Organization of the Future—Designed to Win

Organizational Capabilities
Matter

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Organization of the Future—Designed to Win

Organizational Capabilities
MatterFabrice Roghé, Andrew Toma, Julie Kilmann, Ralf Dicke, and Rainer Strack
January 2012

AT A GLANCE
New research from The Boston Consulting Group and its partner organizations
shows that organizational capabilities drive success. It reveals that behavioral
aspects are key—but only when they accompany sound structural capabilities.
PINPOINTING THE CAPABILITIES THAT MATTERBCG developed a framework of 20 organizational capabilities that highlight vital
structural and behavioral capabilities. These themes should be top of mind forbusiness leaders.
BEHAVIORAL ASPECTS ARE CRUCIAL, BUT MANY ORGANIZATIONS ARENOT PREPARED
Our data reveal that behavioral capabilities—strong leadership, engaged employees, and a collaborative culture—are vital for success. We found significant correlations between these capabilities and a company’s ability to create value. But atmany organizations, such capabilities still fall short.
CAPABILITIES TO BUILD, ACTIONS TO TAKE
Our findings point to three priorities that can lead to sizable gains in performance:bringing behaviors to the fore with respect to strategy execution and organization;
improving people practices; and aligning structure with business strategy.

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Organizational Capabilities MatterOn the surface, the world’s best organizations may look like many of theircompetitors: similar kinds of products, comparable business strategies, andrelated operating models. But put them under the metaphorical microscope, andwhat you see are distinct combinations of winning attributes.
BCG has recently developed and applied a powerful way to probe more deeply into
the makeup of the most successful organizations. The objective of this study was topinpoint the capabilities that matter most for financial performance, to spot thegaps between best-practice capabilities and those typical of organizations today,
and to lay out priorities to help companies close those gaps.
Our survey was comprehensive in scope and scale. We crafted a framework of 20
capabilities that define “organization” in very clear ways, making it more relevantto the everyday experiences of senior managers. We wove the framework into a
detailed online questionnaire; our 12 partner organizations worldwide (see pages
17–20) then sent the link to the online survey to many of their members in morethan 35 countries.1 We received a total of 1,600 responses, with input from every
continent and from major economic hubs such as China, the Indian subcontinent,
Russia, and South America, as well as from Japan, North America, the United
Kingdom, Germany, and other countries in Western Europe.
The survey achieved broad sectoral coverage, too. It canvassed different industries,
from consumer goods and health care to financial services and energy, as well as
different functions, from support functions such as HR and finance to business
functions like product development, manufacturing, and marketing. The respondents were mostly senior executives, including C-suite officers, which underscores
the relevance of the topic to corporate success.
The survey itself was not trivial: it required up to 30 minutes from the respondents.
The questions covered both the pressing challenges of today’s economy and theinternal capabilities needed to secure an organization’s future success. The questionnaire was designed to help us analyze the strengths and needs of respondents’organizations and to make it simpler to pinpoint the capability gaps in manydifferent dimensions. To complement the results from our large-scale survey andgain deeper insights into selected topics, we also conducted face-to-face interviews
with more than 20 senior executives from international corporations.
The study’s findings—laid out in this BCG Focus—yield some striking conclusions.
They demonstrate clearly that organizational capabilities drive corporate success.

The Boston Consulting Group3

Our study’s findings
reveal that behavioral
aspects are vital
differentiators—butonly when they
accompany structural
capabilities.

And they reveal that behavioral aspects, often seen as tangential, are vital differentiators—but only when they accompany structural capabilities such as superior
organization design and rigorous business processes and controls. A follow-on Focus
report will explore the transformational journey of a reorganization that mostcompanies need to take to close the gap between their current capabilities andthose that constitute best practice today.

A Matter of Importance: Organizational Attributes
This is not the place to rehash the myriad factors that make today’s economic
landscape so bumpy. Suffice it to say that the implications for businesses areprofound. Our study confirms that it is increasingly difficult to predict everythingfrom demand patterns to the availability of talent. Executives are quick to enumerate their challenges: More than one-third of those responding to the BCG survey
said that increasing competition is what worries them most.2 Over 30 percent ofbusiness leaders are dogged by economic uncertainty, while nearly as many worry
about increasing complexity and the speed of innovation and change.
Business leaders everywhere have similar strategic responses to these concerns.
Their top three priorities, according to our study, are about customer orientation,
tailoring their products directly to market demands, and establishing leadership ininnovation and product quality. “Our most important goal is to be ‘consumer
insight driven’ in a way [that is] better than our competitors,” said Bracken Darrell,
executive vice president of household appliances giant Whirlpool Corporation andpresident of Whirlpool Europe.
BCG wanted to uncover the fundamental differentiators—the elements in a company’s organizational makeup that would gear the business for enduring competitive
advantage. The core question to which we sought answers: How should the management team’s priorities shift, given that the company needs to be more agile,
more sharply focused on customers, and better able to mobilize around innovation?

