During a recent project focussed on evaluating board effectiveness, the client’s wish to enhance ‘strategic capability’ was highlighted. As this concept is one with many possible interpretations, it triggered this post, reflecting on:
- What is strategic capability, and how is it expressed in nonprofit and for-purpose organisations?
- How the concept seems to equate to strategic flexibility i.e., how ‘nimble’ the organisation is when circumstances change, and whether it can deal effectively with turbulence or volatility;
- An organisation’s level of maturity in monitoring and understanding its external and internal environments, devising and executing plans to serve stakeholder needs, while managing resources and the risks involved; and
- Means by which to develop enhanced strategic capability.
Strategic Capability
Organisational capability includes numerous dimensions, one of which is called strategic capability. Strategic capability, in turn, is a collection of skills, abilities, and processes employed collectively by governance and management in the ever-unfolding process of determining stakeholder needs, setting organisational priorities and directions, determining desired outcomes, managing resources and risks, and evaluating outcomes and impact.
Organisational capability dimensions also include numerous other sets of skills, abilities, and sets of processes, some examples of which are illustrated in the hierarchical (nested) chart below:
The concept of ‘strategic capacity’ is closely related to strategic capability. Booth-Tobin et al define ‘strategic capacity’ as “the ability of an organisation to think about how to manage resources and capabilities in pursuit of its strategy”.
They also propose three principles that need to underpin optimal utilisation of strategic capacity, with a heavy emphasis on collective effort and flexibility. The emphasis on flexibility is a common theme in more recent writing about strategic effectiveness – and hence organisational effectiveness.
Strategic Flexibility
Prof. David Teece developed the concept of ‘dynamic capability‘ to focus attention on the adaptability and innovation required to ensure an organisation remains relevant and effective. He defines ‘dynamic capabilities’ as
“(T)he ability of an organisation and its management to integrate, build, and reconfigure internal and external competences to address rapidly changing environments”.
https://www.slideshare.net/DavidTeece/dynamic-capabilities-related-paradigms-and-competitive-advantage-in-the-innovation-economy
He also explains that dynamic capabilities can be thought of as falling into three categories:
- Sense and shape opportunities and threats
- Seize opportunities
- Maintain competitiveness (relevance) through enhancing, combining, protecting, and when necessary, reconfiguring the business enterprise’s intangible and tangible assets.
In the Teece typology, ordinary capabilities are those necessary to operate efficiently now (technical efficiency), while dynamic capabilities are those supporting the organisation to renew and recreate its strategic capabilities to meet emergent needs (dynamic effectiveness). Collectively, these determine the organisation’s ‘evolutionary fitness‘, and therefore its long-term sustainability.
Another typology of strategic flexibility, proposed by Gerwin (1993), suggests four approaches can be identified. While these approaches were originally applied to manufacturing organisations, they would seem to be readily adaptable to the needs of nonprofits also.
Prof. Carine Peeters and Dr Barbara Arnst suggest five different kinds of strategic flexibility may be employed by a board from time to time. For each of these, five dispositions have been identified. Different combinations of these would be applicable depending on the particular circumstances facing your organisation.
The first of two charts that follow describes the key elements of five approaches to strategic flexibility suggested by Peeters et al.: awareness, partnering, experimentation, ambidexterity, and decisiveness. These capabilities are intended to assist you to ‘thrive through turbulence’ (similar to the dynamic capabilities highlighted by Teece). The second describes five steps recommended to boost strategic flexibility.
Maturity levels
Various governance maturity models have suggested ways of describing five or more levels of maturity, which may be seen as just another way of describing levels of capability. The more capable the organisation is, the more adaptable it can be in optimising its strategy to meet changing needs.
What most maturity models have in common is a set of graded levels from poorly controlled to optimising. These levels are broadly parallel to those used to describe individual skill levels using say, the Dreyfus model. A comparison of these collective and individual models is illustrated in the header image above, for your reflection.
The Gartner Governance Maturity Model is widely used, and this approach sees Strategic Planning as one of six dimensions, alongside Decision-making Style, Business Outcomes, Leadership Style, Risk Approach, and Fiscal Approach. While the model implies that these dimensions are discrete, more often, they are interdependent. They are likely to be used in various combinations at any given point in a board meeting.
The next chart juxtaposes several maturity models and reveals their broad similarity, while also highlighting some distinctions and variations that may be of interest.
Another variable in strategic capacity concerns the level of engagement the board has in the development of the strategy. While this could be influenced by the strategic maturity of the board, it can also be affected by the size of the organisation, and whether or not it has staff who could assist with strategy development. Smaller nonprofit entities often cannot afford executive staff, or perhaps any staff at all, and so are obliged to develop their strategies and coordinate execution using only the volunteer labour they have available.
The chart below suggests five different levels of board engagement in strategy development (with all options requiring board approval of course). When considering strategic capability development, there may be a benefit in both directors and staff being provided with professional development support.
Developing strategic capabilities
In addition to the steps designed to increase strategic flexibility (see above), non-profit leaders can promote the development of other strategic capabilities by using various combinations of the measures suggested in the chart below:
Nonprofit boards often dedicate substantial time and energy to managing the performance of the CEO and senior staff with a view to improving organisational effectiveness. In that context, quality improvement plans are used to describe the gap between the current and desired future states, and the measures to be used to close that gap.
The board’s commitment to its own effectiveness will desirably lead to directors drafting quality improvement plans for themselves – both collectively and as individual contributors. Developing strategic capabilities would be a worthy focus of your board’s quality improvement plan.
See also:
