The Business Potential from a Unique Capability

A unique capability of a business is not widespread, as most businesses compete without being perceived by their customers as being “special.”  It is quite different in Art, Sport, and Science, where being unique or special is truly desired.  The unique capability of artists, sportsmen and scientists could lead, in various ways, to commercial success.  Both Art and Sport have their influences on Fashion, where the unique capability, when available, has a strong influence.  Some key high-tech organizations succeed to develop their own special capability, usually around one person, which sometimes, not too often, is also ready to teach and inspire others, so the unique capability gets stronger and wider within the organization.

The majority of the commercial organizations don’t have a unique capability and due to that face fierce competition and as a result a chronic difficulty to prosper.  

The Theory of Constraints (TOC) is naturally focused on the impact of capacity constraints on the performance of the organization, and comes up with breakthrough ideas on how to better exploit the constraint so more of the goal is achieved.  Two key concepts that rise from the recognition of having to deal with a capacity constraint resource are:

  1. Exploitation of the constraint, making sure its capacity is utilized for what generates the best profit.  Practically exploitation means a plan on how to exploit the limited capacity.
  2. Subordination to the exploitation scheme.  Setting the right policies so the exploitation plan can work to the fullest extent.

‘Capacity’ is a related term to ‘Capability.’  It looks for the maximum output units the resource can do in a period, like a day, a week, or a year.   The capacity limitation impacts the potential quantity of products/services that can be sold, but it doesn’t control the value to the customer, relative to the value the customer gets from the competition. 

So, when the operations of a relatively routine production system are significantly improved by identifying the capacity constraint, and instituting the most effective exploitation and subordination processes, there is a great opportunity to sell much more, which could leap the profit up. 

Identifying a unique capability, which delivers very high value to the customers, could yield even more, but just gaining a unique capability is insufficient.  At least two additional conditions must be in place.  One is that the unique capability can generate additional value to many customers, and the other is having a holistic program to generate as much value as possible.

Within the TOC methodology for Strategy the concept of gaining a ‘decisive-competitive-edge’ (DCE) is especially important. 

Having a decisive competitive edge (DCE) is achieved by the company answering a critical need of the client in a way that their competitors do not and it is difficult for the competition to quickly replicate their own solution to that need.  Another requirement of a DCE is that for all the other critical parameters the company performs well enough – at about the same level as its competitors.  A last requirement for validating a DCE is that it doesn’t result in new problems of significance.

The concepts of ‘DCE’ and ‘unique capability’ are connected.  A DCE that doesn’t rely on a unique capability can be easily imitated, except when the DCE is based on overcoming a very widely held but flawed assumption.  When an organization buys a unique capability, like acquiring a small company with such capability, then the challenge is developing and implementing a holistic scheme to draw the full value.  So, while imitating a competitor that came first with the unique capability is possible, it takes considerable time and effort.

How should a holistic scheme be made?  Here is an insight to digest: 

It is not enough to gain a unique capability, which can add considerable value to the customers, in order to be successful.  There is a need to develop effective exploitation and subordination procedures.  This means that on top of the capacity constraint, the unique capability, when available, requires such procedures to ensure it is fully directed to maximize the value, and that nothing else is missing from what the customer requires to draw the value.  The exploitation plan is to design the products/services in a way that emphasis the added-value of the unique capability, as well as pricing them accordingly.  The subordination processes should come up with the appropriate intermediate objectives, and performance measurements, that are targeted at fulfilling all the necessary requirements for the exploitation scheme.

Exploitation is a plan, a set of absolutely necessary decisions, targeted at achieving the best overall achievement of the goal. The subordination processes and policies are targeted to allow the exploitation plan to be performed as smoothly as possible.

It makes sense that the leading exploitation/subordination logic should be applied first to the unique capability, and then derive how should the capacity constraint be exploited.  The unique capability is used to enhance the value, and its broad perception, in the market.  Once that is planned, the capacity constraint requires its own exploitation and subordination to control the volume of the sales and the timely delivery.

Watching the final of the 2022 Mondial (World Cup soccer) highlighted for me some relevant observations.  A very highly desired unique capability for a soccer/football star player is being able to spot and take advantage of a very short-time opportunity to score a goal.  All the team should strive to create as many situations as possible for such an opportunity.  This is the essence of the exploitation, and the subordination means that all the team members stick to that objective.

The goalkeeper should be viewed as the natural constraint, because of the lack of capacity of any human being to equally protect all the goalpost area.  The overall exploitation of both the constraint (our goalkeeper) and the unique capability means having the ball away from our goalpost as possible, which also supports the exploitation scheme for preparing opportunities at the other end.  The overall subordination means focusing on the two targets: keeping the ball away from our goalpost, and finding more opportunities for the main striker(s).

In businesses the opportunity to develop a unique capability has a major impact on gaining a competitive edge, possibly even a decisive competitive edge.  Certainly, Steven Jobs had this kind of unique capability, which Apple still succeeds in maintaining.  But, instead of looking for a one-time genius, it is possible to create a team with combined skills and methodology that are focused on achieving the required unique capability.  When the specific capability is the outcome of a plan, then the key ingredients of the exploitation scheme should have been already thought of, and the challenge is to come up with the effective subordination of the whole organization, making it a true decisive-competitive-edge (DCE).

Dr. Goldratt, the developer of TOC, came up with three major steps for a strategy that is based on a new DCE: Build, Capitalize and Sustain

Build is the step of developing all the required skills for the unique capability.  Capitalize is the exploitation scheme for Marketing and Sales.  Sustain is a critical element for Operations to be ready for significantly increased demand, a necessary condition for success.

