- Email: [email protected]
Making the most of your firm's capabilities
Business Horizons (2014) 57, 329—335
Available online at www.sciencedirect.com
ScienceDirect www.elsevier.com/locate/bushor
EXECUTIVE DIGEST
Making the most of your firm’s capabilities Roberto Evaristo a,*, Srilata Zaheer b a
Knowledge Management Program Office, 3M, 3M Center, Building 0223-2W-32, St. Paul, MN 55144-1000, U.S.A. b Carlson School of Management, University of Minnesota, 321–—19th Avenue South, Minneapolis, MN 55455, U.S.A.
KEYWORDS Meta-capability; Resource mapping; Capabilities; Networks; Strategy; Human resource management
Abstract In this Executive Digest, we make the case that aggregate individual expertise as a resource and intrinsic capability of the firm are hidden in plain sight, or worse, are assumed to exist where they do not. With high levels of complexity, business diversity, and number of geographical locations, the issue becomes even more acute. We propose strategic resource mapping (SRM) as a methodology designed to provide top managers with a rapid, comprehensive, and penetrating assessment of a firm’s ‘meta-capability’: an actionable overview of the capabilities that exist within the firm. Based on multiple successful implementations, we describe the key features of SRM and provide several illustrations. # 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Introduction CEOs find it difficult to have a good handle on the capabilities of their organizations. This is disturbing, considering that strategic action requires a clear picture of not only the capabilities that run deep within a firm but also those that are lightly developed or completely absent. The risk is to overor underinvest in certain areas, resulting in redundant capabilities or lack of delivery abilities. Does your firm have the right capabilities at sufficient depth to implement your strategic vision? Where is your firm vulnerable in terms of
* Corresponding author E-mail addresses: [email protected] (R. Evaristo), [email protected] (S. Zaheer)
its capabilities? Where should it be deploying resources to strengthen its capability base? As managers confront a host of new demands for sustainability and innovation, they need answers to these kinds of questions. Traditional resource allocation approaches rarely help with these decisions as they are typically based on limited assessments–—if at all–—of the depth and distribution of a firm’s capabilities. Addressing these challenges is critical for strategy development and implementation, and requires a shift in thinking about how knowledge of strategic capabilities is structured and presented. Senior managers need an actionable overview of the capabilities that exist within the firm. We refer to this bigger picture as a firm’s meta-capability: the ability to identify and leverage distributed capabilities across the firm. This involves not only knowing what
0007-6813/$ — see front matter # 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.bushor.2014.01.004
330 capabilities exist in which units and where, but also their breadth and depth, their gaps and overlaps across units, and how they link to each other and support the strategic direction of the firm. Top managers engaged in strategy implementation need to be able to assess not just whether there are vulnerabilities or redundancies in a firm’s capabilities, but also whether the right combinations of capabilities are being brought to bear on strategic actions. Assessing a firm’s meta-capability is not easy. Capabilities are often hidden in plain sight, or worse, are assumed to exist where they do not. Traditionally, decisions regarding where to bolster capabilities, or areas in which the firm may have redundant capabilities, have been based on somewhat informal and usually incomplete knowledge. In the worst case, realization that some capabilities are missing dawns only when efforts to implement a new strategic direction falter. Drawing on network theory (Butts, 2009), we developed an approach we call strategic resource mapping (SRM), which shows promise in enabling top managers to get a rapid, comprehensive, and penetrating assessment of a firm’s meta-capability. The SRM methodology has been presented elsewhere as strategic capability mapping, or SCM (Evaristo & Zaheer, 2012). SRM offers a visual representation of the distribution and depth of different capabilities within the firm, as well as of the connections that exist, or are missing, between and among capabilities. Moreover, it provides this overview at any level of granularity–—be it within or across divisions, subsidiaries, or the firm as a whole. In the spirit of action research, we implemented SRM across different types of problems in several different organizations, including 3M, NASA, and several other firms and government agencies around the world, refining and improving the process as a result of what we learned from these implementations. In this article, we describe the key features of SRM and detail three different applications to illustrate the breadth of its potential. The cases we discuss are (1) the identification of the distribution of capabilities in an organization dedicated to promoting sustainability, (2) an illustration of the capability gaps and strengths in a cross-border merger of two financial conglomerates, and (3) a disguised example from 3M on facilitating innovation by creating uncommon connections between capabilities. These only begin to scratch the surface of SRM’s potential to transform a firm’s resource allocation process; they articulate the underlying capability structure that determines whether the implementation of a strategic initiative will succeed or fail.
