Understanding an Organizational Capability
If you are a manufacturer you need to be highly capable in manufacturing and logistics. If you are a retailer you need to be highly capable in merchandising and logistics. If you are a utility you need to be highly capable in load management and energy trading. If you are in these industries and you are not capable in these areas you will fail. A manufacturer that is poor at manufacturing? A retailer that is poor at merchandising?
When you are running a business you need to identify which are the areas in which you need to be highly capable. Usually, financial accounts is not an area requiring a high level of capability, for example. In non-critical areas you need to be efficient but not world’s best practice.
The concept that in some areas you need to be highly capable and in others only efficient is therefore not difficult to grasp.
Value delivery capability
But now all organizations need to add one more area to the ‘we need to be highly capable in’ list so as to increase the ROI from project investments – value delivery through project investments.
Your "value delivery capability" determines the ROI you will deliver from your capital investments and your ability to execute your strategy.
Our research (conducted when I was at BCG) found that the average ROI an organization delivers is directly correlated to its “capability level”. Organizations with poor levels of capability consistently delivered negative or breakeven results over time. For every $1m of capital invested they struggled to deliver more than $1m in returns over time when the running, workaround, enhancement, support and other ongoing operational costs were taken into account. This is bad. It is burning capital rather than earning a return.
Capability is an organizational attribute
“Capability” is an organizational attribute. This fact has been obscured by the use of the word ‘capability’ to mean individual competency. Your value delivery capability is determined by how well designed and executed your organization’s value delivery processes, policies, structures, roles, culture, measures, skills, systems, management understanding and so on are. How well your organization is set up from the board to the frontline to successfully define, develop and deliver business value through project investments.
Your capability controls which projects you can successfully deliver
Your delivery capability level also determines the nature of projects you can successfully undertake. The more advanced the type of project, the more innovative it is, the higher the required level of delivery capability. If you don’t have the level of delivery capability your project requires, then you will fail – completely on occasions but more commonly by going over time, over budget and compromising the results delivered. All of these results reduce the ROI realized.
Need to know your level of capability
Boards and executive teams therefore need to focus on their organization’s 'value delivery capability' — Where are we? Where do we need to be? How do we get there from here? All essential questions that few organizations can answer. But all the time you don’t know the answers to these questions you are flying blind and almost certainly taking on projects you cannot deliver successfully.
To undertake anything more than simple automation projects you need to know, manage and probably upgrade your organization’s value delivery capability – starting yesterday.
Explore capability management effectiveness further here.
TOP has pioneered the research and specification of organizational value delivery capability. Read our book on this topic—"Value Delivery Capability—the next competitive battleground".