Organizational Capability

An organizational capability is a company's ability to manage resources, such as employees, effectively to gain an advantage over competitors. The company's organizational capabilities must focus on the business's ability to meet customer demand. In addition, organizational capabilities must be unique to the organization to prevent replication by competitors. Organizational capabilities are anything a company does well that improves business and differentiates the business in the market. Developing and cultivating organizational capabilities can help small business owners gain an advantage in a competitive environment by focusing on the areas where they excel.[1]

Organizational capability is an important aspect of any business, as it serves to indicate the strengths of the organization and its ability to execute its chosen business strategy. Organizations must assess their capabilities in order to gain insight into their competitive advantage, enabling them to remain competitive and successful in a changing market. This assessment consists of evaluating strategic capabilities, which involve a combination of people, organization, and technology. Through effective capability management and coordination across all business verticals, organizations can ensure that they are able to effectively carry out any planned strategies for success. Assessing organizational capability allows an organization to measure current performance against its goals and objectives – necessary for overall improvement – while also providing valuable data on which areas require more focus or resources in order for an organization's success to continue.

What are the steps to assess and build organizational capabilities?

Step 1: Determine which part of the business to audit

It is important for leaders to determine which part of the business to audit when assessing organizational capabilities because it allows them to assess the organization's staffing, training, and compensation levels as well as its communication and organizational skills. Through this assessment process, leaders can identify any gaps or weaknesses in these capabilities and devise a plan for improvement. This can help ensure that the company's strategic objectives are met through improved capabilities.

Step 2: Create the content of the audit

The purpose of Step 2 in the organizational capability assessment process is to create a tailor-made audit template to get the most accurate information possible about the 11 generic capabilities outlined in the reference.

Step 3: Define and list your organizational capabilities

It is important to assess and build organizational capabilities in order to execute a strategic plan, ensure that resources are used effectively, create outputs from resources, and achieve the organization's goals. Assessing and building organizational capabilities allows for an organization to better understand customer needs and preferences which can lead to increased sales. Additionally, it helps improve the efficiency of an organization by identifying where its capabilities stand with regard to the required resources and processes.

Step 4: Conduct an organizational capabilities assessment

It is important to assess organizational capabilities in order to ensure that an organization is able to fulfill its goals and objectives. Assessment of organizational capabilities allows for an understanding of the resources and processes needed to achieve a specific goal, as well as identify where the organization falls short in terms of innovation, digital, or financial management capabilities. Additionally, assessment methods such as interviews or surveys can help the project team and stakeholders better understand the goals and context of a particular project. With this information at hand, decisions can be made that will ultimately benefit the organization.

Step 5: Gather data from multiple groups on current and desired capabilities

It is important to gather data from multiple groups when assessing organizational capabilities in order to gain a more comprehensive and holistic understanding of an organization's capabilities. Gathering data from different groups allows for an in-depth view of the strengths and weaknesses of the organization, as well as a clear understanding of which goals are strategic and which can be left for later. This helps ensure that everyone is talking about the same things and that resources, processes, and structures are aligned with a strategic intent or goal.

Step 6: Understand the capability gap

It is important to understand the capability gap in order to identify what capabilities are needed and develop a plan of action to fill those gaps. Knowing the gap provides organizations with an understanding of where their resources should be focused, what processes need to be in place and how they will help achieve project goals. Additionally, understanding the capability gap can give organizations a competitive edge by allowing them to exploit any weaknesses competitors may have overlooked.

Step 7: Engage leadership

It is important to engage leadership in the process of assessing and building organizational capabilities because it is essential for leaders to understand the process and what their role will be in order to ensure long-term success. A candid evaluation of current strengths and weaknesses must be conducted at the outset of this journey so that achievable goals can be set and steps were taken toward achieving them.

Step 8: Prioritize and create an action plan

It is important to prioritize and create an action plan when assessing and building organizational capabilities because it allows for the appropriate resources to be allocated and a timeline to be met. An action plan also helps coordinate education or training activities, set performance standards, and develop task forces or other organizational units. Having an organized, well-defined approach ensures that any efforts made in assessing and building organizational capabilities are done efficiently, effectively, and with a clear goal in mind.

Step 9: Synthesize the data to identify the most critical capabilities

It is important to synthesize data when assessing organizational capabilities in order to get a comprehensive view of the organization. By having a comprehensive assessment of an organization's capabilities from across different departments, areas, and functions, leaders are better able to identify which specific capabilities are most important and relatively easy to improve. Synthesizing data also helps prevent skills shortages from developing by helping organizations build up their talent capability.

Step 10: Put together an action plan with clear steps to take

Creating an action plan with clear steps to take in order to assess and build organizational capabilities is significant because it provides a roadmap for leaders and managers to use in order to foster the desired organizational capabilities. The action plan serves as a guiding document that outlines specific goals, deadlines, and responsibilities that must be adhered to if the organization is going to achieve its desired objectives. It also allows HR professionals and managers alike to collaborate more effectively on activating the strategy necessary for successful capability development. By having an actionable plan in place, organizations can move forward with confidence knowing they have taken the necessary steps toward achieving their goal of building organizational capabilities.