EXECUTIVE DIGEST
2. How strategic resource mapping works Sustainability Victoria (SV), an agency that helps deliver solutions for sustainable growth and development in the state of Victoria, Australia, provides a good example of some of the basic features of SRM. The strategic challenge SV faced was a substantial increase in demand for economic analyses across different renewable energy options, and a consequent call for coordination across specialized and scarce capabilities of a highly technical nature. The new strategic direction envisioned by SV required collaboration across different technical areas. To translate this vision into reality, the company needed a rapid assessment of the depth, breadth, and cross-team distribution of its capabilities. Sustainability Victoria turned to SRM to identify vulnerabilities in its ability to execute its strategic mission, as well as areas in which it needed to invest in capability development. SRM brought transparency to the distribution of capabilities across the agency (see Figure 1). The different teams at SV are shown in different colors, and each circle represents an individual with certain expertise. The thickness of the lines leading to a particular capability (the magenta squares) shows the depth of each person’s expertise in that area. In this case, the depth was determined through a web-based survey, but the basic data could also have been gathered in other ways, such as by managerial assessment or electronic searches. For ease of visualization, we only show two levels of expertise–—moderate and significant–—which were defined in a manner appropriate to the capabilities being evaluated. As a general rule, for capabilities to be rated as ‘significant,’ the unit having those capabilities should be able to share that knowledge with other parts of the firm. From performing this exercise, SV gained rapid insight regarding its capabilities. To begin, the only desired strategic capability where it has no significant expertise is the Economics of Hydropower. There are several areas with only one individual with significant expertise–—for example, the Kyoto Protocol–—suggesting that the organization’s capability in those areas is thin. This creates potential vulnerabilities for the organization. In fact, the only individual with significant expertise in the Kyoto Protocol (Person 20) left the organization a few days after the data collection, compromising the ability of the organization to execute its strategy. However, the SRM analysis revealed who else could be brought up to speed rapidly in that capability.
EXECUTIVE DIGEST Figure 1. Victoria
331
Strategic resource mapping: Breadth and depth of selected knowledge resources at Sustainability
SRM also makes it clear that a few experts have deep knowledge in multiple areas (e.g., Person 15). These individuals are critical to the organization, as they have the capacity to bridge different capabilities and drive strategy implementation across multiple areas. As viewed through the SRM lens, it is readily apparent that the Renewable Energy team (shown in orange) is the only team that has all the required capabilities needed to execute a crosstechnology project, and that Solar Photovoltaic Systems has redundancy as SV possesses multiple experts with significant capability in that area. All told, the SRM analysis revealed quite a few surprises for Sustainability Victoria. It became clear that there were pools of capability outside the Renewable Energy Team, which were not known to management prior to the analysis; for example, Persons 11, 13, 14, and 26 on this team have expertise in the Kyoto Protocol. Recognition of such unacknowledged capabilities creates development opportunities and can lead to increased motivation and employee engagement. It also became clear just where the firm was vulnerable. Equipped with this knowledge, management had a better understanding of the areas in which it needed to bolster
capabilities to support new directions and those where it had adequate coverage.
3. SRM in merger integration Firms engage in mergers and acquisitions (M&A) to benefit from the combined capabilities of both organizations, as well as to save costs by eliminating redundancies. Although sharing of capabilities is often one of the key objectives of most mergers, this is not easy to accomplish: even top managers rarely have a comprehensive picture of the distribution of capabilities in their firms, let alone the capabilities of the combined firms. SRM can support the identification and integration of capabilities by depicting the location of redundancies and complementarities in the post-merger organization. We illustrate with a simplified, simulated example of a global financial services merger between Orion Global Services and Worldwide Financial Inc. (see Figure 2). What did the SRM analysis reveal about this merger? Prior to the merger, Worldwide’s U.S. unit incorporated capabilities in Wealth Management,
