The importance of regular capabilities audits

Understanding and leveraging organizational capabilities is crucial for leaders looking to reinforce their value proposition. A recent experience with one of our former clients highlights this lesson.

The CEO assumed that their management team could effectively execute a strategic alignment initiative without external assistance. Unfortunately, the team lacked both the knowledge and skills to execute it effectively. This scenario is all too common in businesses today, with leaders often overestimating their team’s abilities, especially when it comes to new or complex initiatives.

Organizational capabilities are a combination of the intangible assets that enable an organization to execute its business strategy successfully. These are considered intangible assets because they’re not physical resources, but rather the cross-functional combinations of processes, tools, skills, knowledge, people, and structure. Given their complex nature, organizational capabilities can also take years to identify, improve, and perfect.

A tech company, for instance, might have a strong capability in rapid product development. This could involve a mix of agile project management skills, a culture of innovation, and cross-functional teams that work well together. Another company might excel at customer service, combining efficient processes, empathetic staff, and a customer-centric culture.

Research from the Boston Consulting Group shows that successful strategies are closely aligned with an organization’s unique strengths and resources. Therefore, it is crucial to assess your organization’s capabilities regularly to identify gaps between your strategy and execution and to make improvement efforts that keep your organization competitive in the market.

One way to begin assessing your organization’s capabilities is to conduct an internal capabilities audit. We recommend you involve your top leadership to lead the initiative of identifying the key capabilities (usually 4-6 of them) needed to execute your current business strategy more effectively. Combined with purposeful performance measurement, this practice will not only set your organization up for success today but can lead you to sustainable long-term growth.