Gaining Strategic and Organizational Capability - Example

Change Management In a rapidly expanding world change is ubiquitous and inevitable. Businesses of today face major dilemma in managing strategic change initiatives effectively and efficiently in order to bring prosperity and survival to the organisations (Graetz, Rimmer, Lawrence & Smith, 2011). Ulrich (1997) has remarked that one of the core differences between the successful and failed organisations is the dynamic capability with which they approach change. In reference to change, Barrett et al (1995) has suggested that it being “dynamic and recursive” is primarily based on a three stage model which is “linear and static” in nature. That means in order to ride the dynamic capability bandwagon, organisations need to monitor their external environments, and scan, adapt and anticipate the change in a continual manner (Marquardt 1996). Challenges of the change, thus, will have to be handled together and on a continual basis by the organisations (Brown & Harvey 2006). It is all about strategy and secret of achievements of this strategy is largely dependent on developing dynamic capabilities, which have great impact on all facets of the organisation. The hallmarks of dynamic capabilities include good coordination, clear communication between teams and groups, and strong leadership, which, at the helm, can steer the desired change meant to achieve the envisioned strategy. Recently some promising theories have emerged with respect to achieving strategy, and one of them is known as resource-based view of an organisation, which is based on a more systemic and dynamic approach keeping in view organisation’s capabilities and resources and capabilities, as against earlier-used product-market positions (Wernerfelt, 1984). This approach creates performance differences across different organisations due to the fact that dynamics is hard to imitate and cannot be easily substituted (Hamel & Prahalad, 1994). Hamel and Prahalad have further suggested that in order to achieve fulfilment of strategy, organisations do not have competition of new products on mind, but the capability to develop ones. Based on the dynamic capability concept, management literature is replete with what is known as “innovation capability” construct, which is made up of seven elements. These are harnessing the competence base, vision and strategy, creativity and idea management, organisational intelligence, culture and climate, organisational structures and systems, and management of technology. According to Teece & Pisano (1994) dynamic capabilities theory is a subset of the capabilities/competences based on which organisations create new processes and products keeping in view the changing trends prevalent in the market and circumstances determined on account of the same. This leads competitive advantage build on processes that are distinct; mostly defined by the organisation’s evolutionary paths that it follows and asset positions that it has. Dynamic capabilities are a precursor to management capabilities driven by the organisation’s combinations that are inimitable and resources cutting across all functional domains of the organisation including product and process development, research and development, organisational learning, manufacturing, and human resources. While the basic intention of developing dynamic capabilities is to achieve desirable results on the strategy, more often than not organisational innovation is overlooked in the act, but the fact remains that it is very much vital to the organisation for many important reasons. For example, it has been seen in the current global business scenario that companies that have harnessed the power of innovation have been able to use dynamic capability to best suit their needs for growth through various strategies used. Furthermore capabilities can be distinguished on the basis underlying knowledge on which they rest (Verona, 1999). To cite an example organisations are helped to develop their technical knowledge through use of functional capabilities (Amit & Schoemaker, 1993; Pisano, 1997; Prahalad & Hamel, 1990). If the organisation uses integrative capabilities, it gets capable of absorbing knowledge from sources that are external to the organisation and enable it to blend the same knowledge with technical competencies from different in-house departments (Cohen & Levinthal, 1990; Grant, 1996). Organisations able to manage and mould multiple capabilities do so mostly on their ability to grasp, assimilate and use innovation capability. Fuchs, Mifflin, Miller & Whitney (2000) were further able to elaborate higher-order integration capabilities, and organisations intelligent enough to use the same are able to stimulate strategy, and reap benefits from it, in the best possible manner. When dynamic capabilities are explained with respect to strategy, comparison is often set between “zero-level” capabilities and higher-order capabilities; while the former means enabling the organisation to make ‘just a living’ the latter drive the organisation to create, modify or extend capabilities that, if left untouched and untapped, could be as inert a anything. Starting from zero-level capabilities, it becomes easy to develop a ‘capability hierarchy’ in the organisation (Collis 1994). However, it has often been held that in order for capabilities to have a strategic substance, the organisation has to mandatorily follow certain specific patterns of activity in all spheres of the organisation, and more importantly in use of innovation and new product development. Changes that are accomplished by organisations without use of dynamic capabilities are often “ad hoc” attempts are solving problems. It more so happens when organisations do not have resources or intellect to invest in higher-order capabilities. Strategic competitively, in the process, is lost. All said, even though differing opinions have been generated so far against the power of dynamic capabilities leading towards strategic goal achievement, their effectiveness in helping organisations realise strategic goals cannot be completely ruled out. While Teece, Pisano and Shuen (1997) suggest that dynamic capabilities are “born not made” and thus cannot be “developed” by managerial efforts, a host of other scholars strongly advocate their existence and strategic substance. and that 'dynamics' itself indicates 'change'. Since change contrasts ordinariness, scholars are of the opinion that dynamics