Organisational Capability and the Internal Environment

ORGANISATIONAL CAPABILITY AND THE INTERNAL ENVIRONMENT

QUESTION:

A Look At Organizational Capability And The Internal Environment And How They Translate Into Superior Performance Of The Organisation.

ABSTRACT

The internal environment is the final step in gathering information for the Environmental Analysis. It consists of identifying resources and capabilities (in the form of the value chain), finding competencies, and determining what competitive advantages (hopefully sustainable) the organization has (MGMT 488 - STRATEGY AND POLICY 2005)

This paper looks at how Resources, capabilities, and competencies should be evaluated with respect to goals, strategy, and the vision statement of the organization. Not every how Resources, capabilities, and competencies needs to be included in the evaluation - only those that will eventually lead to a competitive advantage.

KEYWORDS

Organizational Capability

DEFINITION OF KEYWORDS

Organizational Capability

Definitions of organizational capability abound. A few random versions include: 'the sum of all things that enable an organisation to deliver services' (DFA, 2006); 'ability... to effectively meet... business objectives' (ANAO, 2001, p.19); 'an all round quality ...' (Stephenson, 1999, p.4); 'capacity... to deploy existing resources to perform some task' (Grant, cited in Spanos & Prastacos, 2004, p.32); 'those talents...to execute... strategy' (WCL, 2006); 'the embodied knowledge set that supports competitive advantage ...' (Gill & Delahaye, 2004, p.1); 'a process of examining an organisation to increase its capacity...' (Haertsch, 2003, p.1); and 'often referred to as organizational competences, although strictly a capability refers to the potential and competence suggests an applied and well-practiced capability' (Open Learn, 2006). These definitions illustrate a wide range of understandings - the sum of all things, ability, quality, capacity, talents, and embodied knowledge.

However, from a distillation of definitions, perhaps the following is the most succinct for the purposes of this paper: 'organizational capability refers to an organizational ability to perform a co-ordinated task, utilizing organizational resources, for the purpose of achieving a particular end result' (Helfat, 2003, p.1).

INTRODUCTION

Organizational capability is rapidly becoming recognized as an important, if not the most important, key to organizational success. The tide of change over the past couple of decades has seen considerable restructuring by organizations as they undergo massive cultural change; strive to transform their organizational character and search for competitive advantage. Changes to work and the organisation of work have tended to shift the emphasis from individual competence to organizational capability, or at least, for the former to be subsumed within the latter.

Understanding organizational capabilities

Corporate success ... is not the realization of visions, aspirations, and missions - the product of wish-driven strategy. It is the result of a careful appreciation of the strengths of the firm and the economic environment it faces. The strategy of successful firms is adaptive and opportunistic. Yet in the hands of a successful company an adaptive and opportunistic strategy is also rational, analytic, and calculated. Adaptiveness does not mean waiting for something to turn up. Opportunism is only productive for a firm which knows which opportunities to seize and which to reject.

Corporate success derives from a competitive advantage which is based on distinct capabilities, which is most often derived from the unique character of a firm's relationships with its suppliers, customers, or employees, and which is precisely identified and applied to relevant markets.

Organizational capabilities are also often referred to as organizational competences, although strictly a capability refers to the potential and competence suggests an applied and well-practiced capability.

By capabilities we mean an organization's capacity to engage in a range of productive activities. All organizations' possess unique bundles of resources, and it is how these resources are used that determines differences in performance between organizations'. Resources are not productive in themselves - they need to be converted into capabilities by being managed and co-ordinated.

It is these resultant capabilities that, if hard to imitate, are the main source of competitive advantage. Strategy, from the resource perspective, is therefore about choosing among and committing to long-term paths of capability development. The figure below summarizes the relationship between resources, capabilities and competitive advantage.

The relationship between resources, capabilities and competitive advantage (Source: Grant, 1998)

To confer competitive advantage on an organisation, capabilities need to have a number of properties:

* Inimitability - They should be difficult for other organizations' to imitate or acquire. For example, if key capabilities rest on the competence of particular individuals, other organizations' may tempt them away with a better offer. By contrast the capability to generate effective learning within the organisation may be rather harder to copy or buy.

* Durability - They should be durable. For example, many technological innovations are quickly superseded by new developments. An individual technological innovation may be too short-lived to confer real advantage. However, the capability to generate technological innovations may confer a more lasting advantage.

* Relevance - They should be relevant. For example, in the banking sector, the size of the branch network used to be a key source of strategic advantage. Those banks that were able to deliver services geographically close to the customer were more likely to secure their business. As telephone and Internet banking become more prevalent, branch networks become less strategically relevant.

* Appropriability - Not all profits generated by a resource flow to the owner of that resource. The division of the value generated