Methods to Define, Build & Measure Strategic Capability

This article first appeared on Acorn Labs in June 2023.

For a more in-depth look at strategic capability, have a read of the full article.

Strategic capability is the mix of knowledge, skills, tools, processes and behaviors that deliver on organizational objectives and help the business gain a competitive advantage in the market.

Define strategic capabilities

There are three steps to defining strategic capabilities for your strategic capability framework or model.

Step 1: Define the landscape

Consider what your organization’s mission, purpose, and values are. What role will your strategic capabilities play in that mission, and how will they drive value for the business? Make sure you aren’t just thinking of the value the capability is generating now—think also of the value that will be generated in the future.

Step 2: Define the purpose

Each capability should have its own specific purpose within the context of the organization. There are five factors to take into account here:

1. How will the capability support long-term business goals?
2. Is there a demand in the market for this capability?
3. Do you have the resources to sustain the capability?
4. Does the capability compete with or complement current strategic capabilities?
5. What are the risks associated with building the capability?

Step 3: Define the outcome

When you name capabilities, the name should be descriptive to give employees and business leaders a basic understanding of what the capability is and how it functions. So, name capabilities in a way that indicates specific, desired outcomes. Think along the lines of:

• Developing and implementing corporate strategy
• Identifying and mitigating risks to the company’s strategic goals
• Creating and managing strategic partnerships.

Strategies for building strategic capability

Strategic capabilities can be developed with a six-step process.

Engage leadership

Unengaged leadership kills change programs. Leaders are the ones who get employees to engage in learning, so you need to gain their buy-in. To do that, you need to frame strategic capability development in terms of the KPIs they care about. How will capability development help address leaders’ pain points? What will be the consequences of not developing strategic capability?

Create co-ownership between HR and business units

Create shared accountability between HR and strategic business units to ensure L&D is well-rounded and relevant. HR has the business strategy in mind but isn’t necessarily in tune with the needs of specific departments. Strategic business units know what their specific needs are, but aren’t necessarily on top of organizational strategy as a whole. Co-ownership between the two helps to balance out the differing perspectives of both groups.

Measure strategic capability gaps

Changes in the industry and technology lead to gaps between what your capabilities currently are and where they should be. You can assess these gaps in individuals with capability assessments. Combine self-assessments with manager assessments to gain an objective view of employees’ capability—and, if you’re evaluating a specialist capability set, combine these with a subject matter expert assessment. A capability assessment measures capability in terms of competency (or proficiency), usually in terms of beginner, intermediate, or advanced levels of competence.

Assess strategic capability maturity

Where capability assessments look at individual capability, maturity measures the capability of the business overall. As capabilities become more “mature” they slide up the leveled scale from “reactive” (where capabilities are unpredictable and ad hoc) to “optimized” (where capabilities are proactively and continuously improved). Once you’ve identified your capabilities and their maturity, you can visualize them in a business capability heat map, which will help you prioritize capabilities to develop based on business risk.

Build strategic capability

Use a knowledge management system or performance management system (PLMS) to keep all relevant learning courses in one place and identify your core capabilities. Combine a knowledge management system with communities of practice to enable best practice sharing between employees, as well as capability academies, which allow employees to gain experience and receive feedback on their learning.

Track progress

Ongoing transformation and improvement are essential for strategic capability building. The best way to ensure this is through consistent, regular, and continuing re-assessments to track knowledge retention and application. Assess the progress of your L&D programs with:

• Proactive training needs analyses to show what training is still required to close capability gaps and improve maturity
• Training evaluations or surveys which reveal how the training was received by employees
• Performance management embedded in learning to create a constant feedback loop between managers and employees that can correct and reinforce desired behavior.