332 Figure 2.
EXECUTIVE DIGEST M&A integration
Asset Management, and Investment Banking, making the firm well-positioned to execute its strategy of selling complex financial solutions to U.S. clients who needed integrated solutions. However, as this was the only unit in the old Worldwide organization to have this breadth (see red oval ‘B’), Worldwide could implement such a strategy in Europe only by combining the capabilities (shown in magenta) of crosscountry business units. It could, for example, deploy multi-business-unit teams across Belgium and either Italy, Austria, or Germany (‘A’). After the merger, the synergies and redundancies across units become evident from the SRM analysis: Worldwide can now sell the same integrated solutions through Orion’s business unit in the Netherlands. Moreover, Orion’s French unit can team up with Worldwide’s Belgian unit to deliver such solutions to clients in both countries, extending the combined firm’s scope. The merger also eliminates one of Orion’s limitations: that only its Australian business unit (BU) has good retail and commercial banking capabilities. Now it can avail itself of the capabilities of many of Worldwide’s BUs in this area. Finally, a very large number of BUs of both Orion and Worldwide appear to have capabilities in Asset Management (‘C’). The Asset
Management capability in Spain, for instance, could be consolidated with those of other groups with stronger capabilities in this area. Such rationalization efforts could free up resources for redeployment. It is this ability of an SRM analysis to identify both the depth and the distribution of capabilities that makes it particularly valuable in such situations. An SRM approach across units of merging firms could begin with an assessment of capabilities at the individual level and then be aggregated to the unit, with the power to drill down if required. In a merger situation, it is optimal if mapping the depth of capabilities in different units is done as objectively as possible, perhaps via unbiased third-party evaluation. Although adequate for less controversial applications, in-house evaluations could lead to inflation of capabilities to save a particular unit in a merger situation.
4. Spurring innovation with the use of SRM Finally, we provide an example of how SRM can be used to identify capabilities that may be brought
EXECUTIVE DIGEST together to foster innovation. Firms invest significant resources to enable ‘uncommon connections’ in an effort to encourage innovation. 3M features many innovative products that have resulted from such connections across capabilities: consider the lighter, less expensive overhead projector developed as a result of applying Microreplication technology to optics, and the well-known Scotch-BriteTM product line that brought together capabilities in non-wovens and abrasives. However, even relatively structured and focused activities designed to encourage uncommon connections–—such as holding cross-business unit events–— still rely on the chance that an individual with a particular knowledge base will connect with another who has just the right complementary capability to create the perfect spark. An SRM analysis allows firms to be purposeful in creating uncommon connections across capabilities. By revealing the gaps between capabilities within the firm and simultaneously identifying particular knowledge among a large group of people, one can design targeted projects to connect complementary capabilities. This approach may be particularly powerful in situations where units are geographically dispersed, and hence are unlikely to be cognizant of one another’s capabilities.
Figure 3.
Gaps and concentration of knowledge
333
4.1. Insights Considering some of the capabilities (shown in magenta) represented in Figure 3, what insights can be gleaned from the SRM approach?
In this fictionalized example, ‘A’ is the only individual who has knowledge of both Microreplication and Ceramics. If this particular knowledge connection is important for the successful operation of the business unit, it signals a vulnerability that would need to be addressed. There are similarly weak capability connections between several other areas.
‘Green’ individuals within the circle labeled ‘B’ have the widest breadth of knowledge in the group. They are therefore more likely to be boundary spanners across capabilities. Their breadth, coupled with the depth shown in the map, gives them the credibility to push through difficult and complex projects. These individuals are very valuable to the firm as project leaders and managers.
Perhaps most strikingly, there are combinations of capabilities without a single individual whose knowledge spans capability boundaries. For
334
EXECUTIVE DIGEST
instance, in this hypothetical example, there is no one who concurrently has knowledge of both Abrasives and Membranes. Could this be an uncommon connection that needs to be encouraged–—say, via a short exploratory meeting–—to bring together these capabilities? Such insights are immediately actionable. Apart from enabling innovation by facilitating uncommon connections, these diagrams can help identify whether a healthy distribution of knowledge exists across the firm–—one that will grow and contribute to sustained innovation.
