Organization capability: The missing piece connecting organization design and the operating model

Co-authored with Dr. Johanna Anzengruber

This is article 1 of 6 in the Organization Capability series.

Successful strategy execution requires complete alignment of people and processes throughout the organization. Properly defining the operating model and designing the organization design the right way are essential foundations for strategy success. Yet a main reason execution fails is lack of attention to and integration of a third essential component of systems design: organization capability.

The operating model, the organization design and organizational capability are the three building blocks of successful strategy execution. Leaders of organizations worldwide talk about all three constantly. Yet despite the enormous time spent citing them, there is more than a little confusion regarding how they are distinct, and how they best should be leveraged and integrated with each other. The end result: derailed execution efforts.

Of the three, organization capability has received the least attention and development. What’s missing is a robust framework and tight linkages back to the operating model and organization design. This series of articles lays a foundation for addressing those gaps, and for drawing boundaries between the operating model, organization design and organization capability. This is the first of those six articles.

The key takeaway

Classic organization design models are strong in upfront specification of the structure of decision making and work, but weak on the details of process and reward optimization. In both Jay Galbraith’s Star Model and McKinsey’s 7S, management and work processes, and rewards, play central roles. Yet both these workhorses of organization design fall short on distinguishing between what can be designed effectively upfront, and what has to be worked out after the (re)design is launched and the work is underway.

The source of the problem is that process and reward design are quite different than process and reward optimization. The design phase comes first. Optimization only happens much later, as the designs are put in practice, people learn how to do the work and work together in new ways, and subsequent adjustments are made to many parts of the system design, as needed: roles and responsibilities, KPIs, work processes, management processes, performance management, feedback, etc. The operating model and organization design by necessity focus on the process and rewards design phase. Yet because they emphasize the upfront design, they fall short on process and reward optimization precisely because they are done at the outset, before the work starts, and before all the shortcomings with the design are discovered. The challenge of optimizing processes and rewards is then left to organizational capability.

Next article: Resolving confusion about organization design, the operating model, and organization capability

For more details and a deeper dive into this topic, please join us for the workshop Optimizing Capability to Drive Business Performance in Chicago November 7-9, 2023.