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Surveys Shine a Light on Secrets of Successful Capability Building

Bob Little 

February 27, 2015

IS_43275890_Argument_188According to a recent report – Building capabilities for performance – by the global management consulting firm McKinsey & Company, the capabilities most needed by companies have evolved, but the methods used to build those skills have not.

The survey which led to this conclusion showed that the most effective companies focus on sustaining skills and linking learning to business performance.

Similar surveys in 2010 and 2014 showed – unsurprisingly – that on-the-job training is the preferred method for conducting corporate learning and skills development (L&D). However, responses to the 2014 survey indicate that, to perform at their best, organizations now focus on a different set of capabilities and focus on developing different groups of employees. Among today’s challenges are said to be a lack of learning-related metrics and difficulty in ensuring the continuous improvement of employees’ skills.

In 2014, 50 percent of all 1,448 respondents in the survey – drawn from around the world – say capability building is at least a top-three priority at their companies. It’s even more significant in parts of Asia, particularly in India and China. Regardless of region, though, most executives agree that they’re not building capabilities for purely competitive reasons. They most often cite customer demand and strategic importance as the factors their companies consider when prioritizing capabilities.

Executives still believe leadership skills contribute most to their companies’ business performance but now functional capabilities rank second – replacing sector-specific ones. Among specific functional capabilities, executives tend to identify skills in strategy, operations, and marketing and sales as the most important for business performance.

Organizations have also shifted the focus of their spending on capability building. Some 33 percent of respondents now rank frontline employees as the group to receive the most resources for L&D activities (up from 22 percent in 2010), followed by senior and executive leaders – previously the group receiving the most resources for L&D activity.

Few organizations seem to have a robust approach to assessing their current capabilities and identifying skill gaps. The most popular methods of identifying capability needs are said to be via manager assessments and self-assessments. Only 18 percent of respondents — and 24 percent of “effective capability builders” — say their organizations use structured, objective third-party diagnostics to do so. Less than half the survey’s respondents say their organizations encourage employees to develop their skills – and fewer than one in five say their HR functions and business units co-own learning, a practice seen as reinforcing the importance of skill development and aligning learning objectives with business needs.

The report’s authors – Richard Benson-Armer, a director in McKinsey’s Stamford office; Silke-Susann Otto, a specialist in its Hong Kong office; and Gina Webster, a specialist in its New York office – advocate the use of corporate academies to institutionalize and sustain capability building. However only around a third of executives say their organizations have corporate academies – and these tend to focus on developing functional and technical skills.

Benson-Armer, Otto and Webster argue that companies are best able to build strong capabilities when they systematically identify those that can have the most positive impact on their business. These diagnostics help companies assess their skill gaps relative to industry peers and also help them quantify the potential financial impact of addressing capability gaps. Diagnosing these gaps in a systematic, objective way enables companies to design L&D programs that link learning results to the business and include meaningful, quantitative targets. However, few respondents say their companies currently do this.

Finally, the authors say that making HR functions and individual business units co-owners of skill-building responsibilities and then integrating learning results into performance management should ensure broad buy-in for learning success, at both the organizational and individual levels. They say that, to ensure that learning programs have real business impact, organizations establish rigorous performance-management systems with robust metrics and then measure progress against clear targets, to know where and how skill gaps are – and aren’t – being closed.

Roger Mayo, director of the independent HR consultancy MT&D Learning Solutions, says: “One of the key issues that this research highlights for me is that HR functions are being asked to contribute in a way that’s often beyond the capability of any but their most senior players.

“Even where the capability exists, our research into the role of the HR director, carried out over a number of years, indicates that HR directors, talent directors, OD directors, and people in similar roles continue to get ‘pulled down’ into activities at too low a level and, so, they’re only able to contribute in a tactical, not strategic, way – as indicated by the work of Professor David Ulrich on the business partner model as long ago as 1997.”

“When building capabilities, critical areas to address include ownership, detailed outcomes, and evaluation,” says Nick Hindley, associate director, learning and performance improvement, at PPD, a global contract research organization providing drug discovery, development, lifecycle management, and laboratory services. “Ownership requires that the business asking to build new capabilities is involved from the start in identifying the capabilities it requires.

“The process of defining detailed outcomes can take time and needs a skilled L&D facilitator to extract the detailed criteria. This can become frustrating for the business leaders, who usually expect a ready-made solution.

“The details of the capabilities are critical because, if these are too vague, it can be nearly impossible to evaluate what comes out of the other end. Key questions to ask leaders are, ‘What do you want these people to be doing after they have completed the program? What specifically do you want them to do differently or new?'”

He believes that the other huge benefit of ownership is the level of interest gained by the senior sponsors, who act as steering group, and by line managers – who, typically, respond differently to an instruction for their functional leaders compared with their reaction to an HR edict. He adds: “We have a leadership development program which has been successful over the last three years – and which has just recorded the best evaluation results from both managers and participants – recording improved performance and readiness for the next role as well as sustained improvement in retention for this group of key talent.”

How do you build capability in your organization? Join in the discussion below!

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