The Strategic Competency Gap: Perception versus Reality in Organizational Leadership

Jonathan H. Westover, PhD
Oct 4
11 min read

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Abstract: This article explores the prevalent discrepancy between perceived and actual strategic competencies among organizational leaders. Drawing on recent research in leadership development, cognitive biases, and organizational performance, the analysis reveals that many executives overestimate their strategic capabilities, creating significant performance gaps within organizations. The research examines five core strategic competencies: understanding present contexts, envisioning futures, influencing systems, delivering results, and adapting to change. The findings demonstrate that addressing these competency gaps through systematic assessment and targeted development can significantly improve organizational performance, strategic execution, and leadership effectiveness. The article presents evidence-based approaches to close these gaps, providing practical frameworks for organizations seeking to enhance their strategic capabilities in increasingly complex business environments.

In boardrooms and executive suites worldwide, a peculiar paradox unfolds daily: leaders who believe themselves to be highly strategic while their organizations struggle with strategic execution. This disconnect between perception and reality represents one of the most consequential gaps in modern organizational leadership. Recent studies indicate that 65-80% of strategic initiatives fail to deliver their intended outcomes (Carucci & Hansen, 2021), yet when surveyed, approximately 87% of executives rate their strategic capabilities as above average (Lovallo & Sibony, 2010).

This perception-reality gap has never been more consequential. As organizations navigate unprecedented levels of disruption—from technological acceleration to sustainability imperatives to workforce transformation—the ability to think and act strategically has become the defining leadership capability. The costs of strategic incompetence compound rapidly: resources misdirected, opportunities missed, and organizational confidence eroded.

This article examines the nature of the strategic competency gap, its organizational and individual consequences, and evidence-based approaches to close it. By understanding where perceptions and reality diverge across key strategic dimensions, leaders and organizations can develop more accurate self-awareness and targeted development approaches that transform strategic intention into tangible results.

The Strategic Competency Landscape

Defining Strategic Competence in Organizational Settings

Strategic competence encompasses more than traditional strategic planning or competitive positioning. Contemporary definitions emphasize it as a multidimensional capability combining cognitive skills (pattern recognition, systems thinking), behavioral capacities (influence, execution discipline), and adaptive mindsets (ambiguity tolerance, learning orientation) (Schoemaker et al., 2013). The most robust frameworks identify five interconnected competencies that together constitute strategic leadership: grasping present realities, shaping future possibilities, moving organizational systems, delivering results, and adapting to change (Montgomery, 2012).

These competencies manifest differently across organizational levels. At the executive level, strategic competence involves setting direction amid complexity; at middle management, translating direction into coordinated action; and at frontline levels, connecting daily work to strategic priorities. Crucially, strategic competence is contextual—what constitutes strategic behavior varies by industry maturity, competitive dynamics, and organizational life stage (Reeves et al., 2015).

Prevalence, Drivers, and Distribution of the Competency Gap

Research consistently demonstrates that strategic competency gaps are widespread. In a comprehensive study of 8,000 leaders across industries, Zenger and Folkman (2019) found that 72% significantly overestimated their strategic capabilities compared to peer and subordinate assessments. This perception gap was more pronounced among senior leaders (83%) than mid-level managers (64%).

Several psychological and organizational factors drive this perception gap:

Dunning-Kruger Effect: Those with lower competence often lack the metacognitive ability to recognize their limitations (Kruger & Dunning, 1999).
Attribution Bias: Leaders attribute strategic failures to external factors while claiming credit for successes, reinforcing inflated self-assessments.
Feedback Scarcity: As leaders ascend organizational hierarchies, they receive less candid feedback about their strategic shortcomings.
Definitional Ambiguity: Without clear organizational definitions of strategic competence, subjective self-assessments prevail.

