The concept of “capability” has long been used in strategic analysis to establish defensible leadership. What are the capabilities that leading service providers and customers are establishing? How do you assess the difference between hype and substance?
The bar of acceptable performance has always risen over time. Right now, the rate of change seems to be astonishing. On occasion, change is discontinuous. There are several such underway at the moment: the cloud; offshoring; automation and analytics being examples for suppliers and multi-sourcing for customers. A discontinuity is not addressed effectively by doing more of the same; peddling faster. A Formula 1 driver will always beat the most energetic of cyclists on the straight.
Defining Capability
One definition is:
a capability is the ability to perform or achieve certain actions or outcomes through a set of controllable and measurable faculties, features, functions, processes, or services
Wikipedia
A strategic capability arises from the ability to exploit superior know-how to valuable effect.1 Building capability and competence is not easy, as many moribund and inept organisations have found:
It takes substantial and sustained intellectual energy to develop high-quality; robust answers to questions such as what new core competences will we need to build, what new product concepts should we pioneer, what new alliances will we need to form, what nascent development programmes should we protect, and what long-term regulatory initiatives should we pursue. We believe such questions have received far too little attention in many companies.
Competing for the Future; Gary Hamel, CK Prahalad; Harvard Business School Press 1994
Each of the elements of a competence may in itself appear to be inconsequential, the strength arising from the cumulative effect. This also makes it difficult and time-consuming to replicate, thus building a sustainable competitive advantage.
The reason that capability is of interest is the business outcomes that delivery enables. Thus you achieve capability when you have captured the benefit. You will have your own motivation. Recent conversations in services have emphasised the time to deliver service requests; reducing time to deliver change from months to minutes and stand up new services; high levels of availability and radically reduced maintenance costs. The clock-speed of digital businesses is orders of magnitude faster than that of the Industrial Revolution with ranks of quill-bearing scribes. Bob Cratchit and his ledger would still find many aspects of today’s businesses familiar. He never had to compete on time; you probably do.
Capability in Action
I have recently completed a study tour of India, visiting suppliers and exploring their capabilities, strategy and operation. In general, the insight was impressive. They have moved far beyond the original offshoring capability that brought the advantages of labour arbitrage. The suppliers seen take on those who rely on arbitrage alone, out-competing them based on their capabilities in service delivery. For a service provider, building a capability is an effort spanning many years. It requires vision and analysis to define the highest priority capabilities to establish and maintain market strength; recruit or train to build skills; identify and build supplier-alliances; deliver process and tooling; win their first customers and run the operations long enough to settle performance to the level required to permit reference.
Changing Competitive Demands
Customers are reforming previously long-running service contracts. These have required the identification, design and delivery of new capabilities. The changes in operating model have placed considerable demands on defining what is necessary for the future and deliver it in on a schedule consistent with supplier contract change and their business’s demands.
It is not necessary or possible to make a step-change in capability. First analyse the service demands to establish what the new operating model requires. Second, ensure that minimum necessary levels are achieved at each stage as capability is developed. Building capability has involved the transfer of people; shifting the boundaries of the organisation; letting new contracts; constructing new retained organisations to meet the demands of the Target Operating Model; building internal skills in architecture, commercial, project, financial and service management. The catch is that for a capability to be effective, all the requisite elements must be present and perform, omission of one or more can have significant effects on overall performance and benefit capture.
You can use structured methods that support your developing capability. One useful approach is Business Transformation, a framework that is likely to be supported by many others such as systems analysis, change management, operating model and process, appropriate to individual circumstances.
Assessment
Marketing departments have long blurred the distinction between that which is established and that which is aspirational. We all do it; look to your own LinkedIn profile or CV. So, when assessing a supplier it is important to know the level of maturity that they have attained, this being an indicator of the risk that the customer faces in achieving the outcomes expected.
Bull
Some suppliers have highly polished presentation suites. A smooth performance impresses and entertains its audience, showing attention to detail. Those visiting vendors for assessment seek clarity on the distinction between the real and the imaginary. If a gizmo is presented that is seductive but immature and lacking business impact, call it out as such and move rapidly on. It can still be engaging. There is always an element of entertainment in presentation. It helps to build an impression of pace, empathy and excitement. The vacuous gloss should not affect scoring in appraisal.
