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Strategy Dynamics Course - Class 10 – Capabilities

NOTE: The frameworks in this class can be applied on their own, as well as being used as part of a more complete business model.

Organizations with few resources are not necessarily doomed to weak, low growth performance. If they do not possess or have access to important resources, they can develop those they need. For this purpose, they need the capability to build and sustain resources.

Whilst "resources" are useful things that we possess, or to which we have somewhat reliable access - both tangible (customers, cash, equipment …) and intangible (reputation, data, skills …) - "capabilities" are important activities that we are good at doing. There are operational capabilities, ensuring efficient and effective execution of business activities, and strategic capabilities that enable the strong and sustained development of resources. However, strong operational capabilities can enhance the power of the strategic types.

Capabilities are made up of human skills, plus information and procedures that enable them to exercise those skills. Capabilities allow us to do an activity quickly, with high quality, and at low cost. "Learning" means adding to capability, and can be achieved by intentional effort to use findings about how well an activity is done to further enhance the skills, information and procedures. Whilst capability on each operational or resource-building activity is valuable in its own right, the impact on how performance improves over time when multiple capabilities and learning combine is enormous.

Key issues addressed

  • The importance of clear terminology and specification for capabilities
  • Capabilities as activities that groups are good at doing, made up of human skills, information and procedures
  • Operational capabilities ensure that important activities are done efficiently and effectively - very important in their own right, and supportive to …
  • strategic capabilities, concerning the growth, development or retention of resources, so are found at each resource flow in the strategic architecture
  • Capabilities show up in getting things done quickly, with good quality and at low cost
  • Small differences in capability explain large differences in performance
  • Learning as the self-reinforcing connection between an activity (or the growth of a resource) and the associated capability
  • The powerful consequences arising from capabilities working together
Class 10.0 - Capabilities: Summary - (31 min)
This segment defines capabilities and distinguishes them from resources. It explains the distinction between operational and strategic capabilities and examples of each. The video shows how a capability arises from having people with the necessary skills for an activity, plus the information they need, and procedures to guide how they do it. It also shows how learning concerns the growth of a capability, which arises from experience of the activity with which it is associated. The segment demonstrates with a working model the strategic performance impact of just a single resource-building capability, concerning the store-expansion efforts of a retail chain.
Class 10.1 - Operational Capabilities - (13 min)
This segment gives examples of operational capabilities and explains that they enable a group to do an activity quickly, with high quality and at low cost. It demonstrates the quantified impact of capability on the speed with which a customer-support team can operate, using a working model, and shows how the quality and cost of the activity also benefit from that capability. The video also emphasises the considerable importance of strong operational capabilities, often built through intense effort to specify procedures, and the leverage they offer to enhance the strategic development of an organisation.
Class 10.2 - The Power of Multiple Capabilities - (26 min)
This segment explains how capabilities for speed, quality and cost arise for all resource-building efforts of an organisation, as well as for operational effectiveness. It shows, through the results from a working model of a retail store-chain’s growth, how several capabilities operating together can make orders-of-magnitude improvements to performance. It also points out how a competitor would need to replicate the entire system of complementary resources and capabilities if they are to beat a strong organisation.
This course is supported by a series of worksheets provided in both PDF format and as Sysdea online models.
Class 10.0, Capabilities - summary, is supported by a model that allows exploration of the impact of improvement in capabilities, with the example of a retail chain and looking at a single capability of store opening lead time.
Class 10.1, Operational Capabilities, uses an extension of a model used in class 9 - looking at the contribution that customer-data makes to the volume of calls that can be handled by a customer-support team. Here we look at the impact of capabilities on the teams ability to provide that support.
Class 10.2, Multiple Capabilities, uses an extension of a model used in segment 10.0 - adding more capabilities.

free access for teachers - login or register Additional materials are available to registered teachers as well as free access to the complete course. Login here or register here for more information.

Other resources and links


Daniel V Hunt, 1996, Process Mapping: How to Reengineer your Business Processes, Wiley: New York.   Amazon UK   Amazon Canada

Michael Schrage, 2000, Serious Play, Harvard Business School Press: Boston.   Amazon UK   Amazon Canada

Kees van der Heijden, 2004, Scenarios: the art of strategic conversation, 2nd Edn, Wiley: Chichester UK.   Amazon UK   Amazon Canada

I Nonaka. and H Takeuchi, 1995, The Knowledge Creating Company, Oxford University Press: New York,   Amazon UK   Amazon Canada

Peter Senge, 1996, The Fifth Discipline (Revised edition), Random House, Sydney;   Amazon UK   Amazon Canada

Chris Argyris, 1999, On Organizational Learning (2nd Edn), Blackwell: Oxford;   Amazon UK   Amazon Canada

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