What is a capability?
A capability is a combination of processes, systems and tools, skills, knowledge and behaviors, and organizational structures that allows a company to deliver a defined outcome. Focusing on a few important capabilities is what enables companies to connect their strategy (how they differentiate themselves) with their execution (what they do every day), creating real and lasting value for customers.
How does Capabilities-Driven Strategy + Growth work?
If you've done traditional strategic planning and wondered why strategies fail, consider this: Conventional business strategy approaches lead companies to spend the majority of their energy and resources on studying the market instead of looking internally.
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.
At Strategy&, we believe that long-term success starts with focusing on what your company does best. We help our clients develop their three to six distinctive capabilities until they’re best-in-class and reinforce one another in a powerful system Then we align what our clients do well with the right marketplace opportunities. This creates a powerful growth engine — the kind that yields sustainable growth for years to come.
What are the top-five benefits of a capabilities-driven approach?
A capabilities-driven approach to strategy allows companies to become coherent, which leads to:
- Effectiveness. 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. Companies achieve scale by applying their distinctive capabilities throughout the entire company.
- Focused investment. Companies spend on the areas that matter to their business, concentrating on what drives advantage.
- Aligned organization. People throughout the organization have a powerful decision framework, which creates alignment.
- Better talent. Companies can find, motivate, and retain the best talent in the areas they and their people care about most.
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Why are coherent companies more successful in executing their strategy?
Coherent companies can more easily close the strategy-to-execution gap because they are clearly focused on the few capabilities that set them apart from their competitors. In developing and enhancing those few differentiated strengths, coherent companies make sure that people’s everyday actions are in line with the strategy. Capabilities really are the link between firm strategy and execution
How do you determine which capabilities to focus on?
We start by identifying a company’s current capabilities. In other words, what are your greatest strengths today? What are you already great at? Next, we assess the market to understand which supercompetitors are likely to emerge:
- Which value propositions (such as low cost play or experience provider play) are going to win in the future?
- Which capabilities are required to win with each of those value propositions?
Then we determine how big the gap is between a company’s current capabilities and those supercompetitors. This allows a company to choose the supercompetitor they strive to become – and with it, the set of capabilities that they will need to excel at.
How can you measure the financial benefit of becoming coherent?
We’ve measured the financial benefit resulting from coherence in many different ways.
- We’ve determined the coherence of major players in a given industry, and mapped that against these players’ profitability. In every industry where we’ve performed this analysis, we’ve 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 the industry average and 2.5 times as likely as incoherent companies to be more profitable than the industry average.
- We’ve found that mergers and acquisitions with capabilities fit tend to perform better. Our analysis of deals showed that during the two years after closing, those that enhanced or leveraged capabilities generated significantly higher total shareholder returns than those with a limited capabilities fit. Overall, capabilities-driven deals were 14.2 percentage points better than others.
Why should I choose Strategy& to help me develop my company’s business strategy?
Simply said, we provide our clients with business strategies that work. We leverage what your company is great at and have the scope, scale, and expertise to build out the capabilities your company needs globally. Having helped our clients develop and execute capabilities-driven strategies for many years has allowed us to develop a set of powerful tools that enable us to determine the right strategy for you, in an efficient and effective way.
We are clearly recognized as the strategists who invented Capabilities-Driven Strategy + Growth. We have been practicing and researching this methodology for many years and have published our findings in dozens of top-tier publications including Harvard Business Review and the Wall Street Journal.
In terms of scope, scale, and expertise, we are uniquely positioned to develop a winning strategy for your company. We bring more than 100 years of strategy consulting experience, plus the unrivaled industry and functional capabilities of the PwC network. We are a global team of practical strategists committed to helping 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.
Learn more about how we can help or contact us today!