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The Idea in Brief

Rivals everywhere are seeking to blunt your strategic edge. How to strike back? Strengthen your organizational capabilities—intangible, difficult-to-copy avails such as leadership, efficiency, and innovation. These capabilities reflect your workforce'due south collective expertise and ascertain what your firm does all-time.

But to strengthen organizational capabilities, you have to measure these notoriously difficult-to-quantify assets. Don't ignore them in favor of tangible, like shooting fish in a barrel-to-quantify assets like facilities and equipment. Intangibles influence corporate success far more.

How to assess your firm's organizational capabilities, and then you tin reinforce the crucial ones? Conduct a capabilities audit: Identify the two or three capabilities about essential to carrying out your strategy, uncover gaps between bodily and desired performance on those capabilities, and devise a program for improving them. There's no magic list of proficiencies that every visitor needs in gild to succeed. But there are 11 intangible assets that well-managed companies overall tend to have. These companies typically excel in merely three of these capabilities, while maintaining industry parity in the residue.

Companies that employ capabilities audits enhance their ability to execute strategy—and generate powerful results. For example, focusing on key capabilities of efficiency and collaboration helped U.K.-based InterContinental Hotels Group save more $100 one thousand thousand a yr, raise share cost 71%, and outperform the FTSE 100 by a factor of two.

The Idea in Practice

Conducting a Capabilities Audit

1. Decide which business unit of measurement (partitioning, region, unabridged company) to audit. Whatsoever part of your organisation responsible for delivering on strategic objectives tin benefit from auditing. Example:

Medical-device manufacturer Boston Scientific targeted its international partition for auditing, to improve service quality and profitability.

two. Place capabilities critical to meeting your unit's goals. Consider these:

Talent: attracting, motivating, and retaining competent and committed people

Speed: making of import changes chop-chop

Shared listen-set and coherent make identity: ensuring positive, consequent perceptions of the company among employees and customers

Accountability: demanding high performance from employees

Collaboration: working effectively beyond organizational boundaries

Learning: generating ideas with impact

Leadership: embedding leaders throughout the organization

Strategic unity: articulating and sharing a strategic viewpoint

Client connectivity: building indelible relationships of trust with targeted customers

Innovation: developing breakthrough products and processes

Efficiency: managing costs

3. Utilise surveys to gather data on electric current and desired capability performance. Survey respondents may include the unit's leadership team, employees, investors, suppliers, and customers. They rank the unit's current performance on each adequacy you've identified, and define operation levels needed for the unit to see its goals. Instance:

Boston Scientific had international division managers and their bosses, employees, and peers from other units rate the partitioning's current and desired operation on a list of capabilities.

four. Place the two or three capabilities well-nigh required to deliver on strategic goals. Focus on weaknesses only when they're strategically important. Determine which current capabilities should be further strengthened to enhance time to come success. Example:

Boston Scientific survey respondents, who rated talent equally a forcefulness, saw it equally disquisitional to the group'due south ability to deliver on its client-related and fiscal promises. They also identified strategic unity as another vital capability, but rated it as a partition weakness.

5. Develop an action plan. Outline steps needed to strengthen key capabilities. Clarify who will deliver on the capabilities and which metrics you'll monitor. Example:

Boston Scientific managers decided to invest further in talent—even though it was a division force—because it was critical to their client-acquisition strategy. They strengthened marketing talent to target more diverse customers. They also closed the strategic unity gap by developing a clearer statement of strategy that sharpened the group's focus on service and profitability.

If you ask them which companies they admire, people quickly betoken to organizations like General Electric, Starbucks, Nordstrom, or Microsoft. Enquire how many layers of management these companies accept, though, or how they prepare strategy, and you'll discover that few know or care. What people respect about the companies is not how they are structured or their specific approaches to management, only their capabilities—an power to innovate, for example, or to respond to changing customer needs. Such organizational capabilities, as we call them, are key intangible assets. You tin can't see or touch them, however they tin can make all the departure in the world when it comes to market value.