A Comprehensive Framework of Capabilities

To start exploring these issues in detail, we developed a framework of 20 discreteorganizational capabilities. The framework’s six subcategories address structural
capabilities such as the organization structure, layers and spans of control, project
management, and business analytics, as well as behavioral capabilities, including
leadership performance, employee performance management, and the company’schange-management capabilities. (See Exhibit 1.)
The framework builds upon BCG’s research on high-performance organizations.
We began with the characteristics that BCG has found to be typical of organizations
that regularly outperform their peers. (See High-Performance Organizations: The
Secrets of Their Success, BCG Focus, September 2011.) We then expanded on someof these characteristics to explore more deeply the issue of organizational capabilities, adding an important element of granularity to our assessment. These are the
20 vital topics that we contend should adequately capture organizational performance.

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Organizational Capabilities MatterExhibit 1 | The Study Probed 20 Vital Organizational Topics
Structural design

Description

1. Organization structure••Reporting lines, including profit-and-loss
accountabilities

2. Role of the center••The corporate center’s role with regard to
involvement and leadership

3. Layers and spans of control••The number of reporting layers in the hierarchy; thenumber of people reporting directly to a manager

4. Organizational cost-efficiency••The level of cost-efficiency enabled by theorganization

5. Shared services, offshoring, andoutsourcing••Internal service provider; cross-country relocation;
subcontracting to other companies

Roles and collaboration mechanisms
6. Role clarity••Understanding of the role’s responsibilities in theorganization

7. Cross-functional collaboration
mechanisms••Lateral coordination effort between functions orunits

8. Informal/virtual networks••Important but informal channels for reinforcing
culture and communicating key information

Processes and tools
9. Process excellence/optimization••Processes optimized for high quality, shortprocessing times, or low cost

10. Project management••For example, roles, processes, and tools

11. Business analytics and information
management••Skills, technologies, applications, and practices todrive business planning

Leadership
12. Leadership performance••Capable and effective individual leaders andleadership teams

13. Leadership pipeline••Preparing for the next-generation leadership team

14. Middle-management effectiveness••Middle managers empowered to carry strategy into
the organization

People and engagement
15. Recruitment and retention••Providing the necessary talent to meet strategic andgrowth goals

16. Employee performance management••Systems and processes aligned to ensure that goals
are achieved

17. Employee motivation••The willingness to exert discretionary effort

Culture and change
18. Change management capabilities••The organization’s ability to manage change efforts

19. Adaptability and flexibility••A flexible structure that allows adapting to external
challenges

20. Culture••The set of shared values in an organization

Source: BCG analysis.

The Boston Consulting Group5

In our first step, we analyzed the correlations between the companies’ current
competence in the specific capabilities and their economic performance (chartingthe combination of growth in revenue and profit margins compared with peers, on
the basis of self-reported assessments). This allowed us to identify the topics most
relevant to economic success. In the second step, we examined how respondents
assessed the future importance of organizational capabilities and compared it withwhat they said were their current competencies. This contrast allowed us to identify
the critical capabilities requiring considerable improvement and significant attention by the top management team.

The Growing Importance of Behavioral Factors

The correlations were revealing. It was immediately evident that all 20 organizational capabilities have an impact on overall performance—though clearly somehave much more influence than others. Even more interesting: there is a definite tilt
toward behavioral factors—in particular leadership, employee engagement, andcross-functional collaboration.
For the purposes of our analysis, we clustered the survey respondents into thesegments “below average,” “average,” and “above average” for both measures of
economic performance: revenue growth and profit margins. We then classified the
respondents into three segments: “high performers,” “medium performers,” and“low performers.” (See Exhibit 2.) Roughly 40 percent of respondents’ organizations
turned out to be “high performers” in terms of revenue growth and profit margins;

Exhibit 2 | Performance Was Measured by Revenue Growth and Profit
Margins
Makeup of clusters
High performers
Above average

1%

25%

6%

Medium performers
Profitmargins

Average

Below average

4%

38%

8%

4%

11%

1%

Low performers
Below average

AverageAbove average

Revenue growthHigh performers

Medium performers

Low performers

Source: BCG survey Organization of the Future—Designed to Win.

