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For some time now, a number of development agencies have stressed that investment choices should focus on building the capacity of local organizations to solve their development problems. The United Nations Development Programme (1999) identifies capacity development as “a key strategy for its work”. The International Development Research Centre (1987) describes efforts to ensure sustainable organizational development through a focused and holistic effort to build the capacity of its funded partners. Other international agencies such as the Inter-American Development Bank, the World Bank and UNICEF have a stake in and are committed to ensuring that the organizations they support in developing countries build the capacity necessary to stand on their own feet to meet their repayment commitments.

The experience of these development agencies indicates that facilitating change at the organizational level is conceptually and practically more difficult and complex an undertaking than simple project support. At the center of this complexity is our embryonic understanding of building organizational capacity in developing contexts (Lusthaus, Adrien and Perstinger, 1999).

Our framework for viewing organizational capacity entails eight interrelated areas that underlie an organization’s performance. These are strategic leadership, organizational structure, human resources, financial management, infrastructure, program and services management, process management, and inter-organizational linkages. Each of those areas addressed in this chapter involves various sub-components that range in importance from organization to organization (see chart).

STRATEGIC LEADERSHIP

Strategic leadership refers to all those activities that set the course for the organization and help it stay on course in service of its mission. Strategic leadership is associated with the organization’s vision, as well as with the ideas and actions that make the organization unique. It is the process of setting clear organizational goals and directing the efforts of staff and other stakeholders toward fulfilling organizational objectives (Mintzberg and Quinn, 1995).

In essence, therefore, strategic leadership has to do with the organization’s ability to influence its internal and external stakeholders so that they will support organizational directions. Strategic leadership needs to empower its members to create the changes that are necessary for an organization to perform and survive (Byrd, 1987). It goes beyond simple planning, in that it creates ways of clarifying and obtaining organizational goals by looking within and outside the organization. It sets the stage for organizational action and the methodologies the organization will use to

produce the results required Thus, an organization’s strategic leadership involves developing ways of inspiring organizational members and stakeholders to perform in ways that attain the mission, while adapting to or buffering external forces.

Definition and Dimensions

Leadership is a key ingredient in this component. Some management scientists believe that many organizations are relatively under-led and over-managed (Kotter, 1990). Our experience shows this is true of many organizations where leaders or senior managers often focus too much attention on adaptations to the internal environment and structures, and too little on the wider, changing external environment (Hesselbein, Goldsmith and Beckhard, 1996).

This much-needed holistic external focus helps leaders identify and define the organization’s long-term future position, as well as design and execute strategies that will successfully take the organization there. Many organizations lack strategic leadership, defined here as the ability to manage through others, to foresee opportunities and constraints, to help the organization change successfully and accordingly in the process of effecting change, and to accommodate and reconcile both external and internal conditions.

Accommodating and reconciling external and internal conditions is a complex task. The outcome of effective strategic leadership is aligned direction and action. A strategically led organization will be continuously engaged in the process of changing, adapting and following a path that makes sense to its members and to the external stakeholders who fund the organization or confer reputation.

Strategic leadership consists of three main dimensions: leadership, strategic planning and niche management

Leadership

Leadership is basically the process through which leaders influence the attitudes, behaviors and values of others towards organizational goals (Vecchio, 1995). Indeed, no one can deny its critical importance to the success of any organization, no matter where the organization is located or what it does. Salopek (1998) outlines four fundamental qualities of leadership, each of which has several specialized and associated competencies. These qualities relate to the ability to become and act as the following:

• Collaborators skilled at facilitating, coaching and fostering dialogue;
• Innovators skilled at visioning, championing and diffusing;
• Integrators skilled at organizing, improving and bridging;
• Producers skilled at targeting, improving and measuring.

An effective leader must possess these qualities and competencies, and must merge them into a single leadership quality that personifies what, taken together, they stand for (Bennis and Goldsmith, 1997). This style becomes operationalized in the leader’s organizational actions.

The need for leadership qualities is not restricted to executive senior managers, but extends to workers at all levels of the organization. Leadership exists at many places inside the organization, both formally and informally. Formal leadership, exercised by those appointed or elected to positions of authority, entails activities such as setting direction, providing symbols of the mission, ensuring that tasks are done, supporting resource development, and modeling the importance of clients.

