Friday, August 30, 2013

How to Determine if a Capability is a Core Capability?

Processes underpin business capabilities; and culture nurtures capability coherence.

Business Capabilities are the abilities to produce specific goods or services for the market, they “are essentially the learning processes that are embodied in the knowledge capital of a business organization. And core capabilities are integrated a set of capabilities contribute directly to the competitive advantage of the business. 

1.  A Series of Questions to Determine the “CORE” 

"Capability" is a useful composite concept that is fairly specific in its bounds, and can be used as an analysis tool. The “core” capabilities can be determined via the questions and reasoning:

(1) Is a capability core because it offers a competitive advantage in delivering and selling the product? The core capabilities could be those which are identified as delivering the competitive product, services and customer experience than competitors.

(2) Is it core because it supports your strategic direction? Senior leadership defines a strategy. In order to meet that strategy, management in conjunction with EA describes a set of capabilities needed to meet the strategy. (This involves some decision on tactics, etc.). The current environment is evaluated to understand which capabilities already exist and which must be developed or changed.

(3) Is it core also because the company excels in delivering that capability? Should the core capability be delivered by the company itself? In today's multi-sourcing and cloud era, the core capability does not have to be delivered by the company itself; the key point is the speed of delivery and overall business agility.

2. The Methodology to Optimize a Set of Business Capabilities 

How to determine if a capability is a core capability? Overall, the problem is business capability optimization rather than picking core/non-core capabilities one by one. It requires a systematic methodology to look at options of internal, wholly owned subsidiaries, operational control, partners, vendors, even investment in related firms to create an effective (profitable) ecosystem. The holistic approach provides the context for managing the complex organizations and gives those organizations an open path to find a niche and become core. Therefore, a methodology with logic steps to establish the core enterprise capabilities:

(1) Identify what capabilities give your product/service a competitive advantage and align to the enterprise vision and strategy. Discover the business strength that can be transformed into a core capability if it aligns with the strategic direction.
(2) Choose how to improve the capability based on your enterprise strengths either by investing in or renting a best of breed capability. 
(3) A more pertinent question would be the BCD (Base, Competitive, Differentiating) classification. An organization would need to ask whether they need the capability at
- Base level- to sustain the business
- Competitive level - to stay competitive in the business
- Differentiating level - to be the key differentiator for its business
(4) Capabilities may evolve and move between categories based on the technology evolution, business driver, business model evolution etc. move from Base or Competitive level to Differentiated level. This happens when an organization decides to differentiate by taking an existing capability to the next level.

Business capabilities are different from the mere sum of individual abilities and skills of its members. processes underpin business capabilities; and culture nurtures capability coherence. It’s about what we do as a company, how we do it, it’s collective capabilities to ensure organization as a whole can achieve more even it is consist of a group of normal people, and the well set of optimal capabilities can be cultivated via cultural coherence and continuous process improvement.


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