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Organizational Capabilities Matter38 percent were rated as “medium performers,” and about 20 percent were
designated as “low performers.” Although this reflects a slight bias in the sample, we
contend that the statistical distribution is balanced enough to allow for meaningfulcorrelation analysis between organizational capabilities and overall performance.
Using the framework comprising the three performance buckets, we analyzed thecorrelation between economic performance and self-reported competence for eachof the 20 capabilities. For example, companies that rated themselves high on
leadership performance were more than twice as likely to be in the high-performance bucket as companies that rated themselves low on this capability. (SeeExhibit 3.) Similarly, effective collaboration across functions and a motivatedworkforce also drive the likelihood of high performance. These findings were
corroborated by the results of an additional correlation analysis between the
respondents’ ratings of capabilities and performance: all three capabilities correlated highly with the organization’s overall performance.
The hallmarks of best practice thus snap into focus: what best enables organizations to succeed is a motivated, cross-functional workforce that is led by a highly
capable, adaptable, and far-sighted executive team. Efforts to develop these capabilities are likely to pay off in performance that outstrips that of competitors.
The results of our statistical analysis align well with respondents’ perceptions of
their own organizations. We asked them about the perceived future importance of

Exhibit 3 | Behavior Matters
Leadership, Collaboration, and Engagement Are Key Drivers of Success
Organizational
capability...

...increases the odds of becoming
a high performer

Correlation between
capabilities and performance

101%
90%
99%

0.30
0.27
0.24
0.24
0.23
0.23
0.23
0.22
0.22
0.21
0.20
0.20
0.20
0.20
0.18
0.18
0.16
0.14
0.11
0.07
0.1
0.2
0.3

Leadership performance
Cross-functional collaboration mechanisms
Employee motivation
Corporate culture
Organizational cost-eﬃciency
Employee performance management
Process excellence/optimizationRole of the center
Leadership pipeline
Adaptability and ﬂexibility
Organization structure
Change management capabilities
Layers and spans of control
Role clarity
Business analytics and information management
Middle-management eﬀectivenessRecruitment and retention
Informal/virtual networks
Project management
Shared services, oﬀshoring, and outsourcing

40%

0

6%
20

74%
63%
77%

73%
65%
51%
57%
52%
59%
51%
42%
52%
35%
32%
25%
40

60

80

100

Increase in likelihood of
being a high performer whencapabilities are high comparedwith when they are low

0.0

Coeﬃcient of correlation
between organizational
capabilities andperformance

Source: BCG survey Organization of the Future—Designed to Win.

The Boston Consulting Group7

the different organizational capabilities. The results point in very much the same
direction as that revealed by our analysis. (See Exhibit 4.)
Overall, 77 percent of respondents see behavioral themes as very or extremely
important in the years to come, while 63 percent emphasize the importance ofstructural themes. Companies obviously consider it highly important to react tochange in flexible ways: more than 80 percent of respondents put a premium on
adaptability and flexibility, and 78 percent said they prize change management
capabilities. Similarly, respondents pointed to the future importance of a highly
motivated and effectively led workforce (with 82 percent listing “employee motivation” as an important theme, and 83 percent “leadership performance”).
What’s especially interesting is the lower importance assigned to some classicalstructural capabilities, such as layers and spans of control, role of the center, sharedservices, and organization structure. Survey respondents perceived most of thesecapabilities to be less important to the organization’s performance than they
actually are, as gauged by their statistical correlation with performance.
Our executive interviews helped us understand what might be causing this potential “underappreciation” of classical structural themes. The interviewees made itapparent that they consider structural capabilities not as differentiators as such, but

Exhibit 4 | Behavioral Capabilities Lead the Future-Importance Ranking
Leadership performance

83

Adaptability and ﬂexibility

83

Employee motivation

82

Organizational cost-eﬃciency

79

Process excellence/optimization

79

Change management capabilities

78

Middle-management eﬀectiveness76

Business analytics and information management

76

Cross-functional collaboration mechanisms

74

Project management74

Corporate culture

74

Recruitment and retention

73

Leadership pipeline73

Employee performance management

71

Informal/virtual networks

65

Role clarity

63

Organization structure

57

Shared services, oﬀshoring, and outsourcing

49

Role of the center

48

Layers and spans of control

480

Behavioral themes

10

20

30

40

50

60

70

80

90

Percentage of respondents who answered “very or extremely important” in the future

Structural themes

Source: BCG survey Organization of the Future—Designed to Win.
Note: Total number of respondents = 1,609.