On the other hand, persons who become influential exert informal leadership because they possess special skills or resources valued or needed by others (Handy, 1997). Examples of informal leadership include spearheading the reorganization of the professional library, or initiating an innovative, multi-disciplinary approach to a research problem (Tichy, 1997).

In organizations with effective leadership, each worker believes that he or she should and can contribute to the success of the organization, act as a partner, be largely self-directed, and assume responsibility for his or her actions and contributions. As a group, workers feel empowered and have the requisite knowledge,

skills, opportunity, guidelines and personal initiative to perform effectively (Nanus, 1989).

Strategic Planning

Strategic planning refers to the pattern of calculated responses to the environment, including resource deployment, that enable an organization to achieve its goals. It is a disciplined and creative process for determining where the organization should be in the future and how to take it there (Graf, Hemmasi and Strong, 1996). Strategic planning entails formulating and implementing activities that lead to long-term organizational success. It is essentially a decision-making process that involves a search for answers to simple but critical and fundamental questions: What is the organization doing? How is it doing what it does? Where should it be going in the future? What should it be doing now to get there?

Strategic planning encompasses issues spanning the entire spectrum of the organization, from introspective questions of what the organization’s personality is or ought to be, to strategic operational issues connecting the focus on the future with work to do to move the organization forward. The strategic plan itself is a written document, setting out the specific goals, priorities and tactics the organization intends to employ to ensure good performance (Kaplan and Norton, 1996).

Strategic planning is a participatory process engendering a shared commitment to organizational directions (Ketchen, Thomas and McDaniel, 1996). Formulating strategy begins with identifying or clarifying goals and objectives and determining

the methods for reaching them. It involves exploring such fundamental questions as the following: What major services does the organization offer? Who are its clients and what type and quality of services would they prefer? Do workers agree with organizational direction? In what new directions should the organization move?

Thus, strategic planning must typically include a scan of opportunities, threats and constraints presented by the environment. This means that the organization must repeatedly ask itself what potential or pending actions are likely to influence (positively or negatively) what it does and plans to do? How can the organization forestall or mitigate the negative influences, as well as take advantage of the potential opportunities?

Another strategic issue for the survival of an organization is the acquisition of resources in the vital areas of funding, technology, infrastructure and personnel. Strategic planning must adequately pursue these resources by anticipating and capitalizing on opportunities in the external environment that might yield or support them. It also means predicting threats to organizational resources and intervening (politically, in general) to ensure that organizational performance and survival are safeguarded (Korey, 1995).

This level of leadership and intervention generally transpires between the senior executive of the organization and the governing body in the country. Resource acquisition entails constantly being on the lookout to create opportunities that will augment the organization’s resources. This is accomplished by forming new alliances and partnerships, and by forging new ways of thinking about generating resources (Baron, 1995).

For strategies to become operational, they need to be communicated, processed and revised according to feedback from stakeholders, both internal and external. All members of the organization need to work toward making the strategic plan a reality, from senior management down to the most junior worker (Mintzberg

and Quinn, 1995). Implementing strategy requires matching resources and activities to objectives and, if required, scaling activities to fit resource constraints (human, financial, technological and infrastructural).

Niche Management

In today’s global and highly competitive society, the success of an organization is, in part, predicated on its ability to establish a unique role within the society by offering a unique service or product. Niche management essentially involves identifying and then concentrating on a competitively valuable capability (or set of capabilities) that the organization possesses more of, or can do better, than its rivals.

Niche management involves identifying the distinctive competence the organization possesses, with the primary objective of gaining a competitive edge in the marketplace. Niche management entails carving out a particular area for the organization in the marketplace that matches its particular expertise and distinctive competencies. A niche within an organization is a platform for interaction. It emerges out of a process of interaction shaped by many actors, both internally and externally (Beaton, 1994).

