Methods to Define, Build & Measure Strategic Capability

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Regardless of industry, companies have to deal with changes in the external environment such as technologies, market trends, and industry processes and standards. It’s essential for organisations (and more specifically, their strategic capabilities) to stay ahead of the competition, by improving business processes to create a sustainable competitive advantage, ensuring future success and delivery on strategic priorities. (When we talk “business processes” here, we’re referring to optimising market analysis processes, marketing, sales, and operations strategies, managing the supply chain, and more. Anything that gives a competitive advantage in the market.)

This is why we made this guide on how you can define and create strategic capabilities, as well as the step-by-step process to implement strategies for developing them. Let’s dive in.

What is strategic capability?

Strategic capability is the mix of knowledge, skills, tools, processes and behaviours that combine to deliver organisational objectives. In other words, strategic capability is about delivering on business strategy to gain competitive advantage in the market. Strategic capabilities include strategic planning, market analysis, and business development.

3 steps to define strategic capabilities

Whether arranged in a strategic capability framework or model, strategic capabilities outline what the strategic function does in the organisation. When it comes to defining them, there are three steps you should follow.

Step 1: Define the landscape

The first thing to determine is the need for strategic capability. Consider:

1. Your organisation’s greater mission, purpose and values 
2. The strategy department’s role in that mission 
3. The value the strategic function generates for the org, both now and into the future.

Starting with company strategy is crucial here, because your strategic capabilities are the core capabilities driving towards strategic goals and the future success of your business.

Step 2: Define the purpose

Next, you need to define the purpose. Each capability should have its own specific purpose within the context of the business. Typically, there are five factors to take into account when you define strategic capabilities.

1. How will this strategic capability support long-term business goals? 
2. Is there are a need or demand in the market for this capability?
3. Does the company have the right resources to sustain it?
4. Is it competing with or complementing current capabilities?
5. What are the risks associated with building the capability? (I.e. financially or to the business’s reputation.)

Step 3: Define the outcome

Now we come to actually naming the capability. The crucial part here is for both employees and business leaders need to have a basic understanding of what the capability is and how it functions just by looking at the name. So, look to naming them in a way that indicates a specific desired outcome.

As an example, some strategic capabilities include:

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

It’s pretty clear what these capabilities are all about, right? But if you’re still drawing a blank on capabilities, we’ve created a free and comprehensive list of strategic capabilities. We also have strategy-adjacent capabilities, such as operations and leadership, which you can also take a look at.

Each of capability comes with ready-made descriptions as well as three levels of competency, so you can immediately use them as needed. Just remember to change up the language and phrasing so that it fits with your own business strategy and mission.

Strategies for building strategic capability

Since strategic capabilities are important across all corners of your organisation, the process to develop them needs to be watertight. There is a six-step process to build and develop capabilities for you to follow.

1. Engage leadership
2. Create shared accountability between HR and your strategic business unit
3. Measure capability gaps
4. Evaluate capability maturity
5. Implement strategies for building strategic capabilities
6. Monitor and track progress.

Engage leadership 

Unengaged leadership is where change programs go to die. Your leaders are the ones who get employees to buy into learning for better, ongoing change management. And since employees often are doing the work that executes on strategy, building strategic capability will be impossible if your leaders aren’t on board.

The best way to get leadership buy-in? Understand what it is that leaders actually want. These will be their pain points, or the cold, hard KPIs that they want met. Think along the lines of business performance, revenue, or process improvement. Then think: How do strategic capabilities address those pain points, and drive those KPIs?

In any case, strategic capability is essential for maintaining your competitive edge in the market, so you need to make sure you lay down the groundwork for it early on. Your leaders (and future leaders) will be the driving force behind organisational transformation, and not just as a one-off, either. Organisational strategy needs to be agile in the face of market and industry changes, so you need to be proactive about gaining leadership buy-in for continuous improvement.

Create co-ownership between HR and business units

The next step is to create shared accountability between human resources and strategic business units to ensure that your L&D and change management processes are well-rounded and relevant. Co-ownership allows HR and business units to balance out their differing perspectives.

HR professionals have a grander view of the organisation and its priorities, goals, and strategy, while strategic business units have a clear vision of their own needs and goals. So, if HR is solely responsible for designing and implementing L&D, training might be relevant in the context of business goals but may be disconnected from the specific needs of the strategic function. On the other hand, if strategic business leaders have sole accountability, L&D will be aligned with their own function, but may not align with business outcomes.

