Knowing Which Organization Capabilities Make a Difference

By Dave Ulrich ? [email protected] ? Co-Founder, The RBL Group, Norm Smallwood ? [email protected] ? Co-Founder, The RBL Group and Alan Todd ? [email protected] ? Founder, CorpU

Talent matters; organization matters even more. In our research, organization has four times more impact than talent on business results. Individual competencies are ingredients, but organization capabilities represent the recipe that combines ingredients into an overall meal experience. HR and business leaders add more value to all stakeholders when they create and deliver organization capabilities. We offer new insights and research on how to do so.

Evolving concept of organization

We have spent much of our professional lives defining and improving organizations (see books on organization). 

Understanding what makes up an organization has evolved through four phases (see Figure 2). This evolution of organization thinking pivots thinking about organizations from its structure and systems to the capabilities that enable it to succeed with its key stakeholders. Capabilities represent what the organization is known for and good at doing, somewhat like the Big Five personality traits represent an individual’s persona, not just their body features (height, weight, eyes, hair color).

In our work on defining capabilities that help organizations succeed in the marketplace, we have identified twelve well-studied capabilities that may deliver outcomes.

We can measure the extent to which these twelve capabilities exist in an organization and place them into an overall Organization Guidance System that informs the impact of four Organization Effectiveness pathways (talent, leadership, organization capability, and human resources) on five key results (employee, business strategy, customer, investor/financial, and social citizenship).

Report status of talent challenges

After 18 months of work on the OGS, we can now report pilot data on how well an organization performs on these twelve organization capabilities (see Figure 3). This figure reports the overall mean (column A), variance (column B), and reliability (column C) of the measures of these twelve capabilities. This figure indicates which of the 12 capabilities (right culture #5), customer centricity (#4), social responsibility (#7), and talent (#1) and which score lower (leveraging technology #12). The results also confirm that these are valid measures of the twelve dimensions (standard deviation and reliability scores)

Guidance on organization capabilities

To move from these organization capability descriptions (Figure 3) to prescriptions, we offer guidance in Figure 4. This figure shows the relative impact of each of the 12 capabilities (rows) on four outcomes we measured in the pilot (columns B, C, D, and E). We used proprietary analytics (variance decomposition) to understand how different talent initiatives will deliver different results (note: in the pilot, we focused on 4 results; we now have added a fifth, social citizenship). 

The findings in Figure 4 dramatically shift the discussion of organization capability from what is done to what should be done. While these findings are with a small pilot sample and while we realize that the desired organization capabilities may vary by context (industry, pace of change) and strategy, some findings include:

1. Capabilities explain about double or more the other pathways (overall R2). We report this by comparing the R2 from the OGS-talent pathway to the organization capability pathway (employee 19.8 to 41.8 ; business strategy 24 to 45.8; customer 15.7 to 35.2 ;financial 10.7 to 36.2). These results are consistent with other research which shows that while individual competencies (talent) matters; organization capabilities matter more.
2. CSR has little impact on any results, nor does information or technology. This is surprising and may indicate that building these capabilities may need to be more closely linked to the outcomes they create.
3. Strategic clarity impacts all stakeholders the most, especially customers. Strategic clarity is embracing a purpose, differentiating in the marketplace, exploiting market opportunities, and sharing a commitment to the strategic agenda.  
4. Employee impact comes from building the capabilities of  talent (makes sense), agility, right culture, and accountability
5. Customers are driven by strategic clarity, customer centricity, and innovation
6. Financial is driven by efficiency and strategic clarity.

These results will require pondering to figure out why some organization capabilities deliver some results more than others.

Implications

The implications of this organization capability guidance is profound. Depending on the results an organization seeks, business and HR leaders can now provide guidance on where to focus their organization capabilities. We have now reported the talent and organization pathways of the OGS. This OGS is FREE to anyone. Simply visit www.rbl.ai to get started.

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Dave Ulrich is the Rensis Likert Professor at the Ross School of Business, University of Michigan and a partner at The RBL Group, a consulting firm focused on helping organizations and leaders deliver value.