Thinking about the first two steps raises the issue that exploiting the key unique capability should involve not just the Marketing part, but also the Operations and Finance. 

Many restaurants, all over the world, struggle to achieve a competitive edge through the unique food made by their chef.  While being successful in achieving a competitive edge, it is seldom a “decisive” one.  Gaining Michelin star(s) does that by providing “proof” that the food is exceptional, worthy of the high price.  But, even when the edge is truly decisive, it is hard to scale up the volume of business, because the stars apply only to the specific restaurant, not to a whole chain, and customers are aware that when the same chef expands his/her reach to more restaurants, it is unclear whether the local chefs truly produce in the spirit of the star chef.  Another business problem of such a chain is that by expanding the unique knowledge of preparing special dishes, other chains might find ways to learn the secret and imitate the famous chef specialties.

An interesting case is the success and eventually failure of the Concorde plane.  The unique technology made the plane significantly faster than all other commercial aircraft.  The value to customers came from the much shorter flying time across long distances.  The extra value for a traveler with time to spare was limited and the price for a Concorde flight was too high for them.  So, the target market segment had to be top business and political people, who assume that their time is worth a great deal of money.

Along came the problem of failing to find an effective means for exploitation of the unique capability:  a busy businessperson, say in New York, has a specific window of time to go to Paris to meet associates and quickly return to New York.  Well, the few Concordes couldn’t offer terribly flexible departure and arrival schedules.  Private planes, even though they are much slower, provide that overall flexibility.

On top of that, the Concorde created a new problem, in TOC they are called “a negative branch,” where a valuable new idea also causes a new problem.  The Concorde, on top of its high cost, was way too noisy (sonic booms with every penetration of the sound barrier) and big cities don’t like noisy airplanes taking off and landing nearby.  Not finding a solution to the negative branch, coupled with the difficulty finding enough demand, brought the unique capability of the Concorde to an end and that was before the current priority on reducing carbon emissions.

Is it possible to gain a unique capability in Operations? 

Imitating a new operational procedure is a piece of cake, right?  Sometimes it is but look at the Toyota Production System.  How many other manufacturing organizations succeeded in being as effective?  Maybe we still don’t fully understand all key insights that Toyota has adopted?

Dr. Goldratt strived to achieve a unique capability from significantly improved operations.  One provoking idea is to be able to deliver, much faster than normal, some orders, for a substantial markup.  The emphasis is not on always delivering faster than others but on being able to reliably give that premium service when truly beneficial to the customer, which makes it possible to ask for a markup.  This is a key idea regarding exploitation: letting the customer decide whether there is a real need to get the product sooner. 

The idea follows FedEx, UPS, and similar international delivery companies, who developed their own unique capabilities to do that, but Goldratt transformed the idea to the more complex environment of manufacturing. 

Some generic conclusions

All commercial organizations, also some not-for-profits, should recognize the potential of gaining a DCE that is based on a carefully developed unique capability, which brings huge value to well-defined market segment(s), making it difficult for competitors to quickly imitate. Basing the strategy around that unique capability means using the core insights for effective exploitation and developing the rules for subordination.  Thus, the exploitation and subordination of a unique capability should be the core of the whole strategy.

There should be two major inputs for new ideas about developing a strategy:

  1. What are we good at?  What particular skills do we have?  What new skills can we acquire?
  2. What seems to be currently painful to quite a lot of potential clients? 

The major challenge is recognizing the current pain of potential customers, which our special capabilities could remove.

The challenge in recognizing what we are good at is to be able to judge our skills objectively.  Note, even when we recognize that our skills are not extraordinary, if we find a way to utilize them to develop a unique capability that there is a need for – this is what many other people and organizations, with similar raw skills fail to see.

The skill to be able to develop worthy new skills is of huge advantage.  It is a pity so few organizations are looking for people who can quickly learn new skills.

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Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

3 thoughts on “The Business Potential from a Unique Capability”

  1. Brilliant insight.
    Extremely thought provoking.
    A refresher on some key TOC ideas.
    Coming in at the right time for the forthcoming crisis.
    A well timed reminder.

    Thanks a lot!
    Please, keep up the good work!!

    Mark Stemberger, Slovenia

    Like

  2. What a complete articulation of achieving sustained quantum growth in the most holistic manner – Why, What, Where, When, Who, Whom and How!

    Each system has a certain unique capability which is, unknowingly, and hence, without focus, exploited by the system, but only to a limited extent. The main constraint is ‘ineffective subordination’ that is where Japanese score high through their focus on ‘consensus-building’ BEFORE taking any action. Another area where Japanese put focus is fully understanding cause-effect-cause BEFORE taking any action. This is what has made Toyota System still non-imitable even today.

    Dr. Goldratt exploited all the available knowledge to develop this holistic thing he named TOC.

    Development of DCE needs focus on identifying unique capability already available, honing it, making it wide-spread and then effective subordination to it.

    Like

  3. A very interesting framework to look at the need to differentiate a company’s proposal to the market.

    Besides, framing the BCS (Build, Capitalize, Sustain) approach to strategy in the scheme of exploitation and subordination can help to better articulate these three core elements.

    Goldratt’s Six Questions for Assessing the Value of a New Technology can be very useful in the process of building the exploitation and subordination scheme to apply to a new capability.

    Many Thanks, Eli

    Like

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