Organizationcapacity
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01/10/2013
1Organisational capabilities
Roine Leiringer
What we might learn today
•To understand and apply the concept of
organisational capability.
•(To have patience with definitions)
Background –the Resource Based View of
the firm (i)
•Wernerfelt, Barney and others –Market equilibrium,
firm resources and competitive advantage.
–If a firm is to achieve sustained competitive advantage it
has to acquire and control ‘VRIN’ resources.
–VRIN: valued amongst customers, rare amongst
competitors, inimitable by competitors, non‐substitutable
by potential market entrants.
–Example of such resources:
•Physical (specialised equipment, geographic location);
•human (expertise in coding);
•organisational (superior sales team)01/10/2013
2Background –the Resource Based View of
the firm (ii)
•Penrose (1960) –concerned with understanding the
constraints on the rate of growth of firms.
–In the absence of capital constraints, the fundamental
constraint is managerial capacity to mobilize the resources
available to the firm productively.
•Building on this work Chandler (1990) argued that
the firm is a collection of organisational capabilities
(the physical facilities and human resources required
to supply goods and services).
Setting the scene
•A formal organisation is a ‘planned coordination of
activities of a number of people for the achievement
of some common explicit purpose or goal, through
division of labour and function, and through a
hierarchy of authority and responsibility’ (E. Schein)
•We take for granted that business firms and other
formal organisations know how to do things.
•But what are the principles that govern how this ‘knowledge’ is
acquired, maintained, extended and deployed?
Capability
•“To be capableof something is to have a generally
reliable capacity to bring that thing about as a result
of intended action. Capabilities fill the gap between
intention and outcome, and they fill it in such a way
that the outcome bears a definite resemblance to
what was intended”.
Dosiet al. (2000) The Nature and Dynamics of Organizational Capabilities. Oxford University Press01/10/2013
3Organisational capabilities
•Organisational capabilities are commonly defined as
the particular combination of skills, competences,
resources, routines, and behaviours which enable
effective performance (and generate competitive
advantage; commonly measured in growth and
profit).
Clarifications (from this perspective)
•Competence ‐standardisedrequirement for an individual
to properly perform a specific job.
•Skill ‐the learned capacity to carry out pre‐determined
results. In other words the abilities that one possesses.
•Resources are tangible and intangible assets that are tied
‘semi‐permanently’ to the firm.
–Examples of which are: brand names, machinery, trade contacts, personnel.
•Routines are an executable ability for repeated
performance in some context that has been learned by
an organization in response to selective pressures.
–‘The way we do things around here…’
Kinds of capabilities
•Organisational capabilities are usually divided into
two types:
–‘Operational capabilities’:which capture the day‐to‐day,
month‐by‐month ability of the organisation to deliver on
its mission;
–‘Dynamic capabilities’:which capture the ability of the
organisation to change and develop in order to meet new
challenges. 01/10/2013
4For the project‐based organisation
•Project capabilities
–‘the specific knowledge and experience required to engage
with internal and external customers, develop bids and
implement and execute projects’
–‘the appropriate knowledge, experience and skills
necessary to perform pre‐bid, bid, project and post‐project
activities’.(Brady and Davies 2004)
Exercise 1
•What does your company do?
•What is the organisation supposed to know how to
do?
•How does the company do what it does?
•What enables the company to do what it does, i.e.
what are the key (broad) capabilities?
–The underpinning competencies, skills, routines and
resources…
A slightly different angle ‐Make or Buy?
•Firms make decisions on what to make internally and
what to buy from the outside.
•Make or Buy decision
–The volume
–The fixed cost of making
–Per‐unit direct cost when making
–Per‐unit cost when buying