Every leader —whether overseeing entire operations, business units, or corporate functions—should work to properly structure their organization and make it operate as well as possible.
To do that, you need to understand your organization’s effectiveness. That is the starting point for identifying gaps and issues to address.
In this article, I explain an approach to assess the effectiveness of your organization. It focuses on the critical aspects and helps you better structure the problems you must solve.
It can trigger the proper discussions and adjustments in your organization.
What is an effective organization?
In one of his books, Peter Drucker says that every executive needs to be effective, which means being able “to get the right things done.”
The same logic applies to organizations to some extent. Getting the right things done for an organization means delivering its strategy to achieve the desired results.
Your organization must perform well in critical areas for your strategy. Otherwise, the results you are expecting will not fully materialize.
The approach to assessing an organization’s effectiveness has four steps. It allows you to identify priority issues in your current organization’s design that you need to tackle. This article explains each step.
Steps to assess the effectiveness of your organization
- Articulate your strategy
- Identify the critical capabilities
- Assess the strength of those capabilities
- Investigate key issues undermining the core capabilities
Step 1. Articulate your strategy
If effectiveness is how well your organization delivers its strategy, this first step could not be different. You must start articulating your strategy.
Although there are different perspectives on the topic, I have always worked with the ideas developed by Professor Roger Martin.
He is a renowned business strategist who was named the world’s #1 management thinker in 2017.
I was fortunate to have worked at the same consulting firm he did many years ago. Unfortunately, our time there remained separate.
Strategy is a set of integrated choices your company needs to make to achieve its goals. These integrated choices position your company in a way that creates sustainable competitive advantages and delivers superior performance.
So, if you need to articulate your strategy, you need to answer the three questions below:
- What are your goals and aspirations?
- Where will you play?
- How will you win?
Question 1) What are your goals and aspirations?
To answer the first question you must clarify what you want to achieve with your company in the future. You should start with customers/ consumers, rather than services/ products. You must inspire your team and allow yourself to measure progress over time.
Your winning aspiration defines the purpose of your organization and sets the context for the following choices.
Question 2) Where will you play?
The second question is about defining which domains your business will be present. It typically involves making choices related to:
- Geographies: Which countries, regions, and cities will your business serve?
- Segments: Which segments of consumers/ customers are you aiming at? (e.g., small businesses, large enterprises, students, etc.)
- Products/ Services: What kinds of products and services will you provide?
- Value chain: In which link(s) along the value chain your company will be?
- Channels: How do you plan to distribute your products and services? Which channels will you use?
The process is interactive since you are dealing with interconnected choices. For example, the domains where you play (e.g., geography A, segment B, etc.) must align with your aspirations.
Question 3) How will you win?
Once you have answered where to play, you must clarify how you intend to win in those chosen domains.
Will you specialize and create a unique value proposition for your niche or specific segment?
Will you be innovative about distribution and engage non-traditional commercial partners to spread your solutions?
There are multiple ways to win. Making “how to win” choices involves defining how your company will create an advantage at different points.
If the strategy is clear and sound, this step should take no more than a few hours. The work should be done by filling out a one-pager and getting feedback from some people in the organization.
If this is not the case, please stop with the organization’s assessment now. You have some homework to do in your strategy.
You need to get the strategy right first. Otherwise, you won’t know the right things your organization is supposed to perform well in the first place.
Also, if you want to explore strategy more deeply, I recommend reading Roger Martin’s books and articles. His book book “Play to Win—How Strategy Really Works” is a great place to start.
Step 2. Identify the critical capabilities
Once you have articulated your strategy, it is time to understand the critical capabilities you need. They must be in place in your organization so that you can deliver your strategy.
A critical capability is not an internal initiative, process, or department. It is something that your organization must perform at a high level to progress and achieve your goals.
Illustrative example
For instance, imagine a services company, such as an engineering or law firm. Imagine that this firm decided to focus on the segment of small/ mid-sized businesses (SMEs). They did this as part of other choices regarding where to play and how to win.
Now imagine another services company focused on large enterprise accounts. “Efficient customer acquisition” is likely one of the critical capabilities of the company focused on SMEs. But probably not for the one focused on large accounts.
Focusing on SMEs will likely require generating many more leads per person than in firms focused on large enterprises. Firms like that cannot afford long sales cycles and an ongoing pipeline with just a few leads.
Tips on how to map the core capabilities
When investigating your core capabilities, it is normal to have questions about whether a specific capability is critical.
A good approach is to distinguish critical capabilities from the key activities supporting them. In the previous example, inbound marketing might be one key activity supporting the core capability of “efficient customer acquisition.”
It is also helpful to understand how they reinforce each other.
This reinforcing system makes it difficult for other companies to replicate. It can be reasonably doable to copy 1-2 things your company does well. On the other hand, it is much harder to replicate the whole system of core capabilities and key activities that your company built.
Mapping your critical capabilities and key activities is an iterative process. You and key people in your organization will discuss and reach a point of consensus or something similar.
It is okay if there are a few over which some people are not on the same page. As long as the majority of the list makes sense to everyone.
