Building capabilities for performance
The capabilities that
companies need most have evolved, but methods of building those skills have
not. Our survey finds that the most effective companies focus on sustaining
skills and linking learning to business performance.
Capability
building has remained a high strategic priority since we first
surveyed executives on organizational capabilities in 2010. Four years later,
many companies are using the same approaches to learning and skill development—namely,
on-the-job teaching—that were most common in the earlier survey. Yet the
responses to our latest survey on the topic1 suggest
that organizations, to perform at their best, now focus on a different set of
capabilities2 and
different groups of employees to develop.
Amid
their evolving needs and infrequent use of more novel skill-building approaches
(digital or experiential learning methods, for example), executives report
notable challenges in their capability-building programs. Among the most
pressing are a lack of learning-related metrics and difficulty ensuring the
continuous improvement of skills. In the results from organizations that are
most effective at capability building,3 however, are
some lessons for improvement. Respondents at these companies are much likelier
than others to say sustaining capabilities over time and linking learning to
company performance are integral parts of their capability-building programs.
They typically use more methods than others to develop employee skills, more
often say their human-resources functions and businesses co-own learning, more
often use metrics to assess the impact of their programs on the business, and
in turn report more success at meeting their programs’ targets.
New focus on functional capabilities and the front
line
The strategic importance of
capabilities is apparent around the globe: half of all respondents this year
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.
This finding supports our experience with fast-growing organizations in the
region, which face notable capability gaps as they expand. Regardless of
region, though, most executives agree that they are 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 . Company culture and the results from standardized diagnostics
rate lower.
Although
the high priority placed on capabilities is consistent with the 2010 results,4 this year’s
respondents identify changes in capability-related needs and challenges. On one
hand, executives still believe leadership skills contribute most to their
companies’ business performance—and at the companies we define as effective
capability builders, executives are twice as likely as others to rank
leadership skills first. Yet functional capabilities now rank second, replacing
sector-specific capabilities in our earlier survey.5 Among
specific functional capabilities, executives most often identify skills in
strategy, operations, and marketing and sales as the most important to business
performance.
Organizations have also
shifted the focus of their spending on capability building. Thirty-three
percent of respondents now rank frontline employees first as the group with the
most resources for learning and skill development (up from 22 percent in 2010),
followed by senior and executive leaders as a spending priority.
Untapped potential in assessment and program
design
The
results indicate that today, few organizations have a robust approach to
assessing their current capabilities and identifying skill gaps. Only 18
percent of all respondents—and 24 percent of effective capability builders—say
their organizations use structured, objective third-party diagnostics to do so.
Instead, manager assessments and self-assessments are the most popular methods
of identifying capability needs, even though our experience suggests that the
quality of initial diagnostics influences companies’ ability to design
effective and targeted learning programs.
And despite their changing
needs, executives tend to say their organizations rely on the same methods to
deliver learning and build skills as they did four years ago. On-the-job
teaching is used most extensively, followed by in-person training and coaching
(Exhibit 4). Only one-third of all executives say their companies use formal or
informal coaching extensively, which we also saw in 2010. At the most effective
companies, though, 60 percent say the same, supporting our experience that
coaching can successfully complement many other types of interventions.
Still
fewer respondents report the use of more leading-edge learning methods, such as
experiential environments (model factories or simulators, for example) or
digital interventions beyond individual online classes, such as mobile learning
exercises or group-based online courses. While respondents at the most
effective companies are more likely than others to report using all of the
interventions we asked about, even their use of these novel methods suggests
room for improvement. Only 22 percent say they use experiential methods to
teach adults in an experimental, risk-free environment that fosters exploration
and innovation. They are still nearly four times likelier, though, than all
other respondents to report the use of these methods. Interestingly, among
their peers across regions, executives in India report the most extensive use
of both experiential and digital methods.
These leading-edge training
methods could enable all organizations to replicate or scale up their learning
programs quickly and cost-effectively across multiple locations. But currently,
companies tend to plan and execute large-scale learning programs with a
train-the-trainer approach or with help from external providers to roll out
their programs. At larger companies, respondents cite the use of pilots more
often than their smaller-company peers. Just 9 percent of all executives say
their companies use double pilots, where a program is run first to prove the
concept and then again to prove that line leaders can scale it on their own and
achieve the targets.
