The digital organization is more like the living thing with self-adaptable and self-renewal capability.
Dynamic Capability is the ability to reconfigure the organization in a way that has the effect of increasing its "variety" for adapting to high velocity. The unique dynamic capabilities directly decide the overall organization’s competency and how well they can make the digital transformation, deliver the value to the customers, and build a long term winning position.
The digital era upon us is the age of people. The maturity of a business capability would be based on their abilities to deliver on customer needs or to achieve the desired capability outcome. Here are three building blocks of dynamic capability.
Resource: A business capability defines "what" a business does or can do by encapsulating all organization resources (tangible, intangible, or human resources), business resources can also be categorized into technological, financial, reputational, market structure, institutional capitals, and assets. The matter of fact is that organizations have limited resources, many businesses that get stuck at the low level of organizational maturity take a big bite of resources to keep the lights on, only leaving very little for building differentiated capabilities. Thus, resource management sometimes becomes a bottleneck for developing dynamic business capability.
On one side, the resource is an important building block of dynamic capability; on the other side, the “Dynamic Capabilities” (DCs) could be qualified as a business resource. In fact, Dynamic Capability is a firm-specific resource/asset that is difficult if not impossible to imitate. Dynamic capabilities are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, etc.
Process: The other building blocks of Dynamic Capability are processes for coordination, integration, and reconfiguration. Processes underpin capabilities. The business processes use resources, specifically the processes to integrate, reconfigure, gain, and release resources to match and even create market change. Dynamic business capabilities are more complex in design, requiring cross-functional collaboration, embedding agility into processes for adapting to changes, and shortening the delivery cycles.
To analyze and synthesize capabilities, it’s important to deploy organizational assets in combination and disentangle dynamic capabilities in clusters of processes and managerial orchestration. Internal processes are broken into modular service components that have standard open interfaces. To build capabilities on the fly, loose coupling makes it possible to change the components without affecting the system, as long as the interface is kept stable. And the dynamic capabilities make the organization highly responsive, flexible, and entrepreneurial.
Strategy: Capability enables business strategy, and strategy cultivates capability. The capability-based strategy is not only leading to a destination but also cultivating and optimizing the set of mature enterprise capabilities on the way proactively. A poor strategy may compromise the effectiveness of dynamic capabilities. There are many elements of digital capabilities that are foundational to enable foreseeable digital strategy. The digital strategy is not static, it has to evolve emerging business properties for adapting to the “VUCA” new normal. It is critical to building dynamic capabilities for accelerating strategy execution and shaping differentiated business competency.
In order to capture the potential value of their business investments, the executive teams must have a clear understanding of the link between capabilities and business strategies. They are also sufficiently aware of the "general condition" of the various capabilities to provide input into a qualitative assessment by identifying capability gaps in the context of future need, or capability dependency. There are multiple perspectives of organizational capabilities, the top tier is a common management view of the condition/suitability of dynamic capability to support the intended future operating model and implement a well-defined business strategy. Dynamic Capability accelerates business speed, builds the organization’s strengths in core areas, and ensures seamless strategy execution.
The digital organization is more like the living thing with self-adaptable and self-renewal capability. Most of the dynamic enterprise capabilities need to be woven cross-functionally, with all critical building blocks or important business elements. Thus, it takes cohesive collaboration for business as a whole, aligns the different parts of the ecosystem to adopt more points of integration, and incorporates the use of "stacks"— modular, layered, and loosely coupled modular capabilities to build differentiated business competencies and improve organizational maturity.
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