The result is typically a list of between 5 to 7 critical capabilities. In addition to 10 to 15 key activities that support those core capabilities.
Given your strategy, this list represents the things that will make a difference. Focusing on achieving those critical capabilities will significantly increase your chances of success.
Step 3. Assess how strong those capabilities are
Once the list of critical capabilities is identified, it is time to assess how well your organization performs each.
Defining what excellence looks like
To begin with, you need to define excellence for each. Try to be specific and, if possible, use metrics and numbers. This will help you determine where you want your organization to be in each area.
For instance, using the same example from step 2. If that services company needs to excel at “efficient customer acquisition,” it might mean that the company needs to:
- Have a high percentage of inbound leads: e.g., over 70%.
- Generate tens of leads per week (given smaller projects and low fees per client): e.g., 50+ new leads per week.
- Allocate a few FTEs per lead generated.
- Etc.
Clearly defining what it means to excel at the capability is important. Be specific about the outcomes, and try to define targets that allow you to assess gaps and measure progress over time.
This process requires engagement from key people in your organization. A good approach is to assign each critical capability to one person so that he/she can pass it on first. Then, this person can share and collect feedback from other colleagues in your organization.
Assessing how far you are for each capability
The next step is to evaluate how far your organization is from the desired level of performance in each core capability. This will help you identify the gaps your organization must fill.
If you have defined some metrics, you can show those quantitative gaps. For instance, you could show differences between inbound leads now (e.g., 30%) and target (70%). However, it is also important to explain qualitative gaps, particularly for some critical capabilities (e.g., innovation in a broad sense).
By the end of this step, you’ll have a deep understanding of your core capabilities and their gaps. This will enable you to identify your primary areas of improvement.
Step 4. Investigate the organizational issues undermining the core capabilities
By this point, you will have assessed your organization’s critical capabilities and the gaps you have to fill. Now it is time to understand the issues in your current organization that contribute to them.
You must investigate three main elements at this step:
- Organizational structure & key roles
- How the organization works
- Performance metrics and incentives
How your team is structured, how the different areas and roles collaborate and make decisions, and which behaviors are being fostered are the key elements that allow (or not) a core capability to be fully developed.
1. Organizational structure & key roles
First, you must understand which areas and key roles of the existing organizational structure contribute to the core capabilities.
A simple exercise of allocating the critical capabilities to the organizational areas responsible for them can provide great insights.
For instance, it might become evident that some core capabilities are outside the scope of the organization’s main areas. Or there is a lack of clarity about which area is in charge of some capabilities.
These insights will help you understand why some capabilities are not as strong as they should be.
2. How the organization works
Once we have an idea of how the main areas of the structure are associated with the core capabilities, it is necessary to investigate issues in how the work gets done.
It is crucial to understand how key processes associated with each identified capability operate and the decision-making process related to them.
This understanding requires interviewing people participating in those processes to identify what is not working well.
This diagnosis is more focused and efficient as you clearly see the performance gaps you want to fill in your capabilities.
You can start understanding how the relevant activities are currently getting done and collect different perspectives about issues and ideas for improvement.
The factors hampering each core capability will become more evident at this point.
You may realize that some of your meetings are gathering the wrong participants, the accountability for some decisions is unclear, results are not adequately monitored to generate learnings and adjustments, and so on.
3. Performance metrics and incentives
The third aspect concerns how you measure performance and how the incentives work for your organization.
If you use the wrong metrics, goals, and incentives, the behaviors you expect from your team are unlikely to occur. People must work with objectives that are aligned with fully developing their core capabilities.
You may realize that some areas have too many metrics to manage (losing focus on the critical ones). Or that the incentives should be more substantial in specific areas of the performance objectives for crucial roles.
It is essential to detect whether issues like these need improvement in your organization. You cannot develop the core capabilities required to achieve your goals without addressing them.
Identifying the priority issues to solve in your organization’s design.
By the end of step 4, you will have a clear view of the main issues across three key elements:
- Organizational structure & key roles
- How the organization works
- Performance metrics and incentives
This step provides a clear picture of why you have gaps in your critical capabilities. It is essential before starting any initiative to improve your organization’s design.
The four steps help you make an objective assessment of your organization.
Following these steps is crucial for understanding how effective your organization is. The effectiveness ultimately depends on how well you establish critical capabilities within your organization.
Without completing step 1 (Articulate your strategy), you cannot proceed to step 2 (Identify the critical capabilities).
While step 3 (Assess the strength of those capabilities) focuses on measuring effectiveness, step 4 (Investigate key issues undermining capabilities) identifies all the problems that need solving in your organization’s design.
Do not run your business without understanding what makes your organization less effective.
Follow the four steps to discover the issues that you must urgently address.
In case you require further assistance, here are two ways we can support you:
- Consulting: We can tailor our methodologies to meet your needs if you lack the bandwidth or need external expertise and support. We aim to assist you and your company enhance organizational effectiveness through customized solutions.
- Advisory: This approach offers expert guidance to teams engaged in organization design projects. While your internal team executes the work, our external advisory services ensure the project is well-structured and progresses in the right direction.
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