The Importance of Capability Building

The time when companies could rest on a distinctive set of capabilities and enjoy a competitive edge has long passed. Today, technology, consumer tastes, global markets and the competitive environment are changing faster than ever before. Tomas Koch elaborates on a framework that helps organisations to keep pace and stay ahead of the competition.

This is an exciting time to run a company in Asia. Many large regional players are just starting out in their expansion plans and having the right skill sets will earn them global expansion. Asian companies aspiring to become global leaders in their industries must therefore focus on building vital internal capabilities if they are to succeed. While global financial instability is testing the mettle of corporations across the world, many Asian companies, fuelled by high aspirations, continue to seek growth.

McKinsey analysis shows that by the end of this decade, Asian companies will likely account for more than 40% of the top 250 global corporations – a 70% increase in Asia’s share of the world’s top companies from today.

However, the big challenge for these organisations is managing their capabilities. Even today, companies in Asia are being stretched to their limits and experiencing a significant shortfall in skills and abilities, which is proving to be the greatest hindrance to their growth prospects.

Based on its global experience, McKinsey & Company developed an approach entitled ‘Capability for Performance’ (C4P). The C4P enables sustainable capability building and improved performance with an emphasis on speed and scale. Its methodology focuses on employee-led initiatives – programmes owned and led by line managers who have direct responsibilities for their own profitability – and uses the latest thinking in adult learning in order to deliver results.

McKinsey’s approach helps to ensure that people develop the skills they need, deliver performance improvements that add to the bottom line, and build the institutional capabilities needed to sustain these improvements. There are four imperatives that Asian companies should seek to address in building capability for performance.  

1. Identify and quantify the capabilities that make a difference

Our research showed that organisations that develop the capabilities required to meet their aspirations are seven times more likely to succeed than those that do not[1].

The research also indicated that when senior leaders set the agenda for change, it is more often explicitly linked to immediate business goals than when others take the lead. In setting the agenda, high-level leadership more often designs a targeted, comprehensive, and effective programme to meet strategic goals.

Top leaders are better at setting the agenda largely because they have strong first-hand sense of corporate and functional capabilities that are lacking in the organisation, and which are keeping the company from achieving its goals.

However, intuition is not enough. Executives should calculate the performance improvement − with regard to increased revenues and margins, productivity improvements, cost savings, or other tangible measures − that results from building these capabilities.

This exercise will reveal actions that will both drive value and highlight capabilities with the greatest potential to enhance performance. Organisations can then adopt a ‘less is more’ attitude, focusing its efforts on this limited set of critical capabilities.

Next, leaders must identify the capabilities employees need to produce improvement in the prioritised areas. The company should perform an assessment of employees’ capabilities, compare them with industry benchmarks, and quantify how much these improved capabilities will be worth.  

2. Apply experiential programmes and other adult-learning techniques

In many cases, employees cannot immediately apply their new skills in real work situations, and so it is difficult to reinforce their new capabilities. Practical and ‘on-the-job’ learning can be effective, as opposed to classroom lectures or demonstrations: A study [2] found that after three months, people retained only 10% of the small, simple chunks of information they had been taught through oral methods. When visual teaching methods were used, retention rates after the same period increased to 32%. And, when people learned the same information by doing it hands on, they remembered 65% of it.

To ensure organisations build enduring capabilities, the top team should invest in experiential programmes. These programmes come in a variety of forms, including boot camps (the combining of classroom learning and fieldwork), simulations, and role-playing games that provide exercises for practising a new skill and e-learning.

These training programmes allow participants to experiment with new ideas in a risk-free atmosphere and to test-drive tools and processes before using them in their daily work.

One valuable technique employs capability centres, which can include model factories, design labs for product development, functional back offices (in areas such as banking for example), and other work environments.

In the model factory by rearranging assembly or tooling processes and seeing the result, trainees can use their new capabilities in actual production settings. Capability centres can create a diverse range of learning-by-doing situations in which trainees are confronted with a problem, work out a solution, and see the tangible results. (See Green Campus sidebar).

3. Scale up and accelerate with corporate academies

Learning and training programmes embedded in the corporate structure are essential to institutionalising the capabilities that have been gained to drive performance and change. Corporate academies help sustain change.

The idea of a corporate academy is to move beyond traditional brick-and-mortar institutions where participants sit in classrooms to deliver capability building directly in the workplace.

Corporate academies address specific training needs within large organisations that are directly linked to the business, and can offer a wide range of in-person, virtual, and off-site personal training programmes, with tailored curricula and varying class sizes. Corporate academies today follow best practice adult learning principles, apply a ‘forum-and-field’ approach, and make full use of new technologies such as e-learning.

While corporate academies take various forms – from focused interventions in specific business units to build needed capabilities in selected functional or technical areas (such as marketing and sales, or energy efficiency) to holistic programmes integrating all learning and development offerings in an organisation – the best follow five tenets that create highly effective programmes:  

Strategy relevance: The objectives of the programmes are clearly linked to corporate strategy. Courses are tailored to the capabilities needed to achieve direct business impact;

Rooted in real work: The programmes use a blend of in-person and technology-based remote learning to present real-life situations closely tied to participants’ actual work;

Expanded horizons: The curriculum is continuously refreshed by drawing on best practice and new ideas from outside the organisation;

Top-level support: Sound governance structures include oversight and visible support by senior business leaders, and ensure sufficient funding;

Measured: The business impacts of the programmes are clearly measured using leading and lagging indicators.

Especially in Asia, certification programmes that acknowledge and reward employees who have completed core programmes can help ensure the success of specific programmes and corporate academies.  

4. Make continuous improvement a part of the company’s DNA

Once all the initiatives are in place, leaders must ensure that the organisation can sustain and build on early gains by instilling a culture of continuous improvement. Often, this means that people throughout the organisation must change their mind-sets and behaviours. And, new attitudes must be internalised.

This change must start with three concurrent actions by the top team:

First is the creation of a capability-building programme that helps employees develop relevant skills and gives them the opportunities to practice those skills;

Second, leadership must create a compelling case for change that clearly communicates what people are expected to do;

Finally, executives need to ensure that the company’s structures, processes, and systems are aimed at driving change – usually through a performance-management system that integrates business and personal performance metrics and evaluates short-term performance and long-term health.  

Courage, conviction and commitment

Leaders must recognise that launching an institutional capability-building programme that brings rapid and sustainable performance improvements calls for courage, conviction and commitment:

Courage to step beyond comfortable, short-term measures and embrace new approaches, applications, and technologies;

Conviction in the organisation’s readiness to change and ability to reach a higher level;

Commitment to develop the capabilities to create and sustain change.  

End notes

[1] What successful transformations share: McKinsey Global Survey results,, March 2010.

[2] John Whitmore, Coaching for Performance, 3rd ed., Boston: Nicholas Brealey Publishing, 2002.

This article was first published in HQ Asia (Print) Issue 05 (2013).

Opps! Please enter something in order to comment.

Preview Comment