How is Capabilities-Driven Strategy + Growth different from traditional business strategy?
Traditional business strategy approaches are often purely market-back, leading companies to spend too much energy and resources on studying the market and way too little on understanding what they are great at and what will give them a right to win.
Capabilities-Driven Strategy + Growth, on the other hand, by combining a market-back and capabilities-forward view, allows companies to identify attractive market opportunities that give them a "right to win" based on who they are and what they are great at doing. Our unique approach to strategy takes companies through a process where they turn traditional strategy on its head: They look inside first and figure out what they do best. They then develop those three to six capabilities until they’re best-in-class and reinforce one another in a powerful system. They align what they do well with the right marketplace opportunities. This creates a powerful growth engine — the kind that yields sustainable growth for years to come.
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What are the benefits of applying a capabilities-driven approach?
A capabilities-driven approach to strategy allows companies to become coherent — to have a powerful system of capabilities that enables their unique value proposition and supports all of their products and services.
The market rewards companies that follow a capabilities-driven approach with superior returns: coherent companies are 3 times as likely to grow faster than industry average and 2.5 times as likely to be more profitable than industry average companies as incoherent companies.
This is because coherence leads to:
- Effectiveness – coherence helps companies become better at the things that truly matter for the business by focusing on what is most important day in and day out
- Efficiency – Coherence helps companies achieve scale by applying their distinctive capabilities throughout the entire company
- Focused investment – Coherence helps companies focus investment into the areas that really matter to their business, concentrating on what drives advantage
- Aligned organization – Coherence gives a powerful decision framework to people throughout the organization and thereby creates alignment
- Better talent – Coherence makes it easier to find, motivate, and retain the best talent in the areas the company — and those people — care about most
Why are coherent companies more successful in executing their strategy?
Coherent companies are very clear about the few capabilities that set them apart from their competitors and build their strategy on those strengths. Since their strategies play off their strengths they are inherently executable. In addition, by engaging everyone in the company in developing and enhancing those few distinctive capabilities, coherent companies make sure that people’s everyday actions are in line with the strategy. Capabilities really are the link between strategy and execution.
How should a company determine which capabilities to focus on?
In order to determine which capabilities to focus on, companies should start by identifying the capabilities that they are already great at today.
Then they should assess the market to understand which “supercompetitors” are likely to emerge:
- Which value propositions are going to win in the future (e.g. value play, experience provide play, etc.)?
- Which capabilities are required to win with each of those value propositions?
Then they should determine how big the gap is between their current capabilities and what’s required of each of those supercompetitors. This will allow them to choose the supercompetitor they strive to become – and with it, the set of capabilities that they will need to excel at.
Can one actually measure the financial benefit of becoming coherent?
We’ve measured the financial benefit resulting from coherence in many different ways.
- We have determined the coherence of major players in a given industry, and mapped that against these players’ profitability. In every industry we’ve performed this analysis, we found that coherent companies perform better than their less coherent competitors.
- Our surveys with senior executives have revealed that coherent companies are 3 times as likely to grow faster than industry average and 2.5 times as likely to be more profitable than industry average companies as incoherent companies.
- We’ve found that mergers and acquisitions with capabilities fit tend to perform better. We analyzed deals made between 2001 and 2012 and found that, during the two years after closing, those that enhanced or leveraged capabilities generated significantly higher total shareholder returns than those with limited capabilities fit. By contrast, deals with a limited capabilities fit lost value. Overall, limited-fit deals averaged return of 14.2 percentage points CAGR (compound annual growth rate) less than the others.
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Why should I choose Strategy& to help me develop my company’s business strategy?
We develop strategies that work because we leverage what your company is great at and have the scope, scale, and expertise to build out the capabilities your company needs globally. Helping our clients develop and execute capabilities-driven strategies for many years has allowed us to develop a set of powerful tools (e.g., the coherence profiler, capabilities assessment tool, way to play tool, etc.) that enable us to support you in determining the right strategy for you, in an efficient and effective way.
Clearly recognized as strategists who have invented Capabilities-Driven Strategy, we have been practicing and researching this methodology for many years and have published those ideas in dozens of top tier publications from the Harvard Business Review to the Wall Street Journal.
We are uniquely positioned to develop a winning strategy for your company because we bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. We are a global team of practical strategists committed to help your company seize essential advantage and build the capabilities required to succeed. We do it by working alongside you to solve your toughest problems and help you capture your greatest opportunities.