In the private sector, the marketing function evaluates an organization’s image or position in the marketplace and reaches strategic decisions concerning target markets, services and products (Beesley, 1995). This model is not so far afield from public sector organizations, which, for their survival, must increasingly cultivate appropriate clients and other stakeholders, ensure that their products and services meet the needs of the consuming public, and fund providers (Cohen, 1993). However, though public sector organizations are gradually becoming interested in their own niche, they are slower to react to the importance of being identified in a niche and tend to react more slowly to changes in clients and beneficiaries.

In increasing numbers of public sector organizations, as well as in some nongovernmental organizations, niche management may be limited to developing capabilities to deliver a product or service in such a distinctive way as to guarantee continued future funding from government and other agencies (often in preference over rival organizations). Building relationships and keeping abreast of the vicissi-

tudes of the external environment are integral parts of this management process. It means that external communications are important, as these may be needed to stimulate funding, or to stimulate awareness.

Niche management is an organizational function that forces managers to look beyond internal matters to consider the wider environment and the broader issues of the time. If this function is neglected, the organization’s ability to adapt to the changing global situation is severely eroded.

Identifying distinctive competencies and client needs is particularly challenging in developing countries because of the chronic lack of information. It makes it difficult to gather information on competitors and on current as well as potential clients. Certain aspects of niche management are more difficult in these countries. However, as organizations in developing countries mature, information will improve, and infor-

mation focusing on targeted issues (niches) will be better integrated into the decision-making process (Beaton, 1994).

ORGANIZATIONAL STRUCTURE

The ability of an organization to structure and restructure itself to adapt to changing internal and external conditions is important for maximizing organizational performance. Unlike other capacities, the structuring and restructuring of an organization does not formally occur on a constant basis; however, adaptations of structure are always occurring. Organizational structure is defined as the ability of an organization to divide labor and assign roles and responsibilities to individuals and groups in the organization, as well as the process by which the organization attempts to coordinate its labor and groups. It is also concerned with the relative relationships between the divisions of labor:

• Who has authority over whom?
• How and why should an organization divide labor individually and by grouping people?

• How should organizations coordinate their work to maximize the benefits of the divisions of labor?
• What do people look for to indicate that problems are structural in nature rather than some other type of problem, such as one of leadership?

For a long time, organizational structure interested both practitioners and thinkers in the field of management. At the start of the 20th century, writings focused on formal structure (Weber, 1947), which evolved into various ways of organizing work (Taylor, 1947), which led to a period of looking at informal structure (Roethlisberger and Dickson, 1939). This evolution has, in turn, led to the variety of new approaches: adhocracy (Bennis, 1969), matrix (Galbraith, 1973), contingency (Lawrence and Lorsch, 1967), and TQM (Deming, 1986).

Debates continue over the importance of issues such as the stages of organizational development (should new organizations be structured differently than older ones?); organizational size (when should size determine how labor should be divided?); and centralization versus decentralization in terms of organizational structure. In recent years, the debate over structure has become more complicated. The field has been further enlivened by discussions about the influence of technology on structure; the importance of the governance structure; and new issues raised by feminist researchers about the very nature of organizing as well as the fundamental issues of power.

In our own work with donors (IDRC, CIDA) and development banks (IDB, World Bank), restructuring was found to be one of the frequent responses to counteract poor performance. Why is that so? Does experience indicate that restructuring provides a high probability of improving performance? What else might the restructuring do?

It is useful to think about two separate but connected aspects of organizational structure. The first is the governing structure that represents the ownership or legal guidance system of the organization. Here the structure relates to the ultimate legal and social responsibility of the organization. The second is the operating structure—how an organization transforms resources into goods and services for targeted purposes. When assessing structure, both of these aspects must be explored.

Governing Structure

In one sense, the term governance is used to refer to the issues and problems involved in aligning the interests of those who manage an organization with the interests of

those who are responsible for organizational results, the organization’s owners, and “outsiders” who have a stake in the organization. The separation of governing or ownership responsibility from management raises questions that are of strategic importance to the success or performance of any modern organization (Mueller, 1995).

In government organizations, the people of the country are the ultimate stakeholders of the governing structure. Governance is exercised through government and through a minister responsible for the specific entity (Mintzberg and Quinn, 1995). At the government level, ministers and their team manage the bureaucracy and try to link public policy and bureaucratic action.

