Ability, Capability, Capacity and Competence

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Organisations often promote themselves by expounding on their capability to deliver goods and services to particular market segments.

Organisational capability is only one side of a many sided coin.

Abilty_Capability_Capacity_Competence

In an individual it is accepted that an ability is the skill or competency to perform a task whether it is physical or mental. An ability is something that is inherent as it is dependent upon the genetic makeup of a person.

An ability is therefore an attribute that is either there or not. Organisations do not inherently have abilities that can be exploited. Individuals within an organisation do.

A capability on the other hand is a feature, ability, faculty or process that can be developed or improved. A capability is a collaborative process that can be deployed and through which individual competencies and abilities can be applied and exploited. A capability can refer to an ability that exists in an individual but can be improved upon.

For example:

• A runner may finish a marathon in 3 hours but may through training have the capability to complete a course in less than 2.5 hours. • A student may be regularly obtaining average grades but with study could achieve significantly better. • A researcher may have good analytical skills that can be greatly enhanced if they are provided with appropriate toolsets. • A business decision maker demonstrates the ability to make good decisions but could make excellent decisions if provided with sufficient relevant information.

Within a business setting a Business Capability is the articulation of the capacity, materials and expertise an organisation needs in order to perform its core functions. Defining the Business Capability does not mean that the organisation can deploy it. It must have the capacity to do so.

It is essential that an organisation when defining its required Business Capabilities understands its capacity to deliver. When discussing capacity, it is important to ask “How much do we have?” and the related questions, “How much is needed?” and “When do we need it?”

Having the capacity to deliver goods and services is more important than just having the capability. If a required Business Capability cannot be delivered through capacity issues, then reputational and financial damage is likely to occur.

So what is the difference between Capacity and Capability?

A Capacity is the ability that exists at present whilst capability refers to the higher level of ability that could be demonstrated under the right conditions.

As well as understanding abilities, capabilities and capacity it is important for an organisation to be aware of its competence. This is the quality or state of being functionally adequate or having sufficient knowledge, strength and skill to deliver what is required. Competence therefore is another word describing the ‘know-how’ or ‘skill’ of an individual or business.

As an example:

  • I have the ability to run
  • I have the capacity to run a 100m race in 18 seconds
  • I have the capability to improve my capacity through training to 15 seconds.
  • As a runner I am incompetent as I cannot compete successfully.

Organisations focus on the capabilities that they require in order to succeed. With good strategies and forward planning in place they may also be cognisant of the capacity that they require in order to deliver successfully. Hopefully they will also be realistic about their competence to deliver quality products and services.

Unfortunately, organisations often fail to realise the benefit of their greatest asset – the individuals it employs. Individuals often have abilities that are frequently under-utilised within their workplace. This may be that the role in which an individual sits does not require the skills that demonstrate their abilities. Consequently, entire valuable skills sets may be unused through there being no organisational awareness that they exist or the imposition of organisational constraints to their being leveraged. Business Capabilities that could be enhanced remain stagnant through ignorance of the actual capacity within the organisation or reluctance to cross organisational boundaries.

A successful organisation will be aware of all of its assets, understand the Business Capabilities it requires, have sufficient capacity and be competent in its delivery.

 

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Understanding Business Drivers

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All organisations, whether large all small, are influenced by both internal and external drivers. How the organisation responds to them can affect its overall success. The following only touches some of the generic drivers that an organisation is likely to confront. Each organisation will have it own unique set which should be explored in detail.

EnterpriseDrivers

Financial drivers

Financial drivers are directly associated with the costs of doing business and are most commonly considered in relation to achieving overall profit. Examples include:

  • Price of offered products and services.
  • Manufacturing or acquisition costs.
  • Capital costs.
  • Operational costs.
  • Sales volumes.
  • Margins.
  • Cost of debt.
  • Inventory.
  • Transport

Profit, even for a non profit organisation, is important. Ultimately if all capital reserves become exhausted the organisation will cease to remain viable. Profit need only be as large as required to maintain ongoing viability.

Non-financial drivers

Non-financial drivers also impact the bottom line, even though they’re not directly expressed in financial terms. Reputation for example can be expressed in terms of client satisfaction which can in turn impact the volume of products and services sold resulting in increased or decreased profit.

