Why do public sector reforms often fail or backfire? Using survey data from 127 English hospital trusts, we demonstrate that organizational capabilities function as interdependent systems where partial development harms performance. While organizations combining functional, adaptive, and positional capabilities show significant performance gains, those developing strong internal capabilities without external stakeholder support perform worse than those making no changes. This “premature optimization trap” occurs when internal improvements lack support and legitimacy, wasting resources and generating cynicism. These findings challenge best-practice approaches and contribute to explain reform failures. Effective public sector improvement requires orchestrating complementary capabilities, not implementing isolated interventions.