From Cost-cutting to Capability Driven

Value chain reconfiguration around core capabilities key to new competitiveness, A.T. Kearney consultants assert

Plano, TX  November 8, 2002  The most competitive companies of the future will be those willing to dissect themselves into building blocks and put the pieces to work in innovative configurations to make the most of their best assets, according to a new book written by consultants with management consulting firm A.T. Kearney.

In Rebuilding the Corporate Genome: Unlocking the Real Value of Your Business, A.T. Kearney consultants Johan C. Aurik, Gillis J. Jonk and Robert E. Willen liken the capabilities of a corporation to the human gene. As each gene is a piece of DNA working as an instruction manual for a particular human characteristic, each business capability is a component of the value chain that makes a unique contribution to a company's output. The corporate genome holds the design key to what a company sells, to whom it sells and to what resources it deploys. However, contrary to its human equivalent, corporate genetic engineering is increasingly taking place today.

As new technologies such as the Internet cause value chains to break up, there is a growing opportunity to reconfigure companies around individual business capabilities such as design, marketing, production or supply chain management. Many of a company's non-crucial capabilities can be put up for outsourcing, carve-outs, poolings or incorporation into new utilities to lower their output cost and create businesses in their own right. But the consultants assert that reconfiguration around crucial capabilities is where the true value lies: new and exclusive link-ups can tap into new growth opportunities and create sources of competitiveness previously inaccessible.

"This capability-driven company model debunks the belief that the future of business is about doing what we do now more efficiently so costs fall," said A.T. Kearney Vice President Johan Aurik. "This, in the end, devalues and destroys markets as prices stabilize at a lower level for all players."

The authors craft a framework for strategy formulation for the emerging post-industrial organization by viewing the corporation as a set of building blocks, or "capabilities," that can be leveraged in unprecedented ways across the value chain. They seek to show that the capability-based view of organizations can be used to gain new insights into business process outsourcing and enablement, mergers and acquisitions, and the structural transformation of industries.

The authors divide strategies for creating a capability-driven organization into two main categories. One focuses on building a business around a single capability. The other entails working at the value chain level and assembling the most competitive line-up of capabilities possible  either through partnership, outsourcing or ownership  to create a superior product or service.

The book analyzes business strategies, organization structure and governance to explore how the capability-driven organization differs from the previously integrated models. As a result of this analysis, the authors conclude that not only will capability-driven strategies help in fending off unexpected forms of competition, they will also help in creating new sources of growth and competitiveness.