Position A: capability and leadership
One body of thinking, with strong roots in Edith Penrose’s foundational work on the growth of the firm, locates the explanation primarily in managerial capacity and capability. Penrose’s argument was that a firm’s growth is fundamentally constrained and shaped by the quality and depth of its existing managerial resources — their capacity to absorb new activity, direct it well, and develop further capacity as the organisation continues to grow. On this account, organisations that handle growth well tend to be those with senior teams capable of this kind of absorption and development at a rate that keeps pace with the organisation’s expansion — whether through deliberate hiring of experienced leadership, effective internal development of existing people, or some combination of both.
This position finds support in subsequent research on the “capability trap,” documented by Nelson Repenning and John Sterman, which describes how organisations under growth pressure often fail specifically because leadership defaults to working harder rather than building the capability that would allow the organisation to work differently — a failure of leadership judgment and priority, in this reading, rather than a failure of organisational design as such. The capability account implies that the primary lever for handling growth well is who is leading the organisation and how they allocate attention, rather than any particular structural configuration.
Position B: structure and design
A substantially different account, drawing on Jay Galbraith’s research into organisational design, locates the explanation less in individual leadership capability and more in structural design choices that are, at least in principle, somewhat separable from who specifically occupies leadership roles. Galbraith’s information-processing view of organisations argues that the volume and complexity of information a growing organisation needs to process rises non-linearly with size, and that organisations handle this well or poorly depending largely on whether they adopt design mechanisms — self-contained units, effective lateral coordination, appropriately distributed decision rights — that reduce the information-processing burden to something manageable, rather than depending on any individual’s capacity to process more information directly.
This position finds independent support in Paul Rogers and Marcia Blenko’s research on decision rights, which found that organisations with clearly defined decision authority — a structural, designable characteristic rather than primarily a leadership trait — substantially outperformed those without it, regardless of the specific individuals holding senior roles. On this account, two organisations with equally capable leadership teams could still handle growth very differently if one has clear, well-designed decision rights and coordination mechanisms and the other does not — implying that structure, not leadership capability alone, is doing much of the explanatory work.
Why the disagreement persists
Neither position claims the other factor is irrelevant; the disagreement concerns relative weight and, more practically, where a leadership team’s limited attention and resource are best directed when trying to improve how an organisation handles growth. The capability account implies that investing in leadership development, recruitment and capability-building is the higher-leverage intervention. The structural account implies that investing in organisational design — decision rights, coordination mechanisms, information flow — matters comparably or more, independent of who specifically holds each role.
Part of what makes this difficult to resolve empirically is that capability and structure are genuinely intertwined in most real organisations, in ways that make isolating their independent effects difficult even with careful analysis. Capable leaders often design better structures as a natural expression of their capability, which makes it hard to know whether good outcomes trace to the leaders’ direct judgment or to the structures those leaders happened to put in place. Well-designed structures, in turn, make it easier for moderately capable leaders to perform well, since good structure reduces the burden any individual leader’s judgment needs to carry — which means structural quality can partially substitute for individual capability, further blurring which factor is actually doing the explanatory work in any specific case.
There is also a genuine question of causal direction underneath the disagreement that the research does not fully settle: does strong leadership capability tend to produce good structural design as a downstream consequence, or does good structural design free up leadership capability to be applied more effectively elsewhere, with the causal arrow running the other way? Both directions are plausible, and both likely operate simultaneously to some degree in most organisations, which is part of why isolating a single dominant explanation has proven difficult across decades of related research.
What it means for a leader
The practical implication of this unresolved disagreement is that a leadership team seeking to improve how their organisation handles growth is unlikely to find clear guidance from the research pointing toward a single dominant lever. Both bodies of evidence are credible, both are supported by substantial independent research, and a reasonable reading of the literature suggests both factors genuinely matter, with their relative importance likely varying by specific organisational context rather than following a universal rule.
What the disagreement does usefully highlight is a common error worth avoiding regardless of which explanation ultimately weighs more in a specific case: attributing growth strain entirely to one factor while ignoring the other. An organisation experiencing growth difficulty that assumes the answer must be better leadership, without examining whether its decision rights and coordination structures are also poorly designed, may invest heavily in leadership development while a structural constraint continues to limit outcomes regardless of leadership quality. The reverse error — assuming structural redesign alone will resolve growth strain while genuine gaps in leadership capability go unaddressed — is equally possible and, the research suggests, equally likely to disappoint.
There is a further complication worth naming, which neither position fully addresses on its own: organisations change over time, and an explanation that fits well at one stage of growth may fit less well at another. A young, small organisation’s ability to handle growth may indeed trace disproportionately to the specific judgment of two or three founding leaders, simply because formal structure has not yet had the opportunity to develop into something separable from those individuals. As the same organisation grows larger, more of its functioning inevitably runs through systems, defined roles and processes rather than direct individual judgment, which is precisely the condition under which structural explanations tend to gain relative explanatory weight. A leadership team that correctly identified capability as the dominant factor early on may find, without any change in the quality of its leadership, that structural gaps become the more binding constraint years later — not because leadership got worse, but because the organisation outgrew the point at which leadership capability alone could compensate for structural weakness.
This has a direct, practical implication: whichever explanation a leadership team currently finds more persuasive is worth revisiting periodically rather than treated as a settled conclusion, precisely because the balance between the two factors this research describes is unlikely to remain fixed as the organisation itself continues to change.
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Questions worth considering
- When this organisation has struggled with growth previously, was the response focused primarily on leadership — hiring, development, capability — or primarily on structure — decision rights, coordination mechanisms, organisational design — or was the distinction never made explicitly?
- Are there specific structural gaps — unclear decision rights, weak lateral coordination between functions — that might be limiting outcomes regardless of how capable current leadership is?
- Are there specific capability gaps — in experience, judgment or development — that might limit outcomes regardless of how well the organisation is structurally designed?
This perspective is part of Growth.
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