Step 11: Assign a team to the job of delivering on the critical capabilities

It is important to have a dedicated team to work on organizational capabilities in order to ensure that the team is more efficient and effective, and can focus on its strengths while avoiding overlapping with other teams. This allows for better delivery performance and an improved ability to execute the corporate strategy. Additionally, such a team can help rank each capability by how important it is and how difficult it will be to implement, as well as identify critical capabilities in order to improve project management at different levels.

Step 12: Track progress and follow up

It is important to track progress and follow up when assessing and building organizational capabilities in order to ensure that goals are being met, milestones are achieved, and that the importance of organizational capabilities is maintained amongst employees. Following up on the process also allows for quick corrections of errors or areas where improvement may be needed. This helps to ensure that businesses can achieve their goals successfully.

What are some examples of organizational capabilities?

1. Strategic planning

Strategic planning is a process that helps organizations identify and evaluate their unique capabilities. It involves selecting the right projects and developing a strategic plan to achieve organizational goals. Through this process, companies can assess their strengths and weaknesses, allowing them to improve their performance. Strategic planning also helps organizations anticipate and respond to changes in the market as well as customer needs, while planning for growth, adapting to changing technology, and maintaining a competitive edge.

2. Leadership

Leadership is an important component of organizational capabilities, as strong leaders can help to guide and shape their organizations. Leaders need to be involved in developing organizational capabilities in order for the organization to achieve its goals. Leaders must understand both the current state of the organization and where it needs to go, and then work with stakeholders to create a strategy that will lead them there. This strategy should consider how existing resources can be used effectively, how new resources can be acquired or developed, and how people within the organization should work together towards common objectives. Furthermore, leaders need to recognize that transformation efforts may require significant effort and resources, so they must plan for these early on in order for these efforts to be successful.

3. Financial management

Financial management is an important organizational capability as it enables organizations to effectively track and manage their costs. This is essential for businesses to grow and become more successful, both in the short term and long term. Financial management involves monitoring financial statements, assessing budgets, understanding cash flows, identifying opportunities for cost reduction, and managing investments. When used strategically, financial management can be a powerful tool in helping organizations reach their goals.

4. Human resource management

Human resource management (HRM) is a critical organizational capability that has a significant impact on the performance of firms. HRM systems are designed to ensure that the human resources of an organization are managed effectively and efficiently, as they play a key role in connecting firm strategy with performance. A well-designed HRM system is essential for organizations to operate successfully, as it ensures employee satisfaction and motivation, and aids in influencing group behavior. Thus, understanding the strengths and weaknesses of different HRM systems is crucial for assessing organizational capabilities and building strategic work.

5. Market analysis

Market analysis is an important organizational capability, as it provides insights into customers' needs and wants. By using market analysis, organizations can understand their current and potential customers, helping them to make better-informed decisions about which products to develop and sell. Market analysis also helps organizations identify weaknesses in their capabilities that are strategically important so that they can develop plans for strengthening necessary capabilities. This knowledge of the market enables organizations to effectively focus on service and profitability over strategic unity in order to target diverse customers with successful results.

6. Operational efficiency

Operational efficiency is defined as an organization's ability to use resources efficiently and produce desired results. It contributes to organizational capabilities by allowing the organization to deliver its services in a reliable and effective manner, resulting in the faster and more efficient delivery of services. A company's operational efficiency can be a competitive advantage, as it enables them to operate effectively in specific markets while meeting stakeholder requirements.

7. Product development

Product development is an important organizational capability because it allows a company to increase its efficiency and productivity, meet growth aspirations and external directives, as well as deliver projects in a timely manner. This ultimately leads to greater success for the organization by increasing execution capability. As such, product development is an essential part of any successful organization.

8. Customer service

Customer service is an important aspect of organizational capabilities, as it contributes to the building and maintaining of positive customer relationships. Customer service involves providing a high-quality experience for customers that includes a timely response to queries, resolving problems quickly, and proactively addressing customer needs. When organizations are able to provide excellent customer services, they are better able to create trust with their customers, which in turn leads to increased sales and profits. By regularly assessing their customer service performance with feedback from both employees and customers alike, organizations can ensure that they remain aligned with their target market's expectations.

9. Technology utilization

The relationship between technology and organizational capabilities is an important one. Technology can help organizations improve their performance by allowing them to make changes rapidly and effectively, which increases speed. Additionally, technology can provide an organization with insights into how it is performing through the use of ROTI indices. By leveraging technological advances in this manner, organizations can enhance their organizational capabilities significantly.

10. Process improvement

Process improvement is an important strategy for organizations to increase efficiency and improve their ability to quickly respond to changing market conditions. It involves streamlining processes in order to reduce the time required for activities and maximize the value created by them. Leaders should use data-driven methods, such as ROTI indexing, in order to measure the time used and value created by different activities, so they can identify areas of improvement that will have a positive impact on organizational capabilities. By assessing and improving their processes, organizations can become more agile and better equipped to take advantage of opportunities as they arise.

See Also


  1. What is Organizational Capability? Chron