Organizational Capabilities

Conceptual Overview

The definition highlights core features of capabilities. Although capabilities involve knowledge, they also involve the routines and practices that enable the organization to perform its tasks. Thus, capabilities have both a cognitive, or knowledge, component and a behavioral component. Capabilities also have a purposive component. Capabilities reflect what the organization intends to do or the results it aims to achieve. Capabilities also involve performing an interdependent set of tasks. Although an individual's ability may pertain to only one task, an organizational capability involves coordinating the interdependent tasks of organization members. In addition, capabilities have some degree of persistence and stability. They are the routines and processes for performing tasks reliably over time.

Organizational capabilities are honed by organizational learning processes. Organizational learning processes translate experience with the capability into knowledge for the firm. Ideally, the knowledge results in improved organizational performance. Reviews of research on the relationship between organizational experience and organizational performance find that the relationship is generally positive. There is considerable variation, however, in the rate at which organizational performance improves with experience—in the rate at which organizations learn. Some organizations learn at a fast rate whereas others evidence little or no learning. Argote and Todorova have argued that the organizational context interacts with experience to affect organizational learning processes and the development of capabilities. Certain features of the organizational context interact positively with experience and lead to positive outcomes, such as improved performance and the enhancement of capabilities, while other contextual characteristics dampen learning and may even degrade the organization's capabilities.

Argote and Todorova have classified organizational learning processes along two dimensions: their mindfulness and whether they apply to the organization's own experience or to the experience of other organizations. Building on a debate appearing in Organization Science in 2006 between Levinthal and Rerup, on one hand, and Weick and Sutcliffe, on the other, one can think about organizational learning processes as varying from mindful or deliberate processes to less mindful processes. Mindful processes involve attention. An example of an organization's using a mindful process would be one that develops capabilities by deliberately searching its products and processes for new combinations. Less mindful processes are more automatic. An organization that increases the use of a practice associated with a positive outcome without much understanding of why the outcome increased is an example of one using a less mindful learning process. Levitt and March have suggested that organizational learning processes also vary in whether they are applied to the organization's own experience or to the experience of other organizations in the environment. The latter type of learning is often referred to as knowledge transfer or knowledge spillover. An organization that analyzes its own experience to improve its capabilities is an example of one learning directly from its own experience. An organization that incorporates a practice from another firm to improve its capability is an example of a firm learning indirectly from the experience of others.

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