Tax administrations are organizations that are constantly evolving. They do this to respond to changes in a volatile, uncertain, complex and ambiguous environment. In this context, one of the key processes that enables our institutions to undergo this transformation is strategic management. This set of activities, which is rarely talked about, is the equivalent of the role of the human brain. They guide the decisions and actions conducted by the rest of the organization’s members. To do this, an institution designs project portfolios aligned with its strategic objectives both to correct restrictions and to enhance long-term results. Thus, a large part of an organization’s current operations is composed of project portfolios. On this basis, an opportunity arises to improve the way public administrations are structured: integrating capacity management as a key enabler for strategy implementation.

Currently, there are very solid models in the field of tax administration diagnostics. For example, the Tax Administration Assessment and Diagnostic Tool (TADAT), which has been operating since 2014 to determine the current situation of an administration. The 2025 version included a section assessing the effectiveness of organizational performance management (P8-28). This indicator evaluates indicator management practices, strategic alignment, governance, comprehensive analysis and continuous improvement capacity. This progress is relevant, although it leaves room to delve into the elements that condition the results.

It is important to verify that there is a record of strategic objectives, an organizational structure, and the results of operational indicators, as required by TADAT P8-28. However, it is convenient for tax administrations to deepen the diagnosis of their capacity management. This will allow them to determine the degree of effectiveness and efficiency in the institutional performance management partially addressed in TADAT. What do we mean by capacity management? “Organizational capabilities are the ability of a company to integrate, build and reconfigure internal and external competencies in order to face changing environments.” Teece, Pisano & Shuen (1997), Dynamic Capabilities and Strategic Management, Strategic Management Journal. So, if the strategy determines, among other things, which actions will be prioritized to achieve the key objectives and outcomes, is it necessary to consider the inventory of capabilities?

The answer to this last question is a categorical yes. Peter Drucker sums it up with his well-known phrase: “Culture eats strategy for breakfast.” Organizational culture, understood as a strategic ability that is difficult to imitate, directly influences the scope of possibilities to translate strategy into action. Therefore, if we are doing a good job of strategic planning, at least this capacity should be subject to continuous diagnosis.

According to the theory of constraints, Eliyahu Goldratt states that “the performance of any system is limited by its constraint.” (Goldratt, The Goal, 1984). Adapting this concept to tax administrations, collection is conditioned by some of the processes of the taxpayer’s cycle. So, if the system is composed of all the processes, which are necessarily interrelated, the concepts observed in indicators such as those of TADAT may omit unidentified internal constraints.

We know that a process with constraints (design, capacity or resources) will determine how well the institution will perform. Culture, which is the personality of an organization, increases or reduces the success of the strategy. Why? Because it represents routines, decisions, relationships and leadership. However, there are other types of capabilities that should be considered as part of the strategy design and, mainly, for its execution. In this way, administrators could at least limit the objectives to the constraints and prioritize the construction of new capabilities.

Based on experience and the analysis of performance results, many organizations in the sector fail to assess their capabilities. In fact, it is likely that some already assume that they have achieved perfection, when there are still pending tasks. So, although they could have been cemented, these are the most relevant capabilities for the execution of the strategy:

• • The organizational culture. It is a determining factor because it conditions, enables or blocks the way in which the strategy is converted into action. If an institution plans to transform its long-term results, it must start by evaluating and strengthening its culture.
• • Project management. This component is closely associated with the execution of the strategy. The organization can achieve superior and sustained performance by: deciding on what the key initiatives are, defining realistic deadlines for implementation and acting as an integrated block in the allocation of resources. If complex projects are needed, you have to have the ability to deliver them.
• • The strategic adaptation. It is about the way in which the institution integrates leadership, learns and manages interests to respond to the variations of the environment and its own aspirations. Without the capacity to adapt, many initiatives are doomed to fail.

Now, we already know the essential capabilities, but how do I put them into practice? When formulating strategic objectives and their actions, it is necessary to diagnose these capabilities. If the scenario is very basic, it is advisable to propose realistic initiatives and invest in improving capabilities; otherwise, this restriction will undoubtedly limit performance results and waste time and money. Achieving this balance is a challenge that must be faced through an exercise of awareness about what needs to be postponed to be built in increments.

Bibliographic references:

Drucker, p. F. (2006). The Practice of Management. Harper Business. (Original work published in 1954).

By Goldratt, E. M. (1984). The Goal: A Process of Ongoing Improvement. North River Press.

Secretariat of TADAT. (2025). Tax administration performance evaluation framework: A field guide. International Monetary Fund.

Teece, D.J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. https://doi.org/10.1002 /(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO ;2-Z

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