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Page 1: Building Organizational Capabilities - cedma-europe.org articles/Elearning/Building... · building organizational capa-bilities, such as leadership development or lean opera-tions,

16 April / May 2010 Elearning!

BuildingOrganizationalCapabilities

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BUILDING ORGANIZATIONAL CAPA-BILITIES, SUCH AS LEADERSHIPDEVELOPMENT OR LEAN OPERA-TIONS, IS A TOP PRIORITY FORMOST COMPANIES. HOWEVER,MANY OF THEM HAVE NOT YET FIG-URED OUT HOW TO DO SO EFFEC-TIVELY. THE ODDS IMPROVE ATCOMPANIES WHERE SENIOR LEAD-ERS ARE MORE INVOLVED.

BY LIZ GRYER, TOM SAAR,PATTI SCHAAR ANDMCKINSEY & COMPANY

Nearly 60 percent of respondents to arecent McKinsey survey say that buildingorganizational capabilities such as leanoperations or project or talent managementis a top-three priority for their companies.Yet only a third of companies actually focustheir training programs on building thecapability that adds the most value to theircompanies’ business performance.

We defined a capability as anything anorganization does well that drives mean-ingful business results. The survey exploredwhich capabilities are most critical to acompany’s business performance and whythey focus on the capabilities they do. Italso asked executives how their companiescreate and manage training and skill-devel-opment programs and how effective those

Elearning! April / May 2010 17

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programs are in maintaining or improvingon their priority capabilities.

It’s notable that the majority of compa-nies don’t focus on a specific prioritycapability for purely competitive reasons;most often, the reason is that the capabili-ty is part of their culture. Further, somethree-quarters of respondents don’t thinktheir companies are good at building thecapability that is most important. Whensenior executives are involved in settingthe capabilities agenda, companies aremore successful at aligning those agendaswith the capability most important to per-formance and more effective at buildingthe needed skills.

A STRATEGIC PRIORITYCompanies can gain a competitive advan-tage by building foundational capabilitiessuch as lean operations and project man-agement or industry-specific capabilitiessuch as merchandising or underwriting.Indeed, executives say building capabilitiesis a top priority for their companies: 58percent of respondents say it’s among theircompanies’ top three priorities, and 90percent place it among the top ten.

Even in the context of the current finan-cial crisis, 29 percent of respondents saytheir companies have not changed theirtraining budgets; 11 percent have actuallyincreased them.

Notably, however, the most commonreason respondents give for their compa-nies’ focus on the capability identified asmost important to business performanceis that the skill is a part of their compa-nies’ culture, rather than any competitivereason (Exhibit 1).

LACK OF ALIGNMENTDespite the importance of capability build-ing on the strategic agenda, executives’responses indicate they’re not very good atexecuting: only about a quarter think theircompanies’ training programs are “extreme-ly” or “very effective” in preparing variousemployee groups to drive business per-formance or improve the overall perform-ance of their companies (Exhibit 2).

The survey results also indicate a poten-tial explanation: training programs are mis-aligned with what is thought to be thecapability most important to a company’sbusiness performance. Only 33 percent of

buildingorganizationalcapabilities

18 April / May 2010 Elearning!

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respondents say their training and skill-development programs focus on developingtheir companies’ most important capability.

Leadership skill, for example, is consid-ered by the majority of respondents to bethe capability that contributes most toperformance. Yet only 35 percent ofrespondents say they focus on it. And only36 percent of executives consider theircompanies better than competitors at lead-ership development.

In addition, companies do not focus onday-to-day activities that could maintainor improve the capability that contributesthe most to their business performance.For example, only 41 percent of respon-dents whose companies focus on supplychain management spend time definingroles, responsibilities, and decision rightsfor key positions, and just 39 percent settargets and track metrics.

