The observation
Edith Penrose’s research into the growth of firms made a specific and, at the time, somewhat counterintuitive argument: a firm’s rate of growth is constrained less by the market opportunity available to it than by its own capacity to absorb and direct growth internally. This has a direct implication for how growth strategy and operational readiness relate to one another — a growth strategy that is sound on its own commercial terms, targeting real and available market opportunity, can still fail or strain the organisation badly if it is not matched to a parallel, deliberate assessment of whether the organisation’s operational capacity can actually absorb the growth the strategy targets.
Ronald Coase’s earlier analysis of why firms exist reinforces this from an economic angle: the cost of coordinating additional activity inside an organisation rises as scale and complexity increase, meaning that the operational cost of pursuing a given growth strategy is not fixed — it depends significantly on how well-prepared the organisation’s internal coordination and structure are to absorb that specific kind of growth, at that specific pace.
What it means in practice
In many organisations, growth strategy and operational planning proceed on genuinely separate tracks, developed by different functions, reviewed by different governance processes, and synchronised — if at all — relatively late, often only once the strategy has already been substantially committed to. This separation is not usually deliberate or careless; it reflects a natural organisational division of labour, with strategy typically owned by commercial or executive leadership focused on market opportunity, and operational capacity typically owned by functions focused on delivery, whose planning horizons and areas of expertise are genuinely different.
The research above suggests this separation carries a specific risk that is easy to miss precisely because both plans, examined individually, can look entirely sound. A growth strategy assessed purely on commercial merit — is the market opportunity real, is the competitive position favourable — can pass every relevant strategic test while remaining operationally unrealistic, because operational readiness was never part of what was being assessed. An operational capacity plan, similarly, can be entirely sound for the organisation’s current scale while never having been explicitly tested against what a specific, approved growth strategy will actually require of it. Both plans can be individually well made and still, together, produce a mismatch that only becomes visible once the strategy is already being executed and the operational strain it produces is no longer merely theoretical.
Where it varies
How much this separation matters in practice depends on the type of growth being pursued. Growth that closely resembles what the organisation already does well — more of an existing, well-understood product, sold through existing, well-understood channels — draws on operational capacity the organisation has already tested and refined, meaning the risk of a strategy-operations mismatch is comparatively lower, even without close coordination between the two planning processes. Growth that requires genuinely new operational capability — a new geography, a new delivery model, a significantly different customer segment — carries substantially more risk, because the strategy is, in effect, asking the operational side of the business to do something it has not previously done at scale, and no amount of commercial soundness in the strategy itself can substitute for operational capability that has not yet been built.
Growth pace interacts with this significantly. A strategy pursued gradually gives operational functions time to build capacity incrementally, testing and correcting as they go, even without perfect upfront coordination between strategy and operations. A strategy pursued rapidly compresses this timeline, removing the natural correction opportunities that gradual execution provides, and making the upfront alignment between strategic intent and operational readiness correspondingly more important, precisely because there will be less time to discover and fix a mismatch after the fact.
There is a genuine organisational design question underneath this that the research points toward without fully resolving: at what point in the strategy-setting process should operational readiness be assessed, and by whom. Assessing it too late — after a strategy is substantially committed — risks exactly the mismatch described above. Assessing it too early or too rigidly risks the opposite failure, where legitimate operational caution unduly constrains commercially sound strategic ambition before the strategy has even been properly tested against real market response. The evidence supports treating strategy and operational readiness as genuinely parallel, mutually informing processes rather than sequential ones — strategy first, operations to follow — but does not offer a single template for exactly how that parallel process should be structured, since the right approach likely depends on the specific type of growth and organisation involved.
The governance dimension of this is also worth noting directly. Research into decision rights suggests that misalignment of this kind often traces back to a specific structural gap: no single point of authority or accountability exists for the interface between strategic and operational planning, precisely because each process typically has its own clear owner while the space between them does not. Where that gap exists, misalignment is not merely possible but likely to persist even with good intentions on both sides, because nobody is specifically accountable for noticing it before it becomes operationally consequential — each function can reasonably assume the other has accounted for the interaction, when in practice neither has been explicitly tasked with doing so.
For how this pattern presents in other kinds of organisation, see other sectors.
Questions worth considering
- Was the organisation’s current growth strategy assessed against operational readiness as part of how it was developed, or was operational readiness considered only after the strategy was substantially set?
- Does the current growth strategy rely primarily on capability the organisation has already demonstrated at scale, or does it require genuinely new operational capability that has not yet been built or tested?
- If growth pace increased significantly beyond what is currently planned, would operational functions have any meaningful opportunity to build capacity incrementally, or would the mismatch between strategic ambition and operational readiness likely become visible immediately?
More on this topic: Growth.
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