Competency vs Capability: What's the Difference?

This article first appeared on Acorn Labs in April 2023.

Capabilities and competencies are easily mixed up. Both of them refer to human abilities, but one is a measure of effectiveness and the other evaluates proficiency.

A capability is the mix of skills, knowledge, tools, processes and behaviors that combine to get work done and deliver on organizational needs. This means it needs to have a tangible outcome. For example, project management is a capability because it ensures that projects are completed efficiently and effectively, driving results for the business.

A competency assesses how well the skills, knowledge, tools, processes and behaviors that form a capability are utilized to get the necessary work done. In other words, it’s a measure of an employee’s ability to perform their expected role-specific capabilities to the organization’s standard. If you were measuring competency in project management, you’d probably use a scale like this:

1. No experience, where the employee has no experience in the capability.
2. Foundational, where the capability is performed at a basic level, with guidance.
3. Proficient, at which point the employee can perform the capability on their own.
4. Advanced, where employees can now supports others in developing the capability.
5. Strategic, in which the capability is performed well enough to set strategy.

Organizational capabilities vs. employee capabilities vs. competencies

Capabilities all look more or less the same, but organizational and employee capabilities differ from each other in how they’re used.

• Organizational capabilities link directly to the CEO’s priorities and focus for the business. They’re talked about in terms of resources for future-focused workforce and business planning.
• Employee capabilities refer to the attributes of an individual. They’re still focused on future needs, but they’re more about the needs of an employee in their role, team or career than the needs of the business.

Capability and competency are two sides of the same coin. An organization is only successful if its employees are competent, and if your organization isn’t held to standard then developing employee competence is impossible.

The way capabilities and competencies are used in an organization are different too. Capabilities, both organizational and employee, are designed to drive strategy. Competency, on the other hand, can’t be a strategic driver since they’re limited to certain areas of expertise, and competencies need an outcome against which they can be measured. In other words, capabilities are for driving strategy, and competencies are for measuring performance.

Why are capabilities important to business?

Capabilities underpin any training and development program you offer. All L&D activities in your organization should have some kind of return on investment for your business, so consider the KPIs that business leaders want to see. Think along the lines of profitability, process improvement, and business agility.

Capabilities provide the desired business outcomes that meet that meet those KPIs, meaning that training programs designed to develop those capabilities are automatically aligned with business strategy. So, capabilities ensure that:

• Learning activities are prioritized by business impact
• You can replicate a successful development pathway or identify areas for improvement
• Training proactively solves or reduces long-term business issues
• You can show a quantifiable impact of offering or not offering development.

Employees can also use capabilities as a guide to understanding what is required for them to succeed in their role, team, or organization.

Why are competencies important in the workplace?

Competencies are important for two reasons:

1. To define performance management
2. To power self-assessments.

The most common example of competencies being used is in performance evaluations, where they’re used to gauge an individual’s performance against what you want performance to look like.

Managers are the ones who use competency here to understand the specific skills required for an employee’s role, as well as the knowledge and behaviors that will help them meet future expectations. They can use competency models to benchmark performance across capabilities and job roles, develop shared understandings of capabilities and performance, design timely interventions for undesirable behaviors, and inform succession planning and workforce decisions.

In self-assessments, it’s the individual employee who uses competencies to measure their own work performance. People are likely to have a biased view of their own abilities (whether that’s positive or negative) so using both self-assessments and manager-powered performance evaluations are crucial to gaining an objective view.