When asked “what is a capability?” My 9-year-old son, Caleb, says, without hesitation, “It’s something you are able to do.” The Collins Dictionary says, “If you have the capability or the capabilities to do something, you have the ability or the qualities that are necessary to do it.”
When it comes to a company or organization, capabilities are things or activities it can do well that allow it to win and achieve its goals other strategic choices. Capabilities are more than just talents and strengths. They are the things the organization can do when their talents and strengths work together.
Take the example of a football (soccer) team. We know that a team can have the greatest stars on the field and still lose a game. You can create a dream team with all the best football players of all time and still lose the world cup to a team of less talented players that have learned to work well with each other, fight together, and win. A team’s capabilities are the plays it can make that allow it to win games and championships. It’s not merely the talented players, coaches, doctors, supporters, and other resources that the team has.
For a company, your team capabilities aren’t merely a list of the people you have on your team or the resources your team has, even though those are important. It is the activities or actions the team can produce that are essential to its winning.
Cesare Mainardi, managing director of Booz & Company, says, “Capabilities are a combination of know-how, people, expertise, processes –all that happens in a business that allows that business to out-execute the competition in the markets that they serve. It’s not many different capabilities but is a few — 2, 3, 4, 5 or 6 things that make all the difference in terms of winning in the market.”
Capabilities and activity systems
Roger Martin and A.G. Lafley, in Playing to Win, say “An organization’s core capabilities are those activities that, when performed at the highest level, enable the organization to bring its where-to-play and how-to-win choices to life.” In his seminal HBR article, “What is Strategy”, Michael Porter of Harvard Business School noted that core capabilities or activities are best understood as working as a system of activities that reinforce one another. “Porter noted that powerful and sustainable competitive advantage is unlikely to arise from any one capability (e.g., having the best sales force in the industry or the best technology in the industry), but rather from a set of capabilities that both fit with one another (i.e. that don’t conflict with one another) and actually reinforce one another (i.e., that make each other stronger than they would be alone” (Lafley and Martin, Playing to Win).
P&G’s Five Core Capabilities
In Playing to Win, Lafley and Martin discuss the following five core capabilities for P&G, a large multi-national, multi-billion dollar company.
- “Understanding consumers. Really knowing the consumers, uncovering their unmet needs, and designing solutions for them better than any competitor can. In other words, making the consumer the boss in order to win the consumer value equation.
- Creating and building brands. Launching and cultivating brands with powerful consumer value equations for true longevity in the marketplace.
- Innovating (in the broadest sense). R&D with the aim of advancing materials science and inventing breakthrough new products, but also taking an innovative approach to business models, external partnerships, and the way P&G does business.
- Partnering and going to market with customers and suppliers. Being the partner of choice by virtue of P&G’s willingness to work together on joint business plans and to share joint value creation.
- Leveraging global scale. Operating as one company to maximize buying power, cross-brand synergies, and development of globally replicable capabilities.”
The above core capabilities are not standalone activities but exist as a system of mutually reinforcing activities.
The Capabilities you currently have vs. the Capabilities you Need
Here is something else Lafley and Martin say in Playing to win that is important to remember about capabilities:
“With capabilities, again, winning is an essential criterion. Companies can be good at a lot of things. But there are a smaller number of activities that together create distinctiveness, underpinning specific where-to-play and how-to-win choices. P& G certainly needs to be good at manufacturing, but not distinctively good at it to win. On the other hand, P& G does need to be distinctively good at understanding consumers, at innovation, and at branding its products. When articulating core capabilities, you need to distinguish between generic strengths and critical, mutually reinforcing activities. A company needs to invest disproportionately in building the core capabilities that together produce competitive advantage.
When thinking about capabilities, you may be tempted to simply ask what you are really good at and attempt to build a strategy from there. The danger of doing so is that the things you’re currently good at may actually be irrelevant to consumers and in no way confer a competitive advantage. Rather than starting with capabilities and looking for ways to win with those capabilities, you need to start with setting aspirations and determining where to play and how to win. Then, you can consider capabilities in light of those choices. Only in this way can you see what you should start doing, keep doing, and stop doing in order to win.”
When creating strategy, you need to know what your current capabilities are. In addition to that, you need to know what capabilities you need to build and maintain to be able to win the way you have chosen. That’s crucial!
Assignment
Considering the above,
- Enumerate the five core capabilities of your organization. Be honest about the current state of your capabilities and what it will take you to create the capabilities you need to win.
- What capabilities does your organization need to invest in to be able to win (achieve its “where to win” and “how to win” choices)? You ideally need about 3 to 5 core capabilities/activities.
- Show the reinforcing activity system that is formed by your core capabilities (activities) as they mutually reinforce each other.