Broad Non-financial profit drivers include:

  • Personal
  • Market
  • Capability
  • Reputation
  • Ethical
  • Regulatory
  • Competitive

To these can be added:

  • Quality of the product or service.
  • Level of employee Training.
  • Employee satisfaction (morale).
  • Employee health and safety.
  • Behavioural – including culture and values.
  • Environmental.

Ranking your drivers

Once you have determined the drivers that affect the ‘business’ it is essential to establish why they are important and what impact they have on ongoing success. Ranking the drivers from most important to least important in terms of their impact on the business goals enables a prioritisation process to be applied.

The top drivers common to many businesses include:

  • increasing sales (turnover)
  • increasing productivity
  • reducing costs
  • reducing overheads.

These may not however be the most important to be satisfied.

Value Drivers Prioritisation: What is truly important?

Use the Business Strategy as a tool for ranking drivers.

  • Critical Success Factors (CSFs) are indicators that measure how well an organisation is accomplishing its goals. For example, a CSF for an agile software development may be the achieving of a high-level of client-developer interaction. For a Non-Profit organisation it may be the securing of 1500 monthly donors or obtaining 200 active volunteers within a pre-defined timeframe.
  • Future scenarios allow organisations to explore multiple potential futures and generate robust strategies and the early warning signs that indicate how the future may unfold. For example, the agricultural industry may use climate experts to create scenarios based on the critical uncertainties associated with major weather systems and plan for each range of possibilities and their associated risk profile.

Business-Driven Performance Improvement

To highlight the way that integrated strategic planning can help an organisation understand its business drivers for improvement, consider the organisation having a defined goal acquiring IT systems that supports the services it provides to its customers. The organisation’s CSFs could reflect the following operational areas that must function well to meet its mission:

  • identifying and acquiring IT systems that serve its customer’s needs
  • managing and tracking a budget that is adequate to achieve this goal
  • formally managing relationships with both key internal and external stakeholders through communication, managing expectations, and personal interaction.

Identifying and understanding the key drivers are essential to ensuring appropriate Business – ICT strategic alignment. Five key steps to follow are:

i) Tabulate business drivers, describing

  • their source (strategic plan, workshops, formal reviews, operational imperatives, legislation, customer demand, etc)
  • the technology sets that would satisfy these drivers – both applications and operations oriented
  • the “as is” assessment of ICT against those business-driven requirements. It is imperative to understand where you are before you can decide where you can go.

ii) Engage the relevant business executives, stakeholders and business process owners for a both a review and to challenge the Business Drivers analysis.

iii) Convert the driver versus ICT analysis into appropriate ICT strategy themes that provide an a context for considering Applications, Enterprise Architecture requirements and ongoing ICT Operations.

iv) Map ICT strategy themes through outline the initiatives proposed to the business drivers.

v) Sequence the initiatives taking account of known business priorities, projects in flight and the dependencies between initiatives.

Drivers do not always stand by themselves. They can exhibit degrees of interdependence.

A CEO whose remuneration is dependent on cutting costs may ‘succeed’ by instigating a programme of staff reductions and infrastructure freezes. Costs may be saved, the CEO may achieve their bonus but at what ‘cost’ to the business:

  • Stagnation through failure to grow;
  • Loss of market share through failure to innovate.
  • Loss if Intellectual capital through failure to retain knowledgeable personnel.
  • Loss of opportunity through failure to invest.

All Key Performance Indicators, before being set must have their impact, if achieved, assessed against the the vision, goals and objects of the organisation as a whole.

It is also essential to understand that individuals are also affected by personal drivers which do affect their decision making processes.

Personal drivers and their effect on business outcomes

  • Power/Control – provides the ability to influence and affect outcomes.
  • Wealth/Greed – provides the ability either spend or constrain spending.
  • Altruism – exercises selfless concern for the well-being of others.
  • Egotism – exercises self centred and selfish behaviour with little regard for the needs of others.

PersonalDrivers

Balance

To succeed it is imperative to gain a good understanding of what the drivers are and acknowledge how they impact the decision making process. Balancing the needs of the organisation against those of the individual so as to achieve a defined shared vision is not an easy task. Personal drivers, if not channelled appropriately can have unintended consequences when assessing the eventual outcome.

  • Pure altruism without acknowledging any need for self interest can lead to a shortened business existence.
  • Greed might drive acquisition but affect wise investment.
  • The exercise of power and control might result in micromanagement and hence staff discontent.