Measure strategic capability gaps

Over time, changes to technology, processes, and industry standards affect how capabilities should function within the business, creating “gaps”. That makes it necessary to evaluate and measure the discrepancies between the full potential of your strategic capability framework and the current reality of your capability landscape.

Capabilities are measured in terms of levelled scales of competency, or proficiency. How you choose to name these levels is up to you, but they typically follow:

• Beginner, intermediate, advanced
• Needs development, meets expectations, exceeds expectations.

The end goal is to optimise strategic capabilities within your business, visualised by ascending levels of competency. Of course, you need to drive continuous improvement to ensure optimisation, but more on that later.

To assess capability gaps, you can use several different types of capability assessments to identify gaps in employees’ competency. We recommend using a combination of different assessments to get the most objective view.

1. Start by giving employees self-assessments.
2. Compare the results to assessments by managers.
3. For specialist capabilities, compare one or both of the above with assessments by subject matter experts.

Assessing strategic capability maturity 

Where capability assessments are more concerned with the core competence of an individual employee, capability maturity looks towards the business overall.

It can be used to identify your company’s strengths (i.e. where your organisation is already functioning optimally), which you can visualise in a business capability heat map. You’ll be able to use it to prioritise which capabilities should be targeted for development based on the risk they pose to the business environment.

Like competency, maturity is shown on a levelled linear scale, this time across five different levels:

1. Reactive, where capability performance is unpredictable and ad hoc. 
2. Managed, in which performance is managed project to project. 
3. Defined, where capabilities are managed proactively through company-wide guidelines. 
4. Qualitative, where KPIs are aligned with business processes and objectives. 
5. Optimised, in which agility is achieved through continuous improvement of capability and talent stability.

Methods to build strategic capability

You don’t need to reinvent L&D to build your strategic capabilities. You just need to remember to align your L&D processes with your organisational goals and strategy, and to make sure that strategy is known within the workforce to build truly competent employees.

• Use a knowledge management system, or performance learning management system (PLMS). A PLMS can identify core capabilities and be loaded with necessary, relevant, and evergreen training courses to ensure the development of strategic capability in line with business goals. It’s also a central place to keep all the crucial content and information, which can be easily accessed by employees in the moment of need.
• Create communities of practice to enable best practice sharing between employees, driving innovation. This is key for sustainable and agile strategic capability in the face of changing industry standards and trends.
• Develop capability academies in which employees gain the exposure and experience to develop effective strategic capabilities. The idea is that learning is always available when, where and how employees need it, allowing them to engage in learning, get feedback, and contribute to intellectual capital.

Tracking progress

Ongoing transformation and improvement are the backbone of strategic capability building. The idea is that you find which factors are helping or hindering your capability-building activities to improve the process and sustain forward momentum.

The best way to do this is through consistent, regular, and continuing re-assessments. The problem with one-time training initiatives is that when you aren’t constantly reviewing or using what you’ve learned, knowledge is lost over time. This is especially key to organisational transformation, because that only happens through long-lasting change in individual behaviour.

So, you can assess the progress of L&D with:

• Proactive training needs analysis, which shows what training is still required to close capability gaps and improve maturity.
• Training evaluations or surveys, to get an idea of how training was received by employees. (Engagement in learning materials leads to learning effectiveness, giving you a baseline for training impact.)
• Performance management embedded in training to create a constant feedback loop between managers and employees which can correct and reinforce desired behaviour. This is why we pioneered the first PLMS here at Acorn to codify and operationalise capabilities to improve organisational performance.

Take your re-assessments as lessons learned to adjust L&D and achieve true agility. Maybe the content was fine, but learners found the delivery unengaging. Or maybe learners were engaged, but the content didn’t yield the return on investment you were hoping for. Either way, re-assessments are your stepping-stone to continuous improvement.

Key takeaways

Industry standards, technologies, and processes change over time, meaning you need dynamic capabilities to remain agile. Defining and optimising your strategic capability (aka what you do well that sets you apart in the market) is the key to that.

That doesn’t mean it has to be hard, though. Building capability follows a simple, six-step process.

1. Engage your leaders. Understand their pain points and how those impact their KPIs.
2. Establish shared accountability. Share the workload between HR and business units.
3. Identify strategic capability gaps. 
4. Evaluate the maturity of existing capabilities and prioritise what to develop first. 
5. Create learning communities to launch long-term capability building. 
6. Seek continuous improvement by consistently reviewing capability building methodology.

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