Capabilities
Cesare Mainardi, managing director of Booz & Company, says:
“Capabilities are a combination of know-how, people, expertise, processes –all that happens in a business that allows that business to out-execute the competition in the markets that they serve. It’s not many different capabilities but is a few — 2, 3, 4, 5 or 6 things that make all the difference in terms of winning in the market.”
Roger Martin and A.G. Lafley, in Playing to Win, say:
“An organization’s core capabilities are those activities that, when performed at the highest level, enable the organization to bring it’s where-to-play and how-to-win choices to life. They are best understood as operating as a system of reinforcing activities–a concept first articulated by Harvard Business School’s Michael Porter. Porter noted that powerful and sustainable competitive advantage is unlikely to arise from any one capability (e.g., having the best sales force in the industry or the best technology in the industry), but rather from a set of capabilities that both fit with one another (i.e. that don’t conflict with one another) and actually reinforce one another (i.e., that make each other stronger than they would be alone.”
Here is something else Roger Martin says in Playing to win that is important to remember about capabilities
“With capabilities, again, winning is an essential criterion. Companies can be good at a lot of things. But there are a smaller number of activities that together create distinctiveness, underpinning specific where-to-play and how-to-win choices. P& G certainly needs to be good at manufacturing, but not distinctively good at it to win. On the other hand, P& G does need to be distinctively good at understanding consumers, at innovation, and at branding its products. When articulating core capabilities, you need to distinguish between generic strengths and critical, mutually reinforcing activities. A company needs to invest disproportionately in building the core capabilities that together produce competitive advantage. When thinking about capabilities, you may be tempted to simply ask what you are really good at and attempt to build a strategy from there. The danger of doing so is that the things you’re currently good at may actually be irrelevant to consumers and in no way confer a competitive advantage. Rather than starting with capabilities and looking for ways to win with those capabilities, you need to start with setting aspirations and determining where to play and how to win. Then, you can consider capabilities in light of those choices. Only in this way can you see what you should start doing, keep doing, and stop doing in order to win.”
Competencies
I love the distinction that researcher Kul Bhushan Saxena gives between competency and capability. He says,
Competence is an organization’s “capacity to deploy its resources using processes to effect a desired end.” Competence is a necessary condition for having a capability. He says that an organizational capability is “the use and deployment of its competencies to accomplish its organizational goals.”
Here is a simple way I view these two terms. A competency is something you are good at or competent in. However, not everything you are good at can help you win. Capabilities are those activities that you are good at, but more than that, which complement each other to give you a strong competitive advantage which allows you to win against your competition. As such, not all activities you are good at are capabilities, only the ones that give you a competitive advantage. And underlying all activities that you are good at are competencies which allow you to be good at those activities.
From above it’s worth noting that:
- Capabilities are only a few things, not many things.
- A company needs to invest disproportionately in building the core capabilities that together produce competitive advantage.
- Capabilities are not competencies.