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Libby Marks

How Capability Building Can Future Proof Your Service Business

The more right capabilities an organization has, the better it can manage continuous change. Here's all you need to know about capability building to succeed.

Capability building is a proven way to future-proof your organization - setting up your service business for success and sustainability. Here’s what capability building means, how to do it, and the potential benefits to your business.

What is capability building?

By definition, capability building is the strategic process of equipping your business for future success and sustainability - by developing the skills, processes and resources required to achieve its full economic potential. It encompasses a range of activities - from upskilling staff and leadership development, to risk planning and business transformation.

Capability building is concerned with increasing your organization’s ability to achieve its future goals. It involves looking at where you want your business to be, auditing your current capabilities to get there, and filling any gaps that will hold you back. 

‘Capabilities’ is an umbrella term that includes a wide range of elements - for example, the skills you have as individuals and an organization; your ability to absorb and implement change; the effectiveness of your people and processes; your company culture, and lots more. 

Capability building isn’t just about the big stuff - like managers’ ability to lead and inspire their teams or implement change. It is also about smaller activities that, if not managed effectively, can cumulatively undermine your business success - like mismanaged meetings, ineffective email communication, and poor prioritization. 

Capability building looks to increase those capabilities over time - matching them to the strategic direction of your business - so you are equipped for future success. 

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Are capability building and capacity building the same?

Capability building and capacity building sound similar and are sometimes used interchangeably - but they are two distinct concepts. Let’s iron out the distinction before we go any further. 

  • Capacity building is about increasing your ability to take on more work - for example, by hiring more staff, securing more equipment, or expanding to larger premises
  • Capability building is about improving your ability to deliver that work well - by equipping your business and empowering your people with what’s needed for success

To avoid the confusion between the similarity of the words ‘capacity’ and ‘capability’, it may help to think of ‘capabilities’ as ‘competencies’ instead. It is easier to understand the difference between capacity and competence.

Although capability and capacity building are different, they are related. 

  • Learning to accurately predict and plan capacity in your service business is a key capability you need to develop - if you want to be able to seize new business opportunities.
  • And if you successfully build capabilities within your business, you can increase your capacity - by realizing more time from existing resources. 

For example, if you can save 5% of your project managers’ time by implementing new software and processes, that time can be used elsewhere. Five per cent may not seem significant. But multiplied across all PMs in your business - all year round - that adds up to a significant opportunity to deliver more value-creating work.

Therefore both capability building and capacity building should be on your agenda if you’re looking to scale or grow your service business.

What are capabilities in a business?

In an evergreen article in Harvard Business Review, leadership experts Smallwood and Ulrich describe capabilities as ‘intangible assets [...] the collective skills, abilities and expertise of an organization’ that mark it out for success.

They identified 11 core capabilities that are common to successful businesses:

  • Attracting, motivating, and retaining competent and committed people
  • Making important changes rapidly
  • Ensuring that employees and customers have positive and consistent experiences
  • Obtaining high performance from employees
  • Working across boundaries to ensure both efficiency and leverage
  • Generating and generalizing ideas with impact
  • Embedding leaders throughout the organization
  • Building enduring relationships of trust with targeted customers
  • Articulating and sharing a strategic point of view
  • Doing something new in both content and process
  • Managing costs

As you can see, these key capabilities go beyond simply training staff in new skills. A capability-building program does include training and upskilling employees. This is 'individual capability building'. 

But it is also concerned with futureproofing a business by facilitating better decision-making, increasing innovation and agility, and improving overall efficiency. This is 'organizational capability building'.

Examples of individual capability building 

Individual capability building improves employees' skills, knowledge and confidence to perform their own duties well and contributes to the growth mindset.

  • Challenges and KPIs - setting goals for employees to develop their skills and supporting them to achieve them
  • Training - the provision of personalized or group training to increase an individual’s skills in a particular area - such as marketing or time management
  • Peer-to-peer learning - the exchange of best practice between colleagues - this may be self-organized or facilitated by the organization 
  • Mentoring and coaching - the provision of personalized, one-to-one, expert guidance to help individuals tackle a specific challenge or develop advanced professional skills 

Examples of organizational capability building 

Organizational capability building spans the entire business, to deliver organization-wide change and business transformation. It includes - but isn’t limited to:

  • Hiring new expertise - recruiting staff with relevant skills and expertise to support your future plans - these new staff can also be used to upskill existing employees 
  • Strategic upskilling - training a critical mass of employees in the same skills, to embed more efficient working practices organization-wide
  • Leadership development - equipping new managers with a standardized approach and skill set to manage employees and lead change
  • Team building - creating stronger, more functional teams to facilitate better working relationships, collaboration and outcomes
  • Process improvement - reviewing and improving processes for higher operational efficiency and performance - standardizing and embedding common processes and best practices
  • Risk management - anticipating and preparing for different risks to the business, to ensure continuity in worst-case scenarios
  • IT investment - redesigning processes around new technologies to improve efficiency and productivity - as well as improving planning and measuring through data and analytics

The importance of capability building

Research from McKinsey shows that businesses that invest in capability building efforts enjoy better returns, higher organizational health scores, and more resilient workforce than those that don’t. 

Organizations exposing at least 10 percent of their employees to capability-building programs were twice as likely to improve their OHI scores as were organizations that didn’t - with an average rate of improvement of nine percentile places versus no improvement at all. 

Organizations that included upward of 30 percent of their workforce in formal capability-building programs improved their OHI scores by an average of 12 percentile places. And they enjoyed total returns to shareholders 43% above benchmarks after 18 months. 