lends that infiniteness to an organisation that any ordinary operational capability cannot. An interesting observation about dynamic capability, however, as emanating from several management scholars is that change can occur even without the involvement of any dynamic capability. Arguments have been given that change is a ‘force majeure’ process that is often determined by environmental factors; both external and internal to the organisation. Though, when such a change occurs, it cannot be predicted whether it would be good or bad. The best example, so far, of dynamic capability driving strategic action can be given that of IBM that, not long ago, was struggling to sell hardware. More than a decade-and-a-half later the company has become one of the most powerful global service providers. Just two decades before, in 1990s, IBM was almost written off by the Wall Street analysts following its lowest stock price that occurred in 1983. The company lost more than 60,000 jobs by 1992 and despite all effort to revive the company, it was failing. The use of dynamic capability was employed with Lou Gerstner who joined the company in 1993 and nearly a decade later in 2001, the company revenues had soared again. The company, with its new CEO, sensed the changes in the market, recognised the opportunities, and reoriented its existing resources – all this could be termed a strategic part of the dynamic capability that it employed. IBM's was the finest example of how dynamic capability could be made real and how it could help a company plummeting in stock gain the footrest again to the top. IBM's was unparalleled lesson on mixing theory with practice to develop new ideas, which form the founding stones for dynamic capability (Tushman, et al, 2006). Clearly dynamic capabilities have taken a centre stage in as far as evolution of strategic thinking is concerned. Today dynamic capability is being as much talked about as are Michael Porters five forces. More recently dynamic capabilities are being considered as core competencies in management that help organisations meet environments that are rapidly changing (Eisenhardt & Martin, 2000). Companies that do not meet these changes have been seeing failing; few examples being DEC, Pan Am, Sears or RCA. It must be noted that these companies failed even though they had ample resources to succeed; they failed simply because they could not deal with the change. Dynamic capabilities have been seen helping companies leverage their assets and competitive advantage such that the same start working in their favour. Dynamic capabilities are not mere capabilities but are indicators that help organisations sense opportunities, and thus use or shift their resources accordingly. To explain this, example of Johnson Controls could be used. The company was making seats for automakers in the US in 1990s with whom they had good business relationships. They recognised the opportunity in the industry that was growing and started investing in design, electronics integration and engineering within the domain they were masters of. Using dynamic capability to sense this opportunity, they had an astounding shareholder return of 400% between 1995-2002. Similarly another example that could be cited is that of Southwest Airline’s whose advantage is supposed to come from factors such as high productivity, fast turnaround, and low costs rather than its fleet of planes, employees, or route structure. Dynamic capabilities lend organisations an arm to sustain their tempo and maintain their profits by reconfiguring their competencies and assets in a market that is competitively changing and ever-evolving strategies. In other words, dynamic capabilities help extend and adapt existing competencies to suit newer challenges and frontiers. To quote Teece (1997): "Winners in the global marketplace have been firms that can demonstrate timely responsiveness and rapid flexible product innovation, coupled with the management capability to effectively coordinate and re-deploy internal and external competencies”. IBM looks at this through its leaders as having strategic execution for strategic insight, both of which complement each other and are interdependent for the long-term success of a company and are based on core competencies. Organisations, according to Javidan (1988) have to realise on their won difference between that are core and that are peripheral. Not only that, they also have to understand the practical aspects of their resources and capabilities. In order to explain this in a comprehensive manner, Javidan has provided a conceptual framework that categorises capabilities, peripheral competencies, resources and core competencies through a continuum ladder; each step of which determines the level of difficulty associated with a specific value. Resources are at the bottom of the ladder, which can be both tangible and intangible, representing building blocks of competencies. These are considered as basic inputs in the value chain system of a company. This is followed by the capability as next step of the ladder which, in other terms, is a means to exploit the components contained in the first step, like plant, location, assets and machinery. Capabilities are followed by competencies, while at the top core competencies rest. The bottom part of the ladder represents low difficulty while the top represents high difficulty. Hamel and Prahalad do not give much credence to whether capability and competencies mean two different things in the ladder, what matters, according to them, is whether each is peripheral or core. The level below provides value and strength to the level above it and organisations working up this ladder are able to utilise knowledge, skills and capabilities provided by each step in the continuum. Javidan argues that organisations having multiple offices at multiple locations are able to use the value a gathered from skill sets developed at each location and the pace with which these offices develop skills determines how quickly and effectively can an organisation use the same to foster its future growth through strategy. Thus, organisational capabilities continuum can be termed as a series of phenomena as a part of a network that is nomological in nature and each phenomenon provides value to the organisation. When knowledge from this continuum is used strategically and in combination with resources available in the organisation and a stimulating competitive environment the value delivered by it is