The distribution of strategic competence follows predictable patterns. Research by Korn Ferry (2018) found that strategic skills lag behind operational and technical capabilities in 73% of organizations surveyed. Industry differences are notable: technology and pharmaceutical companies showed smaller perception-reality gaps than manufacturing, utilities, and government organizations. Additionally, leaders in stable environments demonstrated greater perception-reality misalignment than those in volatile industries where strategy is continuously tested (Korn Ferry, 2018).

Organizational and Individual Consequences of Strategic Competency Gaps

Organizational Performance Impacts

The disconnect between perceived and actual strategic competence creates measurable performance deficits across multiple domains:

Financial Performance: Organizations with significant strategic competency gaps among leadership teams show 37% lower three-year revenue growth and 29% lower profitability compared to those with aligned perceptions and capabilities (McKinsey & Company, 2020). This performance gap widens during market disruptions, when strategic agility becomes most critical.
Strategic Execution: The perception-reality gap directly impairs implementation effectiveness. Research by Bridges Business Consultancy found that organizations with significant competency misalignment successfully executed only 24% of their strategic initiatives, compared to 73% success rates in organizations with aligned strategic capabilities and perceptions (Bridges Business Consultancy, 2018).
Innovation Outcomes: When leaders overestimate their capacity to shape the future while underperforming in present reality assessment, innovation investments become misaligned with market needs. A BCG study demonstrated that firms with significant strategic competency gaps generated 41% lower returns on innovation investments compared to organizations with more accurate strategic self-awareness (BCG, 2019).
Change Initiative Success: Organizations led by executives with accurate strategic self-perceptions achieved successful transformation outcomes 3.2 times more frequently than those led by executives with significant perception-reality gaps (Keller & Price, 2011).

Individual Wellbeing and Stakeholder Impacts

The strategic competency gap also creates significant downstream effects on stakeholders throughout the organization:

Leadership Credibility Erosion: When leaders consistently demonstrate strategic capabilities below their self-assessment, trust erodes rapidly. Gallup research indicates that employees working under leaders with significant strategic competency gaps report 42% lower confidence in leadership decisions (Gallup, 2019).
Employee Engagement: Teams led by managers with aligned strategic perceptions and capabilities show 31% higher engagement scores, as employees experience greater role clarity and confidence in organizational direction (Harter et al., 2016).
Middle Management Burnout: Frontline and middle managers bear the burden of compensating for strategic leadership gaps, leading to excessive workloads and misaligned priorities. Research shows 67% higher burnout rates among middle managers in organizations with significant strategic competency gaps at senior levels (Deloitte, 2018).
Customer Experience Fragmentation: Strategic competency gaps often manifest as inconsistent customer experiences, with 56% of customers reporting greater inconsistency in service delivery from organizations identified as having significant leadership competency gaps (Qualtrics, 2020).

Evidence-Based Organizational Responses

Competency Assessment and Measurement Systems

Organizations cannot address what they cannot measure. Evidence shows that implementing robust strategic competency assessment creates the foundation for effective development. A systematic review of leadership development initiatives found that programs incorporating multi-rater assessment of strategic competencies produced 2.6 times greater improvement in leadership effectiveness than programs without assessment components (Day et al., 2014).

Effective approaches to competency assessment:

Multi-dimensional feedback systems that gather input across organizational levels and stakeholder groups
Simulation-based assessments that test strategic capabilities in realistic but controlled scenarios
Decision pattern analysis that examines quality and consistency of strategic choices over time
Behavioral event interviews that probe past strategic challenges and response patterns
Analytics-based competency mapping that identifies correlations between specific competencies and performance outcomes

Procter & Gamble implemented a strategic competency assessment program for its top 500 leaders that included simulation exercises, 360-degree feedback, and strategic challenge interviews. The program revealed significant gaps in system influence capabilities among technically-strong leaders. By targeting development to these specific gaps, P&G improved new product success rates by 27% over three years as leaders became more effective at navigating organizational complexity to bring innovations to market.