To sustain capabilities, alignment and measurement
are key
To capitalize on the
skill-development work they are already doing, it’s critical for organizations
to formalize their approaches to maintaining and improving capabilities. Yet
few executives report that their companies do this well. Nearly half say their
organizations encourage employees to develop their skills. But less than one in
five say their human-resources functions and business units co-own learning—a
practice that reinforces the importance of skill development and also aligns
learning objectives with business needs. Across all the activities to sustain
capabilities that we asked about, the respondents who do report co-ownership
are the most likely to say it’s been very effective in supporting their
learning programs.
In their efforts to sustain
and continuously improve, the most effective companies stand out from the rest.
Forty percent of these respondents say their human-resources functions and
business units co-own learning, compared with 14 percent of all others. Relative
to their peers, this group reports a more structured approach to developing
tools, methods, and procedures to support capability building. They also say
their learning programs are more often based on competency models and “learning
journeys” for all roles.
In
our experience, one way organizations can institutionalize and sustain
capability building is with a corporate academy.6 Roughly
one-third of executives say their organizations already have corporate
academies, which tend to focus on developing functional and technical skills.
They are most often governed by human-resources functions, either on their own
or jointly with business units—the co-ownership that, again, fosters alignment
between learning and business objectives.
And, fundamentally, metrics
are a prerequisite for building capabilities in a sustainable way. They are top
of mind for most organizations: more than half of executives say their
companies formally link the skills employees acquire in learning programs with
individual performance. At the same time, metrics are a growing concern. When
asked about their companies’ biggest challenges in building capabilities,
executives cite a lack of credible metrics much more often than they did in
2010 One in five respondents say their organizations do not measure the impact
of their learning programs at all. At the organizations that do measure impact,
employee or manager feedback is the most commonly cited metric; only 13 percent
say their organizations calculate the quantifiable returns on their learning
investments.
With
respect to goals, too, there is much work to do. More than half of respondents
say either that they do not know whether their capability-building programs
have achieved quantitative targets in the past three years or that they have
not set targets at all. Not surprisingly, the most effective companies put more
emphasis on metrics and see better results than others do. Of executives whose
companies set targets, 83 percent of those at the effective companies say their
programs have either met or exceeded targets in the past three years. In
contrast, only 61 percent of all other respondents report the same success.
·
Diagnose
systematically. In
our experience, companies are best able to build strong capabilities when they
systematically identify the capabilities, both institutional and individual,
that can have the most positive impact on the business. Objective assessments
are an important tool in this process—and few respondents say their companies
use such assessments now. These diagnostics not only help companies assess
their skill gaps relative to industry peers but also help them quantify the
potential financial impact of addressing capability gaps. By diagnosing these
gaps in a systematic, objective way, companies can better establish a
foundation for the effective design of learning programs that link learning
results to the business and include meaningful, quantitative targets.
·
Design
and deliver learning to address individual needs. The core principles
of adult learning require that companies tailor their learning programs to employees’
specific strengths and needs, rather than developing a one-size-fits-all
program for everyone. In our experience, the most effective approach to adult
learning is blended—that is, complementing in-class learning with real work
situations and other interventions, such as coaching. The results suggest that
all companies could take advantage of more novel approaches, such as digital
learning (which can reach large groups of employees anywhere, at once) and
experiential learning (which links skill development to day-to-day work
experience in a risk-free setting).
·
Align
with and link to business performance. To be effective and sustainable,
capability building cannot happen in a vacuum. Learning objectives must align
with strategic business interests, and, ideally, capability building should be
a strategic priority in and of itself. Making human-resources functions and
individual business units co-owners of skill-building responsibilities and then
integrating learning results into performance management are effective steps
toward achieving this alignment. These actions will also ensure broad buy-in
for learning success, at both the organizational and individual levels. To
ensure that their learning programs have real business impact, organizations
must focus on metrics, as our most effective capability builders often do. They
must establish rigorous performance-management systems with robust metrics and
then measure progress against clear targets, to know where and how skill gaps
are (and are not) being closed.
http://www.mckinsey.com/Insights/Organization/Building_capabilities_for_performance?cid=other-eml-alt-mip-mck-oth-1501
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