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Organizational Capabilities Matteras enablers. Put simply: without structural factors such as organization structure
and cost-efficiency, the behavioral factors would be markedly less effective. Indeed,
we found a significant correlation between structural and behavioral capabilities. It
is therefore fair to say that structural levers act as the necessary foundation onwhich companies can deploy the behavioral capabilities that differentiate themfrom their peers.
Another part of our analysis involved plotting the impact of the 20 capabilities on
future importance against the current competencies of the respondents’ organizations. (See Exhibit 5.) The zone in red—denoting high future importance and low
current competence—clearly indicates a need for improvement. Interestingly, inthis area we mainly find the core behavioral competencies, such as motivation,
collaboration, and change management. We also find topics related to the manage-

Exhibit 5 | A Motivated, Cross-Functional Workforce Under Capable Leadership
Enables Organizations to Succeed
Adaptability and ﬂexibility

High

Leadershipperformance
Organizational cost-eﬃciency

Employee motivation
Change management
capabilities

Process excellence/optimization
Business analytics
and information
management

Recruitment
and retention

Projectmanagement
Corporate
cultureMiddle-managementeﬀectiveness
Cross-functional
collaboration
mechanisms

FutureimportanceRole clarity

Leadershippipeline
Employee
performance
management

Informal/virtualnetworks

Organization
structure
Shared services, oﬀshoring,and outsourcing
Layers and spans of control
Low

Role of the center
High

Current competence
Low

Source: BCG survey Organization of the Future—Designed to Win.
Note: Total number of responses for current competence = 1,641; total number of responses for future importance = 1,609.

The Boston Consulting Group9

ment of employees—for example, recruitment, retention, and performance management.
So there are plainly big gaps between how senior managers perceive the importance of behavioral and people management capabilities and how they rate theirown organizations on those capabilities. These gaps constitute a major challenge
for many companies. Organizational excellence cannot be achieved merely by
optimizing formal structures, setting up new rules, and detailing organizational role
mandates. Companies must now foster cooperation, the exchange of best-practiceideas, and employee engagement to fill the formal structures with life. They have to
make continuous efforts to ensure that their behavioral patterns match their needs
rather than emphasizing the one-off initiatives intended to attain stability. We willaddress the transformation road maps in our follow-on Focus report.

The Gap Between Current Practice and Best Practice

Our data indicatethat the behavioral
capabilities of manyorganizations are still
inadequate for theupheaval ahead.

What the survey made clear is that for most companies, there is a substantial gap
between their organizational capabilities and those that represent best practice—
the capabilities that the high performers described as being important for the
future. There’s clearly a gulf between aspiration and implementation; businessleaders’ awareness that organizational capabilities matter does not automaticallytranslate into how their own organizations behave.
Our data indicate that the behavioral capabilities of many organizations are still
inadequate for the upheaval ahead. Leadership pipelines are thin and sporadic. Far
from becoming more engaged at work, employees increasingly indicate that they
feel discontented and less comfortable in their workplaces.3 At the same time,organizations should expect more from their HR function; it is one of the partners
that should be at the management table when the organization’s development isbeing discussed. Yet recent BCG research shows that HR has much to improve
before it is up to this challenge. (See Creating People Advantage 2011: Time to Act; HR
Certainties in Uncertain Times, BCG and European Association for People Management report, September 2011.)

The Way Forward: Capabilities to Build, Actions to Take
So how can companies close the gap between awareness and action? A new approach to organizational performance is required. Our findings point to threepriorities that, when assessed and appropriately acted upon, will produce significant gains in performance: bringing behaviors to the fore; aligning and improving
people practices; and ensuring that the company’s structure is aligned with its
business strategy. Each merits a closer look.

Bringing Behaviors to the ForeOur research determined that three behavioral facets deserve immediate attention:
leadership, employee engagement, and collaboration.
In our study, leadership performance was consistently perceived as one of the mostimportant organizational topics across all industries, company sizes, and geographic
regions. It is all the more critical in times of economic turbulence and increasing