Identification of key drivers, understanding their impact and managing how to best respond to them is fundamental to achieving enduring organisational success.

 

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Managing the Maturity of the Enterprise.

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Understanding and acknowledging the capability of an enterprise to deliver satisfactorily its portfolio of goods and services to its customers, whether they be internal or external, is absolutely essential.

Without sufficient insight, the spectre of over-promising and under-delivering, with all the consequences of doing so, becomes a very real possibility.

With insight it is possible to mitigate where the capability is low and manage expectations accordingly.

Insight can be gained through the application of maturity models on key aspects of the enterprise. Exploring where the enterprise sits within a maturity continuum and establishing benchmarks of performance provides the opportunity to realistically assess how the enterprise operates and how it may be improved.

A maturity model is composed of a continuum of levels that describe how well the processes, capabilities and organisational behaviours of an enterprise are reliably and sustainably applied to produce required outcomes.

Many models have been developed with their focus being on specific technology or business areas.

Examples, some with supporting diagrams or tables, follow:

Project Management

  • The PM Solutions Project Management Maturity Model.
  • The Project Management Maturity Model (ProMMM).
  • The Berkley PM Process Maturity Model
  • The Project Management Process Maturity (PM)2 model.
  • The OPM3.

Kerzner Project Management Maturity Model (KPM3)

(https://www.iil.com/kpm3/)

KPM3

 

Fraud and Corruption Maturity Model

(Office of the Auditor General – Western Australia)

https://audit.wa.gov.au/reports-and-publications/reports/fraud-prevention-and-detection-in-the-public-sector/key-findings/fraud-and-corruption-maturity-model/

Based on key components of the Australian Standard with a focus on:

  • Assessing and managing fraud risks.
  • Fraud policy development.
  • Communication and training.
  • Prevention and detection.
  • Response.

 

Fraud_Maturity_Ratings

Infrastructure Management- Process Maturity Model

 

IM_PMM

Data Management Maturity Model

(http://www.dama.org/files/public/NSC_Data%20Management%20Maturity%20Models%20DAMA%2020130604.pdf)

 

DMMM

Many of the models are clearly based on the Capability Maturity Model Integration (CMMI) distributed by the CMMI Institute (www.cmmiinstitute.com/cmmi-solutions). The CMMI models are described as collections of effective practices and process improvement goals that organisations can use to evaluate and improve their processes. They provide models targeting

  • Acquisitions (CMMI-ACQ)
  • Development (CMMI-DEV)
  • Services (CMMI-SVC)
  • People (People CMM)
  • Data Management Maturity (DMM)

Models are based on a five level process maturity continuum – where the lowest (1st) level describes a state, in the worst scenario, of chaos and the uppermost (5th) level is the ideal state where processes would be systematically managed by a combination of process optimisation and continuous process improvement.

The CMMI Institute has developed the ‘Standard CMMI Appraisal Method for Process Improvement (SCAMPI). This is lengthy but well worth reading. It provides a valuable methodology to assist the assessment process and establishing a benchmark from which to operate.

SCAMPI provides insight on what is required to

  • Plan,
  • Prepare
  • Conduct and
  • Report

an appraisal.

Acknowledging where weaknesses sit allows for consequential risks to be properly avoided or mitigated.

Improved understanding allows for the leveraging of true strengths to improve overall performance.

 

Base_Maturity_Model

Establishing a maturity baseline on those dimensions that are deemed as important to delivering on a defined strategy is essential. Baselining provides an enterprise with the opportunity to develop actionable and measurable programmes of work, targetted over multiple time horizons. Increasing overall capability and improving business processes through managing maturity future-proofs the enterprise providing a framework for reliable delivery of products and services. This supports the realisation of positive outcomes, ongoing and sustainable business benefits and enhanced reputation.

 

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The Knowledge Economy: The bankrupting of the clever country

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Australia may well be on the brink of catastrophically failing in its responsibilities to both its current and future population.

In 1974 the Australian Federal Labor Government abolished university fees, the reform designed to open tertiary campuses to people previously excluded from costly university education. Student assistance grants were also established.

In 1979, with the Liberals in government, there was an unsuccessful move to reverse this decision. Part of the rationale for doing so being “it was unfair that ordinary taxpayers had to subsidise students who would go on to command good incomes”. This was ignoring the fact that those good incomes would also generate healthy taxation revenue.

