[Changing the Game by Investing in Your

Strategic Capabilities]
In these times of rapidly increasing competition and uncertain markets,
companies that do many things well are at a disadvantage in competing with
companies that do few things exceptionally well. Across the industries, all long
term leaders have one thing in common – they outshine others in a small set of
chosen core capabilities that are aligned with their business strategy and that is
what sets them apart. This white paper will discuss how to develop your core
capabilities and change the game to your advantage.

Formulating a Capabilities-Driven Strategy

Capabilities are more than assets, operations and skill set of your workforce.
Capabilities originate from the interconnectedness of business processes,
systems, tools, assets, knowledge and skills of your employees. They are your
defining strengths that make you competitive in the market. They establish
your right to win in a given market or industry.

Developing a capabilities-driven strategy rests on three fundamental elements –

strategic clarity and flexibility, differentiated capabilities and strong
organizational structures.

Strategic Clarity and Flexibility. A capabilities-driven strategy rests on the

leadership’s ability see its strategic priorities clearly. With superior market
insight, you must be able to identify the market opportunities that offer most
potential. By being flexible and responding to the market changes better than
and faster than your competitors you will be able to outclass them in the
markets.

Which markets and industries have been profitable to your company? Which
products and services bring the most revenues and confer a long term market
advantage? What capabilities do you foresee as necessary to sustain your
competitive advantage? Which customer segments form the bulk of your
revenue source? How can you serve them better? What products and services
are inconsistent with your core capabilities and how can you get rid of them?

Differentiated Capabilities. Focus on a small set of core capabilities that are

market-oriented. These capabilities are the ones that give you the strategic
advantage over your competitors in serving your customers better than anybody
 else. They must be aligned with your corporate strategy. These core capabilities
should differentiate themselves from those of your competition. Avoid
committing your resources to low value and non-core activities.

Which core capabilities support your company’s strategic value proposition

and which do not? How many capabilities are incoherent with the company’s
strategy? How can they be removed? Do your core capabilities position your
company for sustainable, long term leadership? What new investments must be
made to develop capabilities that confer strategic advantage?

Strong Organizational Structures. World class organizations build their

organizational structures around their core capabilities. With effective
corporate governance structures, pragmatic decision-making processes and
strong organizational culture they make sure that performance is rewarded.
Their incentive processes and accountability mechanisms nurture the
company’s core capabilities.

Are your assets optimized into and out of the markets to deliver best possible
value? Do your business processes and systems operate in a way to facilitate
optimal display of core capabilities? Do you have resources needed to develop
and market products to meet the new challenges? How flexible is your product
development capability in terms of designing new solutions and bringing them
rapidly to the markets?

Designing a Capabilities-Driven Strategy

Identify the drivers of your target market – the factors that help you in
delivering the products that customers need and want. By analyzing how
engaged the customers would be and how diverse the likely portfolio might be,
identify the potential market and its core interests.

Identify the capabilities you need to succeed in these markets. Isolate the ones
that offer greatest potential in creating value. This needs clarity of thought in
understanding what you want to be and what your market value proposition
would be. Then invest bulk of your resources in developing these core
capabilities. Divest business units or capabilities that do not fit coherently with
your top most priority capabilities.

Develop operating mechanisms to support these differentiated capabilities and

realize their value proposition. Make sure that these capabilities are coherent
with your overall business strategy. Focus on new product development
initiatives and smart business acquisitions that would complement and add
 upon your existing core capabilities. Understand that organizations that do not
build complementary and reinforcing capabilities risk losing their strategic
advantage.

Success of this strategy depends on underlying organizational enablers that

affect core capabilities. Work on enablers such as decision-making processes,
corporate governance structure, performance management system, talent
management, business model structures, operation processes and systems,
technology architecture and organizational culture to contribute synergistically
to develop and excel in your core capabilities. This organizational DNA will
determine the flexibility and sustainability of your enterprise.

Establish clear decision authority and conflict-resolution mechanisms to speed

up decision-making. Minimize checks and balances on decisions and make it
responsive and flexible. By instituting effective information management
systems, aid decision-making authorities to know what is happening in the
environment.

Link performance with rewards and consequences. With effective use of

metrics measure performance objectively. Setting clear and unambiguous goals
and objectives will improve performance differentiation.

By removing duplicative management layers, you can narrow the spans of

control. Effectively using information sharing systems and structurally
integrated mechanisms, you can tweak organizational structure to support and
nurture the core capabilities.

Address all elements of organizational performance and pace the change to the
organization’s ability to absorb and assimilate change. Using comprehensive
integrated programs guided by clear action plans, focus on creating lasting
changes to improve your core capabilities.

Conclusion
As economies of scale, market clout and superior products begin to lose their
value in creating sustainable market advantage, developing core capabilities is
the only way to gain strategic advantage. By developing and executing a
capabilities-driven strategy you can focus on a narrow and concentrated set of
market opportunities and capabilities. These differentiated capabilities will help
you perform exceptionally better than your competition in your chosen market
and confer you with a long term strategic advantage.