Building and Integrating Core IT Capabilities in Alignment with the Business: Lessons from the Commonwealth Bank 1997–2007

A key issue facing senior executives is to what extent IT should be outsourced, if at all. By implication, this issue includes identification of the core capabilities that should be retained to provide the organization with sustainable competitive advantage. From the late 1990s, there has been increased executive focus on internal IT capabilities and where to draw the line—in light of a history of mixed outsourcing outcomes. Even more recently, with growing acceptance of the need for internal IT core capabilities, the issue has included the mechanisms for developing, nurturing, maintaining and evolving these capabilities. We define a capability as a distinctive set of human-based skills, orientations, attitudes, motivations and behaviors that transform resources into specific business activities. Collections of capabilities, in turn, create high-level strategic competencies that positively influence business performance. The importance of such capabilities is established in three related bodies of literature. The first, grounded in microeconomic strategy, is the resource-based view of the firm (RBV), which argues that an organization's performance depends on the organization's ability to acquire, deploy and maintain a set of advantageous resources or assets (for more detail see Wernerfelt, 1984; Barney, 1991; Amit & Schoemaker, 1993). The second, which extends RBV, is the capability-based perspective, popularized through Prahalad & Hamel's landmark 1990 HBR article on core competencies, focuses on intangible resources, suggesting that an organization is a learning or ‘smart’, organization that builds and deploys assets, capabilities and skills in order to achieve strategic goals.1 Third is a related stream of research that has focused on knowledge as a key enabling organizational capability Furthermore, its relationship to competence is critical: “Knowledge defines and is embedded in the competencies of a company” (Mohrman, Finegold, & Klien, 2002).