Last night I was reading Roger Martin’s book “Playing to Win”. It is mainly about P&G. The chapter I focused on was the one where he talks about core capabilities.
He draws on Michael Porter’s article “What is strategy?” and argues that the first step of executing a strategy is to define three to seven core capabilities that the strategy relies on. These are things that the company will do better than competitors which will allow it to achieve the market position and profitability that it wants.
Martin argues that there are usually a cluster of these capabilities that are linked together in an important way that makes them doubly hard to copy. For P&G the capabilities are things like – being better at understanding the unmet needs of consumers, being good at creating global brands, having more scale benefits, knowing how to work productively with large retailers.
Typically these capabilities are some of the main steps in the value chain – gain consumer insight, develop products, build brands, distribute products, etc. But he points out that P&G does not need to be world class at all the steps: manufacturing and some other elements of the value chain are less critical to P&G’s strategy.
He then takes these capabilities and creates an “activity system map” or a logic map, showing how the capabilities connect and reinforce each other, but also showing how other supporting capabilities or resources or other elements of the operating model support and connect to the capabilities. I reproduce his exhibit from the book (hopefully this is not breaking copyright).
This seems to be a really good use of capability mapping. As you may know from my earlier blogs, I have a hard time understanding the business benefit for producing a comprehensive “capability reference model”, but I can see the power of a focused “activity system map” or “capability logic map”. In fact, a map like this could be a way of visualising the operating model. I think I might add some stuff to it, like customers, consumers and suppliers – so that the links with stakeholders are clearer. I might also add some location information – partly because the key to consumer insight is to sit with consumers in India or wherever, but the key to technical innovation is to have some centralised R&D labs.
Maybe I am getting closer to my quest for clarity about the role of capabilities in designing a target operating model (TOM).