These capabilities—the collective skills, abilities, and expertise of an organization—are the outcome of investments in staffing, preparation, bounty, communication, and other human resources areas. They represent the ways that people and resource are brought together to accomplish piece of work. They form the identity and personality of the arrangement by defining what it is good at doing and, in the end, what it is. They are stable over fourth dimension and more than difficult for competitors to copy than uppercase market access, product strategy, or technology. They aren't piece of cake to mensurate, and so managers ofttimes pay far less attention to them than to tangible investments like plants and equipment, but these capabilities requite investors conviction in hereafter earnings. Differences in intangible assets explain why, for example, upstart airline JetBlue'due south market valuation is twice every bit loftier every bit Delta's, despite JetBlue'south having significantly lower revenues and earnings.

In this article, we look at organizational capabilities and how leaders tin evaluate them and build the ones needed to create intangible value. Through case examples, we explain how to do a capabilities audit, which provides a high-level picture of an organization'due south strengths and areas for comeback. Nosotros've conducted and observed dozens of such analyses, and we've establish the audit a powerful way to evaluate intangible assets and return them concrete and measurable.

Organizational Capabilities Explained

While people frequently employ the words "power," "competence," and "capability" interchangeably, we make some distinctions. In technical areas, nosotros refer to an individual's functional competence or to an organization's cadre competencies; on social issues, we refer to an individual'southward leadership ability or to an organization's capabilities. With these differences in heed, let's compare individual and organizational levels of analysis likewise as technical and social skill sets:

In the table higher up, the private-technical cell (i) represents a person'due south functional competence, such every bit technical expertise in marketing, finance, or manufacturing. The individual-social cell (ii) refers to a person's leadership ability—for case, to ready direction, to communicate a vision, or to motivate people. The organizational-technical cell (three) comprises a company's core technical competencies. For example, a financial services business firm must know how to manage risk. The organizational-social jail cell (4) represents an organization's underlying Deoxyribonucleic acid, culture, and personality. These might include such capabilities every bit innovation and speed.

Organizational capabilities emerge when a company delivers on the combined competencies and abilities of its individuals. An employee may exist technically literate or demonstrate leadership skill, just the company equally a whole may or may not embody the same strengths. (If it does, employees who excel in these areas will likely exist engaged; if non, they may be frustrated.) Additionally, organizational capabilities enable a company to turn its technical know-how into results. A core competence in marketing, for example, won't add together value if the system isn't able to spark change.

There is no magic list of capabilities appropriate to every organization. However, we've identified 11—listed below—that well-managed companies tend to have. (Such companies typically excel in as many every bit iii of these areas while maintaining manufacture parity in the others.) When an system falls beneath the norm in any of the eleven capabilities, dysfunction and competitive disadvantage will likely ensue.

Talent:

We are good at attracting, motivating, and retaining competent and committed people. Competent employees have the skills for today's and tomorrow'due south business organization requirements; committed employees deploy those skills regularly and predictably. Competence comes every bit leaders purchase (larn new talent), build (develop existing talent), borrow (access thought leaders through alliances or partnerships), bounce (remove poor performers), and bind (go on the all-time talent). Leaders can earn commitment from employees past ensuring that the ones who contribute more than receive more of what matters to them. Ways of assessing this organizational adequacy include productivity measures, retention statistics (though it's a good sign when employees are targeted by search firms), employee surveys, and direct observation.

Speed:

We are proficient at making of import changes rapidly. Speed refers to the organization's power to recognize opportunities and human activity quickly, whether to exploit new markets, create new products, establish new employee contracts, or implement new business processes. Speed may exist tracked in a multifariousness of means: how long it takes to get from concept to commercialization, for example, or from the drove of customer data to changes in customer relations. But as increases in inventory turns show that physical assets are well used, time savings demonstrate improvements in labor productivity as well every bit increased enthusiasm and responsiveness to opportunities. Leaders should consider creating a render-on-time-invested (ROTI) alphabetize, and so they can monitor the time required for, and the value created by, diverse activities.

