Capability building: is your company in debt?

You’re probably familiar with terms such as tech debt, financial debt, people debt or even the most recent phenomena that took executive group chats by storm, organisational debt.

These concepts refer to taking shortcuts; borrowing money, time or resources from your future self to get the job done today. The logic is that today’s investments will bring about sunnier days in the future, during which the debt can be paid off.

What makes these debt-related concepts especially valuable is their place of origin. They’re not a product of marketing teams in management consultancies or conjured up in academic circles, but instead, they come directly from practitioners – the real “do-ers” of organisations. Those on the so-called front lines are often the ones most concerned about their technical or organisational debt and continue to develop and use these concepts to find solutions and make sense of their surroundings.

It’s simple maths; whatever you borrow today = what you must pay back tomorrow + interest.

Technical, people and organisational debt are all now largely well-known concepts and they play an important role in organisational decision making. We’d like to introduce a new lens that is just as important and currently more pressing than the previously mentioned forms of debt. Capability debt.

What are capabilities

Capability refers to the skills, abilities and expertise required to deliver a certain task. This can be a task as simple as making a cup of tea or on the other end of the spectrum, delivering a complex multinational business merger.

In each case, there are a number of necessary skills, competencies and human capital requirements that must be deployed to achieve success. As you would expect, the risks associated with not having the right capabilities to make a cup of tea are dwarfed by the implications of a failed merger.

An important point to make here is that capabilities are intangible and hard to measure, but are increasingly important to capture success.

Capabilities form the identity and personality of an organisation by defining what it is good at doing and consequently, who an organisation is.

They are slow-moving and stable, difficult for competitors to reproduce in comparison to the relative ease of copying products, go-to-market strategies and technologies.

An example of unique organisational capabilities

Take for example the capabilities of Tesla. A competitor can introduce an electric car into the market and copy marketing strategies at speed, but it would take decades to build the systems and human capabilities that Tesla has today. Being difficult to measure, executives often pay far less attention to capabilities than to tangible investments like machinery and technology, but these capabilities increasingly define the value of a company more than any capital infrastructure has in the past. We can see the impact of capabilities on defining value by comparing Tesla’s market capitalisation to that of Toyota.

Tesla in late 2020 overtook Toyota as the world's most valuable car manufacturer with a market capitalisation today of 800bn USD in comparison to Toyota’s 300bn. On paper, this makes no sense: Toyota produced close to 9 million vehicles in 2020 with a revenue of 275bn, in comparison to Teslas 500,000 production and revenue of 31bn.

What’s clear is that value is no longer simply derived from capacity, profits or operating models but rather, value is increasingly defined by an organisation’s human capabilities; in this case, Tesla’s highly capable workforce paired with its nimble and adaptable culture.

Capability building

We most often hear of capabilities in the form of ‘capability building’. Capability building referring here to the investment that organisations make into their people and systems, which is expected to pay off in the future.

Say you onboard a new piece of shiny tech. An investment is made into both the tech itself but also into the training of your people to effectively use and deploy it. In return, this tech offers long term productivity gains resulting in multiple fold ROI. However, as I’m sure you’re already thinking, that's not how the real world works.

Thinking that capability building is a linear implementation of new systems and operating models with capabilities developed in tandem, is both utopic and fails to reflect the reality on the ground. The old model of capability development has long passed it’s best before date, often failing to conceptualise today’s realities.

Capability debt: what is it and does your organisation have it?

A more accurate and helpful way to think about capability building is through the concept of capability debt. In the real world, rather than building capabilities proactively or in tandem with changing operating models, we first shift our systems, finding new 'jobs to be done’. We then try and build our capabilities to deliver these ‘jobs’ while working, or if you’re lucky, retrospectively.

Going back to the previous example, a change in consumer behaviour has meant that the market wants cups of tea, and so Company X makes tea, without having the installed capabilities to do so. It therefore expects employees to either learn on the job or retrospectively builds employee capabilities to produce tea, consistently and to specification.

