My interactions with CIOs of all type of organizations have one thing in common- their struggle with articulating the high level strategic capabilities driven by IT. The discourse around IT remains restricted to operational aspects (like efficiency) and does not adequately talk about the strategic aspects (business capabilities). Though many intuitively feel and say IT is strategic but they find it difficult to clearly define what the strategic aspect is?
The impact of IT can be felt at the level of a process or a group of processes or at the organizational levels. This impact can be operational as in terms of making them more efficient (e.g. cost saving or faster turnaround). The impact can also be felt in terms of strategic terms by supporting or creating business capabilities to compete.
I personally believe, this articulation is extremely important if IT has to provide better value and CIOs desire to play a bigger role. Through this blog, I would like to define what a capability is and how CIO can articulate the issue with confidence.
What is a Capability?
In bookish terms, capability is defined as the ability or capacity of an organization to identify, create, integrate, and leverage organizational resources towards meeting organizational objectives. In practical terms, capability is a cohesive mix of people (knowledge, skills, attitude, motivation), processes (the sequence of related activities, tangible or intangible), organizational know how (the technology, SOPs, experience) and resources (physical, financial, human and social). It’s unique to an organization i.e. it cannot be easily imitated by the competitors and it provides unique value to the customers. If competitors can do it or customers do not need it, it cannot be termed as a capability.
Capabilities are information-based, tangible or intangible processes that are firm specific and are developed over time through complex interactions among the firm's resources. They can abstractly be thought of as 'intermediate goods' generated by the firm to provide enhanced productivity of its resources, as well as strategic flexibility and protection for its final product or service. Capabilities are based on developing, carrying, and exchanging information through the firm's human capital. Capabilities can also be termed as 'invisible assets.'
It is often not easy to understand, define and explain a capability as it exists underneath an organizational working. It is not easy to verbalize what capabilities an organization possesses, but it may be a good exercise to attempt to do so. Understanding business capabilities would require one to look deep into the organizational ways of working and what is unique about the organization from a competitive perspective. Some of the organizational ways of working become natural to the participants and hence would require appropriate level of reflections to see them.
Business capabilities have the following three characteristics:
1. They are complex configurations of people, process, practices, purpose and IT
2. They are in comparison with what the competitors can do (or can not do) and
3. They always are targeted at meeting customers' needs (directly or indirectly)
Capabilities can reside in functions, departments or specific areas of a business or they may be at the overall organizational level.
A few examples of capability may include the following-
1. Ability to create organization change in response to the external changes
2. Ability to build new businesses/ handle merger and acquisitions
3. Ability to expand the market through effective and efficient channel development
4. Ability to contain cost and be able to compete on price
5. Ability to identify, groom and create business leaders
6. Ability to assemble teams as per the project demands
How IT can create capability?
Two broad ways in which IT can help create capabilities.
One, it can accelerate the capability creation process for those capabilities, which the organization is trying to build. Example- an organization was struggling to create an effective supply chain solution. Their bulk of business moves through 80+ distributors and enabling them would certainly help them do more and hence the company to grow. IT provided the solution by extending their company ERP to the suppliers, who now can manage their businesses better in terms of inventory, ordering, financial reconciliation and payments. The IT drive (which went through the usual initial resistance) helped them focus more on the business to drive business growth. In this example, the IT competencies were suitably leveraged to create the capabilities business wanted. A fully integrated supply chain, much ahead of other competitors provides the company the capability to manage costs, charge a premium as well as enhance their market share.
Two, it can become the originator of new capabilities. In this type, the business is not consciously working towards creating the capability but IT acts as the catalyst. Example- a news agency was working with legacy IT infrastructure to disseminate news to its subscribers. With the need to upgrade the IT infrastructure coming from the ability of the agency to service its customers, the new CIO transformed the IT infrastructure from legacy to IP based. The speed and accuracy, which were the desired objectives, were met by the new IT infrastructure. However, the new IT infrastructure created more than that. It broke the organizational silos between multiple agent (who collects the news) and editorial (who edits and feed to the customer) teams, thus bringing a culture of collaboration. Probably the need was latent, but no one knew how to address it. The new capabilities of the IT infrastructure helped the organization create a new organizational capability, that of increased collaboration between the teams and the ability to create objective news. This helped the organization create newer products and services for their customers, without investing huge amounts and hence making productive use of their existing resources.
So, what capabilities are you creating or supporting as a CIO?
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