Shared Mind-Set up and Coherent Make Identity:

We are good at ensuring that employees and customers accept positive and consistent images of and experiences with our organization. To gauge shared mind-set, ask each member of your team to answer the post-obit question: What are the top 3 things we want to be known for in the future past our best customers? Measure out the caste of consensus by calculating the percent of responses that match one of the three well-nigh commonly mentioned items. We have done this exercise hundreds of times, frequently to notice a shared listen-set of 50% to 60%; leading companies score in the 80% to ninety% range. The next step is to invite primal customers to provide feedback on make identity. The greater the degree of alignment between internal and external listen-sets, the greater the value of this adequacy.

Accountability:

We are adept at obtaining high performance from employees. Functioning accountability becomes an organizational adequacy when employees realize that failure to run across their goals would be unacceptable to the company. The style to runway it is to examine the tools you utilize to manage performance. By looking at a performance appraisal grade, can you derive the strategy of the business organization? What per centum of employees receive an appraisal each twelvemonth? How much does bounty vary based on employee performance? Some firms claim a pay-for-performance philosophy but give almanac compensation increases that range from 3.5% to 4.five%. These companies aren't paying for performance. We would propose that with an average increase of 4%, an platonic range for acknowledging both low and high performance would exist 0% to 12%.

Collaboration:

Nosotros are good at working across boundaries to ensure both efficiency and leverage. Collaboration occurs when an arrangement equally a whole gains efficiencies of performance through the pooling of services or technologies, through economies of scale, or through the sharing of ideas and talent across boundaries. Sharing services, for example, has been found to produce a savings of 15% to 25% in authoritative costs while maintaining acceptable levels of quality. Knowing that the average large company spends near $ane,600 per employee per yr on administration, you tin calculate the probable toll savings of shared services. Collaboration may exist tracked both throughout the organization and among teams. You can make up one's mind whether your arrangement is truly collaborative past calculating its breakdown value. Judge what each division of your company might exist worth to a potential buyer, so add up these numbers and compare the total with your current market value. As a rule of pollex, if the breakup value is 25% more than the current market value of the assets, collaboration is not 1 of the company's strengths.

Learning:

We are good at generating and generalizing ideas with affect. Organizations generate new ideas through benchmarking (that is, by looking at what other companies are doing), experimentation, competence acquisition (hiring or developing people with new skills and ideas), and continuous improvement. Such ideas are generalized when they move across a boundary of fourth dimension (from ane leader to the side by side), space (from one geographic location to another), or division (from i structural entity to some other). For individuals, learning means letting get of old practices and adopting new ones.

Leadership:

We are adept at embedding leaders throughout the system. Companies that consistently produce effective leaders generally take a clear leadership brand—a common agreement of what leaders should know, exist, and do. These companies' leaders are easily distinguished from their competitors'. Sometime McKinsey employees, for case, consistently arroyo strategy from a unique consulting perspective; they take pride in the number of the house's alumni who become CEOs of large companies. In Oct 2003, the Economist noted that xix former GE stars immediately added an astonishing $24.5 billion (cumulatively) to the share prices of the companies that hired them. You can track your organisation's leadership brand by monitoring the pool of hereafter leaders. How many backups practise you have for your meridian 100 employees? In one visitor, the substitute-to-star ratio dropped from near three:ane to about 0.7:i (less than one qualified backup for each of the pinnacle 100 employees) after a restructuring and the emptying of certain development assignments. Seeing the damage to the company'southward leadership bench, executives encouraged potential leaders to participate in temporary teams, cross-functional assignments, and action-based training activities, thus changing the organization'southward substitute-to-star ratio to about 1:ane.

