The biggest mistake Organizations Make that leads to their untimely Failure

 

If you get the opportunity to nudge the CEO of a company about the reason of the company not doing well; very often you get the reply ‘somehow strategy didn’t work.’ Very seldom people including CEOs, you find talking about failure on their part in building right ‘Organizational Capabilities’ in the company.

What is ‘Right Organizational Capabilities?’👆

Presumably, every HR & business manager clearly knows about it.  The only challenge is they do not talk about ‘Right Organizational Capabilities’ but ‘Right Functional Capabilities’.  Prodding more, they may talk about Ignoring Culture & People, Poor Communication, Overcomplicating Strategy and neglecting Customer Needs etc but not about the organizational capabilities.

And this is the Biggest Mistake Organizations Make!

Organizations day in day out take numerous decisions for their employees starting with the selection process to their development but nowhere in the entire lifecycle of employees, you find a mention of organization’s needs but mere pure functional.

All fitments is done for functions and not for organizations. End result is umpteen business failures. For example, Kodak failed to adapt digital camera, fearing it would cannibalize film sales; Nokia failed due to Complacency & Slow Response because they were dominating the mobile phones but underestimated the rise of smartphones and software ecosystems; Blockbuster failed to adopt Short-Term Thinking and ignored Netflix’s streaming model, focusing on DVD rentals and late fees and such many more failures in corporate history. It is so bewildering to mention despite having knowledge about all these failures, there are modern companies like Meta, X etc which are treading the same path. Meta is over-reliant on advertising revenue and struggling to pivot fully into the metaverse.

Who is responsible for this Mistake?

HR claims to be the custodian of People and culture. It is this function which is responsible for feeding the Top Management about having the right ‘Capabilities’ and people who understand the current and future business requirements and ensuring that company at every single point have people who are right fit into the Capabilities Requirements of the Business.

Every single business starts its journey with certain business objectives and ‘Business Capabilities’ to run it successfully.  People beginning, the entire business runs on the Capabilities of the promoter and slowly as the business grows in its dimension, new set of people start joining it. Here comes the role of HR to ensure that the company always has required Business Capabilities and to achieve, they have the practice of having a ‘Competency Framework’ which shall guide all the decisions for its people.  As per the accepted practice, every organization must have a ‘Right’ Competency Framework that should be available to its all-business managers for employee-related decision making.

The problem lies here!

Academically, Competency Frameworks in organizations are created based on certain guidelines. The primary being there should not be more than eight competencies in a framework. And, if you happen to be a part of Competency Framework creation exercise with or without prominent global consultancy organizations, it runs with many meetings and discussions around what all competencies need to be included. The people involved are the functional heads who are supposed to put across their functional need of competencies. And with the end of the herculean process, you will be having framework of 6 to 8 competencies which nobody owns in the organization as the framework fails to satisfy the need of different functions and equally that of the organization.  If you go deeper, you will find that the framework so created is mere a shallow depiction of ‘Functional Competencies’ and that of an organization. Another associated problem is whether these 6 to 8 competencies can really cover the need of all functions equally and can guide the entire organization?  In reality No. And perhaps this is the reason this framework has never been used practically.

I have seen in my experience that whenever such a Competency Framework is used letting it be at the interview level; they are filled in by HR under the instruction of functional manager depending upon their final decision. Whose mistake is this? Functional Mangers do not see any merit out of these exercises, and they are right in their perspective. HR fails to make it a deep-rooted exercise as they know it well, it does not serve any purpose and their reluctance to force it down. It means organizations fail due to inherent problems which no one is interested to address as each one is busy in realizing their short-term functional goals.

Zeroing down on the needs is that every CEO need to understand that every organization has a ‘peculiar’ set of capabilities with which it was raised and these specific organizational competencies to be protected to ensure sustainability or else decline and demise is certain- it may take few years or few decades, but it will happen for sure.

The root cause of this mistake😔

The root cause of our committing this mistake starts with ‘Competency Selection’ process without giving much distinction between functional capabilities and organizational capabilities. Many organizations confuse functional capabilities - what individual departments can do with organizational capabilities - what the whole system can achieve together. Just for an example, Organization can innovate rapidly across teams to launch new products is organizational capability and focused on efficiency and technical expertise.

Organizations often invest in functional excellence, like better IT systems, stronger HR policies, sharper marketing campaigns, but under-invest in organizational capabilities like, agility → ability to pivot quickly when markets change or Customer-Centricity - aligning every function around delivering value.

When these broader capabilities are weak, even world-class functional teams can’t save the organization. It’s like having a innovation team with amazing experts but no chemistry that leads to losing eventually.

Why this Matters

Organizations that thrive long-term, like Amazon, Toyota, or Apple are not just functionally strong — they’ve built organizational muscles that allow them to scale consistently, adapt to disruption, keep customers at the center or retain and grow talent. Consequently, it can be said that the real failure is not in functional gaps, but in failing to build organizational capabilities that integrate and amplify those functions.

What needs to be done?👈

Action should start from the understanding that functional capabilities cannot run a business successfully but rather look at other critical aspects which provide basis for organizational capabilities through competency framework.

Whenever a business is set up, the initial organizational capabilities can be seen in the actions and directions of the promoter of a company which slowly get routed thru different organizational business aspects. The primary aspects include Core Values, Purpose and Vision which are at the organizational level which further goes to the hierarchical bands and levels.

"Organizations succeed when they treat capabilities as strategic assets — not just skills or processes. Building them requires intentional design, leadership commitment, and continuous reinforcement. Functional strength alone is not enough; it’s the integration of people, culture, and systems that creates lasting advantage."

Organizations in general do not have internal competencies to comprehensively create a framework which can be used as per the requirements at different levels of decision making for employees. Large organizations can seek the expert guidance from very established Consultancy companies; however, it is extremely expensive. Organizations have to pay for this advice from consultancy companies again and again and because of this the entire process is diluted. For SMBs they whimsically make use of Competency Framework creation just because of very high cost. Leading to their untimely demise.

Competency Wheel Model from Prajjo💓

Prajjo has looked at this need of the organizations of all kinds and sizes and that to cost effectively. It has rolled out its ‘Prajjo Competency Framework Creation Software’ based on a copyright concept of CW Modelling. Picture below