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Is your organisation ‘gridlocked’ and unable to respond to the upturn?

In my recent book I suggested a disarmingly simple idea, about how capacity, capability and commitment are interrelated.

I had long recognised that these ‘3 Cs’ are important when diagnosing performance problems; a great many issues can be traced back to them.  I also knew that teasing them apart was tricky, and addressed that challenge within Chapter 4 of the book.  However, it was the nature of the relationships between them that really struck me. I said, on page 186:

These three performance variables – capacity, commitment, and capability – tend to substitute for one another in the short term and reinforce one another in the longer term. For example, if capacity is too low for a short period, highly committed and capable staff will usually overcome the challenges presented. However, in the long run, if capacity remains too low, commitment and capability will also fall away. Similarly, if capability is limited, high levels of capacity and/or commitment will offset the impact of this. However, in the long term, capability must rise to feed motivation and improve capacity management so as to control associated costs.

I think this rather subtle set of relationships is at work today in lots of organisations, in an important way.  With the financial downturn, lots of organisations tightened their belts.  They understandably stopped or slowed down investments and reduced the resources necessary for managing these investments.

Having learned from the mistakes of previous recessions, many businesses wisely chose not to slash workforces too aggressively.  They adopted more sustainable tactics, such as offering reduced hours, unpaid sabbaticals, deferred graduate entries and so on.  The rationale, of course, was that these firms would be better placed to scale up resources when the upturn arrived.

It is over-simplistic to argue that the upturn has now arrived.  Some sectors have seen little improvement in demand, whereas in others there are real signs of recovery. Have those lucky firms been able to respond quickly to demand?  My impression is that whilst some are doing well, many are struggling to get out of a kind of ‘gridlock’ into which they have slipped.  I keep hearing from organisational leaders who have great plans and the technical know-how to implement them, but not enough hands on deck – or sometimes not the right hands.  Many of them are also struggling with teams that are less engaged than several years ago – having witnessed unsatisfactory organisational performance, reduced rewards, downsizing and waves of re-structuring.

It seems that my suggestion about how in the longer-term, capacity affects capability and commitment, is holding true at this unusual juncture in economic development.  This has big implications for senior decision-makers.  It implies that they need not only to scale up capacity to meet new and anticipated demand but also push capability and commitment hard too. Furthermore, if my theory is correct, it may be necessary to develop overcapacity in the short term, to allow capability and commitment to recover.

The strategic importance of getting this balance right can hardly be overstated.  Businesses that fail to invest in the critical activities that support their unique competitive advantages – or worse still throw away underlying advantage in the process of cost-cutting – will in time be outperformed by those better placed to respond to the upturn.

Michael Porter made some interesting observations about these strategic challenges as the downturn began.  Have a look at the first few minutes of this YouTube video to hear him explain the challenge.

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