Client Connectivity:

Nosotros are practiced at building indelible relationships of trust with targeted customers. Since it'due south oft the case that xx% of customers account for 80% of profits, the ability to connect with targeted customers is a strength. Client connectivity may come from dedicated account teams, databases that rail preferences, or the interest of customers in HR practices such equally staffing, training, and compensation. When a large portion of the employee population has meaningful exposure to or interaction with customers, connectivity is enhanced. To monitor this capability, identify your key accounts and runway the share of those important customers over time. Frequent customer-service surveys may as well offer insight into how customers perceive your connectivity.

Strategic Unity:

Nosotros are expert at articulating and sharing a strategic bespeak of view. Strategic unity is created at three levels: intellectual, behavioral, and procedural. To monitor such unity at the intellectual level, brand certain employees from summit to bottom know what the strategy is and why it is important. You can reinforce this sort of shared understanding by repeating elementary messages; you can measure it by noting how consistently employees respond when asked about the company'due south strategy. To gauge strategic accord at the behavioral level, inquire employees how much of their time is spent in support of the strategy and whether their suggestions for improvement are heard and acted on. When it comes to process, continually invest in procedures that are essential to your strategy. For case, Disney must pay constant attention to whatsoever practices relating to the client-service feel; it must ensure that its amusement parks are e'er safe and make clean and that guests can successfully become directions from any employee.

Innovation:

Nosotros are adept at doing something new in both content and process. Innovation—whether in products, administrative processes, business strategies, channel strategies, geographic accomplish, brand identity, or customer service—focuses on the futurity rather than on past successes. It excites employees, delights customers, and builds confidence among investors. This adequacy may be tracked through a vitality index (for instance, 1 that records revenues or profits from products or services created in the concluding three years).

Efficiency:

We are proficient at managing costs. While it'south not possible to salve your way to prosperity, leaders who fail to manage costs volition not likely have the opportunity to grow the tiptop line. Efficiency may exist the easiest capability to track. Inventories, directly and indirect labor, capital employed, and costs of goods sold can all be viewed on balance sheets and income statements.

Conducting a Capabilities Audit

But as a financial audit tracks greenbacks period and a 360-degree review assesses leadership behaviors, a capabilities inspect can assistance you monitor your company's intangible avails. It will highlight which ones are near important given the company'southward history and strategy, measure how well the visitor delivers on these capabilities, and lead to an action plan for comeback. This exercise can piece of work for an unabridged organization, a business concern unit, or a region. Indeed, any part of a company that has a strategy for producing fiscal or client-related results tin can practise an audit, as long as information technology has the backing of the leadership team. We'll walk through the process below, describing every bit we become the experiences of ii companies that recently performed such audits—Boston Scientific (a medical device manufacturer) and InterContinental Hotels Group—and what they did equally a result of their findings.

The Massachusetts-based company Boston Scientific has enjoyed potent growth over the past 25 years. In particular, its international division delivers nigh 45% of company revenues and 55% of company profits. Yet in 2003, the group'due south executives notwithstanding wanted to find ways to improve on the segmentation'south success, and so Edward Northup, president of Boston Scientific International, decided to appoint his leadership squad in a capabilities inspect.

The starting time footstep was to identify the areas that were critical in coming together the grouping'south goals. Using the 11 generic capabilities defined above as a starting point, leaders at Boston Scientific adjusted the language to suit their concern requirements. (No matter how you create the listing, the capabilities you audit should reverberate those needed to deliver on your company's strategic promises.) Adjacent, to evaluate the organisation's performance on these capabilities, the international division's executives—along with their bosses and employees and a group of peer executives from other divisions—completed a brusque online survey. Adapted from the generic questionnaire shown in the showroom "How to Perform a Capabilities Audit," the survey comprised 20 questions, with infinite for comments. For each adequacy, respondents were asked to rate on a calibration of i to five the group'south current functioning as well as the level of achievement the sectionalization would need in order to meet its goals. This exercise showed gaps betwixt electric current and desired adequacy. For example, on strategic unity—the extent to which employees understood and agreed upon strategy—the score for actual achievement was 0.91 points lower than the score for desired performance. Respondents also chose two capabilities that would most affect the group'south power to deliver on its customer-related and financial promises.