What we see here is the emergence of capability debt. Company X shifted it’s operating model to produce tea before having the capability to do so. This is not an issue in itself, but the problem begins to occur when this debt is not addressed. If Company X then starts producing different variations of tea to satisfy market needs (with milk, sweetened, chamomile, Earl Grey…) without addressing it’s initial capability debt, this debt grows, creating unforeseen impacts.

The reality of business has meant that our capabilities were lagging behind our operating models well before 2020, with the World Economic Forum calling for a ‘global reskilling revolution’ to address this capability gap. And now? We’re years behind.

Capabilities: a debt on steroids

The greatest recession in recorded history has combined with sudden remoteness and changing consumer behaviours. These disruptions have all meant that organisations have had to shift and change their operations overnight to stay afloat. These fast changes in operating models have brought with them an unprecedented capability debt.

Organisations are asking a lot from their people: to either do tasks and deliver outcomes they had never done before, or deliver these under a new ecosystem of constraints. However, demanding high performance and outcomes without arming employees with the right capabilities – skills, abilities and expertise – is a recipe for failure; low engagement, falling productivity and burning out the most valuable burden-bearing fixers you have.

Organisations were already in a capability debt as a result of the disruption caused by the so-called 4th industrial revolution – the growth of tech, as well as the rise of that pesky startup that is doing what you’re doing, only cheaper and faster. However, what the sustained disruptions of 2020 and 2021 have meant is that addressing these capability debts can no longer simply be a ‘top 3 priority for 60% of CEOs’ as was in the dreamy 2010s.

More then ever, organisations need to deliver human and meaningful solutions to build their people’s capabilities in line with their shifting operating models or, accept the metaphorical sea bed as their new home.

The need to address our capability debt is clear. Businesses now face a compounding of debts that have built over years, if not decades. As a result, at Play we’ve been experiencing a spike in enquiries regarding capability building systems compared to the average trend over the last 5 years.

In short, companies are realising that in the face of radical change, they require radical, human and meaningful solutions to address their capability needs.

How Play creates capability building product solutions

Having now looked at both debt and capabilities, the question of how to best address a rapidly growing capability debt remains.

There are two key elements to successful capability building. 1. Meaningful, behaviour-oriented capability development 2. Capabilities as a holistic view – connecting capability development to performance outcomes

1) Behaviour-oriented capability development

At Play, we often work in a way that may be seen as unconventional. When an organisation identifies capability building as a priority and approaches us for help, rather than working down from the strategic priority, we identify the micro-behaviours that will drive those priorities from the bottom up, and build systems that promote and optimise for them.

Put simply, rather than constructing clunky and expensive performance trackers and learning systems, we build nimble and intuitive platforms that promote precise behaviours that, on a macro scale, create organisational change.

Let’s take one behaviour as an example: learning one piece of curated information a day. Through understanding employee motivation and putting the user (or ‘player’) first, we’re able to create a meaningful experience that promotes this behaviour, creating large scale outcomes when scaled.

When thinking about building capabilities, organisations should break these top-level strategic priorities down to their behavioural components and build from the bottom-up – systems that capture employee buy-in and consequently, actually work.

2) Capability development with performance

The data is clear: organisations that have a holistic view of capability building achieve greater results. But the responsibility of building capabilities can’t live with a single department, neither can learning programmes exist for their own sake. Those who align their capability and skills programmes with strategic priorities and measure its impact on individual performance achieve the best results.

The problem is, this is easier said (or in this case written) than done and has many unexpected implications.

Capability building isn’t simply learning or upskilling and must interlink with work processes and performance metrics. The perennial question on any leader's mind is: ‘how will investing in this development programme impact my people’s performance.’ Instead, we think the question should be: ‘how will I create a holistic capability programme that makes learning and adapting a prerequisite for high performance.’

Simply put, learning can’t live in annual training sessions or tucked away in distant LMSs. It should be an integrated and constant part of working, with clear systems that measure the impact of upskilling on performance. And before anyone goes and engages in Excel abuse, please refer to my colleague, Jamie Horne’s article, ‘Designing for your employees’.

It is imperative that the systems we build – as explained in the previous section – put the ‘player’ first.

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