Capabilities, in contrast to capacity need, never expire. They are defining strengths that any company must have to help it compete
Organizational capabilities are those signature characteristics of a company that make it distinctive and enable it to win
Capacity, Skills & Capability – Are they synonymous? It really depends on the context of usage. Intuitively, we know that ‘skill’ refers to a specific ability & competency is an underlying characteristic that is causally related to effective performance, but both typically refer to an individual. However, capability is something more omnibus. While one can refer to capability with reference to an individual, it lends itself to a more pluralistic and institutional interpretation. Capacity, in an organizational context, would refer to the bandwidth or threshold requirement of “table stakes” that are needed to participate in the game–assets, manufacturing facilities, technology, intellectual capital in terms of brands, patents etc. ‘Capacity’ comes with an inherent risk of erosion and with certainty of obsolescence – Assets depreciate, brands plateau and decline, new technologies replace old technologies. Capability is something deeper & enduring – it is skills, competencies and capacities leveraged to the maximum in pursuit of the company’s vision, strategy & goals! It is built through a rigorous focus on the human capital (knowledge, skills, competencies, experience, commitment), the social capital (companies relational capital with employees, customers, shareholder, vendors, industry bodies and other external environment) and structural capital (infrastructure that enables leveraging of human capital – hardware, software, policies, processes, manuals, knowledge management & dissemination systems etc).
In the words of Shumeet Banerji, Ex CEO of Booz & Company, “Capabilities, in contrast to capacity need, never expire. They are defining strengths that any company must have to help it compete. They are proficiencies held by the company as a whole that establish its right to win in a given industry. They include people, knowledge, systems, tools or processes that are deployed in the service of the company’s overall purpose and direction.”
Organizational capabilities are those signature characteristics of a company that make it distinctive and enable it to win. They enhance the customer value through responsiveness, relationship and service quality. Above all, organization capability rigorously built, enhances uniqueness because it is difficult to imitate as imitation requires changes in the way people think, act and interact. The uniqueness pertaining to Human Capital is achieved through complex social engineering processes such as culture, teamwork, leadership, which are neither well understood nor easily replicated.
Organizational capabilities have four critical elements:
- Shared Mindset – common understanding of goals/congruence with customer expectations
- Collaboration – complement & integrate with one another
- Capacity for change – anticipation, adaptation, reflectiveness, self-renewal.
- Leadership – ownership, passion and empowered actions
India – A Brief Macro View
When we extrapolate and apply a ‘group of capability systems’ to a macrocosm like a “Slate” or a country, the same can become its defining strengths. In India, in certain sectors like the services sector, which contributes 65 per cent to the GDP, it can be ‘innovation’, ‘service quality’ and ‘mass markets’. Prof. Vijay Govindrajan has been championing Reverse Innovation and shifting the center of innovation to India and the developing countries. This opportunity must indeed be exploited.
However, in the context of India as a manufacturing hub and the ‘Make in India’ approach, we need to do a realistic assessment of the country’s capabilities. When we look at capability & skill building for India Inc., the challenges are manifold.
Growth & Employment
Just consider this: Agriculture currently accounts for approx. 13.7 per cent of GDP, while its share in total employment is 58.2 per cent. The decline in agriculture’s share in output has fallen from 26.9 per cent in 1993-94 to 19.2 per cent in 2004-05 to 14 per cent in 2011-12, it’s share of employment has only fallen from 64.8 per cent in 1993-94 to 58 per cent & 2004-05 and has remained constant at 58 per cent thereafter! Manufacturing sector contributes 15 per cent of the GDP which has remained stagnant at 15 per cent over the last two decades with only a very marginal growth in employment from 10.4 per cent to 12 per cent. This is contrary to the experience of other countries where when manufacturing grows its share both in the output & employment increases significantly. For example, between 1965 and 1980, manufacturing in South Korea saw its share rise from 17.7 per cent to 30.6 per cent and employment rose from 9.4 per cent to 21.6 per cent. The unorganized workforce constitutes 90 per cent of total workforce and 93 per cent of total workforce is in the informal sector meaning they are beyond the purview of legislation, taxation, social security and any other benefits. The demand side is constrained by archaic labor laws providing over protection making the organized/formal sector baulk from formal employment. The supply side is hamstrung by erratic and inadequate education/skill development.
Many problems are endemic to the primary education itself. The demographic dividend is not equally spread but is weighted toward south & west of India. So, it is clear at the present level that the country’s human capital base is not sufficient to meet the needs of business and the so called demographic dividend is only in numbers and not in skills. Skill building at the grassroots and capability building in the larger/ organizational and corporate context is an appetizing challenge.
The Capability Building Challenge – Corporate India
I did a small research of my own with a cross section of MDs & CEOs of Corporate India from a sectorial mix to understand their perspective on capability building. This brought out some very interesting aspects:
Creating capability is a virtuous cycle – capability not only to produce immediate results but capability to create capability. Foresight, vision, anticipation and willingness to evolve change and adapt – that is what Jim Collins discovered while researching ‘Good to Great Companies’ where one of the counter intuitive finding was “first who then what“. Most of the great companies did not begin with a vision or strategy, they started with “who”- they first got the right people on the bus and then figured where to drive it.
One of the CEOs looked at a photo frame in his room in an individual talent/capability context and had this to say, the capability/talent is the larger part – ‘the frame’ and the job/role is ‘the picture’ inside. Earlier, one would look at the individual from the photo (role/job) perspective, now we look at talent from a Frame perspective – this has more to do with leadership, & strategic abilities whle straddling short term successfully.
Another CEO uncannily mentioned something similar - capability may have different levels and nuances across geographies, times and businesses and yet the challenge is how you create talent, which is fungible across these variables again more like the frame & the photo above! Also like something similar to what Jim Collins said – Put your best people on your biggest opportunities not on your biggest problems.
The same CEO mentioned about the choice of identifying talent, which is a distinctive risk - a trade-off between those who comply & ‘fit in’ vs. those that are ‘contrarian’ and ask questions.
Another common theme that emerged was to view ‘capability’ from the perspective of Change Management. Based on the assessment of where the organization is and wants to be, a need to do the change readiness assessment at three levels – individual, groups and organization.
All were unanimous in their view pertaining to the key aspect of talent management, acquisition, retention and development, the part EQ will increasingly play in leadership roles, the need for developing leadership capabilities at all levels of the organization.
In summary, while the micro and macro challenges are numerous, they are also great opportunities. There is enormous scope for both the public and private bodies to partner and bolster various aspects like primary, secondary & higher education, vocational skills, skills specific to service sector, hard & soft skills etc. and for ‘corporate India’ in the areas of knowledge Management, Innovation, culture building.