5. Implementation and recommendations A strategic resource mapping (SRM) approach can help CEOs and top managers take a strategic view of their firm’s capabilities by helping to identify both vulnerabilities and opportunities for investment and redeployment of resources. SRM creates transparency regarding the underlying capabilities of a firm, facilitating a way to connect strategy formulation to implementation by enabling development and deployment of the right capability combinations to advance strategy. The value added by taking an SRM approach is wide ranging. 3M has used it to help decide which activities can be done internally and which must be outsourced. Another innovative use of SRM at 3M has been to identify training needs, resulting in highly focused and cost-effective training
efforts. As firms struggle with aging demographics and restructuring, applying SRM can help minimize surprises such as the unintended loss of capabilities. The implementation of SRM greatly increases transparency of resource location, breadth, and depth in the firm. As a result, the resourcing level of different business units can then be assessed, directly compared, and/or discussed based on new yardsticks. Political costs associated with potential budget or organizational design changes might create resistance to implementations. Therefore, it is of paramount importance that objectives of SRM be as aligned as possible with the appropriate organizational scorecard. In our experience, the SRM approach is best initiated through high-impact demonstration projects with strong top management support such that it gains organizational visibility and acceptance before it is more widely disseminated. More than anything else, strategic resource mapping is a cost-effective way to examine a firm’s meta-capability; it helps CEOs and other top managers answer strategic questions about their firm’s vulnerabilities, strengths, and needs as they seek to implement their strategic vision.
Acknowledgment We would like to thank Michael Williamson and Sha Reilly, who generously contributed their time during data collection and analysis at Sustainability Victoria (Australia).
Appendix The development of strategic resource mapping (SRM) came out of many years of thinking about and addressing problems created by organizations’ lack of knowledge regarding their own capabilities. We took an action research approach (Lewin, 1946; Schein, 1995), engaging in over 30 implementations of SRM through which we learned its strengths and weaknesses and could improve the process along the way by critically examining each implementation. Lewin suggested that action research was initiated by the change agent (the researcher) whose goals were driving the process. Implementations ranged from analysis of a public firm’s global R&D capabilities involving several thousand individuals to the integration of ITservices across a varied group of 40 professionals and staff in a municipal government organization. While all of these implementations involved developing an understanding of the distribution and depth of capabilities in these organizations, the contexts were very different, which helped us understand the conditions required for SRM to work effectively across a variety of problems. The ideas behind SRM draw directly from network theory (Butts, 2009). While network theory has mostly been used in areas such as PERT/CPM and in collaboration and social networks in business, here we use it very differently to describe the structure of capabilities within the firm. SRM differs from the most commonly seen network application in business, social network analysis, in that we do
EXECUTIVE DIGEST
335
not examine connections between individuals but rather the distribution of connections among capabilities across organizational units and individuals. Hence a couple of crucial differences: in social network analysis the individual connections come first and the knowledge that is assumed to be shared through those connections is much more uncertain. In SRM, on the other hand, knowledge and capabilities either at the unit or individual level are identified first. Firms can then be purposeful about linking and leveraging the knowledge of different individuals or units. By focusing primarily on the distribution and depth of capabilities rather than on linking individuals, SRM could thus lead to facilitating social networks in a purposeful and more efficient manner. Development of a capability inventory involves two stages: developing a list of what capabilities are needed to address the particular business problem under consideration, and collecting the data. Developing the list requires an understanding of what capabilities–—and at what level of granularity–— one wants to take an inventory. The overarching consideration for deciding what capabilities should be included should be based on whether there is information about that capability at a particular level of granularity that could be potentially actionable for the problem under consideration. The data collection required for a full SRM analysis is designed to describe the distribution of capabilities across units and/or individuals, including the depth, the breadth, and the location of these capabilities. There are both primary and secondary data collection methods, each with advantages and disadvantages. Common primary data collection methods include self-assessment through surveys, managerial assessment through spreadsheets, and actual tests. Self-assessments are fast, efficient, and tend to come at a lower cost, but may suffer in accuracy. Managerial assessments are resource intensive, but may be more appropriate when judgment is called for. Examinations or tests tend to be useful only when well-defined capabilities are being sought and when a test instrument already exists. Secondary data collection, on the other hand, involves inference of capabilities based on observed data (say, email), and is therefore less intrusive and will become a relatively inexpensive solution in the future, as algorithms to search and interpret text become more accurate.
References Butts, C. (2009). Revisiting the foundations of network analysis. Science, 325(5939), 414—416. Evaristo, R., & Zaheer, S. (2012). Reducing cognitive biases in assessing combination potential in M&As. In S. Finkelstein & G. L. Cooper (Eds.), Advances in mergers and acquisitions
(Vol. 11, pp. 123—137). Bingley, UK: Emerald Group Publishing Limited. Lewin, K. (1946). Action research and minority problems. Journal of Social Issues, 2(4), 34—46. Schein, E. H. (1995). Process consultation, action research and clinical inquiry: Are they all the same? Journal of Management Psychology, 10(6), 14—19.
