Building Strategic Capabilities Through Organisational Design

Why strategy only works when the organisation is built to support it? Most organisations struggle not because their strategy is wrong, they struggle because their organisation isn’t set up to deliver it. The real purpose of organisational design is not just to bring structure or efficiency, or agility. It plays a key role to building organisational capabilities that the strategy depends on both now and in the future.

Strategy points the way. Capabilities decide whether you get there. Strategy tells you where you want to play and how you intend to win. Capabilities determine whether you actually can.

Construction workers skilfully navigate scaffolding and formwork on a building site.

Capabilities are not individual skills or isolated processes. They are the organisation’s ability to consistently do certain things well and ideally better than competition: responding quickly to clients, innovating faster, managing risk without paralysis, scaling expertise, delivering quality product or services at speed.

Research on dynamic capabilities shows that sustainable competitive advantage comes less from positioning alone and more from an organisation’s ability to build, adapt and renew its capabilities over time. High-performing organisations deliberately go through a process of identifying a small number of capabilities (usually three to five) that genuinely matter and then create an organisational alignment in order to build and strengthen them.

Why? Key capabilities provide:

• Sustainable competitive advantage (can be difficult to copy);

• Focus for the organisation (keep developing what we are really good at);

• Focus for the leadership (what is the most important).

  
  

Willing organisations, successfully achieving their strategic goals are able to create the best organisational alignment of the four key elements:

1. People practices: how people are recruited, assessed, developed etc.

2. Structure: roles and hierarchy.

3. Culture: values, norms, behaviours – more flexible, or extraverted.

4. System: regulate processes through measurement and control.

A combination of those elements in a specific configuration is called organisational architecture or organisational design. Organisational design exists to build capability and represents a deliberate way an organisation is set up to make certain behaviours, outcomes and capabilities more likely and others less so.

Organisational Design for Competitiveness

Organisational design is fundamentally about building the right capabilities that an organisation needs to succeed. Research from BCG on high-performance organisations shows that top-performing companies align strategy, operating models and people systems around a focused set of capabilities. Gartner estimates that organisational drag caused by unclear priorities and duplicated effort can consume up to 30% of productive capacity.

Current capabilities drive today’s performance. Future capabilities determine long-term competitiveness. Whether we like it or not, some roles matter more than others. Treating all roles the same dilutes focus and slows capability development. Therefore, leaders have a job to keep the focus on making and sustaining design choices that reinforce strategic capabilities.

A strategy is a goal with a plan, which ideally includes the "how". Key capabilities - what we need to be really-really good at in order to succeed in the industry. When a throughtful approach is used to create organisational design that best alignes processes, systems, people practices and behaviours around building the capabilities that matter most, strategy becomes a real success in practice.