Capability assessments are important tools for driving corporate success. Yet, businesses often do not recognize the importance of examining and fine-tuning their capabilities. The Boston Consulting Group explains the term “capability” as “an ingrained ability to do something well in a way that improves business performance.”
At the core of a capability are behaviors— “the activities, interactions, and decisions made by a set of individuals in a company who exemplify that capability.” In addition, a capability is built on four components that strengthen each other. These components pave the way for long-term behavioral change in a company:
- Competencies: the skills, knowledge, and beliefs of employees.
- Tools: IT, databases, apps, and related systems
- Processes: activities, resources, and responsibilities that regulate the division and execution of work.
- Governance: accountability, KPIs, incentives, and reporting structures.
Why Transformations Often Fail to Deliver Desired Results
In order to stay competitive, many companies launch transformations that involve changes to their strategy, business model, culture, and organization. These transformations often serve as responses to the changing demands of a dynamic industry. In other instances, transformations prepare companies to enter new market segments in search of growth. Whatever the motivation, transformations are essential undertakings that can yield growth, profitability, customer loyalty, and improved manageability.
However, transformations fail to deliver lasting results when companies focus too much on the end goal and not on their capabilities. Lasting transformations depend on capabilities, which must be evaluated using a capability assessment and then systematically integrated into the transformative process. According to a Boston Consulting Group study, behavioral capabilities such as strong leadership, engaged employees, and collaboration are closely tied with a company’s ability to create value. An indispensable element of transformation is building capabilities, though it poses some serious challenges.
Key Challenges of Capability Building
Capability building requires coordination across different departments and functions, but most companies find it difficult to unify their groups. Business executives hand the job to HR or set aside a few days for training, neither of which yield potent or sustainable results. New capabilities also require behavioral changes, which are not easy to sustain. Without a systematic approach, businesses tend to revert to their old behaviors once the transformation stage is over. For reasons such as these, attempts to bolster capabilities fall short in the long-term.
In a 2014 McKinsey global survey of business executives, 50 percent of respondents ranked capability building as one of their top 3 priorities. However, survey results showed that few respondents had effective approaches to assessing their current capabilities and identifying skill gaps. Only 18 percent of respondent organizations used structured third-party diagnostics, as most respondents preferred manager assessments or self-assessments. Unsurprisingly, 37 percent of respondents cited a lack of credible metrics as one of their companies’ biggest challenges in building capabilities. Furthermore, 1 in 5 respondents reported that their organizations did not measure the efficacy of their learning programs at all.
Where You Can Start
In order to build sustainable capabilities that generate value for the company, businesses must diagnose their skill gaps through objective and systematic capability assessments. Objective third-party assessments help companies assess their skill gaps relative to industry peers. Such assessments also allow companies to quantify the potential financial impact of addressing these gaps. Once this step is done, companies will have a deep understanding of their capabilities that allows them to design effective learning programs and enact sustainable transformation.
Before hiring more resources to meet your growth targets, conduct a capability assessment to find what are hindering your company's performance. Without removing these performance obstacles, your investments in new payroll or systems will not likely payoff to the extent you expect.
SOMAmetrics provides a complete sales and marketing assessment that takes 3 to 5 days to perform. A thorough investigation of the company’s internal capabilities and adherence to stated Senior Management goals is conducted through interviews and a review of systems, processes, and publications.
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