Available online at www.sciencedirect.com
ScienceDirect www.elsevier.com/locate/bushor
EXECUTIVE DIGEST
Making the most of your firm’s capabilities Roberto Evaristo a,*, Srilata Zaheer b a
Knowledge Management Program Office, 3M, 3M Center, Building 0223-2W-32, St. Paul, MN 55144-1000, U.S.A. b Carlson School of Management, University of Minnesota, 321–—19th Avenue South, Minneapolis, MN 55455, U.S.A.
KEYWORDS Meta-capability; Resource mapping; Capabilities; Networks; Strategy; Human resource management
Abstract In this Executive Digest, we make the case that aggregate individual expertise as a resource and intrinsic capability of the firm are hidden in plain sight, or worse, are assumed to exist where they do not. With high levels of complexity, business diversity, and number of geographical locations, the issue becomes even more acute. We propose strategic resource mapping (SRM) as a methodology designed to provide top managers with a rapid, comprehensive, and penetrating assessment of a firm’s ‘meta-capability’: an actionable overview of the capabilities that exist within the firm. Based on multiple successful implementations, we describe the key features of SRM and provide several illustrations. # 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Introduction CEOs find it difficult to have a good handle on the capabilities of their organizations. This is disturbing, considering that strategic action requires a clear picture of not only the capabilities that run deep within a firm but also those that are lightly developed or completely absent. The risk is to overor underinvest in certain areas, resulting in redundant capabilities or lack of delivery abilities. Does your firm have the right capabilities at sufficient depth to implement your strategic vision? Where is your firm vulnerable in terms of
* Corresponding author E-mail addresses: [email protected] (R. Evaristo), [email protected] (S. Zaheer)
its capabilities? Where should it be deploying resources to strengthen its capability base? As managers confront a host of new demands for sustainability and innovation, they need answers to these kinds of questions. Traditional resource allocation approaches rarely help with these decisions as they are typically based on limited assessments–—if at all–—of the depth and distribution of a firm’s capabilities. Addressing these challenges is critical for strategy development and implementation, and requires a shift in thinking about how knowledge of strategic capabilities is structured and presented. Senior managers need an actionable overview of the capabilities that exist within the firm. We refer to this bigger picture as a firm’s meta-capability: the ability to identify and leverage distributed capabilities across the firm. This involves not only knowing what
0007-6813/$ — see front matter # 2014 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.bushor.2014.01.004
330 capabilities exist in which units and where, but also their breadth and depth, their gaps and overlaps across units, and how they link to each other and support the strategic direction of the firm. Top managers engaged in strategy implementation need to be able to assess not just whether there are vulnerabilities or redundancies in a firm’s capabilities, but also whether the right combinations of capabilities are being brought to bear on strategic actions. Assessing a firm’s meta-capability is not easy. Capabilities are often hidden in plain sight, or worse, are assumed to exist where they do not. Traditionally, decisions regarding where to bolster capabilities, or areas in which the firm may have redundant capabilities, have been based on somewhat informal and usually incomplete knowledge. In the worst case, realization that some capabilities are missing dawns only when efforts to implement a new strategic direction falter. Drawing on network theory (Butts, 2009), we developed an approach we call strategic resource mapping (SRM), which shows promise in enabling top managers to get a rapid, comprehensive, and penetrating assessment of a firm’s meta-capability. The SRM methodology has been presented elsewhere as strategic capability mapping, or SCM (Evaristo & Zaheer, 2012). SRM offers a visual representation of the distribution and depth of different capabilities within the firm, as well as of the connections that exist, or are missing, between and among capabilities. Moreover, it provides this overview at any level of granularity–—be it within or across divisions, subsidiaries, or the firm as a whole. In the spirit of action research, we implemented SRM across different types of problems in several different organizations, including 3M, NASA, and several other firms and government agencies around the world, refining and improving the process as a result of what we learned from these implementations. In this article, we describe the key features of SRM and detail three different applications to illustrate the breadth of its potential. The cases we discuss are (1) the identification of the distribution of capabilities in an organization dedicated to promoting sustainability, (2) an illustration of the capability gaps and strengths in a cross-border merger of two financial conglomerates, and (3) a disguised example from 3M on facilitating innovation by creating uncommon connections between capabilities. These only begin to scratch the surface of SRM’s potential to transform a firm’s resource allocation process; they articulate the underlying capability structure that determines whether the implementation of a strategic initiative will succeed or fail.
