Weekly Business Insights from Top Ten Business Magazines | Week 289 | Strategy & Business Model Section | 1

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 289 | March 24-30, 2023

What’s your superpower? How companies can build an institutional capability to achieve competitive advantage

By Homayoun Hatami | McKinsey & Company | March 21, 2023

Listen to the Extractive Summary of the Article

CEOs, just like everyone else, suffer from the paradox of choice. Companies have endless initiatives and plans, all with the promise to “transform” the organization and deliver attractive financial returns. But how is a CEO to prioritize and make choices? According to the authors, the answer may lie in focusing on the one institutional capability that can separate you from the rest. In a word, CEOs and their companies should look to build a superpower.

Simply put, an institutional capability is an integrated set of people, processes, and technology that creates value by helping the company consistently do something better than competitors. An institutional capability should derive from the corporate strategy, of course. It must involve work that is integral to the company and the industry; it can’t be a gimmick. Done well, such capabilities become a lasting edge, leading to consistent outperformance and growth in a competitive advantage over time.

Think of any company that you admire, and you can likely rattle off one or two superpowers that make them uniquely successful. Some excel in a specific area of the business. Toyota, for instance, has historically been revered for its lean manufacturing strengths. LVMH is well known for exquisite craftmanship and the entrepreneurship of its brand leaders. In all such cases, institutional capabilities deliberately built over time have helped these companies succeed and thrive.

Broadly speaking, institutional capabilities fall into two categories:  

1. Functional capabilities: these are core activities that a company does today (such as sales, supply chain management and procurement, performance marketing) but may need to change or improve dramatically to build an advantage. In these disciplines, gaining competitive advantage requires step-change improvements.
2. Enterprise-wide capabilities: these are strengths that truly span the entire company (such as speed of decision making, ability to innovate, the operating system, customer centricity). They often relate to how the company is managed over time or are “net new” capabilities a company requires to remain competitive.

How to build these superpowers? The elements in VECTOR provide a useful guide: vision, employees (and talent system), culture, technology, organization, and routines (or processes). Not all these elements will require massive reform, but a company should carefully consider each as it builds its institutional capabilities.

3 key takeaways from the article

1. CEOs, just like everyone else, suffer from the paradox of choice. Companies have endless initiatives and plans, all with the promise to “transform” the organization and deliver attractive financial returns. But how is a CEO to prioritize and make choices? The answer may lie in focusing on the one institutional capability that can separate you from the rest. In a word, CEOs and their companies should look to build a superpower.
2. Simply put, an institutional capability is an integrated set of people, processes, and technology that creates value by helping the company consistently do something better than competitors.  fall into two categories:  Functional capabilities and Enterprise-wide capabilities.
3. How to build these superpowers? The elements in VECTOR provide a useful guide: vision, employees (and talent system), culture, technology, organization, and routines (or processes).

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Topics:  Strategy, Structure, Performance