Build your competitive advantage

In the increasingly competitive business landscape of today, one capability often distinguishes leading companies from the rest. Developing this distinctive edge—often referred to as a “superpower”—can make all the difference. Here’s how companies can cultivate such a capability and achieve a sustainable competitive advantage.

The Paradox of Choice for CEOs

CEOs frequently face a paradox of choice with numerous initiatives and plans promising organizational transformation and financial success. Prioritizing and making strategic choices can be overwhelming. Focusing on building a single, powerful institutional capability can be a game-changer.

Consider the case of a retail giant that was struggling to thrive post-COVID-19. The CFO identified a potential growth area in analytics-driven pricing. The company embarked on an ambitious journey to build a top-tier analytics capability, centralizing pricing operations and embedding analytics through a new technology platform. This overhaul transformed the company’s approach to pricing and merchandising, resulting in significant margin expansion and a lasting competitive edge.

What Are Institutional Capabilities?

The term "capability" often refers to the skills and development of individual employees. However, institutional capabilities are more comprehensive. They involve an integrated set of people, processes, and technology that consistently allows a company to perform better than its competitors. These capabilities are aligned with corporate strategy and integral to the company’s operations and industry.

Types of Institutional Capabilities

1. Functional Capabilities
2. Enterprise-Wide Capabilities

Building Your Institutional Capability

To build a superpower, companies need to:

1. Identify a Key Capability: Choose an area that is critical to your industry and where you can excel.
2. Align Resources: Ensure that your resources, including people and technology, are aligned with developing this capability.
3. Invest in Development: Invest in training, technology, and process improvements necessary to build and sustain the capability.
4. Embed and Integrate: Make the capability an integral part of your organization’s operations and culture.
5. Measure and Adapt: Continuously measure the impact of your capability and adapt as needed to maintain your competitive edge.

In summary, building a robust institutional capability leads to a distinctive competency. It requires a strategic focus on an area that can offer a sustained advantage. By carefully developing and integrating this capability, companies can differentiate themselves in crowded markets and achieve lasting success.

As Hooi Ling Tan, co-founder of Grab, stated, “In a constantly changing environment, it's crucial to identify and firmly believe in the single core factor that drives both your initial and ongoing success.”

Successful companies often have one or two defining institutional capabilities that significantly contribute to their achievements. But how can these superpowers be developed? The VECTOR framework (by McKinsey) —comprising vision, employees (and talent systems), culture, technology, organization, and routines (or processes)—offers a valuable guide. While not every element will need extensive overhaul, companies should thoughtfully evaluate each component as they develop their institutional capabilities. build this,

In the business realm, the VECTOR approach symbolizes the coordinated effort and momentum needed to develop a sustainable and impactful institutional capability. Here’s a breakdown of the six key elements essential for building a successful superpower within an organization.

1. Vision and Leadership

Exceptional CEOs go beyond setting financial targets; they articulate a vision of how their company will innovate and lead their industry. To build a superpower, leaders must clearly define what their organization aims to be known for and set markers for success. Effective leadership involves unwavering commitment to this vision, continuously driving the capability's development and evolution to stay ahead of the curve.

2. Employees

A robust institutional capability relies on a comprehensive system of people and talent. Unlike temporary training programs or targeted hiring, building a superpower requires a long-term strategy. This involves:

• Mapping Essential Roles: Identifying key positions and skills crucial for the capability.
• Assessing Strengths and Gaps: Evaluating current talent and addressing any deficiencies.
• Balancing Hiring and Reskilling: Combining recruitment with ongoing training and development.
• Designing Career Paths: Creating clear progression routes to retain top performers.
• Managing Performance: Implementing strong incentive systems to drive excellence.

3. Culture and Mindset

Culture and mindset play a pivotal role in embedding new capabilities. While many companies claim unique cultures, significant mindset shifts are often necessary. For instance, organizations aiming to excel in innovation may need to foster a culture that embraces experimentation and accepts failure as part of the process. Successful change management involves:

• Ongoing Measurement: Regularly assessing cultural shifts and including them in management incentives.
• Consistency and Stamina: Maintaining a continuous effort to embed cultural changes across the organization.

4. Technology

Modern capabilities are intertwined with technology, data, and increasingly, AI. Common pitfalls include:

• Overreliance on Core Systems: Relying solely on overhauls of core systems can impede progress. It’s crucial to invest in technology foundations and develop solutions that support adoption and impact.
• Short-Term Solutions: Avoid one-off digital projects that lack scalability. Instead, build AI models and technology solutions that integrate with cloud infrastructure, guard against bias, and focus on high-value areas.

5. Organization

Organizational structure must align with strategic goals to support capability development. This means:

• Defining Roles and Responsibilities: Establishing clear roles, reporting structures, and decision rights.
• Building Permanent Structures: Moving beyond temporary teams and pilots to create a sustainable framework for the capability.
• Securing Financial Support: Integrating the capability into ongoing budgeting and governance processes.

6. Routines

Effective routines are the cornerstone of operational excellence. Organizations must:

• Design High-Quality Processes: Develop and codify processes that are essential for executing the capability.
• Continuous Practice: Just as athletes practice their craft, companies should continuously refine their processes with coaching to ensure consistent high performance.

To Sum up:

• In summary, the VECTOR approach helps to understand the 6 key elements that go into institutional capabilities building.
• The integration of vision, leadership, people, culture, technology, organization, and routines is required to build a robust institutional capability.
• Such capabilities will help the companies to develop a sustainable competitive edge and thrive in a dynamic business environment.