We talked to Magnus about Strategic Capabilities, and why he think it is a crucial component in translating strategy into day-to-day operations.
- Why should companies care about Strategic Capabilities? “Successfully implementing and executing strategy to reach performance aspirations is something many companies struggle to do. As recently as 2013 a study by the Economist reported 61% of respondents acknowledge that their firms often struggle to bridge the gap between strategy formulation and its day-to-day operations. There are of course multiple possible reasons for this, but one important contributing factor is that strategies are often defined and decided upon in terms of the desired strategic outcomes and position, without paying enough attention to the capabilities needed to make that position a reality. Capabilities are often the missing link between strategy and impact, and when they are absent, weak or lacks coherence, the strategy will not succeed. “
- Why do companies struggle with these capabilities? “We can define organizational capabilities as “the ability to operate the day to day business, as well as to grow, adapt and seek competitive advantage in the marketplace.” This definition may seem a bit vague, and unfortunately, so is often the formulations of capabilities companies use. If a company has identified needed capabilities, they are often formulated in broad terms such as “world class manufacturing”, or “customer centric product development”, making it hard to understand what the capability actually constitutes, how to achieve it, and how to identify when it has been achieved. If a capability the company is trying to develop is vague, it is very likely that different parts and members of the company will have very different interpretations of what the capability entails and what must be done to achieve it. “
- In what ways can firms improve by paying attention to capabilities? And what can Monitor do to help clients achieve their aspirations? “Companies can improve on strategy execution by paying greater attention to the capabilities needed to successfully realize their strategy. They also need to understand which capabilities are strategic – vital to the effective execution of a particular strategy. These are the capabilities that underpin the where-to-play and how-to-win choices, ensuring that the company can deliver upon its distinctive value proposition.
These capabilities must be defined at a sufficiently fine level of detail, so it is clear what the organization is hoping to accomplish through them, and what specific changes must be made to get there. “Getting new product trials to the majority of the marketplace within the first six months” or “delivery within one week on all product lines” are examples of capabilities where the company can say, “we are going to start an initiative to develop that capability, where we invest resources in reconfiguring assets, people, processes and technology”. The more explicit, specific and detailed the capabilities are, the easier it is for everyone to understand how to achieve them, and the lower the risk of misalignment in the efforts to develop a capability.
Companies should therefore transform strategic aspirations into focused, well-defined capabilities through the process of iteratively asking and answering a set of questions in their strategy process. These five questions are what we call the Strategic Choice cascade:
What is our winning aspiration – what are our objectives?
Where will we play – what segments do we target?
How will we win – what is our unique and superior value proposition to those segments?
What key capabilities do we need to deliver upon the value proposition?
What priority initiatives should we launch to develop the capabilities?
By working iteratively through these five choices, companies are forced early on to focus on what the company must be able to do in order to successfully execute the strategy. By taking our clients through this process, we help them develop what is not only a strategic ambition, but also a roadmap for bringing it into life.”