Differentiating Capabilities and Competencies

Over recent years we have worked with a variety of clients designing and implementing capability frameworks. During our work we are often asked to explain the difference between competencies and capabilities. This question is far more complicated than it might seem. The terms are often used interchangeably, which makes it difficult to distinguish between them. The following is an attempt to explain the differences based on our research and experience of working with clients in this area.

Competencies...

Competencies are often associated with the behaviours that lay behind job performance, such as critical thinking or analytical skills. They evolved from the work of researchers and consultants specialising in managerial effectiveness during the 1970s. They developed an approach to identifying competencies based on observing the behaviours of effective job performers. This style of competencies became embedded in people management processes, and is still manifest in organisations today. But other styles of competencies have also evolved. These reflect a growing awareness that job performance requires a mix of knowledge, skills, experience, values and behaviours. So, the term competencies no longer just relates to the behaviours required of people in organisations. It now has much broader meaning and application.

Capabilities...

Capabilities are more traditionally associated with the attributes required of organisations rather than people. They evolved from the resource-based view of the organisation established by academics during the 1980s. This assumes that strategic success is based on the organisation’s ability to exploit and nurture its capabilities. Capability in this sense relates to what organisations need to do with varying degrees of excellence. The initial concept was clearly focused on the qualities required of the organisation. But the significance of people as the basic building blocks of organisational capabilities was quickly recognised and encompassed. So, the term capabilities has also been used to describe the qualities required of people within organisations.

Conclusion...

Competencies and capabilities have very different origins, but in today’s organisations are often used in the same way. They define a common set of criteria for describing effectiveness, and use this as the foundation for people management processes. What matters is how they are designed and embedded, and not what they are labelled. From our experience the most important principles to follow are aligning it to the strategic goals of the organisation, making it meaningful to the people that will use it, and linking it to the people management processes of the organisation. In essence, these principles operationalise employee line of sight by defining what the organisation needs to do to execute its strategies, and what employees at every level of the organisation need to do to contribute to that.

For a more detailed commentary on this topic please download our paper: People Capabilities: Aligning People with Strategies