level, it is to be ensured that the employees from top to bottom know what the strategy is and why it is important. There has to be shared understanding amongst the employees about the strategy of the organization. At the behavioural level, employees are to spend their time in support of the strategy and also to give their suggestions for improvement. As regards procedural level the organization is to continually invest in its procedures and practices that are essential for the implementation of the organizational strategy.
- Talent – An organization is known from the talent of its employees. The organization is good or not good depends on how competent are its employees. Competent employees have the skills for the present and future business requirements. Talented and committed employees deploy their skills regularly and predictably. Talent management is an important activity for the organization to enhance capabilities. The management to have talent in the organization is to motivate and retain competent and committed people. It must buy (acquire new talent), build (develop existing talent), borrow (access thought leaders through alliances or partnerships), bounce (remove poor performers), and bind (keep the best talent) for enhancing organizational capabilities.
For building of the organizational capabilities, people of the organization are the one whose contributions are the maximum. There are some key factors for maximizing their contributions. These factors are as follows.
- Recognition by all the levels of the employees the complexity of the nature of organizational change which the organization has to undergo while enhancing its capabilities.
- A top management who supports a vision for the future and protects the champions for the organizational change brought by the capability enhancement.
- Skilled leadership of the managers with excellent grasp of people oriented skills.
- Team-based structures that enable people to be involved in the process of decision making.
- Fair and adequate reward systems that provide for intrinsic/extrinsic needs of people.
- There has to be feeling of empowerment amongst the employees and that their abilities are recognized and used.
- There are available in the organization opportunities for multi-skilling and commitment to development of competencies.
- The organization has clear focus and commitment to learning.
- The organization has performance evaluation which is perceived by the employees as clear and equitable.
- There is sufficient provision of time and resources for the employees learning and development.
There are four types of organizations with respect to building of the capabilities. They are (i) the unaware or passive organizations, (ii) the reactive organizations, (iii) the pro-active organizations, and (iv) the entrepreneurial organizations.
Passive organizations are unaware of the need to develop their technological capabilities. They do not realize that changes are taking place in their environment, which can threaten their survival. Instead, they interpret their organizational environment as tranquil and simple, which causes them not to build capabilities and to leave their products, process technologies and services unchanged.
Reactive organizations are to some extent aware of the changing environment and they understand that they have to react to these changes. But they behave in an adaptive manner either because they see it beyond their ability to influence the process of technological change or because they do not interpret external change as threatening for their survival. These organizations do not search for new knowledge externally, but they may develop some new knowledge internally mainly through learning by doing things differently. They may also aim at increasing their transformative and commercializing capabilities to produce and sell their current products and services more effectively.
Proactive organizations do not assume that their current products, services and production processes will enable them to compete successfully and survive in an increasingly turbulent environment. They understand that they have to create new advantages by producing, gathering and accumulating new knowledge to improve their innovation capabilities. They therefore focus to a great extent on the development of knowledge producing and knowledge acquiring capabilities. They also aim at improving their transformative and commercializing capabilities as well. Nevertheless, they do not prepare for fundamental changes.
Entrepreneurial organizations distinguish themselves from proactive ones by the fact that they prepare for very radical changes. They do not limit possible changes to the technology path in which they are involved but realize the need to develop a knowledge base for a new and very different technological path. Developing anticipatory and imaginative capabilities is therefore very crucial in order for them to have some ideas about future technological trends. Naturally entrepreneurial organizations also have to involve in further developing all their other organizational capabilities to be able to actively shape discontinuities and fundamental breaks.