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Hidden business platforms and hidden customer insights are assets that companies already possess; in theory, all that remains is for management to uncover them and put them to work. A capability—the ability to perform a specific task over and over again—is different. Any capability is potentially available to any company. What matters is how individual companies combine multiple capabilities into "activity systems," as Michael Porter calls them, meaning combinations of business processes that create hard-to-replicate competitive advantage. Ikea's successful business formula, Porter argues, can be traced to a strong and unique set of linked capabilities, including global sourcing, design for assembly, logistics, and cost management (see "What Is Strategy?" from the Nov - Dec 1996 issue of Harvard Business Review).

An underexploited capability, therefore, can be an engine of growth if and only if it can combine with a company's other capabilities to produce something distinctly new and better.

Of course, a company may find that it needs to add one or more capabilities to complement those it already possesses before the combination makes for a potent activity system. Apple indisputably capitalized on its strengths in design, brand management, user interface, and elegant, easy-to-use software in creating the iPod. But Apple also needed to acquire expertise in the music business and in digital rights management. Once that was done, it gained access to content by signing up the top four music companies before anyone else did and creating the iTunes Music Store. It also created a brilliantly functional approach to digital rights management through its Fairplay software, which ensures that the music companies obtain a highly controllable revenue stream. This combination of existing and new capabilities proved transformational for the company.

The holy grail of capability development is to create a unique set of capabilities—no longer hidden—that can build one growth platform after another, giving a company repeated competitive advantage in multiple markets. This is a difficult task, and indeed it has proved to be a siren song for many. But a few companies have achieved it: Emerson Electric, Valspar (in industrial coatings), Medtronic (in implantable devices), and Johnson & Johnson, to name a few.

Novozymes
Capabilities as catalysts to redefinition
Danaher Corp.
Discovering repeatability in improving performance
   
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