Good night to all of you. It is almost 6pm C.S.T.  I can´t miss the opportunity to post on Sunday. Blessings to you.

Today topic is organizational capability. I will add the pictures and bibliography sources for this post tomorrow. When doing my personal analysis for this topic, I decided to adapt it and be positive and propositive. Of course,  I switched things a bit.

What is an organizational capability?

Resources (tangible, intangible or people) are not productive on their own. Productive tasks require the cooperation and collaboration of a set of resources altogether. Professor Grant has defined the term “organizational capability” to refer to a company´s capacity for undertaking a particular activity. Capability and Competence are synonyms. During Leg 1 we spent several days covering core competence, a term coined by Hamel and Prahalad to distinguish those capabilities that are fundamental to a firm´s performance and strategy. Other authors use the term “distinctive competence” to relate to the same thing. The concept of capability or competence is important because we would like to reach excellence and best quality by building outstanding capabilities. And when we can understand what are we capable to do at our best? That is our core capability or core competence.

Another definition of Capability by Helfat & Raubitschek is: Capabilities are the firm’s capacity to deploy resources that have been purposely integrated to achieve the desired end state. Capabilities emerge over time through complex interactions among people, tangible and intangible resources. Capabilities can be tangible, like a business process that is automated, but most of them tend to be tacit and intangible. According to Hitt: capabilities are often based on developing, carrying, and exchanging information and knowledge through the people working in the organization. Because a knowledge base is grounded in organizational actions that may not be explicitly understood by all employees, repetition and practice increase the value of a firm’s capabilities.

The foundation of many capabilities lies in the skills and knowledge of a firm’s employees and, often, their functional expertise. Hence, the value of human capital in developing and using capabilities and, ultimately, core competencies cannot be overstated. Knowledge has been until now the root of all organizational capabilities and ultimately the source of competitive advantage.

Global business leaders increasingly support the view that the knowledge possessed by people is among the most significant of an organization’s capabilities and may ultimately be at the root of all competitive advantages. However, firms must also be able to use the knowledge that they have and transfer it to their operating businesses. For example, researchers have suggested that “in the information age, things are ancillary, knowledge is central. A company’s value derives not from things, but from knowledge, know-how, intellectual assets, competencies—all of it embedded in people.” Given this reality, the firm’s challenge is to create an environment that allows people to fit their individual pieces of knowledge together so that, collectively, employees possess as much organizational knowledge as possible.

Capability or Competence is connected to the question: what can we do?  That is how we start our capability analysis. An internal capability analysis is an identification of what capabilities a firm possesses. And the internal capability analysis of the firm can be done by using certain frameworks.

Traditionally, the organizational capability is a theme that has been taught in business schools by using several existing frameworks. I have found at least three models utilized in academia to teach this theme. Of course, each consulting firm has their own methodology too. Remember my aim to give you some information is to share highlights of where you can start your search in order to know and understand how the things are and how are evolving since the introduction of the digital technologies.

The main traditional models to analyze organizational capabilities are the following :

1. The Functional classification: identifies each organizational capabilities in relation to each of the principal functional areas of the firm. Using this approach means to segment, classify and organize the principal functions of the firm and identify the organizational capabilities pertaining to each function.
2. The Value Chain: Michael Porter proposed a more elaborated classification of activities into a sequential chain of order. Porter´s conceptualization of the value chain will be developed during Leg 6.
3. The Resource-Based View (RBV) Analysis for Competitive Advantage: This is the methodology explained in Robert Grant book. The resource-based view was used to analyze and determine whether the source of strategic competitiveness resides in an organization and not industry effects. The resource-based view was additionally used in determining whether the organization’s initial bundle of resources and subsequent resource configurations were the sources of strategic competitiveness and to what extent the process of customer value creation was resource dependent. The VRIO framework is part of the RBV Analysis approach. It has been a tool used to analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage.

Organizational capability requires the efforts of various individuals to be integrated with one another and with knowledge, time, capital equipment, technology, and other resources. But how does this integration occur? And this is where I would like to introduce the concept of a satellite organization. Instead of working in functional mode, I believe it is time to introduce the concept of what I believe has to be the organization of the future.  Tomorrow we will have the opportunity to see this idea in detail.

Thank you. And Bonne Nuit.

Source References:

Pending.

Published by eleonoraescalantestrategy

Corporate Strategy Artist, San Salvador, El Salvador View all posts by eleonoraescalantestrategy