EXECUTIVE DIGEST
2. How strategic resource mapping works Sustainability Victoria (SV), an agency that helps deliver solutions for sustainable growth and development in the state of Victoria, Australia, provides a good example of some of the basic features of SRM. The strategic challenge SV faced was a substantial increase in demand for economic analyses across different renewable energy options, and a consequent call for coordination across specialized and scarce capabilities of a highly technical nature. The new strategic direction envisioned by SV required collaboration across different technical areas. To translate this vision into reality, the company needed a rapid assessment of the depth, breadth, and cross-team distribution of its capabilities. Sustainability Victoria turned to SRM to identify vulnerabilities in its ability to execute its strategic mission, as well as areas in which it needed to invest in capability development. SRM brought transparency to the distribution of capabilities across the agency (see Figure 1). The different teams at SV are shown in different colors, and each circle represents an individual with certain expertise. The thickness of the lines leading to a particular capability (the magenta squares) shows the depth of each person’s expertise in that area. In this case, the depth was determined through a web-based survey, but the basic data could also have been gathered in other ways, such as by managerial assessment or electronic searches. For ease of visualization, we only show two levels of expertise–—moderate and significant–—which were defined in a manner appropriate to the capabilities being evaluated. As a general rule, for capabilities to be rated as ‘significant,’ the unit having those capabilities should be able to share that knowledge with other parts of the firm. From performing this exercise, SV gained rapid insight regarding its capabilities. To begin, the only desired strategic capability where it has no significant expertise is the Economics of Hydropower. There are several areas with only one individual with significant expertise–—for example, the Kyoto Protocol–—suggesting that the organization’s capability in those areas is thin. This creates potential vulnerabilities for the organization. In fact, the only individual with significant expertise in the Kyoto Protocol (Person 20) left the organization a few days after the data collection, compromising the ability of the organization to execute its strategy. However, the SRM analysis revealed who else could be brought up to speed rapidly in that capability.
EXECUTIVE DIGEST Figure 1. Victoria
331
Strategic resource mapping: Breadth and depth of selected knowledge resources at Sustainability
SRM also makes it clear that a few experts have deep knowledge in multiple areas (e.g., Person 15). These individuals are critical to the organization, as they have the capacity to bridge different capabilities and drive strategy implementation across multiple areas. As viewed through the SRM lens, it is readily apparent that the Renewable Energy team (shown in orange) is the only team that has all the required capabilities needed to execute a crosstechnology project, and that Solar Photovoltaic Systems has redundancy as SV possesses multiple experts with significant capability in that area. All told, the SRM analysis revealed quite a few surprises for Sustainability Victoria. It became clear that there were pools of capability outside the Renewable Energy Team, which were not known to management prior to the analysis; for example, Persons 11, 13, 14, and 26 on this team have expertise in the Kyoto Protocol. Recognition of such unacknowledged capabilities creates development opportunities and can lead to increased motivation and employee engagement. It also became clear just where the firm was vulnerable. Equipped with this knowledge, management had a better understanding of the areas in which it needed to bolster
capabilities to support new directions and those where it had adequate coverage.
3. SRM in merger integration Firms engage in mergers and acquisitions (M&A) to benefit from the combined capabilities of both organizations, as well as to save costs by eliminating redundancies. Although sharing of capabilities is often one of the key objectives of most mergers, this is not easy to accomplish: even top managers rarely have a comprehensive picture of the distribution of capabilities in their firms, let alone the capabilities of the combined firms. SRM can support the identification and integration of capabilities by depicting the location of redundancies and complementarities in the post-merger organization. We illustrate with a simplified, simulated example of a global financial services merger between Orion Global Services and Worldwide Financial Inc. (see Figure 2). What did the SRM analysis reveal about this merger? Prior to the merger, Worldwide’s U.S. unit incorporated capabilities in Wealth Management,
