Monday, 3 December 2007

Organisational capabilty

Another way to look at the primacy of people management is through the concept of organisational capability.

The slide suggests that intensified competition; growing access to financial capital; and work that is ever more knowledge based, have all led to new opportunities for a company to increase its competitiveness. Organisations in the private and voluntary sectors can translate this into transforming the type and level of services that they provide. This is not just about doing things more effectively or efficiently, but doing better things.

Most business leaders are comfortable with the concepts of competitive strategy and competitive positioning: particularly Harvard professor, Michael Porter’s ideas around differentiation, cost leadership and focus. Within this paradigm (shown at the bottom of the slide), people management is a secondary activity and the HR function, as we all know, is often left in a bit of a strategic backwater.

I believe that the opportunity for HR to increase its contribution started to emerge in the early 1990s with the realisation that an organisation could leverage its own resources or core competencies to provide itself with a competitive advantage. Core competencies are partly built upon people’s skills and abilities (which does give HR some leverage), but they tend to focus even more on particular business processes, technology and customer loyalty. So, for example, the originators of this concept, Hamel and Prahalad identify 3M’s core competencies as specialist expertise in substrates, coatings and adhesives, not as the ability of its people to innovate new products within these areas. So core competencies provide HR with a more central role, but it is still easy to see other functions as more important.

The concept of organisational capability (shows at the top of this slide) builds on the idea of core competency by recognising that it is people and the way they are managed and developed that are an organisation’s most important source of competitive advantage.

Out of these three approaches to competition, I think there is a growing belief that the further along this arrow, the higher up the slide, the more sustainable the approach becomes. There’s just too much change these days for competitive advantage from external positioning to be anything other than elusive and fleeting.

Organisation capability / human capital / people provide the basis for ongoing strategic success, not just the implementation of current strategy.