Your future success is dependent on the quality and vibrancy of your organisation. If you under-invest in developing your company’s capabilities, you may find that your results and competitive position can quickly decline. The quality of your organisation’s capabilities is a function of the strength of your underlying assets and skills, the retention and attitude of your people and the quality of your leadership. The key to success is matching your capabilities to the needs of your target customers in such a way that your competitors find it hard to match.
Many executive teams take the time to list out their organization’s key capabilities. Often, however, this can be based on hubris rather than reality. Just because you have one recent product launch that is growing share does not necessarily make product innovation one of your key capabilities. There are three factors that determine the strength of your key capabilities:
- They are instrumental in driving material success for your organization. Your key capabilities are critical to your current success and should be capable of helping to launch you into new market opportunities.
- They are difficult for others to copy. If others can quickly and easily copy what you’re great at, you won’t have a competitive advantage for long.
- They are a combination of factors, not a single skill. It is far harder for other organizations to replicate your success if your capabilities are a tightly woven mix of skills rather than a unique, specific area of expertise. Wal-Mart’s capability in ‘integrated inventory management’, for example, combines skills in IT development, logistics management, negotiation skills and forecasting.
So how do you get beyond the obvious lists of assumed strengths to a deeper understand of what really makes your company succeed? One quick, but robust approach to assess your skills and capabilities in this way is to take the following steps:
- Working with a small cross-functional group, brainstorm your existing skills and capabilities. Aim to get a list of 20-30 such competencies.
- Next, identify the key the key customer benefits to which each capability contributes. For example, a skill in on-time delivery is likely to be seen by customers as a providing a benefit of reliability and convenience.
- Third, use customer research (formal or informal, depending on your budget and time constraints) to rank the key benefits in order of importance and also to score both your organization and your competitors across each of the benefits.
- Finally, use the results to plot each of your capabilities on their importance to customers and your performance relative to your competitors, using a chart like the one set out below.
Your work will identify four distinct types of capabilities for you to manage.
1. Competitive Strengths: These are the reasons your customers keep coming back to you and why you attract new customers. It may be the quality and design of your products, your ability to keep your costs (and prices) low, or your flexibility and skills in creating unique, customized solutions. Whatever it is, I’m sure that you want to keep on doing it. But first you may wish to ask yourself and your colleagues a few questions for each of your identified strengths:
- Is the importance our target customers attach to this capability getting larger or smaller?
- Do customers think that the advantage we have in this area over our competitors is growing, or is the gap narrowing?
- What can we do to sustain and widen the capability gap against our rivals?
- What can we do to raise the importance of this capability even further in the minds of our target customers?
- What other, adjacent markets could this capability help us enter and gain an advantage?
2. Competitive Weaknesses: Just as there are reasons why customers are willing to buy from you, there are also reasons why they may not buy as much as you would wish or why they prefer to buy from your competitors. The reasons are simple – customers simply don’t think you’re offer is as attractive on those reasons for buying that they hold to be most important. Importantly, and despite what your sales team may tell you, this is not always about price. Once you have identified a skills/ capability gap or a weakness relative to your rivals, you have four broad options:
- Develop the competencies yourself. This is probably the most common response but can be time-consuming.
- Acquire the skills and capabilities. By this I mean you can either hire people and teams with the relevant skills and experience, or you can acquire other companies who have these skills. This option has the advantage of pace but can be costly. What’s more, to make the most of any new acquisition you must have the skills to integrate the new business with your existing operations, which is a whole set of capabilities in its own right.
- Partner with another organisation. Rather than an acquisition, partnership is increasingly seen as a route to new growth and strategy management.
- Choose to ignore. You don’t need to fix everything. If you believe that your area of weakness is not fundamental to your target customers, and is likely to reduce in importance over time, you can legitimately decide to do nothing.
3. Latent Strengths: You may find that you have some capabilities that aren’t particularly valued by your existing and target customers. These are your latent strengths. The key thing to remember with these competencies is that they still have a value. Here are some questions to ask yourself for each of your latent strengths:
- How could you raise the importance of these strengths for your target customers?
- Are there other customers in your existing markets who do value these capabilities?
- Are these capabilities valued in other markets?
4. Minor Weaknesses: The final group of capabilities are those where you lag the competition, but in areas of lower importance to customers. These are your major opportunities for outsourcing, allowing other businesses to deliver these non-core activities for you. For many organizations, this will include many back-office processes and even some customer-facing activities.
What are the key capabilities that drive your performance of your business? And how effective are they compared to your competitors’ capabilities, both now and in the future? Using the approach laid out in this article can help you take the right actions to improve your competitive edge and accelerate your growth.