Targeted Development Experiences

Research demonstrates that generic leadership development produces minimal impact on strategic competencies. Organizations that design targeted experiences addressing specific competency gaps achieve significantly stronger outcomes. A longitudinal study of 248 executives found that targeted development experiences focused on identified strategic gaps produced 3.4 times greater improvement in strategic capability than generalized leadership programs (McCall, 2010).

Effective approaches to targeted development:

Strategic immersion experiences that place leaders in unfamiliar contexts requiring specific competencies
Cross-functional strategic projects that develop system influence capabilities
Structured reflection practices that build pattern recognition and present-state awareness
Stretch assignments with strategic scope beyond current capability levels
Strategic mentoring relationships with leaders who demonstrate excellence in gap areas

Adobe transformed its approach to developing strategic capabilities by implementing a targeted "strategic sprint" program. Based on individual competency assessments, leaders are assigned to cross-functional teams working on real strategic challenges matching their development needs. Leaders weak in "shaping the future" capabilities might work on emerging market entry strategies, while those needing "system influence" development might lead internal transformation initiatives. This targeted approach has reduced executive turnover by 24% and accelerated the development of strategic capabilities across leadership levels.

Performance Management Integration

Organizations that effectively close strategic competency gaps embed strategic capabilities into performance expectations, evaluation processes, and reward systems. Research on 142 organizations found that those integrating strategic competencies into performance management frameworks showed 2.1 times greater improvement in strategic execution than those treating strategy as separate from performance management (Aguinis, 2019).

Effective approaches to performance integration:

Strategic KPIs that measure contribution to organizational strategic priorities
Behavioral competency ratings specific to strategic dimensions
Regular strategic coaching conversations focused on development progress
Recognition systems that highlight strategic competency demonstration
Promotion criteria that explicitly assess strategic capabilities for advancement

Singapore Airlines integrated strategic competencies into its performance management system across all leadership levels. Each leader receives quarterly feedback on specific strategic behaviors relevant to their role, with compensation tied partially to competency development. Strategic competencies are weighted differently by level—junior leaders focus more on present understanding and execution, while senior leaders are evaluated more heavily on future shaping and system influence. This integrated approach helped Singapore Airlines navigate the COVID-19 crisis more effectively than competitors, with faster adaptation to changing travel patterns and more innovative customer safety solutions.

Learning Ecosystem Development

Organizations that close strategic competency gaps build learning ecosystems that continually reinforce strategic capability development throughout leadership experiences. A study of 78 organizations found that those with integrated learning ecosystems achieved 2.8 times greater improvement in leadership bench strength than those relying on episodic development programs (Bersin, 2017).

Effective approaches to learning ecosystem development:

Learning technology platforms that deliver personalized development content
Communities of practice focused on strategic capability areas
Action learning processes embedded in strategic work
Peer coaching structures that sustain development between formal interventions
Knowledge management systems that capture strategic insights and lessons

Microsoft transformed its approach to strategic capability development by creating an integrated learning ecosystem called "Strategic Minds." The ecosystem combines AI-powered assessment tools, personalized learning pathways, peer learning circles, and strategic challenge simulations. When analysis revealed that product managers particularly struggled with "system influence" capabilities, Microsoft developed specialized learning modules and coaching for this population. Within 18 months, product launch cycle times decreased by 31% as managers became more effective at navigating internal systems and stakeholder landscapes.

Building Long-Term Strategic Capability

Metacognitive Leadership Development

Research demonstrates that sustainable strategic capability requires developing metacognitive skills—the ability to accurately assess one's own strategic thinking and adjust accordingly.

Leaders with strong metacognitive capabilities show 2.7 times greater improvement in strategic performance over time compared to those focused only on technical strategic skills (Schoemaker et al., 2013). This "thinking about thinking" capability enables continuous self-correction and learning.

Organizations build metacognitive leadership by implementing reflection routines, decision review processes, and strategic thinking assessments that help leaders recognize their own biases and thinking patterns. Leaders develop specific techniques for challenging their assumptions, seeking disconfirming evidence, and adjusting strategic approaches based on performance feedback.

