Deloitte University Press
Bridging strategy and impact
An organization’s competitive position is enabled by its ability to perform at a high level in differentiated ways; in short, its strategic success is enabled by distinctive organizational capabilities. In today’s dynamic world, we face the ongoing need to identify and develop new capabilities to respond to changing customer demands or competitive threats. Failing to do so can put an organization at risk of becoming obsolete.
Bridging the gap
It’s not surprising, perhaps, but it is discouraging: The high failure rate organizations experience in turning strategic plans into successful results has been noted by researchers for more than 30 years. Yet as recently as 2013, an Economist study reported “61% of respondents acknowledge that their firms often struggle to bridge the gap between strategy formulation and its day-to-day implementation. Moreover, in the last three years an average of just 56% of strategic initiatives has been successful.”1
Companies can improve on this track record by paying far greater attention to the capabilities they need to successfully implement their strategy. Doing so starts with understanding exactly what “capabilities” are and what they are not, as well as determining which capabilities are strategic—i.e., are vital to the effective execution of a particular strategy—which are core to competitive performance, and which are foundational abilities that a company must have to be a viable competitor. It also involves defining these capabilities—especially strategic ones—at a much finer level of detail to make it clear what the organization is hoping to accomplish with them.
1“Why Good Strategies Fail: Lessons for the C-Suite,” Economist Intelligence Unit, 2013, http://www.pmi.org/~/media/PDF/Publications/WhyGoodStrategiesFail_Report_EIU_PMI.ashx
Understanding organizational capabilities
If you ask 100 managers whether they knew what a “capability” was, in the context of their organization, 98 of them would likely say “yes.”Unfortunately, in our experience, two-thirds of them would also probably be wrong. This widespread lack of a basic understanding of organization capabilities is of the biggest reasons more than half of all strategy initiatives fail.
Consider how organizations commonly describe capabilities, using language centered on a particular group–such as “Marketing,” “Product Development,” or “Human Resources.” Such a high-level description can be problematic for two reasons.
- A new capability may not align with existing organizational units.
- A given organizational unit may be responsible for a diverse set of capabilities.
If companies want to improve their strategy execution success rate, the first place to start is to agree on what really constitutes an organization capability. A definition we have found to be accurate and useful is this: Organizational capabilities are the abilities of an enterprise to operate its day-to-day business as well as to grow, adapt, and seek competitive advantage in the marketplace.
The multi-dimensional building blocks of organizational capabilities
The image above illustrates some of the building blocks that, as an integrated set, serve as the foundation of an organizational capability. These elements can be helpful for executives to keep in mind as they consider adapting or building the capabilities they need to support their company’s strategy.
Challenges of distinctive capabilities
Yet while vital, defining strategic capabilities is not enough. An organization must also build those capabilities, which creates a particular kind of challenge for leadership. A full discussion of best practices in building strategic capabilities is beyond the scope of this paper, but we can highlight some of the important implementation implications.
- First, it is axiomatic that an off-the-shelf solution on its own won’t create a defensible competitive position.
- Second, because of their novelty to the organization, new strategic capabilities often do not map cleanly to the existing organization.
- Third, enabling distinctive positioning through capabilities often involves entirely new ways of thinking, not just the speeding up or scaling up of old approaches.
- Finally, while the focus may be on a single new strategic capability, organizational performance is the result of an integrated system.
The preceding factors suggest that strategic capability building is an integrative exercise designed to push the organization to new levels of performance that may not come easily. Indeed, building strategic capabilities is more an act of creation than installation.
Building advantaged capabilities webcast
During the live interactive webcast below that aired on June 11, 2013, Monitor Deloitte thought leaders Bruce Chew, Erin Clark, and former director Robert Lurie drew on research and experience to present their latest eminence work, covering:
- The role strategic organizational capabilities play in bridging strategy and impact.
- Four essentials leaders should follow to build strategic organizational capabilities.
- How to recognize specific challenges organizations face when launching capability development initiatives.
- How to approach integrating new ways of thinking and working into an organization’s existing systems.
Organizational capabilities are the abilities of an enterprise to operate its day-to-day business as well as to grow, adapt, and seek competitive advantage in the marketplace.
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