Thursday, March 9, 2017

Running IT as a Digital Business Capability Builder: Threshold Capability vs. Distinctive Capability

Both threshold capability and distinctive capabilities are abilities that organizations have and are closely related to competencies.

Generally speaking, a capability is an ability that an organization, person, or system possesses. Capabilities are typically expressed in general and high-level terms and typically require a combination of people, processes, and technology to achieve. In today’s business dynamic, digital capabilities are a fundamental building block in digital transformations with which companies can transform operational processes, customer experiences, and business models, to reach the high-level business agility and maturity. To adapt to the increasing speed of change and continuous disruption, it’s not sufficient for IT organizations today to be only a commodity service provider or a back office support desk, the high mature digital IT needs to become the dynamic business capability builder. IT is there to provide whatever technology services/solutions the business needs to serve its customers; mix all important business ingredients to build both threshold capabilities for the business’s survival, as well as distinctive business capabilities which generate differentiated value for their business’s long-term growth.

There are many "ingredients" in the business capability: Among them, capability encapsulates Process, People and Technology and other intangible and tangible resources which are important for a business capability to be effective. The enterprise consists of a set of capabilities. The capability is the ability to achieve the desired effect under specified (performance) standards and conditions through combinations of ways and means (activities and resources) to perform a set of activities. The organization then uses these capabilities to understand the markets/environment, create new products and services and then deliver products and services to improve the business efficiency, effectiveness, and profitability. Capability can "contain" many services, processes, and functionality in which IT as one of the most critical elements in weaving them together and building up business competency. Information is useless if it cannot transform into the business insight or foresight, and technology by itself is the means to the end, not the end itself. Applying technical capabilities to business opportunities is where the magic happens. Therefore, IT capabilities directly make an impact on business capabilities, and IT maturity is proportional to overall organizational maturity.

Distinctive business capabilities are the key differentiator: Enterprise success is dependent upon a few core and differentiating business capabilities. Business capability defines "What" a business does or can do by encapsulating all organization resources (tangible, intangible or human resources). The often described business capability attributes include such as robustness, speed, comprehensiveness, responsiveness, agility, improvement, sensitivity, optimization, resilience, etc. A firm's capabilities today are the result of its history and this history constrains what capabilities the firm can perform in the future. Due to this reason, business capabilities cannot be bought in the marketplace. To acquire a business capability, one has to acquire the company owning the capability as well. One capability may be implemented by multiple business processes for multiple products and services. IT is an important glue to integrate all important business elements to differentiated capabilities. The focus area for building IT-enabled capabilities include: Effectively leveraging the existing and new technologies to shape dynamic digital capabilities; help innovate business via the process optimization and capacity building; and recombine capabilities to the new distinctive capabilities.

The processes and capabilities as opposite sides of the same coin: Business processes are the actions that provide desired capabilities as outcomes. Evaluating process is an important step in making an assessment of capability. It would be probably best to bracket processes with a capability and then analyze it for redundancy and complexity later. Start with a mapping of processes to capabilities, do the process assessments, and infer from that with the resulting capability perspective. There are a couple of conditions to evaluate a capability, such as: Is this capability valuable? Is this capability rare? Is this capability costly to imitate? Is this capability non-substitutable? Any capability which fulfills all these conditions (and very few would) lies pretty close to the core competency of that enterprise and thus is valuable. In today’s business environment, IT enabled business capabilities are a fundamental building block in digital transformations with which companies can transform the customer experience, operational processes, and business models, to reach a higher level of business agility and maturity.

Both threshold capability and distinctive capabilities are abilities that organizations have and are closely related to competencies. The business is then designed around the experience. A business capability is the abilities needed by an organization in order to deliver value. It’s the ability of an organization to do things effectively to achieve desired outcomes and measurable benefits and fulfill business demand. In any case to monitor or seek disruptive opportunities requires businesses’ transformational capability with agility to adapt to changes, ride above the learning curve and build the core competency to stay ahead of the competition.


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