Strategy Dynamics Briefing 83: Capabilities and learning

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‘Learning’ clearly implies ‘increasing capability’, but this Briefing clarifies how this mechanism actually works. First, we must distinguish this collective learning that grows an organization’s or team’s capability from the individual learning that adds to their personal skills. Briefing 26 explained how to capture the dynamics of the skills held by individuals in a call-center team – in simple terms, that model looked at how the number of specific skills of average team members is increased or depleted.

In contrast, collective learning to grow the capability of a whole team means rather more than this. To understand this difference, the following story plays out how a real retail business developed over a number of years its capability to find good stores.

  • Their first site acquisition expert had some initial success in finding promising locations for new stores, and taking them through the process described in Briefing 80 and 82.
  • He was soon very busy, traveling long distances to visit those locations, evaluating their potential, rejecting a large fraction as unsuitable, making offers and negotiating the acquisition of good opportunities (many of which failed), and following through the purchase itself.
  • The company’s ambitions would later require an increased rate of site acquisition, growing to almost two per week at its peak—way beyond the capacity of this individual. So the company hired a second expert and a third. Still, its capability was no more than the sum of these experts’ skills. A particular location was chosen because it seemed to one of the team to meet the company’s needs.
  • By this point, the group was getting information that told them which factors were most important to the performance of its stores—visibility, high rates of passing traffic, ease of access from highways, proximity to similar retailers, and so on. To improve their success, the group wrote out this specification and sent it to real-estate agents in their search areas. They started to receive fewer opportunities, but much better ones — so they had fewer locations to inspect but an increased acceptance rate.
  • The team also discussed their success with each purchase negotiation, and shared amongst themselves any tips this suggested for achieving the lowest possible price.
  • The analysis required for new opportunities was by now better understood, so the team hired an analyst. To support this person, they set up some computer systems to automate parts of the assessment, for example calculating the socio-demographic profile of the surrounding population. This allowed a quick desk-top appraisal of each new opportunity, cutting the number of locations the experts had to visit still further.
  • Meanwhile, more staff were being added, but now they could bring in people with less experience, quickly coach them in how their processes worked and support them with the information and systems that had been developed. New individuals’ skills therefore rose rapidly. Throughout this time, the team’s success was increasingly valued by the company’s management, to the extent that almost anything they asked for was granted; more staff or better IT systems, for example.
  • Some two years into its development, the company was becoming well known amongst agents. Not only were its needs widely understood, but agents also knew they would get a quick decision on any opportunity, and the company was known to be effective at completing purchases. Consequently, the company started to be the first buyer to be informed of a new opportunity, often before the site had actually been offered for sale. Indeed, agents started pursuing sites on their behalf, even though the present owners had not put them on the market.

This story lays out the development of the three key elements of a capability – increasing individual skills, increasing amounts of high-quality data, and the establishing of proven effective procedures. As a result of these events, the company was by years four and five acquiring much better locations, more quickly and at lower prices than competitors in its sector.

Taking a high-level view of this story offers a simple architecture for capturing how a capability develops (Figure 1). The small initial capability drives an inflow of the target resource — sites in this case—and the flow itself drives the increase in capability. The next period’s increased capability drives a faster, better, cheaper inflow of further resource, and hence even more opportunities to ‘learn’. This leads to the generic architecture for learning mechanisms in Figure 1. The “R” symbol indicates self-reinforcing feedback between resource acquisition and the growing capability – the higher the rate of resource flow, the faster the increase in capability, the higher the rate of resource flow, and so on.

Figure 1: Generic architecture of learning: building capability mutually reinforces resource-building. (Click image to view larger)

Generic architecture of learning: building capability mutually reinforces resource-building

Until next time…

 

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Capabilities not linked to resources

Recent briefings have explained in some detail how capabilities operate when they relate to building or retaining a resource, but some capabilities are linked instead to the immediate effectiveness of certain tasks. Take for example a need in many companies to operate an effective and efficient telephone-sales effort. Because the winning of customers in such cases is often the task of a field sales force, the purpose of the telesales group is instead to capture repeated and high-value sales to existing customers. One particular example concerns the tele-sales operation in a newspaper. Each day, team members call advertising customer who are already known, and try to persuade them to buy space in the next edition.

Strategic Management Dynamics book coverThe learning mechanism here is the same as in Figure 1, except that the ‘resource acquisition’ flow rate is replaced with ‘volume sales rate’ (for the newspaper, measured in column-inches sold per day). Nevertheless, the three standard components of the capability are still present – the skills of the team members themselves, the availability of useful data, and the existence of proven processes and procedures.

This briefing summarises material from chapter 10 of Strategic Management Dynamics, pages 645-651.

Read more about the book on our website

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