In 1989 the Hawke Labor Government massively expanded university education and re-introduced fees in the form of the Higher Education Contribution Scheme. It had been suggested from studies of the scheme that fees had not discouraged students from disadvantaged backgrounds and that money was less of a barrier to equity in education than had been believed in the Whitlam era.

With the recent plans of the Federal Liberal Government to overhaul the tertiary education sector and an expected consequent spike in both the fees being charged and the increased debt students would have to bear, there are now concerns that a real barrier to obtaining a tertiary education may be being erected. It is ironic that this policy shift has been made by politicians who themselves were also beneficiaries of 1970’s university education.

In the 1950s it was generally accepted that Australia ‘rode on the sheep’s back’; those who grew wool had come to symbolise and epitomise what it was to be Australian. More recently, minerals, coal and iron ore replaced wool as the basis of Australia’s economic revenue and wool farmers struggled to sell their product on world markets. The current economic situation indicates that the resources boom is slowing and that both the industrial and manufacturing sectors are in deep decline resulting in rising unemployment figures. Australia needs to respond appropriately.

In 1990 Bob Hawke delivered a speech clearly stating:

“No longer content to be just the lucky country, Australia must become the clever country.

To realise that vision I am announcing bold new initiatives today to build on our substantial achievements in and scientific research – to unleash the skills and talents of our people.”

There was then an obvious realisation of the value than an educated populace would bring to the Australian economy and that the country should not be solely reliant on what it earned through exploiting its natural resources.

Research undertaken in 2000 (Returns to Investment in Higher Education by J. Borland, P. Dawkins, D. Johnson and R. Williams – Melbourne Institute of Applied Economic and Social Research) calculated rates of return using 1997 data.

Its conclusions were as follows:

  • On average, the total gain in earnings over a working lifetime that a graduate can expect is estimated to be $300 000.
  • However, allowing for the cost of the education and applying a four per cent real rate of interest, as the rate of discount, the present value of the net monetary benefit of the higher education over a lifetime is estimated to be about $90 000.
  • Earlier studies using 1976 data indicated that the private rate of return was 21.1 per cent and the social rate was 16.3 per cent (i.e. individuals were gaining more from the investment than society).
  • Using 1997 data, the private rate was 15.0 per cent and the social rate 16.5 per cent. This suggests that the introduction of HECS had reduced the private rate of return so that it is now similar to the social rate.
  • A balance sheet approach to government expenditure on higher education (i.e. comparing how much the government spends with how much it gets back in the form of higher taxes from the higher earnings of graduates) indicated that $5.3 billion spent on university teaching in 1997/98 (excluding research) would ultimately generate about $8 billion in additional receipts from the taxes of graduates.
  • The average rate of return to government from their investment in higher education is estimated at 11 per cent.

It is a reasonable conclusion that investment in education, rather than being an impost on government funds, reaps a long term benefit. Since 1997 average weekly salaries have increased by in excess of 250%. It is again reasonable to assume that the individual and the government have enjoyed a corresponding increase of benefit.

Although this research was undertaken 14 years ago its finding are well supported with organisations such as the OECD and referenced in Review of Australia Higher Education by D. Bradley, P. Noonan, H. Nugent and B. Scales in 2008 who state that:

“The widespread recognition that tertiary education is a major driver of economic competitiveness in an increasingly knowledge-driven global economy has made high quality tertiary education more important than ever before. The imperative for countries is to raise higher-level employment skills, to sustain a globally competitive research base and to improve knowledge dissemination to the benefit of society.”

Unfortunately there appears to be a real threat to the realisation of the clever country that Bob Hawke envisaged.

Governments wish to slash expenditure in order to manage their finances. An easy target is the education sector. By significantly reducing funds to education institutions, allowing massive fee increases through deregulation and increasing the debt load on students with proposed changes to HECS there is a high probability that prospective students may abandon their pursuit of higher education.

The slowing of the Australian economy, due to the probable end of the resources boom together with the contraction of major manufacturing capabilities, places a large question mark over the direction of Australia’s economic future.

The current preoccupation with spending on infrastructure projects is not the solution, being insufficient to drive long-term economic growth. The jobs ‘created’ are restricted to some in the construction industry for the duration of the projects – but what then? Jobs lost from waning resources, manufacturing, industrial and retail sectors do not transfer to contracts for construction industry workers. Sustainable economic prosperity cannot be built through insular and inward focused activity. The consequential outcome is the consumption of irreplaceable resources and funds that could have been better directed elsewhere.

