Organizational Capabilities and Bottom Line Performance

Citation

Cromb, D. (2006), "Organizational Capabilities and Bottom Line Performance", Leadership & Organization Development Journal, Vol. 27 No. 3, pp. 236-238. https://doi.org/10.1108/01437730610657758

Organizational capabilities are the organization's capabilities to organize, manage, coordinate, control and govern sets of activities. They are contextual in nature, denoting an organizational environment in which members work. This context gives shape to, and explains, organizational behavior. Organizational capabilities are intangible, including both ‘hard’ but relatively measurable formal ingredients (e.g. structure and systems), as well as ‘soft’ informal elements (e.g. spirit, culture, and leadership). In a holistic model of organizing, the normative assumption is that the inextricable combination of these hard and soft elements is better able to grasp and foster human potentiality, therefore, leading to a higher level of effectiveness (performance) than if one of these aspects is ignored. As empirical evidence to support this presumed link with performance is relatively scarce, the goal of this study is to fill this gap and to test the assumption.

This book is the author's published PhD thesis. His investigation is of the influence of organizational capabilities on the performance of profit‐and‐loss responsible business units in large, multi‐unit, multinationals that have their headquarters stationed in The Netherlands. The research sample consisted of 41 business units in five multinationals, operating in a variety of businesses. All participating firms have over 2,000 employees, annual sales volumes of over one billion euros, and are active in over 20 countries. Data was collected through questionnaires of “crucial organization members” – those holding managerial or professional positions.

The author uses a combination of short‐ and long‐term financial indicators as the dependent variable “performance”. For the independent variable “organizational capabilities” he uses the existing construct of organizational architecture. In the theoretical framework of this study, organizational capabilities are considered to be an intermediate outcome of the management and leadership roles of corporate management. The concept of organizational architecture is relatively new (nearly all references in this book post‐date 1990) and is concerned with the deployment and leverage of the efforts of the organization members to the degree that it structures, coordinates, motivates, facilitates and enables individuals and groups to interact more effectively with customers, work and each other. A definition of organizational architecture used in the book is “all the systems, structures, management processes, technologies and strategies that comprise the modus operandi of an organization”.

Distinguished from physical, financial, and human resources, organizational resources (capabilities) have been characterized as the most intangible of a company's resources. Organizational architecture – the conceptualization of organizational capabilities – encourages a holistic approach to organizational design and is considered crucial to determining how inputs are transformed into the firm's performance. The model adds soft, intangible dimensions such as spirit and leadership to the more traditional, formal, hard intangible organization aspects such as structure.

Chapter one introduces the study and is followed by chapters covering a literature review on and conceptualizations of organizational capabilities, and conceptual and empirical support for relationships between organizational capabilities and performance. Several chapters cover the study's research methodology and results, with concluding chapters on result discussion and managerial implications.

The author claims two main contributions of his work: the supply of empirical support for a positive relationship between (aligned) organizational capabilities and bottom line performance; and the provision of a study on conceptualizations, dimensionalizations, and measurements or organizational capabilities. Managerial implications of the study include: organizational capabilities play a critical role in the execution of strategies as they can lever critical value‐adding resources; and assessment of organizational architecture can be an important step forward in the measurement and control of strategy implementation. During the process of his study, the author provides a framework based on organizational architecture that can serve as the basis for initiation, execution and sustainment of organizational change.

As you would expect in a PhD thesis, there is a very comprehensive literature review on organizational capabilities, their conceptualization, and support for relationships between organizational capabilities and performance. This is an excellent single source of an examination of the similarities, differences and synergies between organizational climate, culture, behavior, systems, processes, etc. This is accompanied by a chapter on the research methodology, which includes an extensive discussion on the choices of conceptualization of the dependent and independent variables. Collectively, these discussions fill over half of the book. They are not of the type you would ordinarily find in a textbook or management book, firstly because of the narrow but deep focus of the study and, secondly, the author is not a “guru” trying to present his rehash of existing knowledge with his own fancy catchphrases.

I consider this book to be an excellent addition to the library of anyone involved in organizational research.