Dan Simpson

Resources come in two forms—assets and capabilities—and it’s important not to confuse them. Understanding assets is not that hard. […] People-based skills and capabilities can be even larger sources of value, but they are much harder to assess. […]

Capabilities are relative, so an external lens is critical. Formal benchmarking is one obvious method. Another is to get honest input on strengths and liabilities from people who know both your company and others well. Customers, suppliers, and industry experts are good sources, as are experienced hires who join from the outside and former employees now working in businesses that don’t compete with yours.

Another way to get a more objective view of capabilities is to look back at your company’s most significant successes and failures over, say, a 10- to 15-year period. Write the facts (not the outcomes) of each case on an index card and then try to identify threads of underlying logic that would help people not familiar with the company predict success or failure. With the logic—your capabilities—in hand, people should be able to sort the cards with at least 70 percent accuracy. It’s not a perfect science, but it can help increase objectivity. It’s also a way to see how capabilities change over time.

The output from these two exercises should be not only a robust list of capabilities but also an objective assessment of areas where the organization is not very skilled. If skills in those areas are required to execute a new strategy, realistic plans must be put in place to acquire them.

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