The pursuit of the short-term gain at the expense of longer-term sustainable benefit is a myopic failure of strategists and decision makers in both government and businesses alike, the short-term gain inflicting long-term pain.

By neither establishing long-term visions nor putting in place appropriate strategies, there has been a systemic failure of the responsibilities of the government and businesses to both the Australian population and to employees of individual businesses.

There needs to be both acknowledgement and acceptance that Australia can no longer rely on income generated through exploiting natural resources. Countries such as China, who have been large importers of raw materials cannot be expected to maintain their current growth patterns. Any downturn that they experience has significant ramifications.

A genuine attempt to re-establish the ‘Clever Country’ should be made. A true Knowledge Economy in which all individuals have the opportunity to obtain a valuable education plus a business environment that recognises the value of innovation and fosters growth in intellectual capital and its conversion into globally marketable products and services could invigorate a country that seems doomed to slide into mediocrity.

As things stand, there is a danger that mediocrity will be achieved at an ever increasing rate. A recent report (http://www.businessspectator.com.au/article/2014/7/25/technology/three-graphs-map-australias-brain-drain) reveals that with the current dearth of opportunities in Australia, a genuine risk of an ever increasing brain drain occurring with significant numbers of jobs being searched from overseas rather than locally. Statistics suggest that within the scientific community that around one in four job seekers in Australia is searching for work abroad.

Rather than bankrupting the ‘Clever Country”, Governments and businesses alike should should adopt a long-term view and act together to drive Australia’s future prosperity. A positive atmosphere needs to be established that encourages businesses and individuals to realise their full potential both locally and on the world stage.

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‘Trying’ may be ‘Doing’: so take care.

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An athlete, in developing their skills will repeatedly ‘try’ various manoeuvres or activities until such time as either they master them, in which case they are ‘done’, or acknowledge that they are beyond their capacity to succeed.

A diver will practice their dives until they become second nature, the cyclist will train to build both their stamina and speed. The opportunity to regularly and frequently rehearse during training exercises is essential to achieving success by ‘doing’ on the field of competition.

In business the opportunity to ‘try’ without experiencing possible adverse affects is significantly reduced. Undertaking a new business activity can result in negative outcomes that may not allow for the chance for a repetition to be attempted. Rather than trying as per the athlete, the end result is that something, perhaps not what was hoped, is done with all of the consequences that ‘doing’ brings to the table. An alternative to doing, that allows for the possible consequences to be acknowlwdged, understood and mitigated, needs to be available.

Doing without first trying, like ‘putting all of the business eggs in one basket’ may actually be the undoing of a business.

To avoid committing to doing something until ready, a business needs to establish a regime where it is able to identify and assess the risks associated with any given activity.

Trying, as per the athlete, now becomes a theoretical or at least a non-committal exercise where the questions ‘what if’ and ‘why’ are asked and using knowledge, hopefully learned from observation of other similar scenarios experienced by the business already or by their competitors, an assessment of the possible consequences and their impact can be made.

The action of trying now allows for the establishment of a level of confidence that can be applied to an assessment and an understanding of both the positive and negative cost implications of doing. With this understanding a decision can made to either ‘do’ or not ‘do’ with some comfort in the expected outcome.

Essential to the success of ‘trying’ is having access to an Enterprise Knowledge Repository where lessons learned from previous ‘doing’ activities and the relevant tacit knowledge held by individuals can be codified so that it becomes both accessible and usable. Coupled with a rigorous governance process and an Enterprise Architecture, providing the framework for the repository, and a view of where the business is headed and why, each of the ‘what if’ and ‘why’ questions can be addressed (or at least acknowledged when they cannot).

Establishing various scenarios that can be ‘tried’ provides a business the opportunity to reduce the risk of exposure to ‘doing’ where, without ‘trying’ the outcome is just a ‘wild guess’, a ‘stab in the dark’ or a ‘hope for the best’.

Leveraging a well-supported Enterprise Architecture and Knowledge Repository provides the ability to identify and apply appropriate mitigation strategies to risks associated with proposed activities.

Understanding the realistic consequences of doing through trying allows for better decisions to be made an fewer suprises.

When doing without trying or having achieved mastery previously, the outcome can be abject failure.

When doing is the considered outcome of trying, business enterprises can prosper.

 

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