A capabilities audit will assistance you guess—and ultimately heave—your organization's intangible value. First, select a business unit of measurement (found, sectionalization, region, zone, industry). Then, using the following questions as a guide—and keeping in listen your overall business organisation strategy—assess the unit's operation in each organizational capability (0=worst; 10=best), and rank the capabilities in terms of improvement needed (1=highest priority, 2=side by side highest, and and then on).

The leaders discussed the survey findings at an off-site meeting. To accost the strategic-unity gap, they developed a clearer statement of strategy that sharpened the group's focus on service and profitability. And so, before forming an overall improvement program, they defined the capabilities that would be most critical to executing that strategy. They didn't necessarily choose capabilities with low scores in actual performance. For example, even though the grouping showed relative weakness in learning and innovation, the leadership team didn't see those capabilities every bit essential to meeting group goals, because the division is primarily a sales, marketing, and distribution arm of the company. Even so, although the division scored high on talent (see the exhibit "Does the Talent Deliver?"), the leaders chose to invest in farther developing this capability since it would be critical to success; in particular, they focused on strengthening marketing skills and edifice talent that would allow them to target a broader prepare of customers. They also launched an effort to create a leadership brand, starting with a new model of high functioning. Finally, they began to assess bench strength in support of that leadership make, starting with the system'due south three regional presidents.

In an online survey designed to approximate their sectionalisation's capabilities, executives at Boston Scientific International asked respondents to reply the post-obit question on a scale of one to five, with i meaning "not at all" and five meaning "absolutely": Do International leaders ensure that they have the all-time talent required to accomplish their strategy? The responses were positive but nonetheless indicated room for comeback in this key area.

This exercise made the intangible strengths and weaknesses of the international group tangible. It compared how executives from different parts of Boston Scientific—inside and outside the international grouping—viewed the segmentation's capabilities, and it provided a baseline score against which to measure the impact of time to come investments in these capabilities. Leaders plan to revisit the endeavor in a year to larn whether their investments accept made a difference.

The idea, in short, is non necessarily to boost weak capabilities but to identify and build capabilities that will have the strongest and most directly impact on the execution of strategy.

The Berkshire, England–based InterContinental Hotels Group (IHG) conducted its inspect across the entire visitor. In late 2002 and early 2003, the global organization—recently spun off from Bass Group—faced bloated overhead costs in the competitive hotel manufacture, experienced a decline in business and holiday travel because of the worldwide economic downturn and the spread of severe astute respiratory syndrome (SARS), underwent a make name change (from Six Continents), and battled a hostile takeover attempt by British entrepreneur Hugh Osmond. Deutsche Depository financial institution analyst Mark Finnla, in a January 2003 report, described the hotels equally "chronically underperforming…[and] making less than a tertiary of what they should be." In an endeavour to amend performance, chief executive Richard Due north initiated an "organization review."

Equally at Boston Scientific International, the inspect procedure started with collection of feedback from multiple sources—executives, employees at all levels, and franchisees who owned and managed private hotels. The information was gathered by an organisation-review design team fabricated upwards of high-potential employees from all regions. Supported by external consultants, the team members worked on the review procedure total-time for several months earlier making recommendations to the IHG executive commission. Based on this review, efficiency, or reducing costs, quickly became a priority. The visitor'due south costs were 15% to 20% college than the industry boilerplate, and IHG swiftly took measures to streamline its operations amidst the various regions, creating a shared services center and adjustment finance, man resource, and corporate functions.

