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What is the relationship between strategy and capability?

20 Jun 2018

What’s the relationship between strategy and capability?

We frequently see discussions of the relationship between culture and strategy, including observations that if strategy is about capability, culture is about suitability. But the relationship between capability and strategy gets less attention - despite the fact that it’s vital to the long-term success and survival of any organisation. 

A recent article in Harvard Business Review made a convincing argument for the case that any business strategy will fail if the capabilities it required to deliver are not identified. (Your Strategy Won’t Work If You Don’t Identify the New Capabilities You Need, Ron Ashkenas and Logan Chandler, HBR November 2017). 

The authors identify the key problem with many business strategies, which is that while they do an efficient job of identifying what the organisation should do differently, they rarely provide any clues about how the organisation might build the knowledge and skills required to achieve this change. If these capabilities are missing, the most insightful strategy is not going to succeed. 

New outcomes will need new capabilities

Strategic plans nearly always point forward, to changes or different ways of achieving outcomes. Since different outcomes will need to be achieved through the organisation having different capabilities, almost any strategic plan is actually going to require a transformation in what the organisation can do. Yet this is rarely considered, even as the strategy is adopted and finds its way into organisational plans. 

Strategic planners need to consult capability managers

In part, this is because capability management is usually located in a different part of the organisation from strategic planning, with little communication between the people managing these functions. Yet if ever two parts of a business or enterprise needed to talk to each other, these two do. 

The developer of the strategy may have little knowledge of what capabilities are required to deliver it. The Capability Manager has a very good idea, and also knows whether those abilities are present in the organisation, and if they are not, how much effort will need to be put into developing them. Yet they are rarely consulted at the draft strategy stage when their input would be most useful. 

For that reason, capability managers who are looking at the possibility of a new role, need to assess the job description in terms of whether they will be included in the conversations that count. These are the discussions that take place before a corporate strategy is finalised; an organisation that only sees a role for capability input once the strategy has been approved is one that is going to be hard for a capability manager to succeed in. 

Obviously, a competent manager knows that working with stakeholders is key to being effective. But if the organisation has already closed down the routes you could use to influence outcomes, good stakeholder relationships may not help. Part of the problem is that in the past, strategic capability was defined according to somewhat narrow and accountancy-based formulae. So working capital, cash, company assets and intellectual property were all seen as part of functional capability. 

People, unfortunately, were often left out. However, this has had to change because of the growth of the modern high-tech business whose main asset is the capability of its people. You can bet that a strategy meeting at Google or Apple doesn’t ignore what kind of capabilities will be needed to deliver the strategy. 

Culture, strategy and capability are the three forces that drive successful businesses today. Executives who ignore this triumvirate, are putting not just the organisation’s growth, but possibly its very survival, at risk.

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