enormous. It is argued that a number of methodological issues can be solved when this continuum is studied, researched and analysed capably relatively to each step. Three aspects can be used to classify value provision as the continuum develops from one step to another. The first one can be termed as a multi-dimensional construct, the second one can be based on the number of values got, and the third one is the distance the values and their characteristics. The value that the continuum delivers is considered as a part of a larger but complex social phenomenon, which is further made up several components like corporate processes, customer value, corporate environment, and core competencies. Also value phenomena can increase or decrease; each being determined by a number of internal and external factors present in the organisation. Stace and Dunphy (2001) commence a dialogue along similar lines, claiming that developing the competencies of people is the key to organisational success in the midst of a changing environment. That means organisational change cannot be treated a standalone entity, it also involves change as perceived, realized or felt at every strata of its functioning. Central to the same are the people working in the organisation who actually are part of and drive the change simultaneously. Prastacos et al (2002) has said that organisational change is a process that never ends since it a series of continuous transformations "as it ought to be in a world where Darwin‟s motto about the responsiveness to change is truer than ever". Since people are part and parcel of each change that occurs in an organisation, the same has to align itself to change such that people, at all levels, feel involved in the process i.e., they must be able to see their personal values in the change as it comes, is recognised or achieved. This needs development of a broader business perspective and correct rationalisation of competence and assets whereby staff involvement in the continuum is such that it leaves no room for cynicism from any quarter. Stace and Dunphy have proposed a model of change capable of accommodating both emergent and planned approaches to change management. In order to accomplish this, they have proposed the 'phase model' that incorporates factors as strategic proactivity, efficiency, organisational sustenance, compliance, non-responsiveness, and rejection. The people part of this phase suggests adoption of strategic perspective with respect to the human potential at the workplace, build friendly skill base and corporate knowledge, give employees priority and delegate them for crucial decision-making, be capable to reshape and renew corporate culture, and make sure that any investment on employees construes a positive outlook for future performance. Given the manner in which businesses are evolving in a globally competitive world, organisations that rethink how they must manage their people are the ones that reap the benefits most out of the act. Paying special attention to people has recently become the hallmark of the companies and a number of global giants pay as much attention to the health and benefits of their employees as they would of the organisation’s wellbeing. Dissatisfied or unhappy employees have been reasons for organisations' downfall. Taking a cue from this companies having good human resource policies realise that customer satisfaction actually comes from employee satisfaction, which i possible only through a motivating work environment. Motivating employees can also sometimes entail using off-track methods like attacking de-motivators, taking risks, accept challenges and make employees core part of the same, find, tap and unleash their limitless energy and potential. According to a Harvard Business Review the premise that satisfied employees make satisfied businesses is based on a simple service profit chain, according to which employee satisfaction is driven by internal organisational quality, loyalty i driven by employee satisfaction, productivity i driven by employee loyalty, value is driven by employee productivity, customer satisfaction i driven by value delivered, customer loyalty is driven by customer satisfaction, and growth and profitability are triggered by customer loyalty. In large organisations managers are expected to play crucial role in achieving this type of change. Some time back a term ‘transformational leadership’ was coined for aggressive, capable managers, who would go to any justified length to bring glory to their organisations and people whom they would work with. Transformational managers have certain inherent characteristics; they could never be passive to a challenge and never step aside where it comes to taking risks, steering growth through people working as teams. The best attribute of such managers is to pas on credit on a job well done to the teams rather than retaining it for themselves. This acts as a great motivator and a strong stimulant to further involve people in the change that is desired. In order to align an organisation on a shared vision, balance score card works as a boon for managers. Considered as more than recording score, the balance score card is a comprehensive system for a manager that manages processes, people, technology and strategy. Robust balance score cards are effective tools that apart from aligning people with their work and organisation, also communicate strategy, explain organisational intent of common interest, and operational and strategic performance measures. When these are used in combination with strategy-based systems, they focus mainly on results and accomplishments; two things working effectively for managers in communicating to their teams goals met, result achieved and aim to be fulfilled. Similarly a management and planning score card uses operational and strategic performance information to evaluate and measure how well the organisation has been doing on financial, operational, customer, and capacity building segments. Although it cannot be denied that some score cards which help managers performance only do not make any value-addition in terms of intelligence to the organisation, but score cards that enumerate or project results to be achieved prove of great substance when managers want to realize their company goals. Many organisations accept balance score card now as an effective and innovative tool in the way it gathers and interprets information. 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