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Organizational Capabilities: Bridging The Gap Between Strategy And Execution

Do you know what your company is capable of?

21Feb

Creating a business strategy is only half of the challenge of execution, with many companies often failing to make it to the final step due to not knowing what a company, employees, and resources are capable of. The path from idea to implementation consists of multiple practices and decisions, where building the right organizational capabilities beforehand is often the most important element of any effective implementation.

The McKinsey online survey of 1,440 industry specialists revealed that nearly 60% of the respondents set building organizational capabilities - such as how to perform lean operations and succeed in project and talent management - as their top priorities. However, only one-third of the respondents admitted that they focus their initiatives on developing new capabilities, particularly, those that can add more value and allow for faster execution.

An organizational capability can be defined as structuring everything a company does well and translating it into tangible results. For more clarity, Deloitte has divided organizational capabilities into several dimensions: talent, mission, insights, integration, process, and technology. The talent dimension is responsible for skills and workforce planning that are required to create a capability. The mission acts as a purpose of a capability, which answers how it will operate and what it will deliver. Insights represent all data, analytics, and resources available for structuring decision making patterns and measuring time frames for execution. These exist alongside initiatives that are set to achieve a desirable outcome of a capability, which is known as a process. There is also integration - rules and the guidance on how capabilities should operate, and finally, there are tech tools, in the form of software and hardware that support the capacity.

In a book published by HBR in a collaboration with PwC 'Strategy that works', it was argued that companies who grow faster than their peers tend to focus more on selective components that shape their organizational capabilities, rather than trying to succeed in everything simultaneously. These companies tend to have a strong sense of identity which helps them to master their skill of execution. For example, instead of adjusting their corporate culture to their experimentation initiatives, they try to make strategic goals fit their company's identity and strategic vision.

Why do you need to focus on your company's capabilities?

If a company understands who they are, where they stand in the market, and what role they play in it, to improve their performance and boost agility, they need to know exactly what resources they have on hand, how these are functioning and contribute to closing the gap to execution.

Today's business environment is all about change - it could be in consumer demands, competitors setting new performance standards or the nature of the market being disrupted, requiring a fast reaction to potential threats. The more clarity you have on 'what you can and cannot do', the better idea you will have on what kind of value is missing for a successful exit.

How to translate organizational capabilities into tangible results?

A business strategy is essentially a promise to deliver value, where execution is a success measurement of your strategic efforts. The path to execution normally consists of small daily decisions and processes performed by teams. Discussing and planning these prior to the main strategy planning can act as a failure prevention practice. Often, companies are too busy thinking about overall targets and financial aspects of a strategy, so they forget to take into account and plan smaller 'daily steps' which are just as important.

If we look at a typical strategic planning routine, it always starts with passion. The leadership teams spend a couple of months analyzing the market for gaps and new opportunities, as well as assessing how competitors are doing. After, based on findings and analysis, these teams formulate an investment plan which outlines the main strategy. Often, at this stage, when a big chunk of resources and time have already been spent, many realize that their strategy lacks critical ingredients.

Executives are then flooded with questions like: What could go wrong? Is there enough resources and expertise to deliver value outlined in a strategy? Will the company retain, increase, or lose in offered value for customers based on new strategic efforts? Is corporate culture in a state, where the mission is clear across all business units? However, it can be too late to think about answers as the time and money have already been spent on an inaccurate strategy. That's why developing and identifying a company's capabilities prior to strategic planning is so important.

Answering the question of how to close the gap between strategy and execution - it's all about making a company's organizational capabilities and business strategies act in symbiosis, which can power execution processes. From small tasks to bigger decisions - by joining capabilities with a strategic vision, it is possible to translate a strategic execution into a daily routine, where leadership teams can have more control over time, value, and potential problems.

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