Qualitative Assessment
A stereotypical marketer is inclined to inflate, whereas an engineer is often excessively modest. I have recently seen tools that have stunning implications for the business value they capture. When evaluating a claim, I deploy an unstructured series of probes that seek to establish:
- Is this of value to the business?
- Is it distinctive or a necessary me-too?
- Is what is being demonstrated really in valuable use?
- If yes:
- How many?
- How broadly?
- Will the users provide reference to validate the claims?
- How complete is the development of the capability?
- What outcomes have been delivered to date?
- Is it relevant and valuable to my client?
- If no:
- How far off is it?
- How risky is it?
- If yes:
Inventive companies are continually pushing the boundaries and have many initiatives that may be unproven. Many of their experiments fail but leave residual lessons and thus contribute to the development of capability, if only in showing that this approach does not work. Thus pharmaceutical companies know they have to try many potential formulations before launching a killer drug on the market. They have to keep trying. The only crime in this field is to pretend that something insubstantial is profound. Such a mountebank deserves all they get.
Supplier Visits
Visitors must prepare for Supplier visits carefully. A well-developed score sheet reflects the range of risks and aspirations important to the business. The visiting group needs diversity of perspective. They bring sufficient experience that gets to the root of what is valuable and challenge from dissenting voices. Ultimately all must agree on the marks allocated and their weighting, justified by reference to the business drivers, outcomes sought and risks. An element of scepticism is healthy in seeking the evidence that will substantiate opinion. A well-informed advisor can help you with the process and logistics, prompting you through questions designed to substantiate opinion with fact.
Convergence of Suppliers
The impact of capability development is greatest where several converge in the delivery of coherent advantage. This is difficult for a competitor to imitate. Some elements may be apparent, many details and interactions will not, taking time and cost to replicate. This is the source of sustainable competitive advantage. One of the suppliers visited credibly claimed an 18-month lead over its competitors in an area demonstrated. There are very few services that are entirely unique; competences and combinations can still be distinctive and valuable.
Emerging Capabilities
Some of the elements that have attracted my attention recently are:
1. Within cloud services – First is the ability to rise above legacy ITIL service management to focus on the few strategic processes (cross-supplier problem, availability). Second the use of monitoring and analytics to identify patterns of failure and productivity to feed into Problem Management. Lean and Six Sigma for process improvement; robot agents to deploy fixes before users are impacted by incidents and to deliver radical productivity improvements (servers / staff member); brokerage services to guide users rapidly through the specification of packaged offerings from a variety of suppliers.
2. Within BPO – process analytics; Lean and Six Sigma; innovation and idea generation; robotic process automation; higher-order processing / cognitive understanding and automation; cross-channel systems integration for coherent customer service. It takes considerable time to nurture a level of maturity of performance for some of these.
Elements have been around for years (e.g. scripts to process backups and tools to manage storage), but there are genuine advances beyond the invention of sexy new terms such as “RPA”. Some of the principal moves for me are the adoption of open-source, API and service-based packaging. These avoid the egocentricity of many of the older tools and promote ease of plug-in and un-plug as tools come and go.
Scale
A recent social-media discussion initiated by a playful correspondent proposed that a small-scale shared service operation can viably do anything that a large offshore provider can. In the sense that there is little unique in the world, this is a theoretical possibility.
DrJohnson spoke of a dog walking on its hind-legs “It is not done well; but you are surprised to find it done at all.” A comparatively small unit can replicate the actions of a large one in a single aspect such as off-shoring. Such a unit however lacks the scale of skill, investment, technical capacity and application to build broad and deep capability that matches market leaders. Suppliers differ markedly in their level of maturity. To achieve minimal delivery is within the capability of many, including small shared service operations. To maintain leadership and build multiple connected capabilities sufficient to establish market-leading performance is open to only the smartest and the most generously resourced.
Maturity
Buying in a few RPA licenses may be a useful enabler towards building a capability, but is only one of many necessary. Capability normally rises with time, practice and ironing-out the wrinkles. Do not expect instantly to reach world-class performance, you have to work at it. CMMI for Services is a useful measure of maturity. Most managers will be more concerned by the answer to “Have we banked the benefit expected yet?”
An Inuit in the arctic wastes hones hunting skills to survive. In a stable society, parents pass skills to children. Tools and methods change little over the millennia. In times of discontinuity, old methods hold us back. We must develop the new, and quickly.
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A version of this article was first published in Outsource Magazine and is published with permission.