Why Human Capabilities are Crucial for Business Success

This article first appeared on Acorn Labs in February 2023.

Human capabilities are the combination of knowledge, skills, and attributes required to perform in a specific job role. They can also be used to assess and validate an employee’s potential to move into a future role.

How human capabilities impact business

Where human capabilities really come into play is in ensuring compliance, cohesion and efficiency in how tasks are performed within business functions like marketing or finance. In large enterprises, they enable you to pinpoint valuable capabilities at every level and uncover areas of weakness. In small to midsize companies, they provide a practical reason to invest in certain areas as you grow.

How to define human capabilities

There are a few defining characteristics of human capabilities to look out for.

1. Developable: Consider the application for certain knowledge, tasks, processes and skills. How they can be developed depends on specific organizational needs.
2. Individual and organizational: Human capabilities are the bridge between what an organization needs to do and how it does it. They should denote a skill, attribute or task that is both important to the business and necessary for an employee to possess to fulfill their role.
3. Quantifiable: Unless they’re behavioral, human capabilities should be tangible and able to be tracked by the employee themselves based on learning outcomes or KPIs.

And there are a few defining characteristics of what human capabilities are not.

1. Human capabilities are not business functions, but a business function can be a capability. A capability on its own does not represent the sum of all parts for said function.
2. They should not be designed specifically for a role. They are job-specific, but they’re always derived from the organization’s needs and business strategy.
3. They are not separate from other capabilities in the greater strategy, in that they don’t require their own map or framework.

Measuring the business impact of human capabilities

Just as with business capabilities, any strategic metrics for measuring human capabilities needs to start with organizational outcomes. The specific metrics you use to measure your capabilities depend on the capabilities themselves. You need to make the link between how capabilities are performed by employees and the outcomes and KPIs that business leaders care about.

Calculating the return on investment (ROI) of your human capabilities is a common path to tread here, and for good reason. Training in human capabilities should be regular and ongoing to support employee development, which leads to tangible employee outcomes and business impact.

Consider a training evaluation report as well. It shows learner engagement and the quality of your capability-building programs, as well as knowledge retention or transfer of learning (that is, how learning has been applied in day-to-day work, creating performance improvement). It can also reveal your financial gains, including time to proficiency, ROI, and revenue or training costs.

The risks of not improving human capabilities

The biggest risk of neglecting to build human capabilities is ending up with reactive upskilling over continuous capability building and organizational transformation. Reactive upskilling is in response to issues that are already negatively impacting performance, while continuous capability building works to proactively identify and address potential challenges before they cause detrimental impacts.

If your training is more about upskilling than continuous growth, it makes it hard to create an agile, strategically-aligned workforce. For starters, your hiring practices will be unable to fill the holes in the workforce, because you won’t know what capabilities talent actually needs to possess in order to plug those holes.

This also makes it hard to make a case for reskilling, or any other kind of capability training, namely because you won’t be able to prove ROI in order to gain leadership buy-in.

At the same time, outdated capabilities and processes will continue to decay, preventing the effectiveness and efficiency of the business and its organizational capabilities. Why? Because it will continue to foster the disconnect between learning and strategic performance.