Organisational capability: the key to competitive success

Organisations that can leverage organisational capability will experience a statistically significant increase in competitive advantage

Organisations that can leverage organisational capability through external sensing, innovation, agility and culture will experience a statistically significant increase in competitive advantage, writes Wayne Brockbank

Several empirical studies over the last decade have shown that focusing on organisational capability as opposed to individual talent will have greater impact on business performance. With this in mind, the 2016-17 round of the Human Resource Competency Study – involving more than 30,000 individuals from around the world – sought to shed light on which organisational capabilities should receive the most focus. We started with 11 possible candidates: external sensing, innovation, agility, culture, customer responsiveness, accountability, leadership, operational efficiency, leveraging technology, alliances, and talent management. From this list we were able to statistically identify the capabilities that are at the intersection of having the greatest impact on business performance but are not generally done at high levels of effectiveness.

The intersection of capabilities that matter most but are not generally done well is the area of potential competitive advantage. Using these criteria, we were able to identify four capabilities that were done at below-average effectiveness but which also had the highest impact on business performance. These are external sensing – which had by far the greatest impact on business performance – innovation, agility and culture.

These four fit nicely into an integrated package. Companies must be able to have multiple quantitative and qualitative mechanisms to access, import, prioritise and analyse key external information. They must then apply that information to developing innovative products and services that will quickly reposition themselves in their markets. Accomplishing all of this requires a shift in the cultural mindset from being internally focused to being externally focused.

These guidelines apply to firms in virtually every business sector. Applying “internet of things” algorithms, GE tracks the functioning of its aircraft engines while the engines are still in the air. By so doing, GE can identify needed repairs so that when a plane lands, the repair materials are ready.  This decreases the plane’s time on the ground, thereby significantly boosting revenues per plane for GE’s customers. GE has stated that leveraging such information is the company’s future as it seeks to become the world’s premier digital industrial company. Major cultural changes are underway, as exemplified by its recent decision to move its traditional headquarters from Fairfield, Connecticut, to Boston and Boston’s high-tech universities and entrepreneurial startups. On the other end of the industrial spectrum are Disney Theme parks. In response to customers’ desire for shorter lines, Disney has developed a smartphone app and MagicBand bracelets that guests can use to schedule ride times, character meet-and-greets, dining and other theme park experiences. So doing results in shorter wait times for Disney’s customers; plus, this scheduling may be done up to 60 days in advance, thereby giving its customers flexible thinking time to plan their vacations.

Organisations that can leverage the combined organisational capabilities of external sensing, innovation, agility and culture will experience a statistically significant increase in competitive advantage.

4 takeaways for HR

  1. To add a high level of value, HR professionals need to understand the logic and importance of organisational capability to business performance.
  2. Research suggests that the integration of four categories of organisational capability represent potential sources of competitive advantage. However, your specific company’s organisational capabilities should be identified based on the realities of your business environment, including customer demands, competitive requirements, industry structure, owner’s expectations and technological trends.
  3. With your organisational capabilities clearly defined, you can then establish clear measures of success for each. This will enable you to track progress, communicate your capabilities to your customers and shareholders, and have specific operational definitions for each capability.
  4. You are then ready to ensure that your HR, organisational and leadership practices are aligned to create and sustain your organisational capabilities. Six categories of such practices should be considered: staffing, performance management and rewards, training and development, information management, structure and process, and leadership.

Image: iStock