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Organizational Capabilities Mattercomplexity in the business environment. In this context, effective role models
matter more than formal and strict rules. In particular, adaptability has to bepracticed and consciously modeled by the top management team so that it cascades
down through the organization.
Even the companies that perform better need to pay particular attention to potential weaknesses in their leadership pipelines. Fully 37 percent of respondents in our
survey said that without the development of the required leadership and successionpool, high-quality leadership performance cannot be assured. BCG’s studies ofleadership make the point that a core leadership skill is the ability to track andprogressively strengthen the capabilities of the next generations of leaders. (See“New Leadership Rules: Requirements for the Future,” BCG article, May 2010.)
A second aspect of bringing behaviors to the fore is to attain high employee engagement. It is an article of faith that a truly engaged workforce will perform better byalmost every calculation: productivity, product quality, innovation, customer
service, ease of retention, and more. Further, without a motivated and diligently
recruited workforce, a company will not be able to leverage its other competencies—project management, for instance—to their full extent. Indeed, engagement isessential if companies are to be able to rely more on their employees to adapt tovolatility and handle complexity.
BCG’s research has found a strong correlation between authentic leadership andhigh employee motivation. Just as the ratio of top-performing companies washigher among the organizations that rated themselves as having “top leadershipcompetencies” than among the companies conceding less robust leadership attributes, so it is with employee motivation. The linkage demonstrates the pressing
necessity for companies to excel concurrently in both disciplines.
The third facet—collaboration—spotlights the ability of a company’s adaptive
leaders to concentrate on sustainable success for the company’s stakeholders aswell as for the company itself. (See the sidebar “Henkel Adhesive Technologies:
Assembling the Collaborative Capabilities That Boost the Innovation Pipeline.”)Those leaders build platforms for collaboration, exploiting technology to enablelarge groups to tackle complex tasks, such as product innovation, across boundaries
of organization, geography, and time. Cristóbal Conde, former CEO of software andservice provider SunGard, put it this way: “A CEO needs to focus more on theplatform that enables collaboration, because employees already have all the data.”4At the same time, collaboration mechanisms inspire behaviors that reduce the needto add structural complexity. By creating an environment conducive to collaboration, a company can avoid adding dotted lines to its organization charts. By curtailing complexity in this way, the company is freer to respond more easily to changes
in its markets.

Aligning and Improving People Practices

On the whole, people practices are ripe for improvement everywhere. In our study,
the HR function was mentioned frequently as the least effective of all functions.
That raises questions about HR’s ability to help build the employee skills and

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Engagement isessential if companies
are to be able to rely
more on their employees to adapt tovolatility and handle
complexity.

Henkel Adhesive Technologies

Assembling the Collaborative Capabilities That Boost theInnovation Pipeline
Henkel Adhesive Technologies is a
$10-billion-a-year leader in the global
industrial-adhesives market, serving abroad range of industries with adhesive, sealant, and surface treatment
solutions.
The company faces a host of technology challenges as well as growing
health and environmental demands,
which collectively add complexity tothe product and application portfolio.
Henkel also faces competition on
many fronts. In specialty adhesives
segments, where asset intensity is low
and application expertise has to behigh, the company goes head-to-headwith many small and nimble competitors, most of which are highly specialized or firmly established in local
areas and some of which are new—especially in emerging markets.
Henkel also competes in bulk volume
segments against vertically integrated
chemical companies that are exploiting their access to volatile rawmaterial markets to expand downstream into the adhesives business.
Henkel’s response has been toformulate and roll out a powerful

innovation strategy. The strategy calls
for a rebalancing between short-term
product adaptation and ambitious
long-term “breakthrough innovation”
projects. The strategic reprioritization
was translated into new target
behaviors that called for morerisk-taking and more entrepreneurial
thinking from the leadership team,
combined with a willingness to placelarger bets while staying focused on
short-term projects and customer
support.
The behaviors also required greater
engagement from employees at alllevels and in all functions in order to
identify new opportunities andgenerate new ideas, and prescribed
increased collaboration acrossfunctions, regions, and business units
so that new ideas could be sharedeasily and alliances could be formed
to push and implement those ideas.
Henkel identified and activated abroad set of organizational levers tomake the necessary changes happen.
The company structured a new
cross-business-unit research platform
into which hundreds of researcherscompetencies that drive high-performing organizations. Although line managers areprimarily responsible for leadership competencies and employee engagement, HR’s
current underperformance merits attention from senior management.
In Creating People Advantage 2011, we noted that HR can do more to improve theclarity of its mission, streamline its organization, upgrade its talent, and strengthen
its governance. Given that behavioral and people management competencies are
critical for economic success, there is an urgent need for action by HR leaders.
Another impetus for action is our finding that those outside HR often see thefunction in less favorable terms than HR itself. The biggest difference lies in the

