Most business leaders are fairly competent and enjoy developing strategy. It is fun to discuss external trends, environmental factors, competitive movements, new market or product opportunities, and identify initiatives to grab your unfair share of the customer's wallet.
I have been on leadership teams ranging from $200M in revenue to over $16B, and strategic planning is a fairly predictable process. We spend 3-6 months analyzing the market, assessing the competition, line up our investment plan and come out with 'the BIG plan' to grow faster than anyone. While I too get very energized and passionate about this work set, the implementation usually falls short of expectations. Did we miss something in the market? Did we underestimate the competition? Or, is it something about our business and people (internally) that we did not consider?
All too often companies and business leaders develop elaborate strategies without discussing organization implications. Do we have the expertise, leadership and talent? Are we structured to move quickly and effectively serve our customers? Should our culture evolve? Is our sales force trained to sell the new product or service? In other words, we often fail to determine the required organization capabilities to successfully execute our business strategy.
Simply put, organization capabilities are the collective skills, expertise and alignment of the people in your company. Competencies tend to be at an individual level while capabilities span across an organization. Organization capabilities are critical yet intangible assets that cannot be duplicated. These assets matter more than any other when implementing strategy, yet we often do not plan for them as meticulously as other physical or financial assets. In a survey conducted by McKinsey (2010), 60 percent of C-suite executives stated building organization capabilities was a top 3 priority, but only a third of them had a plan to address this. The Center for Creative Leadership (2015) published a detailed report, Bridging the Strategy / Performance Gap, wherein the main message is that executives in the highest performing companies actively discuss leadership and organization needs during the strategy development process, not afterwards.
Discussing organization capabilities (and ultimately talent requirements) is a natural extension of the strategic planning and development process. The strategy cascade should look something like this:
Business leadership teams must ensure dedicated time, honest assessments and spirited debate about the capabilities that will differentiate the company from the rest, ensure successful capture of the market and ultimately delight targeted customers. At the end of the day, customers are making buying decisions based on the capabilities of the company or brand, more so than even the product itself. Specifically, consumers tend to purchase based on emotion, history and trust much more than anything else.
Organization Capabilities Ultimately Create Our Customer Experience
Business leaders should identify their organization capabilities and define them in behavioral and operational terms. You must be able to answer 'what economic or customer value does this capability deliver'? You cannot be vague or cite platitudes. Apple does not simply declare that 'Innovation' is a strategic capability. Apple's leaders have spent countless hours strategically discussing how innovation links to engineering skills, marketing competencies, retailing at the stores, outsourced manufacturing, hardware development, and so on. Apple has integrated innovation into their hiring, training, culture, and succession planning processes. The same could probably be said for Walmart (supply chain), Google (software engineering), Exxon (exploration), and Walt Disney (customer experience). Organization capabilities are identified and thoroughly articulated in terms how they shape culture, leadership, competencies, training, and even performance management. Capabilities should drive all talent discussions and decisions.
Following an objective assessment, leaders leverage existing strengths and engage the HR function to address the gaps. Organization and talent initiatives must have the same planning, accountability, and tracking as any other major strategic investment in products, new equipment, marketing, facilities and/or acquisitions. Strategic plans should have a dashboard which tracks progress on major talent initiatives and the most critical talent segments. While HR typically owns the development and execution of improving these organization capabilities, senior business leadership must be ultimately responsible and accountable.
Ideally, an executive team should find time during their strategic planning period and hold a series of working sessions to determine and assess their most critical capabilities inclusive of leadership bench, critical skills, strategic roles and organization design. Realistically, most businesses today have established strategic plans in place and do not have the luxury of pressing the 'pause' button to discuss capabilities. At a minimum, CEOs and leadership teams should determine how well the following areas are aligned with their strategy:
- Culture. How consistent are our company values, behaviors and expectations with our strategy?
- Leadership. Is the leadership team clear and aligned with our strategy?
- Structure. Are organizational resources properly allocated to execute against the most critical properties?
- Organization Processes. Do our performance, management and talent processes support our strategic direction?
- Capabilities. Are we focused on developing the right skills, competencies and talent?
Most companies have a strategy, yet many business leaders fail to discuss or consider that 'how' they execute is probably more important than 'what' they execute. Organization capabilities are truly the greatest differentiator a company can have in any market. Products, services and even business models can all be replicated and even improved by any global competitor. Capabilities cannot be copied and (more importantly) they ensure sustainable performance even during the volatile times we work and live in today.