332 Figure 2.
EXECUTIVE DIGEST M&A integration
Asset Management, and Investment Banking, making the firm well-positioned to execute its strategy of selling complex financial solutions to U.S. clients who needed integrated solutions. However, as this was the only unit in the old Worldwide organization to have this breadth (see red oval ‘B’), Worldwide could implement such a strategy in Europe only by combining the capabilities (shown in magenta) of crosscountry business units. It could, for example, deploy multi-business-unit teams across Belgium and either Italy, Austria, or Germany (‘A’). After the merger, the synergies and redundancies across units become evident from the SRM analysis: Worldwide can now sell the same integrated solutions through Orion’s business unit in the Netherlands. Moreover, Orion’s French unit can team up with Worldwide’s Belgian unit to deliver such solutions to clients in both countries, extending the combined firm’s scope. The merger also eliminates one of Orion’s limitations: that only its Australian business unit (BU) has good retail and commercial banking capabilities. Now it can avail itself of the capabilities of many of Worldwide’s BUs in this area. Finally, a very large number of BUs of both Orion and Worldwide appear to have capabilities in Asset Management (‘C’). The Asset
Management capability in Spain, for instance, could be consolidated with those of other groups with stronger capabilities in this area. Such rationalization efforts could free up resources for redeployment. It is this ability of an SRM analysis to identify both the depth and the distribution of capabilities that makes it particularly valuable in such situations. An SRM approach across units of merging firms could begin with an assessment of capabilities at the individual level and then be aggregated to the unit, with the power to drill down if required. In a merger situation, it is optimal if mapping the depth of capabilities in different units is done as objectively as possible, perhaps via unbiased third-party evaluation. Although adequate for less controversial applications, in-house evaluations could lead to inflation of capabilities to save a particular unit in a merger situation.
4. Spurring innovation with the use of SRM Finally, we provide an example of how SRM can be used to identify capabilities that may be brought
EXECUTIVE DIGEST together to foster innovation. Firms invest significant resources to enable ‘uncommon connections’ in an effort to encourage innovation. 3M features many innovative products that have resulted from such connections across capabilities: consider the lighter, less expensive overhead projector developed as a result of applying Microreplication technology to optics, and the well-known Scotch-BriteTM product line that brought together capabilities in non-wovens and abrasives. However, even relatively structured and focused activities designed to encourage uncommon connections–—such as holding cross-business unit events–— still rely on the chance that an individual with a particular knowledge base will connect with another who has just the right complementary capability to create the perfect spark. An SRM analysis allows firms to be purposeful in creating uncommon connections across capabilities. By revealing the gaps between capabilities within the firm and simultaneously identifying particular knowledge among a large group of people, one can design targeted projects to connect complementary capabilities. This approach may be particularly powerful in situations where units are geographically dispersed, and hence are unlikely to be cognizant of one another’s capabilities.
Figure 3.
Gaps and concentration of knowledge
333
4.1. Insights Considering some of the capabilities (shown in magenta) represented in Figure 3, what insights can be gleaned from the SRM approach?
In this fictionalized example, ‘A’ is the only individual who has knowledge of both Microreplication and Ceramics. If this particular knowledge connection is important for the successful operation of the business unit, it signals a vulnerability that would need to be addressed. There are similarly weak capability connections between several other areas.
‘Green’ individuals within the circle labeled ‘B’ have the widest breadth of knowledge in the group. They are therefore more likely to be boundary spanners across capabilities. Their breadth, coupled with the depth shown in the map, gives them the credibility to push through difficult and complex projects. These individuals are very valuable to the firm as project leaders and managers.
Perhaps most strikingly, there are combinations of capabilities without a single individual whose knowledge spans capability boundaries. For
334
EXECUTIVE DIGEST
instance, in this hypothetical example, there is no one who concurrently has knowledge of both Abrasives and Membranes. Could this be an uncommon connection that needs to be encouraged–—say, via a short exploratory meeting–—to bring together these capabilities? Such insights are immediately actionable. Apart from enabling innovation by facilitating uncommon connections, these diagrams can help identify whether a healthy distribution of knowledge exists across the firm–—one that will grow and contribute to sustained innovation.