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Organizational Capabilities Matterwere transferred; the purpose of the
new platform was to lead the big
long-term breakthrough projects andallow more leverage of technology
across the business units. The
research that remained in the units
was refocused around specific productdevelopment—particularly on
short-term reformulations, commercialization, and adaptation. Productdevelopment sites were consolidated
to develop critical mass and improve
collaboration.
At the same time, Henkel redefinedits innovation-management mechanisms and budget responsibilities sothat the business units would be
responsible for maintaining highvalue innovation pipelines. The
business units would individually hire
capacity on the research platforms topush their long-term projects forward,
and each unit’s innovation manager
would monitor the progress of theplatforms in his or her unit. In
addition, an independent advancedtechnology group was set up to drive
research on next-generation materials—the kinds of materials that were
well beyond the scope of the units’
own research efforts. Planning

processes, KPIs, and tracking mechanisms were redefined, and thecompany initiated a change cascade,using workshops to explain the newstrategy and structures and lay out
the behaviors required from leaders
and researchers. New platforms for
idea exchange and collaboration were
put in place, and success stories were
widely communicated. A lot of
attention went into defining new roles
and matching the right talent to theright roles. Critical capability gaps
were identified and addressed
through training, coaching, andrecruiting.
As a result of its innovation initiative,
Henkel dropped hundreds of lesspromising smaller projects andplaced several larger bets on newtechnologies. Innovation became acentral topic in management reviewsand executive committees, andmorale in the R&D organization
improved significantly, despite difficultand contentious structural changes.
The company’s organic growth has accelerated and the quality of its
innovation pipeline has improved
dramatically.

perceived ability of HR to attract the best talent, develop skilled employees, andconsistently motivate them to deliver high performance. These results are in linewith findings from other BCG studies, which show that these critical HR processes
often fall short of their objectives and fail to provide added value for their organizations.
There’s ample room for HR to bolster the gamut of people capabilities—from
reenergizing talent acquisition and management to rethinking career paths andincentive systems. It’s also necessary for the organization to properly harness theintellect and energies of its employees—in essence, sparking far higher levels of
engagement.

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Ensuring That Structure Aligns with Business Strategy

As noted earlier, behavioral and people management factors have a great impact onan organization’s performance. Yet if there’s no firm foundation in structural capabilities, don’t expect wonders from improvements in behavioral traits by themselves.
Imagine the difficulties that could surface in an organization that lacks the appropriate structural mechanisms. The lack of clear organizational boundaries and processes would likely breed a corporate culture that would be unconstructive to the pointof being deeply negative. Employees’ energies would be consumed with trying tocreate order—and perhaps with blaming others for their predicaments.
Similarly, the organization has to provide the structural underpinnings that willaccommodate different leadership archetypes as market circumstances shift. For
instance, when an industry matures and becomes more stable, the organization
should be able to field the sensing and information systems needed to support amore analytical style of leadership. But in more volatile times, the organization
may need to be able to create loosely coupled networks of partners when a moreexperimental leadership style is needed. (See “Adaptive Leadership,” BCG Perspectives, December 2010.)
The businesses that perform at the highest levels see the connections between
having the right behavioral capabilities and having a concrete basis in structure.
Our data show that the companies that excel on the structural front are also always
ahead in terms of their behavioral capabilities. Generally speaking, a sound structure can drive leadership, collaboration, and engagement. Just one instance: thehigh performers never treat organization design as an afterthought; they have asolid grasp of the interactions among the three elements of organization design—
structure, individuals’ capabilities, and roles and collaboration. (See Demystifying
Organization Design: Understanding the Three Critical Elements, BCG White Paper,
June 2010.)

If there’s no firm
foundation in structural capabilities,
don’t expect wonders
from improvements inbehavioral traits bythemselves.

Clear accountabilities, unambiguous decision-making rights, and lean and cost-efficient processes enable employees to engage and cooperate, freeing them frombureaucratic entanglements and internal turf wars. Maintaining a structure with thefewest possible layers and higher spans of control reduces micromanagement andempowers employees—especially middle managers. Clarifying roles and accountabilities reduces duplicate work, accelerates decision making, and fosters ownership.
Process discipline focuses energy, reduces the cost of coordination, and provides anavenue for improved flow of the information critical for decision making.
It is encouraging that most of the executives we interviewed recognize the importance of combining both behavioral aspects and structural interventions. They
clearly understand that structural issues do require attention. Fully 79 percent ofrespondents described the importance to their organizations’ future of cost-efficiency and process excellence, for example. Yet there is a risk that managers underestimate the need for action and overestimate their capabilities. Most respondents
stated that the traditional structural themes of organization structure, layers, andspans of control, as well as the role of the corporate center, do not require any
improvement in their companies. Similarly, project management and processexcellence were perceived as adequate.

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Organizational Capabilities MatterIn some cases, their assessments might reflect the truth. In others, the managers
might be too complacent or indulgent toward their organizations. Just as behavioral
factors need continuous attention, the very structural foundation of an organization’s performance needs a regular “health check” to ensure its solidity and robustness. Otherwise, the organization’s performance risks gradual deterioration.

