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Dynamic Capabilities

Evolve or Die has never been more true than it is in business today.  It means that to survive, every organization must constantly up-skill its people so they can drive the organizations capabilities up to the next level to stay ahead of the competition.  That’s why the first step is to build a great culture with a  strong organizational health foundation.  The next step is to channel the energy and creativity of those growth minded people into ever improving and expanding organizational capabilities.  Professor Teese calls them Dynamic Capabilities, which are the skills, procedures, organizational structures, and decision rules that firms utilize to create and capture value.

“Dynamic capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long-run business performance… Enterprises with strong dynamic capabilities are intensely entrepreneurial.  They not only adapt to business ecosystems, but also shape them through innovation and through collaboration with other enterprises, entities, and institutions.”

Professor David J. Teece, University of California, Berkeley, CA

Professor Teece goes on to say that managers must be able to sense opportunities, craft a business model to capitalize on them, and reconfigure their organization, and sometimes their industries, as the business environment and technology shift.  He explains that Dynamic Capabilities are not Best Practices, instead they are unique to each company and cannot be replicated thereby potentially creating a unique competitive advantage.

Creating a unique competitive advantage in a way that adds value is our goal.  The Business Design 2.0 framework empowers organizations to do that through the remaining three categories:

  1. Performance Empowerment – everyone in the organization needs to have a continual human, process, and systems performance improvement mindset, always looking for ways to do everything better.
  2. Self Renewal or Business Continuity – it’s essential to put into place procedures and processes to ensure that the organization has the resources that it needs, when it needs them (i.e. trained and ready workforce); effectively manages opportunities and risks; and maintains a forward looking perspective to avoid be blindsided in the market place.
  3. Building Relationship Capital – our world has a far more complex business environment than ever before and at an ever increasing rate.  In order to have the biggest and best impact on our world, we will need to work together to accomplish more than we can on our own to provide our customers with the most holistic and effective solutions possible.

Performance Empowerment is comprised of three components:

  1. Human Performance – Every person should be responsible for finding ways to improve the quality and quantity of their results/output. Helping everyone see how their efforts fit into the ebb and flow of the overall work effort, knowing how and when to adjust their flow in the support of others, and having the authority to take care of business in the moment are all essential aspects achieving optimum levels of performance.
  2. Process Improvement – Due to the continuous advancements in technology, it is essential to periodically evaluate business processes to determine if better performance can be achieved. Other avenues for process improvement include: Decision Process and Quality, Risk Management, Business Processes (internally in segments, or in entirety, and coordination with external sources)
  3. Systems Optimization – taking a big picture perspective in evaluating the overall effectiveness of the system in question.  Areas for consideration include: Organizational Communication, Operating Reviews of Existing Products/Services keeping their projected retirement and replacements in mind, New Product/Service Innovations,  Organizational Wide Risk Management Oversight, Futurecasting Capabilities and Functions, Ongoing Business Model and Management Design Evolution, etc.

One key to effective buy-in is to have a policy that no one will be laid off because of improvements made by an employee.  Instead, employees impacted will be cross-trained to work in other areas, support new growth efforts, or be given an opportunity to share other ideas on how they can contribute value to the organization.  Benefits of performance empowerment include:

·         A deep commitment to the organization’s purpose.

·         A more autonomous workforce.

·         An open and collaborative culture.

·         A desire to build capabilities.

·         An ongoing approach to dialogue and feedback.

Hidden Asset Tip: It’s not uncommon for organizations to have unique capabilities as a result of their processes and/or systems that can be sources of revenue generation. Even noncore business and orphan products can offer huge benefits. Even IBM transitioned from hardware sales to services from that type of observation in their own organization.

Self-Renewal or Business Continuity is also comprised of three components:

  1. Workforce Pipeline – having a trained and ready workforce is essential to every business.  However, our educational systems aren’t able to keep up with the rapid changes in our world, so it’s critical to invest in employee development programs to ensure that your company always has the human capital that it needs to get the work done.  It means going beyond the traditional leadership development programs to incorporate all positions in the organization.
  2. Identifying the Right Risks – we need to continuously scour the landscape in search of opportunities, identify the right risks, and redeploy resources to continuously adapt to the changing environment and customer needs more quickly than the competition.  In an organization where the right circumstances (risks) have been defined in advance and opportunities are evaluated using a proven decision making process, an organization is far better equipped to place an individual or a series of “bets” that can dramatically alter the organization’s trajectory when the opportunities arise.
  3. Forward Thinking – goes beyond simulations and forecasts to futurecasting.  The idea behind futurecasting is to envision and shape your organization’s future based on known (early stage) advances and reasonable foresight, by being observant and keeping an open mind.  Regardless of your area of interest, there are people around the world analyzing the future impact of that topic, including professional futurists.  The practice can be as simple as raising some thought provoking questions to regular meetings and allow the process to evolve from there.

Hidden Asset Tip: Never lose sight of the fact that your employees have more capabilities than you hired them for, some in areas that you never dreamed of.  One print based advertising agency developed a highly profitable video and TV advertising line of services after one employee, with an active interest in theater, developed a video based solution for a prospective client.  [Source:  Army of Entrepreneurs]

The final category, Building Relationship Capital, recognizes that no organization stands alone in our world.  We are all interdependent.  If corporate giants, with deep pockets of their own recognize and realize the value of building transparent relationships for their mutual benefit (Walmart and P&G for example), then there is plenty of room for small to mid-sized businesses to do the same.  By building relationships with people and organizations outside of our team (regardless of how you define your team), we can trigger an exponential growth in our capabilities and reach, accomplishing more and greater things even faster than ever before.   It’s essential to long-term success to work toward mutually beneficial arrangements for all stakeholders, even if it initially makes things seem more complicated and takes more time to work through.

When you listen to Professor Ed Freeman talk about Stakeholder Theory, he doesn’t just mention the relationships that are easy to build.  He talks about how to take seemingly adversarial relationships and overcome the obstacles to form transformational relationships that produce positive results for all involved.  His point is that it takes more work because the solution isn’t superficial; it requires serious study and analysis to work through the issues and produce a meaningful (and mutually beneficial) result.  In the end, they are always worth the effort and lead to further improvements over time.

Dave Gray, in The Connected Company, explains the importance of the networks that are forming around companies every day.  Many of these networks include our stakeholders.  He says, “To adapt, companies must operate not as machines but as learning organisms, purposefully interacting with their environment and continuously improving, based on experiments and feedback.”  This perspective holds true regardless of whether we are talking about customers, suppliers, or the community at large.

Dave Gray also talks about Network Power, which is the ability to detect changes in the environment (in real time) and respond in an effective manner (influence), as well as, the ability to influence the network as a whole (like standards setting).  It’s easy to see how quickly networks can change, how complicated they will become as they continue to grow, and how visible we have become whether we want to or not.  The internet and social media networks amplify corporate behavior, both good and bad.  

It’s easy to get caught-up in the bubble of our own little world inside our organizations and lose sight of the dangers of not being prepared.  These practices build resilience in your company.

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