In nongovernmental organizations, the governing structure provides an overseeing function and is responsible to act for members or in the public interest. In a private sector organization, the critical question is: What can be done to ensure that management acts in the best interests of owners or shareholders (maximize owners’ wealth, which is the same thing as maximizing the value of the organization)? In other words, how should governance of the organization be structured, and what safeguards can be put in place to create congruence between governance and the personal goals of managers?

In public sector organizations, especially state enterprises, where the idea of ownership is not as clearly defined as in the private sector, the problem of governance is becoming increasingly important (CCAF, 1996). Public sector managers are frequently subjected to less rigid controls and are likely to have greater incentives to satisfy their own interests at the expense of organizational goals. Add to this the ineffective and lax institutional framework and enforcement mechanisms that characterize many intervention milieus in developing countries, and you have the perfect recipe for mass public sector mismanagement (CCAF, 1996).

Within this context of a governing structure, the board of directors and the charter of incorporation provide the legal and policy framework and direction for organizational functioning. In a wider sense, governance is conceived of as the point at which the external and internal environments meet. The governing structure addresses the problems of linking or harmonizing the conflicting interests of all stakeholders (both internal and external, including the general public) with the organization’s goals and mission (Carver, 1996).

A good board of directors has its finger on the pulse of both environments. It assesses whether organizational goals are supportable and meet national development goals, as well as whether the organization is responding appropriately to major trends in the field and within the broader environment, and whether it meets the needs of those it serves.

It is at the governance level that conflicts of interest are resolved, policy issues discussed and resolved in a timely manner, organizational policies set, and capital and operating budgets approved. The power and politics of the organization inevitably reside here, for the governing body is often a forum for airing internal demands and resolving them within funding realities. The governing body is involved with strategic direction and priorities, stakeholder representation, equity, external environmental forces (both positive and negative), and core resources.

Operating Structure

The operating structure of an organization is the system of working relationships arrived at to divide and coordinate the tasks of people and groups working toward a common purpose. Most people visualize an organization’s structure in terms of the familiar organizational chart. However, structure is far more than just that. It involves

the division of labor, including roles, responsibility and authority, as well as the coordination of labor into units and inter- and intra-unit groupings. One must assess structure to see if it is facilitating or hindering movement toward the mission and goals (Meyer, 1995).

The task of creating appropriate and manageable work units or departments has challenged managers and students of organizational development for decades. We now realize that the “ideal” structure is the one that best fits the situation. At issue is whether or not the organizational structure supports or inhibits the capacity of the organization to perform its work.

In looking at structure, we are interested in the extent to which individuals, departments or other groupings understand their roles in the organization; whether they have the authority to carry out their roles; and whether they are accountable for their work.

Structure also includes coordination issues (Mintzberg and Quinn, 1995). Coordination is the process of linking specialized activities of individuals or groups

so they can and will work toward common ends. The coordination process helps people to work in harmony by providing systems and mechanisms for understanding and communicating about their activities.

In organizations where innovation and productivity are key, interdisciplinary teamwork is a competitive advantage. Entire networks are formed where the best minds collectively tackle difficult research problems, with each contributor bringing his or her special perspective and expertise. The ease with which the research institution facilitates interdisciplinary approaches to research projects is an indicator of organizational health.

Many variables influence organizational structure, including history, size, technology, organizational goals, strategy, governance, funding and other pressures from the external environment, the specific fields of research, and technology.

Another important structural consideration is the manner in which authority is shared. Organizations range from the decentralized to the centralized, from the highly participatory to the dictatorial. Each aspect of the structure ( centralization-partic-ipatory) is a reaction to both internal and external conditions. Today, many organizations—particularly government organizations—are interested in ways to decentralize authority and increase the participation of organizational members.

In general, this interest emerges from several insights. First, organizational performance can be improved if operational decision-making is closer to the actual sources of information. Second, people working in organizations are more likely to take responsibility for their actions if they participate in the decision-making process. Whether the structure itself is centralized, decentralized or participatory, it is clear that these aspects of structure are important to improving organizational performance.

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