INEFFECTIVE TRAINING METHODSCompanies tend to rely on on-the-jobteaching (60 percent of respondents use

this method “exclusively” or “extensive-ly”), but no more than a third use anyother method of training extensively(Exhibit 3). As companies try to replicateor scale up their training across more

geographies, alternative ways of deliveringit will become necessary. In addition, ourexperience shows that on-the-job trainingis most effective when it is reinforcedthrough some sort of formal teaching andfeedback loop.

Respondents at companies whose train-ing programs are effective in maintainingor improving the drivers of business per-formance also say their companies paymore attention to tools that support orenable capability building, such as stan-dard operating procedures, IT systems,and target setting and metric tracking.

WHAT ELSE GOES WRONGCompanies also struggle to measure theimpact of training on business perform-ance: 50 percent of respondents say theircompanies keep track of direct feedback,and at best 30 percent use any other kind ofmetric. In addition, a third of respondentsdon’t know the return on their companies’training investment. Because companiesdon’t know the impact of training, theyappear to set their agendas using different

Elearning! April / May 2010 19

Training programs are

misaligned withwhat is thought

to be the capabilities

most importantto a company’s

business performance.

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measures, including prioritizing by employ-ee role, which may not actually result in themost impact to the bottom line.

Executives at companies where training isreported to be least effective, for example,are more likely to invest in training for theleadership team and least likely to spend onthe front line—despite this group’s moreimmediate impact on operations. In con-trast, effective companies invest the most intraining the front line (Exhibit 4).

In addition, although resistance tochange is often viewed as a barrier tobuilding new capabilities, almost as manyrespondents to this survey identified a lackof resources and an unclear vision as bar-riers (Exhibit 5).

WHEN SENIOR LEADERS ENGAGESeventy percent of senior executives saycapability building is among their compa-nies’ top three priorities, compared with58 percent of respondents overall and 48percent of respondents in HR (Exhibit 6).Accordingly, when senior leaders set thetraining agenda, capability building ismore often explicitly linked to immediatebusiness goals than when other groups doso. For example, 38 percent of respon-dents at companies where senior leadersare involved in setting the training agendasay their companies’ key training andskill-development programs are focusedon building or maintaining the compa-nies’ number one skill priority, comparedwith 28 percent at companies where HRsets the agenda. Further, at companieswhere senior leaders set the agenda, 17percent spend between 6 percent and 10percent of their operating budget on

20 April / May 2010 Elearning!

buildingorganizationalcapabilities

Effective companies

invest the mostin trainingfront-line

employees.

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training and skill development, comparedwith the much lower 6 percent and 8 per-cent, respectively, who spend the same atcompanies where HR or business unitleaders set the agenda.

Perhaps not surprisingly, at companieswhere senior executives set the trainingagenda, the training and skill-developmentprograms are seen as more effective indriving business performance, thoughthere is still much room for improvement.When senior leaders set the agenda, a quar-ter of the respondents view the program aseffective, compared with 20 percent overall.

LOOKING AHEAD>>Companies need to be more deliberate

in understanding which capabilitiestruly impact business performance andalign their training programs accord-ingly. Those that focus on leadershipskill development are likelier to consid-er their training programs effective inimproving business performance.

>>When senior leaders set the agenda forbuilding capabilities, those agendas aremore often aligned with the capabilitymost important to performance.

>>Most companies focus on the capabil-

ity executives say is most importantto business performance because it’s apart of the companies’ culture, notfor any competitive reason. Whileculture is a strong driver of effectivecapability building, companies thatfocus on certain capabilities for com-petitive reasons rather than culturalones gain a stronger competitiveadvantage.

—Contributors to the development andanalysis of this survey include Liz Gryger, aconsultant in McKinsey’s Pittsburgh office;Tom Saar, a director in the Sydney office; andPatti Schaar, a consultant in the Clevelandoffice. The McKinsey Global Survey onBuilding Organizational Capabilities can befound at: www.mckinseyquarterly.com.Copyright (c) 2010 McKinsey & Company.All rights reserved. Reprinted by permission.

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Companieswhere senior

leaders set thetraining agendasay their compa-

ny’s trainingand skill-

developmentprograms aremore effective

in drivingbusiness

performance.