5. Implementation and recommendations A strategic resource mapping (SRM) approach can help CEOs and top managers take a strategic view of their firm’s capabilities by helping to identify both vulnerabilities and opportunities for investment and redeployment of resources. SRM creates transparency regarding the underlying capabilities of a firm, facilitating a way to connect strategy formulation to implementation by enabling development and deployment of the right capability combinations to advance strategy. The value added by taking an SRM approach is wide ranging. 3M has used it to help decide which activities can be done internally and which must be outsourced. Another innovative use of SRM at 3M has been to identify training needs, resulting in highly focused and cost-effective training
efforts. As firms struggle with aging demographics and restructuring, applying SRM can help minimize surprises such as the unintended loss of capabilities. The implementation of SRM greatly increases transparency of resource location, breadth, and depth in the firm. As a result, the resourcing level of different business units can then be assessed, directly compared, and/or discussed based on new yardsticks. Political costs associated with potential budget or organizational design changes might create resistance to implementations. Therefore, it is of paramount importance that objectives of SRM be as aligned as possible with the appropriate organizational scorecard. In our experience, the SRM approach is best initiated through high-impact demonstration projects with strong top management support such that it gains organizational visibility and acceptance before it is more widely disseminated. More than anything else, strategic resource mapping is a cost-effective way to examine a firm’s meta-capability; it helps CEOs and other top managers answer strategic questions about their firm’s vulnerabilities, strengths, and needs as they seek to implement their strategic vision.
Acknowledgment We would like to thank Michael Williamson and Sha Reilly, who generously contributed their time during data collection and analysis at Sustainability Victoria (Australia).
Appendix The development of strategic resource mapping (SRM) came out of many years of thinking about and addressing problems created by organizations’ lack of knowledge regarding their own capabilities. We took an action research approach (Lewin, 1946; Schein, 1995), engaging in over 30 implementations of SRM through which we learned its strengths and weaknesses and could improve the process along the way by critically examining each implementation. Lewin suggested that action research was initiated by the change agent (the researcher) whose goals were driving the process. Implementations ranged from analysis of a public firm’s global R&D capabilities involving several thousand individuals to the integration of ITservices across a varied group of 40 professionals and staff in a municipal government organization. While all of these implementations involved developing an understanding of the distribution and depth of capabilities in these organizations, the contexts were very different, which helped us understand the conditions required for SRM to work effectively across a variety of problems. The ideas behind SRM draw directly from network theory (Butts, 2009). While network theory has mostly been used in areas such as PERT/CPM and in collaboration and social networks in business, here we use it very differently to describe the structure of capabilities within the firm. SRM differs from the most commonly seen network application in business, social network analysis, in that we do
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not examine connections between individuals but rather the distribution of connections among capabilities across organizational units and individuals. Hence a couple of crucial differences: in social network analysis the individual connections come first and the knowledge that is assumed to be shared through those connections is much more uncertain. In SRM, on the other hand, knowledge and capabilities either at the unit or individual level are identified first. Firms can then be purposeful about linking and leveraging the knowledge of different individuals or units. By focusing primarily on the distribution and depth of capabilities rather than on linking individuals, SRM could thus lead to facilitating social networks in a purposeful and more efficient manner. Development of a capability inventory involves two stages: developing a list of what capabilities are needed to address the particular business problem under consideration, and collecting the data. Developing the list requires an understanding of what capabilities–—and at what level of granularity–— one wants to take an inventory. The overarching consideration for deciding what capabilities should be included should be based on whether there is information about that capability at a particular level of granularity that could be potentially actionable for the problem under consideration. The data collection required for a full SRM analysis is designed to describe the distribution of capabilities across units and/or individuals, including the depth, the breadth, and the location of these capabilities. There are both primary and secondary data collection methods, each with advantages and disadvantages. Common primary data collection methods include self-assessment through surveys, managerial assessment through spreadsheets, and actual tests. Self-assessments are fast, efficient, and tend to come at a lower cost, but may suffer in accuracy. Managerial assessments are resource intensive, but may be more appropriate when judgment is called for. Examinations or tests tend to be useful only when well-defined capabilities are being sought and when a test instrument already exists. Secondary data collection, on the other hand, involves inference of capabilities based on observed data (say, email), and is therefore less intrusive and will become a relatively inexpensive solution in the future, as algorithms to search and interpret text become more accurate.
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(Vol. 11, pp. 123—137). Bingley, UK: Emerald Group Publishing Limited. Lewin, K. (1946). Action research and minority problems. Journal of Social Issues, 2(4), 34—46. Schein, E. H. (1995). Process consultation, action research and clinical inquiry: Are they all the same? Journal of Management Psychology, 10(6), 14—19.