Microsoft instituted "strategic thinking reviews" where executives present not just their conclusions but their thinking processes to peers who provide feedback on reasoning quality. This practice improved decision quality by 27% in acquisition evaluations by surfacing unconscious biases and flawed assumptions earlier in the process.

Collective Strategic Capability Systems

The most sophisticated organizations recognize that strategic capability transcends individual competence, requiring systems that enhance collective strategic intelligence.

Research by Edmondson and Harvey (2018) found that organizations with strong collective strategic capabilities achieved 42% higher innovation outcomes and 38% faster adaptation to market shifts than those relying primarily on individual strategic talent.

Building collective capability involves creating information-sharing mechanisms, collaborative decision processes, and cross-boundary learning systems. Organizations implement practices like strategic learning reviews, formal scenario planning processes, and cross-functional strategy forums. These mechanisms distribute strategic thinking across organizational levels rather than concentrating it at the top.

LEGO Group implemented a "strategic pulse" system that regularly gathers market insights from customer-facing employees, synthesizes them through cross-functional teams, and feeds them into strategic decision-making. This distributed approach helped LEGO identify the rising maker movement early and develop products that captured this trend, contributing to its remarkable turnaround and sustained growth.

Strategic Leadership Culture

Sustainable strategic capability ultimately requires a supporting culture that values and reinforces strategic behaviors at all levels.

Research by Groysberg et al. (2018) demonstrated that organizations with cultures explicitly supporting strategic leadership show 57% higher five-year growth rates than those with operational or hierarchical cultures.

Building strategic leadership cultures involves modeling strategic behaviors at the top, recognizing and celebrating strategic contributions regardless of level, creating psychological safety for raising strategic concerns, and aligning rewards systems to reinforce strategic thinking and action.

The cultural shift toward strategic leadership is often the most challenging but highest-leverage change organizations can make in closing the perception-reality gap.

Salesforce developed a "strategic leadership culture" by implementing specific practices that made strategic thinking expected at all levels. They instituted "strategy days" where employees could propose strategic initiatives directly to executives, created strategy rooms in each office for team-level strategic discussions, and developed a recognition system specifically for strategic contributions. This cultural shift contributed to Salesforce's ability to anticipate market transitions and maintain growth through multiple technology cycles.

Conclusion

The gap between perceived and actual strategic competence represents one of the most significant yet addressable challenges in contemporary organizational leadership. By implementing systematic assessment approaches, organizations can illuminate these gaps and develop targeted interventions that build genuine strategic capability.

The evidence shows that closing these gaps delivers measurable performance improvements: faster adaptation to market changes, more successful strategic execution, higher employee engagement, and stronger financial outcomes. Yet addressing strategic competence requires more than individual development—it demands integrated systems that build collective capability and cultures that reinforce strategic leadership at all levels.

Organizations that successfully close these gaps share common characteristics: they create feedback-rich environments where leaders gain accurate self-awareness; they design targeted development experiences addressing specific competency needs; they integrate strategic expectations into performance management; and they build learning ecosystems that continuously reinforce strategic capability development.

As business environments grow increasingly complex and unpredictable, the premium on genuine strategic competence will only increase. Organizations that systematically close the perception-reality gap will gain significant competitive advantage through more coherent direction, faster adaptation, and more effective execution of strategic priorities.

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Jonathan H. Westover, PhD is Chief Academic & Learning Officer (HCI Academy); Associate Dean and Director of HR Programs (WGU); Professor, Organizational Leadership (UVU); OD/HR/Leadership Consultant (Human Capital Innovations). Read Jonathan Westover's executive profile here.

Suggested Citation: Westover, J. H. (2025). The Strategic Competency Gap: Perception versus Reality in Organizational Leadership. Human Capital Leadership Review, 26(2). doi.org/10.70175/hclreview.2020.26.2.1