The concept of "capability" has long been used in strategic analysis to establish defensible leadership. What are the capabilities that are being established by leading service providers and customers? 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 multisourcing for customers. The importance of recognising a discontinuity is that it is not effectively addressed by doing more of the same; peddling faster. The most energetic of cyclists will always be beaten by a Formula 1 driver.
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). It may be seen as the intersection of capacity and ability. Building capability 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. You have achieved 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 most impressive. They have moved far beyond the original offshoring capability that brought the advantages of labour arbitrage. They enthusiastically take on those who rely on arbitrage alone, knowing such a competition to be associated with easy wins. 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. Customers too 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 to define 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. It is important to identify what the new operating model requires and to ensure that minimum necessary levels are achieved at each stage of developing the capability. 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. There are structured methods that can be turned to for the delivery of capability. My favourite 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. When commending a supplier to a customer it is important to know the level of maturity that has been demonstrated, this being an indicator of the risk that the customer faces in achieving the outcomes expected. Some suppliers have highly polished presentation suites. A smooth performance impresses and entertains its audience, showing attention to detail. For those accompanying prospective customers on vendor assessment visits, what is sought is 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 supplier appraisal. Whereas the stereotypical marketer is inclined to inflate, the engineer is often excessively modest. I have recently been shown tools that have stunning implications for the business value they allow to be captured, with barely an inflection. When being presented with a claim, I deploy an unstructured series of probes that seek to establish: 1. Is this of value to the business? 2. Is it distinctive or a necessary me-too? 3. Is what is being demonstrated currently deployed to other clients? a. If yes: i. How many? ii. How broadly? iii. Is it referenceable? iv. How complete is the development of the capability? v. What outcomes have been delivered to date? vi. Is it relevant and valuable to my client? b. If no: i. How far off is it? ii. How risky is it? Inventive companies are continually pushing the boundaries and have many initiatives that may be unproven. Many experiments fail but leave residual lessons and thus contribute to the development of capability, if only in showing that this approach does not work. 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 must be carefully prepared for. A well-developed score sheet reflects the range of risks and aspirations important to the business. The composition of the visiting group needs diversity of perspective, sufficient experience to avoid being bamboozled and respect such that dissenting voices are given fair hearing. 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 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. Some of the elements that have attracted my attention recently are:
- Within cloud services - ability to rise above legacy ITIL service management to focus on the few strategic processes (cross-supplier problem, availability); monitoring; 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.
- 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. Some of the skills and areas of development that these draw upon take considerable time to nurture through to referenceable maturity.
Some of the 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 is the move to 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. Boswell quoted Johnson on a dog's walking on its hind-legs "It is not done well; but you are surprised to find it done at all." A 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. There are marked differences in the maturity of suppliers. 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. One should not expect instantly to reach world-class performance, these things have to be strived for. The degree of maturity reached may be externally assessed through such tools as CMMI for Services. 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, skills are passed from parent to child, tools and methods changing little over the millennia. In times of discontinuity, old methods hold us back. The new must be developed, and quickly.