Clearly, it is no overnight fix to identify the necessary organizational capabilities—let alone to augment and implement them. The development and sustenance of the right mix of organizational capabilities are never something that canbe achieved in this financial quarter, or even within the span of a fiscal year. That is
especially true of behavioral capabilities. So business leaders must view the necessary changes as a journey rather than as a one-off project designed to achieve somekind of steady state.
Nor is there one true set of themes that will apply to every company in every
industry; what works for a midsize retailer in Brazil is rarely likely to work for alarge machine-tool manufacturer in Japan, for example.
But this does not mean that the issue of organizational capabilities can be put off
to another day. BCG’s findings make it abundantly clear that there is a cast-ironconnection between robust, well-articulated organizational capabilities and business performance. That connection will not be lost on shareholders. The issue has
to become an agenda item at the next C-suite meeting.
To be sure, it is still a huge step to move from intent to implementation. Now that
there is a better platform for understanding the elements of organizational performance, we can tackle the question of how to actually transform the organization inorder to achieve it. In the second report in this series, we will draw more deeply on
BCG’s new research to explain what is involved in making such transformations
successful.

NOTES
1. The Conference Board (global partner); the Asia Academy of Management (AAoM); American
Management Association (AMA); the Confederation of Indian Industry (CII); Chartered Management
Institute (CMI); Gesellschaft für Organisation (gfo) e.V. (GFO); Instituto Brasileiro de Governança
Corporativa (IBGC); Österreichische Vereinigung für Organisation und Management (ÖVO); the Swiss
Association for Organization and Management (SGO/ASO); Institut de l’Organisation en Entreprise(afope); Russian Managers Association (RMA); Japan Management Association ( JMA).
2. “Caterpillar Is Absolutely Crushing It,” Fortune, May 12, 2011(http://management.fortune.cnn.com/2011/05/12/caterpillar-is-absolutely-crushing-it/).
3. “Gallup-Healthways Well-Being Index 2011” (http://www.well-beingindex.com).
4. “Structure? The Flatter, the Better,” interview with Cristóbal Conde, former president and CEO of
SunGard, New York Times, January 16, 2010.

The Boston Consulting Group15

About the Authors
Fabrice Roghé is a partner and managing director in the Düsseldorf office of The Boston
Consulting Group and the topic leader for excellence in support functions. You may contact him bye-mail at roghe.fabrice@bcg.com.
Andrew Toma is a partner and managing director in the firm’s New York office and the topic leader for organization design. You may contact him by e-mail at toma.andrew@bcg.com.
Julie Kilmann is a topic specialist for organization design in BCG’s Los Angeles office. You may
contact her by e-mail at kilmann.julie@bcg.com.
Ralf Dicke is a principal in the firm’s Perth office. You may contact him by e-mail at
dicke.ralf@bcg.com.
Rainer Strack is a senior partner and managing director in BCG’s Düsseldorf office and the leaderof the Organization practice in Europe, the Middle East, and Africa. You may contact him by e-mailat strack.rainer@bcg.com.

Acknowledgments
The authors would like to offer their sincere thanks to Tim Horlacher, Sebastian Kempf, Max
Kneissl, Cleo Race, Steve Richardson, Teresa St Clair, Willis Taylor, Nora Tophof, and other BCG colleagues for contributing their insights and for helping to draft this Focus report. They would also
like to acknowledge John Kerr for his editing and writing assistance, as well as Rachel Brundige,
Gary Callahan, Kim Friedman, Sharon Slodki, and Sara Strassenreiter for their contributions to thereport’s editing, design, and production.

For Further Contact
If you would like to discuss this report, please contact one of the authors.

16

Organizational Capabilities Matter

Global study partner: The
Conference Board
The Conference Board is a global, independent
business membership and research association
working in the public interest. Our mission is
unique: To provide the world’s leading organizations with the practical knowledge they need to
improve their performance and better serve society. The Conference Board is a non-advocacy, notfor-profit entity holding 501 (c) (3) tax-exempt status in the United States. Human Capital researchat The Conference Board focuses on people-related research and ideas that develop talented andengaged workforces, driving shareholder value
and benefits to society.

AAoM – Asia Academy ofManagement
The Asia Academy of Management is a globalorganization that welcomes both ethnic Asianand non-ethnic Asian researchers and managers
who are interested in management issues relevant to Asia. The mission of the Asia Academy ofManagement is to assume global leadership in
the advancement of management theory, research and education of relevance to Asia.