IHG executives also looked at what capabilities would be essential for future success, assessing actual and desired capabilities in terms of where the company required globe-course skill, where it needed to demonstrate industry superiority, and where it needed to achieve industry parity for optimal cost-efficiency. (For a visual breakdown of the areas examined, come across the exhibit "A Snapshot of IHG'due south Capabilities Audit Results.") The capabilities nether review supported the overarching priority of efficiency. Leaders decided, for example, that the visitor should attain world-form performance in collaboration. As part of this strategic push button, IHG gave up its decentralized structure, in which each region operated independently and was responsible for its own budget and operation, and became a unified corporate entity whose regions needed to work together to solve budget shortfalls, it challenges, and the similar. By collaborating across regions and hotels, IHG streamlined operations and saved more than $100 million a twelvemonth. By focusing on the gap betwixt bodily and desired capabilities, company leaders were able to determine where to invest leadership attending. This new focus allowed IHG to fend off the hostile takeover, demerge successfully, increment its share price by 71% from April 2003 to February 2004, and outperform the FTSE 100 past a factor of two, while reenergizing the company civilisation. A survey showed dramatic increases in employee morale and confidence in visitor leadership. The quality of management at the company is no longer a matter of public debate.

InterContinental Hotels Group executives chose which capabilities would exist virtually essential to the company's hereafter success and then nerveless feedback on how well IHG delivered on these capabilities. The accompanying chart shows both actual and desired levels of accomplishment. In the capabilities designated critical for earth-class success, IHG needed to invest adequately significantly in improvements. In the areas that demanded superior performance, it needed to invest, just not as heavily. And when it came to the capabilities where IHG needed to be on par, the company was already on target and could thus focus on efficiency and cost reduction.

Lessons Learned

No two audits will look exactly the same, simply our experience has shown us that, in full general, in that location are proficient and bad ways to approach the procedure. You'll be on the right runway if y'all observe a few guidelines.

While the particulars of a capabilities audit will differ from company to company, leaders should follow these five basic steps:

1. Determine which part of the business concern to audit.

This can be a segmentation, a region, the entire visitor—whatsoever unit responsible for delivering on a strategy.

2. Create the content of the inspect.

Adapt the xi generic capabilities outlined in this article to the organization's requirements. (Yous may want to add "quality," for example.) A tailor-made inspect template will yield the about precise information.

3. Gather data from multiple groups on electric current and desired capabilities.

This information may be collected by degrees.

  • For a 90-degree cess, collect information merely from the leadership team of the unit being audited. This method is quick but often deceptive, as the leaders' self-reports may be biased.
  • For a 360-caste assessment, collect information from multiple groups within the visitor. Different groups may tell very dissimilar stories, as happened at Boston Scientific International, and can provide insights that might otherwise be missed.
  • For a 720-caste assessment, collect information non only from inside the company but from outside groups. External assessors might include investors, customers, or suppliers. These groups are important because it is in their eyes that the system's intangible value matters nearly. InterContinental Hotels Group did a 720-caste cess to some extent by including franchisees in its data sample.

4. Synthesize the information to identify the most critical capabilities requiring managerial attending.

Look for patterns in the information and focus leadership attention on no more than three capabilities required to evangelize on strategy goals. You'll need to identify which capabilities will have the most bear on and which volition be the easiest to improve.

5. Put together an action plan with articulate steps to accept and measures to monitor, and assign a team to the chore of delivering on the disquisitional capabilities.

Actions might include coordinating education or grooming events, setting performance standards, creating job forces or other organizational units to house those doing the work, or investing in engineering science to sustain the capability. Institute a time frame of ninety days for the plan's execution.

Become focused.

It'southward better to excel at a few targeted capabilities than to diffuse leadership energy over many. Leaders should choose no more than than three on which to spend their time and attention; they should aim to brand at least two of them world-class. This means identifying which capabilities will accept the most bear on and will be easiest to implement, and prioritizing accordingly. (Boston Scientific chose talent, leadership, and speed. IHG zeroed in on collaboration and speed since the visitor's leaders felt that working across boundaries faster would enable them to reach their strategic and fiscal goals.) The remaining capabilities identified in the audit should run across standards of manufacture parity. Investors seldom seek balls that an organization is average or slightly above average in every area; rather, they want the organization to have a distinct identity that aligns with its strategy.

