Thought starter
Capability gaps: the part of the strategy nobody funds
Here is the commonest way a good strategy produces a bad year. It requires capabilities the business plainly does not have, and nobody has said so.
The strategy was chosen because the market looked attractive and the advantage made sense. Everyone assumed the business could do it. Nobody wrote that assumption down, so nobody funded it.
The reasons are easy to see. The strategy process ends at the choices. Capabilities feel like implementation, which is someone else's job, later. And capability spending looks like cost: a training line and some hires in next year's budget. There it competes with business-as-usual, and loses.
The four kinds of capability a strategy leans on
When a strategy says "we will win in this segment because of X", the X rests on one or more of four things. Name which.
Operational skills. The things the business is good at doing: low-cost production, product development, service delivery, managing a sales force. These are the capabilities most strategies assume and most businesses over-rate.
Growth-enabling skills. The things that let a business get bigger without breaking: acquiring and integrating companies, managing risk and financing, entering a new geography, running a partnership. A strategy built on acquisitions, in a business that has never integrated one, leans on a capability it does not have.
Privileged assets. Brands, networks, infrastructure, data, licences, intellectual property. These are the easiest to see and the hardest to build. A strategy that needs one it lacks is usually a strategy for a different business.
Special relationships. Access to customers, suppliers, regulators or partners that competitors do not have. Often unstated, often held by one person, and often the reason the strategy works until that person leaves.
Take each strategic theme and ask which of the four it depends on, specifically. Then ask whether the business has that at the level the theme needs. Not "we have a sales force". The test is "we have a sales force that can sell a solution on value to a procurement function, and it has done so".
Example: A distributor's strategy is to sell direct to consumers online. The theme depends on three things.
A consumer brand, a privileged asset it does not have. Digital marketing and fulfilment, operational skills it has never run. And a relationship with its trade customers that survives competing with them, a special relationship it is about to test. Three gaps, none in the plan.
Why the gaps stay unfunded
Nobody owns "the capability". An initiative has an owner. A capability is spread across functions, and each assumes another is building it.
The gap is known privately and awkward to say aloud, especially for the executive whose function lacks it. Closing it costs a lot, and the cost lands before the benefit, in a budget year that already has a target. And capability-building has no milestone that looks like revenue. So it is the first line cut when the quarter is tight.
The result: people execute the strategy as best they can with the capabilities they have. That delivers the old strategy.
The capability audit
Name the two or three capabilities the strategy needs the business to be best at. Skip the ten it would be nice to have. Rate the business on each against the best competitor, and against what the theme requires.
Use evidence of things done. Org charts are not evidence. Write down which ones the business does not have, in the strategy document itself.
Then do one of two things. Fund the gap like the strategic investment it is. That means named hires, a system, a partnership or an acquisition. It gets a budget line, an owner and a milestone, reviewed alongside the initiatives.
Or change the strategy to one the business can execute. Both are respectable. Most businesses take a third option: they keep the strategy and hope.
Example: A manufacturer's strategy is growth by acquisition. It has bought one business in twenty years and the integration is still a sore point. The capability audit names post-merger integration as the missing capability.
The board funds an experienced integration lead a year before the next deal. It makes the first acquisition small, as a deliberate practice run. The gap closes before anything tests it at scale.
The five stages
Whether capabilities match the choices is one of the practices in a Stages of Excellence strategy assessment.
At the bottom, the strategy requires capabilities the business plainly does not have and no one has said so. One step up, the gaps are known privately but unfunded and unowned. In the middle, the few capabilities that must be world-class are named and the gaps have plans. Above that, capability-building is resourced like the strategic investment it is, with hiring, systems and partnerships following the strategy. At the top, each capability investment is argued on how it strengthens the others, never as a one-off.
Most businesses are at the bottom two. The move up is a page in the strategy document that says what is missing.