capability

I guess it shouldn’t surprise me that business strategy work is often about constrained thinking.  Thinking “inside the box” is nearly always rewarded well.  After all, the person giving the rewards lives in the same box.  One of the most pernicious kinds of constrained thinking is “brand thinking.”  That is the notion that the value of your existing brand is the starting point for all your products.  Living within the box of the brand is definitely constrained thinking.

Brand thinking says “everyone knows us for doing this one thing well, so let’s invest in variations on that thing.”  That’s great.  And it often works.  For example, the Dell computer company has a great reputation for building good (but not wildly innovative) personal computers for individuals.  So naturally, when they decided to diversify, they decided that they should build on that brand.  They decided to build server computers for businesses.  It worked fairly well.  As they tried to become more innovative, they had problems with the brand.  In some areas, Dell simply bought other brands (Alienware for gaming computers, for example).

On the other hand, brand-thinking also leads to a kind of situational blindness.  Essentially, we choose not to see the things we think are outside the brand, or even the market, that we are used to.  And in doing so, we nearly always miss opportunities.  At least, until our competition points them out to us.  Dell was good at electronics manufacturing to the home.  Had they looked outside their brand, and focused on their abilities, perhaps in the 1990s, they would have been successful competing with Sony or Sharp for personal electronics.  Brand thinking says “no.” They stuck to computing, moving into printers, laptops, and tablets.  All have suffered from the “commoditization” of their market. 

A strategist is a unique role.  To be a successful strategist, you have to do everything you can to resist the boundaries of constrained thinking.  But then your ideas have to be judged by people who are PAID based on constrained thinking.  And that’s a tough sell.

Capability Modeling

When we do business capability modeling, we are looking not at the products of a company, or it’s brand, but at what that company can do.  We look at what a company has the people to do, the processes to do, the information to do, and the tools or technologies to do.  We bring together this knowledge into a complex model of elements, and summarize it as a capability map. 

The value of doing this is typically revealed when creating initiatives for the execution of strategy.  If a company is doing incremental strategy, there may be one or two areas that have slowed or prevented the company from achieving its goals with respect to its competition.  But when a company is following an innovative strategy, there may be a dozen different capabilities that need attention.  Some may have to be created from scratch.  Capability modeling is a clearly valuable tool in this arena.

However, there is another use for capability modeling that is not often discussed, and that is the need for unconstrained thinking on the part of the strategist. 

Could Capability Modeling have saved Kodak?

If you are over the age of 30, and live in a western country, you’ve probably heard of Eastman Kodak.  Known for their near monopoly on film and film processing, Kodak was the undisputed king of photography for decades.  In 1990, they held 90% market share.  They were unbeatable.  Remember this logo?  It was a very successful brand.

Let’s assume Kodak had done a capability model back in 1990 and had actually paid attention to it.  They would not look at their brand or their existing products, but at the things that they do very well.  What would be on that list of “things they do well?”

• R&D in chemical-based manufacturing
• Manufacturing of plastic and chemical based products
• Manufacturing of specially treated paper
• Manufacturing of chemical processing equipment
• Consumer-focused marketing
• Motion-picture-industry marketing

Let’s be clear here. These capabilities were not just solid.  They were the best in the world. 

What’s not on here?  Electronics.  Electronics manufacturing.  Electronics R&D. Electronics Marketing.  Not on the list.

So when Kodak started to see the need to expand, they used brand thinking.  People see the brand “Kodak” and think photography.  So why not go into the manufacturing of digital cameras?

Do you see anything on that list of capabilities that deals with innovation and manufacturing of digital cameras? Heck, they didn’t make that many analog cameras (Nikon, Olympus, and Canon made most of the analog cameras).  They had no distribution network, no reputation, no capabilities, no core skills to make cameras of any kind, and certainly not digital cameras. 

Even though they were able to leverage their brand for a while, eventually their ability to sell digital cameras fell away and they lost money.  Huge sums. At the same time that their analog film business was also losing money.

Now, look at that list again.  What do you see?  Ignore the fact that this is a film company.  Do you see other things there?

The simplest capability to build is the ability to market to a new segment.  The hardest is the ability to do R&D and manufacturing well, so let’s drop the marketing for a moment. Not completely, but let’s focus on the hard stuff.  Could they have built products based on treated plastics and treated paper?  Almost certainly.  There’s an entire industry that makes sheets of plastic film for a wide array of different purposes from glass protection to window tinting.  What about chemistry based R&D?  Could they have created innovative consumer products to compete with companies like Clorox or Proctor and Gamble? Could they have leveraged their chops in chemistry to compete with companies like 3M?  Maybe.  But only if they had looked first at their core capabilities.

The important thing to note about these industries is that they have not been disrupted by technology the same way that camera film was.  While these industries are not easy to compete in, the ability to leverage existing world-class capabilities is more critical to success than the ability to leverage the brand. 

Eastman Kodak thought of themselves in the film and photography business.  And it was their downfall.  Unfortunately, it still is.

And now a challenge…

What about this brand?  What are their core capabilities?  And what can they be doing with those capabilities? 

Are they on the precipice of disruption?  You bet.