What are you capable of and what is a business capability?
What are you capable of?
Any business or organization out there exists to create value. Whether it’s for the clients, the owners, or the staff, and preferably for all of the above, the organization needs to be able to deliver certain things. To understand what a business can and can’t deliver, we have to ask what it’s capable of and for that, we have to look at it business capability by business capability.
In the world of professional business management, when discussing what an organization can do, we use the term capability.
The term capability is one of a few that are useful when someone is trying to really organize or improve a business, or even to speak to investors.
An organization’s capabilities are the result of its ability to perform certain activities that can be further broken down into processes and individual tasks. If you’d like to learn more about activities and processes, we have an article about them here.
Some examples
If you were asked “What does amazon do?”, if you’re like most people, you’re like to answer that they sell and ship things all over the world, and you’d be right.
If you were to ask a business management consultant what amazon does, and you asked them to speak in terms of capabilities, they might give you a list that looks something like this:
- Operate an online store
- Shipping and distribution of goods
- Supply chain management
- Software development
- Hardware development
- Research and development
- Vendor management
- Sales management
- Client relationship management
- Digital content distribution
The list goes on and this is by no means the end of what Amazon does, but you get the idea of how different the thought process is when you step away from the perspective of the client, and step into the perspective of the business management team.
Internal and external capabilities
In the Amazon example, some of the capabilities we listed are very obviously geared towards external clients. In simple terms, these are the capabilities customers benefit from directly by buying the goods or services.
What’s less obvious is that what we call “internal” capabilities need to be identified and managed just as seriously as the ones the clients see, even though they aren’t what we think of when we think of the company.
Where would Amazon be without its software development and supply chain management teams and their capabilities? You’d certainly be having a harder time asking Alexa for a hint to help answer that question!
You can’t, however, call up Amazon and ask them to build you some cool new gadget or create an app for your business, because that isn’t a service they sell to their regular customers, at least not as of late 2019.
Why it matters
When trying to start or grow a business, entrepreneurs and managers are often tempted to think in terms of the bottom line: how do I get more clients and close more sales?
It’s often the case that businesses forget to think about their internal capabilities, or the “capability stacks” that enable them to succeed and deliver on what they want to offer.
For example, imagine you’re running an an end-to-end doors and windows company that does everything from manufacturing, to sales, to installation.
It may be obvious to you that to increase your bottom line, you need to make more sales, so you hire sales people, open stores and advertise. You’ve increased your capability to drive sales, and because you’re a seasoned manager, you’ve also upgraded your production facility to handle the extra demand and you anticipate you will see growth in the next year.
What you may not have considered, however, is that the system you use to take orders when from a sale closing, through manufacturing and to installation might be a bottle neck.
If you were in this situation, and still using paper forms filled out by the salesperson, emailed to the regional manager, processed by a clerk and forwarded to the plant to kick off production, you’d be doing what most traditional businesses have been doing (quite successfully) for a long time. Once manufacturing is complete, the plant has to ship the order to the correct installer’s location, which they can do by checking the work order, and once the installer receives the shipment, they can get in touch with the client to set an appointment and assign it to one of their teams to go out and do the work.
While this system definitely does work, imagine how much more quickly you could operate if the sales person could fill out the order form online directly in a system that would automatically trigger the plant’s production line while at the same time notifying the installer of the expected delivery date, so that they know how many installations they will need to do and around what date. Now imagine that this system also at the same time emails the client who can confirm an appointment date and time at their convenience without waiting for a call from your installation team. With such a system, you could save a significant amount of costs in clerical work, not to mention the time efficiency from having the work order delivered directly to the installation team’s phones with the details of the work to be done, so that they could work on demand rather than on a set schedule.
When we re-imagine our traditional businesses augmented with modern internal technological capabilities, we can also start imagining ways to operate and generate revenue while saving costs that were not possible in the past.
How can a consultant help?
A qualified management consultant will be able to understand the reality of your business, end to end, and all the capabilities involved, stacked one on top of another that have driven your success in the past.
The consultant’s job is to help you clearly define the needs that are satisfied by each capability so that together, you can take an objective look at a clear picture of the current state of your business.
Once the management team is confident that their business lines are accurately represented, the consultant can help define a desirable future state for the business, as well as the strategy and road map to get there, including making recommendations on new ways of doing things, using updated tools, or bringing in supporting technology that your team may not be aware of or may not know how to implement.