AMA – American Management
Association
American Management Association(www.amanet.org) is a world leader in talent development, advancing the skills of individuals todrive business success. AMA’s approach to improving performance combines experiential
learning—learning through doing—with opportunities for ongoing professional growth at every
step of one’s career. Organizations worldwide, including the majority of the Fortune 500, turn to
AMA as their trusted partner in professional development and draw upon its experience to enhance skills, abilities and knowledge with noticeable results from day one.

CII – Confederation of Indian
Industry
The Confederation of Indian Industry (CII) works
to create and sustain an environment conduciveto the growth of industry in India, partnering industry and government alike through advisory
and consultative processes. CII is a non-government, not-for-profit, industry led and industry
managed organisation, playing a proactive role inIndia’s development process. Founded over 116
years ago, it is India’s premier business associa-

The Boston Consulting Group17

tion, with a direct membership of over 8,100 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect
membership of over 90,000 companies fromaround 400 national and regional sectoral associations.

CMI – Chartered Management
Institute
CMI is the only chartered professional body dedicated to raising standards of management andleadership across all sectors of UK commerce
and industry. CMI is the founder of the National
Occupational Standards for Management andLeadership and sets the standards that others
follow. As a membership organisation, CMI has
also been providing forward-thinking advice andsupport to individuals and businesses for morethan 50 years. CMI is committed to equipping
individuals with the skills and knowledge to be
exceptional managers and leaders. Through indepth research and policy surveys of its 90,000
individual and 450 corporate members, CMI
maintains its position as the premier authority
on key management and leadership issues. Findout more at www.managers.org.uk.

GFO – German Society for
Organizational Topics
The German cooperation partner in the study is
the German Society for Organizational Topics—
Gesellschaft für Organisation (gfo) e.V. With its
expert meetings, exhibitions, and congresses, its
online knowledge base and its journal, the society represents the leading platform both for its
members and for anybody else interested in organization and management. For more information, please visit www.gfo-web.de.

IBGC – The Brazilian Institute ofCorporate Governance
The Brazilian Institute of Corporate Governance(IBGC) was founded on November 27, 1995, as a
non-profit organization. It operates in Brazil andabroad with the aim of inspiring excellence incorporate governance. Through its activities as aknowledge center on the subject, the Instituteruns courses, surveys, lectures, forums and anannual conference, among other activities in thecorporate governance sphere. Headquartered inSão Paulo, the IBGC operates regionally throughfour Chapters: MG, Paraná, Rio and South. For
further information, go to the IBGC website,www.ibgc.org.br.

18

Organizational Capabilities MatterÖVO – Austrian Society for
Organization and Management
The Austrian Society for Organization and Management—Österreichische Vereinigung für Organisation und Management (ÖVO)—is a private
nonprofit institution that strives to form andbuild the image of organizational work. It was
founded in 1981 with the dual objectives of
spreading organizational knowledge through expert discussions, workshops, and seminars, andlinking science and practice. For more information, please visit www.oevo.at.

SGO – Swiss Association for
Organization and Management
The Swiss Association for Organization and Management—Schweizerische Gesellschaft für Organisation und Management (SGO)—was founded in 1967 by the heads of several leading Swisscompanies and organizations. Today, the SGO,
which is located in Zurich, has more than 1,600
members. Together with the ASIO (Associazione
Svizzera Italiana d’Organizzazione e Management) and the ASO (Association Suissed’Organisation et de Management), the SGO canreach more than 2,300 Swiss members. For more
information, please visit www.sgo.ch.

Afope – The Institute ofOrganization in Business
L’Afope, the Institute of Organization in Business,serves organization specialists, internal consultants, and managers to enhance organizations
and hence company achievement. Afope promotes and develops the role of organization within businesses. Afope improves the skills and expertise of managers and organizational
practitioners in business, as well as organizational performance.

RMA – Russian Managers
Association
Russian Managers Association (RMA) is an independent non-government organization working
in the best interests of the Russian executive
managers’ community. RMA collects and disseminates best management practices and knowledge, thus helping Russian businesses to meetinternational business standards and ethicalrules. Through constructive dialogue between the
public and private sectors, RMA improves the image of Russian business and fosters Russia’s integration into the world economy. For more information, please visit www.amr.ru.

The Boston Consulting Group19

JMA – Japan Management
Association
From industry to organisation, the JMA supports
management innovation in various fields.
Through our members, Board of Directors, Advisory Councils and trustees, we work to ascertain
the needs of all parties, contributing to the development of Japanese enterprises. At present, weare focused on management innovation in a variety of fields, not only for organisations but also
for municipalities, educational institutions, hospitals and other public institutions according tofour main themes. For more information, please
visit www.jma.or.jp.

20

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