The Capable Company Research Project
This book is an effort to document how companies have narrowed the gap between strategy and execution in the face of competitive pressure and their own internal complacency. We began with a question: If a winning capabilities system is critical to capturing value, how do companies develop it, make use of it, and keep it alive?
There was little published research to work with. While writers like C. K. Prahalad, Gary Hamel, David Teece, Ikujiro Nonaka, Hirotaka Takeuchi, and Alfred D. Chandler had all marshaled evidence to show that distinctive capabilities were critically important, they had less to say about how companies went about developing them.1
We started with three simple hypotheses: First, we hypothesized that the best ways to build long-term capabilities are different from the best ways to boost short-term financial performance. Second, we theorized that if we could compare the stories of capabilities at different companies—the decisions that led the companies to learn to do extraordinary things—we would find some common actions and attributes among all the companies. Third, we believed that we could identify capable companies by reputation: that by polling a broad enough group of experts and senior managers, we could establish a credible list of companies to study.
We thus queried industry experts in our firm and some selected outsiders about which companies had distinguished themselves through what they could do consistently well. We also set up an online survey in which we asked executives to name the sources of success for the largest companies in their industry. We considered about fifty companies in light of these recommendations and then winnowed down the list with the following criteria:
•The companies we studied had to be clearly oriented toward the strategic approach in this book. Their capabilities system had to support an overall enterprise strategy and apply to most or all of their products and services. We excluded several diverse enterprises (Berkshire Hathaway, UTC, Unilever, Tata Group) because they embodied several strategies enabled by different capabilities systems at once.
•The companies had to be good performers compared with their industries—with either solid, steady shareholder returns and profitability figures or a credible explanation for why they had struggled. CEMEX, for example, qualified despite its near-bankruptcy during the 2008 financial crisis, because of the way the crisis had affected the building industries and because of the company’s documented recovery.
•They had to be large, well-known, global companies that had reached a relative level of maturity in their operations.
•We looked for a broad range of industries and regional backgrounds. We hoped that people from any part of the world or any industry would want to learn from these examples.
•One criterion was important because we did not include it. We did not limit ourselves to clients of our management consulting practice. Our clients, which include many coherent and capable companies, have one thing in common: they have self-selected in asking for strategic or operational guidance. We did not exclude our clients, but we wanted to be sure that our sample was not limited to them.
•Finally, information about these companies and their capabilities had to be accessible to us—either through articles we commissioned for our magazine strategy+business (Haier, Lego, Starbucks); through informal conversations with people who knew the companies well (Frito-Lay, Qualcomm); through our direct in-depth experience (JCI-ASG, Pfizer’s consumer division); through a body of memoirs and well-researched published material (Amazon, Apple, Inditex); through general observation of all these companies; and through our own intensive research, interviewing senior executives about the company’s past and present.
Fourteen companies passed these criteria and became part of our research project. We conducted in-depth interviews at five of those companies: CEMEX, Danaher, Haier, IKEA, and Natura. In each of those five, we interviewed between six and eleven senior executives, people who had seen their capabilities develop firsthand.
We edited the transcripts of our interviews into roundtable-style discussions and had those approved by the interviewees and the companies as a whole, as a check on accuracy. We coded the roundtables, most of our other interviews, and our collections of published material, applying a method known as “grounded theory” to identify themes emerging from the material. We then sorted the themes to identify common patterns. In doing this, we tried to identify both elements that appeared consistently and elements that did not: for example, we looked for (but did not find) a common approach to organizational restructuring.
During a series of meetings among ourselves and with some advisers inside and outside the firm, we considered the factors that were present in all of these companies. Some of the most universal elements also resonated with our experience in helping other companies build distinctive capabilities of their own. Together, these factors added up to a common pattern, a developmental path, that in one way or another was present for all of the companies we had studied. In other words, we did not seek a compilation of best practices of successful companies, but attributes shared by companies that followed a common logic of value creation. The research consistently reinforced the view that this logic was prevalent among a particular type of successful company, that it was linked to success, and that it appeared in the context of the five unconventional acts.
As a final check, we compiled the identity profiles throughout this book and checked them with leaders at the companies or people who knew the companies well.