Recognize the interdependence of capabilities.

While you need to exist focused, it's important to understand that capabilities depend on one another. So fifty-fifty though yous should target no more three for principal attention, the most important ones often demand to exist combined. For example, speed won't be enough on its ain; you will probable need fast learning, fast innovation, or fast collaboration. As any adequacy improves, information technology will probably meliorate others in plow. We presume that no capabilities are built without leaders, so working on whatsoever ane of them builds leadership. As the quality of leadership improves, talent and collaboration issues ofttimes surface—and in the procedure of resolving those problems, the company usually strengthens its accountability and learning.

Acquire from the best.

Compare your arrangement with companies that accept globe-class functioning in your target capabilities. Quite possibly, these companies won't exist in the same industry as your organisation. It'due south ofttimes helpful, therefore, to look for analogous industries where companies may have developed boggling force in the capability you desire. For example, hotels and airlines have many differences, but they're comparable when information technology comes to several driving forces: stretching majuscule assets, pleasing travelers, employing directly-service workers, then on. The advantage of looking outside your own manufacture for models is that you tin can emulate them without competing with them. They're far more likely than your summit competitors to share insights with you.

Create a virtuous cycle of assessment and investment.

A rigorous cess helps visitor executives figure out what capabilities volition exist required for success, so they tin in plough decide where to invest. Over time, repetitions of the assessment-investment cycle result in a baseline that can be useful for benchmarking.

Compare capability perceptions.

Similar 360-caste feedback in leadership assessments, capabilities audits sometimes reveal differing views of the organisation. For case, employees or customers may not agree with top leaders' perception that there is a shared mind-set. Involve stakeholders in improvement plans. If investors rank the business firm low on various capabilities, for example, the CEO or CFO might want to meet with the investors to talk over specific action plans for moving frontwards.

Match capability with delivery.

Leaders need to do more than talk about capability; they need to demonstrate information technology. Rhetoric shouldn't exceed activeness. Expectations for improvement should be outlined in a detailed program. 1 arroyo is to bring together leaders for a half-day session to generate questions for the program to address: What measurable outcome practice we want to accomplish with this capability? Who is responsible for delivering on it? How will we monitor our progress in attaining or boosting this capability? What decisions can we make immediately to foster improvement? What actions can nosotros as leaders take to promote this capability? Such actions may include developing educational activity or training programs, designing new systems for performance management, and implementing structural changes to house the needed capabilities. The all-time adequacy plans specify actions and results that will occur within a xc-day window. 60 minutes professionals may be the architects, but managers are responsible for executing these plans.

Avert underinvestment in organisation intangibles.

Often, leaders fall into the trap of focusing on what is easy to measure out instead of what is in greatest need of repair. They read balance sheets that report earnings, EVA, or other economical data merely miss the underlying organizational factors that may add value. At times the capability goals can be very concrete, every bit with IHG's focus on efficiency.

Don't confuse capabilities with activities.

An organizational capability emerges from a bundle of activities, not any unmarried pursuit. Then leadership training, for instance, needs to be understood in terms of the capability to which information technology contributes, not just the activity that takes place. Instead of request what per centum of leaders received 40 hours of grooming, ask what capabilities the leadership training created. To build speed, IHG leaders made changes in the company's structure, budgeting processes, compensation system, and other direction practices. Attending to capabilities helps leaders avoid looking for single, simple solutions to complex business issues.• • •

Few would dispute that intangible assets thing. But information technology can be quite difficult to measure them and even harder to communicate their value to stakeholders. An audit is a mode of making capabilities visible and meaningful. It helps executives assess company strengths and weaknesses, assists senior leaders in defining strategy, supports midlevel managers in executing strategy, and enables frontline leaders to make things happen. And it helps customers, investors, and employees alike recognize the organization's intangible value.

A version of this article appeared in the June 2004 event of Harvard Business Review.