An organisation’s capabilities shape its winning play: but what are capabilities, and how do we build them?

Organisational capabilities are the abilities of an enterprise to operate its day-to-day business as well as to grow, adapt, and seek competitive advantage in the marketplace. In other words, capabilities are how the business does what it does – and does what it wants to do. A team from Monitor Deloitte, Deloitte Consulting’s strategy consulting practice, focus on strategic capability in this guide to creating strategic impact, discussing what is often the missing link to bridge strategy and impact. In a growing Irish economy many firms are reviewing their strategies as they seek to leverage opportunities at home and overseas – this strategic review should include an assessment of capabilities required to deliver on the strategy.

An organisation’s capabilities are multidimensional, made up of its people, processes and technologies, but also its insights, its mission, and integrated decision making. There are three types of capabilities – strategic, core and foundational. Sustainable competitive advantage cannot be obtained by focussing on foundational or core capabilities. Strategic capabilities are where the key is, the basis for strategic advantage.  These are the things that the organisation does well that sets it apart in a meaningful way.

When strategy changes, this often needs new levels of performance or a different type of performance. To achieve this, the organisation needs the capability – in all its forms – to deliver this. Strategic change requires capability change, and without it success becomes more difficult.  To effect this change however, a company needs to know what it has – and what it wants. 

With this in mind, just as one should “know thyself” so too an organisation must know its capabilities. Thin or standard definitions of capabilities may work for foundational capabilities, but when it comes to the sources of strategic advantage, a company needs more. Loose definitions mean loose results. Striving toward an objective of achieving a capability of “world-class innovation”, for example, can mean a hundred things to a hundred people. A capability blueprint, explained in this article, is a way of properly understanding what a capability is and what it takes to develop it. Four questions lie at its heart:

• What does “good” look like?
• How good do we need to be?
• How would we know if we were getting better?
• What would have to change in the way we operate?

Once these capabilities have been defined, building them requires a systematic approach.  Investments in people, processes, assets and systems may be needed, and the company may well require an integrated approach to change management.  From our experience with our clients, we’ve found that defining the goals of the change, and the strategic capabilities required, makes this process considerably easier to manage. 

By focussing on capabilities, companies can reinsert the missing link between strategy and impact. It may not be easy: but we know that Irish business is up for the challenge.