Key to any CEO’s agenda is the need to constantly reconfigure the company’s capabilities to cope with a changing playing field and to lend extra strength to crucial functions within its business model and value chain.
Management consultants (the people CEOs often listen to when it comes to where and when to invest your company’s cash) tell us that the competitive advantage, superior performance and long-term survival of an organization can be explained by the distinctiveness of its capabilities. So what, exactly, is a ‘capability’ and why should CMOs put them top of the list when it comes to getting top management to truly value the Marketing department?
A capability can be described as a combination of resources (what we have) and competencies (what we do well). Capabilities, however effective in the past, can become less relevant as industries evolve, even becoming vulnerabilities instead of strengths.
Threshold vs. strategic capabilities
There are generally considered to be two basic types of capability:
- Threshold capabilities, often known as ‘qualifiers’, are those needed to meet necessary requirements to be in the industry and to meet competitors.
- Strategic (or ‘distinctive’) capabilities, also known as ‘order winners’, are those that critically support competitive advantage and that others will have difficulty copying or obtaining.
Like any other part of the company, Marketing has a role to play in keeping threshold capabilities on a level with competitors, and in creating distinctive capabilities that ensure the company can profitably grow in its marketplace.
Focusing on capabilities can be an extremely powerful motivator for top management. For example, if market intelligence says competitors are building a strategic capability that will be key for the future battlefield, such as the ability to source a key material that will soon be in short supply, then the company’s entire business model may be in grave danger. Something simply must be done to remedy the situation.
Typical competitive parameters that can be described as corporate capabilities include, for example:
- New product development
- Market insights and data
- Managing acquistions
- Strategy execution
- Research capability
- Talent recruitment
- Brand management
- Selling capability
- Design capability
- Sales responsiveness
- Customer acquisition
- Customer retention
- Product quality
The strategic conversation
We often advise CMOs aiming to earn their place at the top management table to conduct strategic conversations with the CEO, focusing on four key aspects:
- An overview of the company’s current threshold and distinctive capabilities
- A list of the capabilities Marketing could potentially strengthen that would either bring the company up to par with its competitors, guard against distinctive capabilities currently being built by competitors, or create a unique competitive advantage
- Fact-based recommendations for investing in strategic marketing initiatives to support one or more of these capabilities
- An overview of the benefits and implementation requirements for each recommended initiative
Here’s how your capabilities overview slide might look:
In this example, you have estimated many of your company’s threshold capabilities to be on par with those of key competitors. And a number of these, including new product development, acquisition management and product quality, are already being protected or strengthened by initiatives contained in the CEO’s new business plan (indicated by upward-pointing green arrows). Looking at distinctive capabilities, on the other hand, the company’s success has been built upon leading the market in research, design and product quality, and you expect to sustain these advantages for at least a few years.
But it’s not all good news. As the red arrows indicate, the company’s ability to deliver on the business plan’s objectives may be endangered:
- Our media agency tells us that other firms in the industry are gathering customer data more comprehensively and quickly, building a key asset for the future.
- The sales force has been losing a greater percentage of new business to aggressive competitors (reduced selling capability).
- Customer retention figures are dropping, indicating weaker customer relationships.
- At a recent graduate careers fair, students were standing in line at your German competitor’s stand instead of yours (reduced talent recruitment capability).
- You can see, using basic social media monitoring tools, that your brand is becoming less and less talked about in comparison with your competitors (reduced reputation capability).
- Respondents to your annual customer satisfaction surveys are starting to indicate that your customer service is falling behind (reduced customer service capability).
For the company in our example, an educated guess would say that competitors are deploying technology more quickly, building a range of new ways for their prospects and customers to engage with them online. The crucial roles played by sales, marketing and customer service are in danger of falling behind unless significant investments are carried out.
So the conversation with the CEO should focus on the red-arrow capabilities. What’s important here is to consider these in relation to the objectives listed in the company’s stated business plan. You should be looking for trends that may threaten the achievement of these objectives—and strategic initiatives that Marketing could implement to make the chances of achieving the objectives better. Remember: If there’s one thing the CEO hates doing, it’s falling short on the results he or she has promised to the board and shareholders. Find the holes in the business plan and you’ve got top management’s attention!