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Copyright 2010 by Kelley School of Business, Indiana University. For reprints, call HBS Publishing at (800) 545-7685.

BH 384

Business Horizons (2010) 53, 247—256

www.elsevier.com/locate/bushor

EXECUTIVE DIGEST

Operational capabilities: Hidden in plain view
Barbara B. Flynn a,*, Sarah Jinhui Wu b, Steven Melnyk c
Kelley School of Business, Indiana University, 801 West MichiganStreet, BS 4010, Indianapolis, IN 46033, U.S.A. b Fordham University, 463 Faber Hall, 441 East Fordham Road, Bronx, NY 10456, U.S.A. c Eli Broad College of Business, Michigan State University, 327 North Business Complex East, East Lansing, MI 48824-1122, U.S.A.
a

1. Operational capabilities 101
Operational capabilities are a lot like love: we know them when we see them, but it can be difficult toarticulate precisely what they are. There has been much discussion about the importance of operational capabilities to the competitive success of U.S. businesses. However, it is difficult to develop and nurture operational capabilities when we do not have a good handle on how to recognize them. Furthermore, there is a tendency to throw around terms like ‘‘capabilities,’’ ‘‘resources,’’ and ‘‘bestpractices’’ as though they are interchangeable; they are, in fact, very different. Each is important in its own way, but effective operations strategy requires understanding the differences between them and deploying each in the most effective way. In this article, we focus primarily on operational capabilities, developing the concept in a way that is easy to understand and visualize. We thenbriefly differentiate between operational capabilities and other closely related concepts, focusing on implications for managers.

2. Wading in
What are capabilities? In attempting to answer this question, it is helpful to look to the strategic management literature, which has studied the concept of capability–—in general–—for many years. By understanding the broader concept of capabilities, we canisolate their key features and apply them in an operations context. Although strategic management researchers use various terms to define capabilities, there seems to be consensus that a capability is not the same as a resource, but rather that it represents a distinctive and superior way of allocating, coordinating, and deploying resources (Amit & Schoemaker, 1993; Schreyogg & KlieschEberl, 2007).Examining how capabilities are developed better illustrates their essential attributes. Strategic management scholars argue that capabilities can be purposely built by focusing on the complex interactions between a firm’s resources (Amit & Schoemaker, 1993; Dierickx & Cool, 1989), deeply rooted within its idiosyncratic social structure (Schreyogg & Kliesch-Eberl, 2007) and spanning functions andhierarchical levels (Grant, 1996; Zeitz, Mittal, & McCauly, 1999). As such, capabilities become embedded into the fabric of a firm through managers’ deliberate decisions over time (Grewal & Slotegraaf, 2007). Specifically, capabilities are embedded in organizational processes that are focused on coordination, learning, and transformation

* Corresponding author. E-mail addresses: bbflynn@indiana.edu(B.B. Flynn), jiwu@fordham.edu (S.J. Wu), melnyk@msu.edu (S. Melnyk).

0007-6813/$ — see front matter # 2010 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2010.01.001

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248 (Harreld, O’Reilly, & Tushman, 2007). They are distinct behavioral patterns that are unique to a firm, becauseeach firm’s organizational units are unique and different from those of every other firm (Teece, Pisano, & Shuen, 1997). Capabilities are tacit social processes, which means that they emerge gradually over time–—so gradually that participants may not even be aware of their existence and may ultimately take them for granted (Leonard-Barton, 1992). As social processes, capabilities are path...