This potential for reviving and transforming business fortunes may be why 80% of business leaders now say capability building is extremely or very important to the long-term growth of their companies - up from 59% before the pandemic. 

Whilst business leaders agree that capability building is key to future success, it isn’t always easy to achieve. According to Harvard Business Review, the intangible nature of ‘capabilities’ means they’re harder to measure and manage than more obvious business assets. 

But these assets mark a business out for success by making it more agile, innovative, and efficient. They also give your business a competitive edge because they’re unique to your organization - thanks to the interplay of individual employees, skill sets, and culture. This means competitors can’t easily emulate them and close the gap between you. 

Done well, capability building has the potential to transform your service business's success, efficiency and sustainability. Here are five tips for successful capability building in your service-based business.

5 tips for an effective capability-building strategy

1. Model from the top down

McKinsey advise that senior leaders show the way when it comes to capability building. They found that when senior leaders model the behavioral changes they’re asking employees make, transformations are 5.3 times more likely to be successful. 

If you’re embarking on a capability-building program, your senior leadership should be the first participants and their engagement should be highly visible. Both because it gives them the opportunity to develop and implement best practices, and because others are likely to follow their example.

What does this look like in practice?

Say you plan to introduce time tracking software to help monitor and improve billable utilization. Your senior leaders should be early adopters, sharing how they use their time transparently with the rest of the organization. This helps build trust in new processes.

Delivering organization-wide training? Make sure senior leaders are seen to be taking part. Or if they’ve taken part already, ask them to come back and share their experience with new participants. For example, how they’ve embedded the learning in their professional practice and what the benefits have been. 

Spotted a colleague implementing new practices effectively? Ask a senior colleague to reach out and recognise that they’re making changes. This personal approach helps nudge the needle in the direction of positive change and employee uptake. 

2. Build from the ground up

As well as cascading change from the top down, it’s important to build from the ground up too. As management expert Henry Mintzberg observes ‘Effective organizations are communities of engaged human beings, not collections of passive human resources.’ Colleagues need to feel engaged with capability building if it is going to be effective. That means listening, not just telling.

McKinsey cites the case of a manufacturing company that was in the bottom quartile for OHI score. As part of its capability-building program, the business put processes in place that empowered employees to champion ideas, gave them support to develop them, and recognition for the success of their initiatives. The result was more than 5,000 ideas for improvements to operations, many of which improved the business’s bottom line.  

3. Engage a critical mass

For capability building to be a success, it needs to be widespread. It makes sense that the more employees you engage with directly, the more opportunities you have to change their individual behaviors and competencies. 

But change isn’t just achieved through direct engagement. Behavioral science shows that people mimic the behavior of those around them. So everyone you engage directly has the potential to create a ripple effect in the people they work with. Therefore the more people you engage with directly, the more people you can reach indirectly as well.

McKinsey recommends that - for widespread change in working practices - a capability-building program needs to directly engage at least 25 percent of the workforce. They describe this as ‘the tipping point’ for a minority of employees to create a new cultural norm.

However, as the stats quoted earlier show, the more employees directly engaged, the better the outcomes can be. 

4. Embrace remote technology

Fortunately, remote collaboration tools have made it easier than ever to deliver capability-building initiatives - removing the limits imposed by in-person attendance. 

Where training and workshops used to be limited by cost and logistics, remote sessions can be opened up to any and all employees. This means you can directly engage employees in initiatives even if they are distributed across the globe. 

The obvious use for technology in capability building is providing training remotely. Virtual learning sessions allow participants to take part live - asking questions and engaging with one another - or access learning on-demand, giving them time to pause, reflect and absorb new information. Captions and auto-translation make sessions more accessible. 

But remote technology also allows people to take part in coaching and mentoring with peers or senior managers more easily - as they’re only a click away by video call. Managers can easily cascade new processes to colleagues by recording a Loom and sharing it on their social intranet. And the CEO can celebrate achievements by recording a video or leaving a voice note to recognise great work.

5. Make small changes

If the scope and range of capability-building activities is daunting, it's okay to start small. Take meetings, for example. This is one area McKinsey highlights as an area ripe for improvement. In their work with the manufacturing company mentioned above, they implemented best practices around meetings. 

Employees were trained in how to run more effective meetings - including setting clear objectives for the meeting, and ensuring everyone leaves the meeting with a firm understanding of the actions required of them. 

This reduced the time staff spent in redundant or bloated meetings and freed 2 to 3% of the time taken up in employees’ calendars. Cumulatively, across the entire organization, that created significant space for more productive activity. It also delivered improved outcomes for the business by ensuring accountability and clarity for next steps. 

McKinsey report that some capability-building programs are criticized and doubted for being too basic - providing training and support around seemingly ‘obvious’ processes. But assuming your staff know how to work in the most effective way can be a costly error. 

After all, most of us don’t get taught how to manage meetings - or people or change or risk - at school. So providing standardized processes and training - even in the basics - can be a key lever in transformation. 

Runn is resource management software that can help build your capabilities as a service-based business and - at the risk of confusing things again 🙈 - plan and build your capacity too. 

It provides better tools for project managers to allocate and manage project resources and skills. This results in:

  • Enhanced project outcomes through improved decision making 
  • Better resource utilization to maximize your employees’ opportunity for impact 
  • More agility to model scenarios and act fast when project parameters change 
  • Fast, efficient processes that free up your PMs for more value-adding activities
  • The ability to surface organizational capacity and inform future planning 

The best way to understand it is to try it. So stop reading and start your free 14-day trial today. 

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