“A leader should be an architect of a system that produces great results”
Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organisational Behaviour at Stanford Graduate School of Business and the author or co-author of thirteen best sellers talks to Aamir Nowshahri about the importance of leadership and the benefits of simplifying it
Issue Date - 01/04/2013
Go to Page Number - 1 2 3
THE STRUCTURAL CAPABILITIES ARCHITECTURE
Structural Capabilities within any organisation belong to four categories. Doorway, Elemental, Enrichment and Power Leadership Capabilities. Once you have categorised each and every capability under these heads, you would automatically understand which ones you need to maintain, develop and which ones you need to leave go.
These are essential capacities which allow entry of the organisation into targeted businesses/markets/industries by dissolving entry barriers. These capabilities could relate to any of the functional areas (marketing, human resources, manufacturing, finance, research & development, legal, advertising et al). For example, any corporation wishing to enter the business of manufacturing aircraft needs to have all-encompassing financial capabilities, technology backup with respect to personnel, plant & machinery, necessary government licences, patent clarifications et al. Similarly, every industry has a set of Doorway Capabilities (Porter slantingly refers to these as Entry Barriers), which one has to obtain ‘before’ entering an industry. The simple corollary which most CEOs forget: if you don’t have Doorway Capabilities, it makes quite less sense to enter a new industry, however attractive it might be. Ergo, first document what Doorway Capabilities are required to enter an industry, then acquire those capabilities, and subsequently enter.
These are capacities that, after an organisation has procured the Doorway Capabilities, sustain any organisation’s functioning on a day-to-day basis. When Barista took leadership of the narrow market of café sales through Barista stores all over, competitors were more moved by the glamour of it all, rather than the pure profit dynamics. Also-ran competitors did not realise that coffee parlours were not a source of industry leadership, but were rather only a source of industry survival and continuance (Elemental) capabilities. Duncans (a G. P. Goenka group company) went into setting up Barista style tea parlours in various East Indian territories with the collaboration of retail outlets like Pantaloon (Café Bollywood). At the same time, Café Coffee Day was bent on targeting the highest potential markets by opening up coffee parlours all over India. Even though Nestle also has Café Nescafe outlets all across relevant markets, Nestlé is the leader in the overall coffee segment (with HUL following in at second rank) not because of Café Nescafe coffee parlours, but thoroughly because of the focus on converting traditional supply chain channels (institutional sales, vending machines, retail sales et al) into ‘Enrichment capabilities’ (definition further up). Nestle & HUL have clearly realised that in this industry, the maximum sales growth can occur only through leadership in traditional channels, rather than through fashionable outlets.
But wait, there are two groups of Elemental Capabilities – Pure & Derived.
Derived Elemental Capabilities are those that are continuations & combinations of improved Doorway Capabilities. For example, for an automobile manufacturer, having a plant is a Doorway Capability, but continuing production in the plant is an Elemental Capability derived from already existing Doorway Capabilities like the plant, personnel, electricity availability etc. The fact that Maruti Suzuki India Limited’s plant in Manesar (Gurgaon), rolls out the maximum number of vehicles per day (1200 units, as of September 6, 2011) and has been attaining similar benchmarks for the past 14 years (since it started) is a brilliant example of excelling at attaining derived elemental capabilities. Setting up marketing channels are invaluable Doorway Capabilities for retail corporations to start operations; maintaining these marketing channels using a combination of Doorway Capabilities like sales personnel, dealer network, and transportation et al, is a Derived Elemental Capability. Globally, Walmart is an example of this.
The other group of Elemental Capabilities is known as Pure Elemental Capabilities. These are capabilities that have not been derived from Doorway Capabilities but have been developed or acquired anew. Having detailed customer query handling processes, in spite of not being Doorway Capabilities, are essential for almost all airlines and computer selling organisations for able day-to-day customer relationship management, thus becoming Pure Elemental Capabilities that should be acquired & developed by any computer organisation. Virgin Atlantic’s customer relationship management programme, being currently handled by loyalty marketing specialists ICLP (which also works with airline group Star Alliance and for several carriers like Cathay Pacific, Air New Zealand and Qatar Airways) is an example.
Any capability that provides the basis for growth over and above the current standards of the organisation is known as an Enrichment Capability. Enrichment Capabilities are not about gaining leadership in the industry, neither are they about obtaining competitive advantage. Rather they are about gaining absolute growth in areas that are critical to the organisation. Jet Airways entered the Indian market in May 1993, and has since then, carried millions of passengers. Since the start of its operation, Jet was clinically involved with a radical focus on improvement of structural capabilities. It continuously attempted to upgrade the most critical structural capability, namely the aircraft fleet. In 2003, Jet Airways started with an operational fleet of 34 Boeing 737s and 8 ATR72-500 aircraft. Since then the airline has earned a reputation for “constantly maintaining its average fleet age below 10 years”, which is characterised by frequent phasing out of aircraft that exceed 10 years of age. As of May 2011, the average age of the airline’s fleet stood at just 5.4 years – the lowest in the industry! Today, the airline’s total fleet of 97 aircraft consists of 12 A330s, 55 B737s, 10 B777s and 20 ATR72s. Aircraft are nothing but Enrichment Capabilities for Jet, as growth of the airline increases with the number of aircraft acquired by Jet, ceterus paribus. In fact, today, despite not being at the top in terms of the number of aircraft in their fleet, Jet Airways has the largest market share of 25.5% (June 2011) and is the only profitable FSC (with a positive bottomline of Rs.96.9 million during FY2010-11) in the domestic market.