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Capability Management: L&D’s Future, or Another Fad?

Donald H Taylor asks whether Human Capital and Capability Management are the future of Learning & Development, or just another fad.

Remember the e-learning boom of a few years back? Fun, wasn’t it?

No, you’re right. It wasn’t much fun. It was a hyped-up chance for a few software vendors to hike their share prices before the dotcom bubble burst. The hangover after the party was a general bad feeling about e-learning and executive sentiment that classroom training wasn’t up to much, and could usefully do with some cost cutting.

So, not a great step forward for the learning and development profession.

(Note to e-learning zealots before you go straight to the bottom of the page to comment. I am not slandering e-learning. It is useful. The hype was bad.)

Trends come and go. Sometimes it’s the same thing in new clothes (might self-directed learning and informal learning be related?), sometimes an old thing with a new twist (communities of practice morphs into social networking), occasionally someone adds a 2.0 to keep things rolling just a little longer.

One learning-related meme keeps surfacing in different guises such as Human Capital Management, Talent Management and Capability Management. These aren’t the same thing, but they have a common core: the idea that organisations need to know, systematically, what their people can do.

Disclosure moment: I was director of InfoBasis, which makes high-end capability management software, so you might expect me to be biased in favour of this new trend. You’re right. But I’ve believed for years that L&D is more important than most executives understand. I also believe a strategic overview of skills is more important than most L&D personnel allow. That’s driven much of what I do.
Grasping the Intangibles

Is Capability Management hokum? No, for one good reason: people are what make the difference to most organisations in developed economies today. Let’s be specific. The tools, technologies and processes that organisations have used to differentiate themselves in the past are now mostly commodities. Everything can be bought on the open market, from coal to databases to management consultancy.
What makes a business competitive is having the right people to make best use of these commodities, and to build up that unique knowledge over time. This is more than a re-working of the hoary cliché that “people are our most important asset”. It is at the core of Gary Hamel and C.K.Prahalad’s thinking on competitive advantage dating from the 1990s, and it is reflected in the way companies’ market value now massively exceeds their book value. Baruch Lev of New York University notes that the average ratio of market to book value for the S&P 500 rose from 1.6 in 1980 to about 4.2 in 2001, with a current ratio around 6. Why? Because companies are worth more than the sum of their assets, which currently make up only 15-20% of the trading value of a company. The intangible assets make up the remaining 80%.
Those intangible assets are often grouped under headings such as ‘Organisational Capital’ and ‘Social Capital’, but the one heading everyone agrees on, the one which makes it possible to exploit almost all the other assets of the organisation, is ‘Human Capital’.

This applies equally to the public sector, where the challenge is to be effective rather than competitive. With budgets tightening, and headcounts under review following the Gershon review, there is a new stress on understanding and developing skills evident in such initiatives as the Professional Skills for Government programme.

Does it Matter for L&D?
Consider the AMO model. A person’s productivity is a function of their Ability (their skills), their Motivation, and their Opportunity to contribute to the organisation. Put that way, L&D certainly matters: it builds skills.
However, training is not enough. The skills have to be deployed in the right place, and information on these skills made widely available throughout the organisation for management use.
The point of capability management is that as well as developing their people’s skills, organisations need to understand them, deploy them better, bridge capability deficits efficiently, and predict future skills needs.
Two recent surveys indicate that higher-level personnel have got the message.
In July, influential analyst Josh Bersin of Bersin Associates published High Impact Talent Management. After an extensive survey, Bersin produced a list of 22 priorities that make a clear difference to organisational performance.

The top six are:
1. Focus first on coaching.
2. Take a skills-based approach to workforce planning.
3. Consider re-evaluating competency models.
4. Performance management is key.
5. For sourcing and recruiting, think sales and marketing.
6. Focus on processes first, systems second.

If points 1 and 5 didn’t show Bersin’s report is not a piece of software marketing, point 6 certainly would. But Talent or Capability Management is about a lot more than systems. It’s about understanding what your people can do (point 2), deploying a standard way of describing what is expected of people on the job (point 3), and making sure that they do it on the job, rather than waiting for the annual review (point 4).
And that’s the core of capability management.

If you know the skills people need for their jobs, and know where they fall short (the thrust of points 2 and 3) a number of benefits fall out. Naturally one result is a rolling training needs analysis of the organisation. Coupled with other management data, such as an idea of future project deployments, this becomes strategic planning information. If you know your areas of skills strengths and weakness, you can decide to recruit to fill gaps, or use contractors while staff are trained up. You can find experts rapidly, and share information, and you can resource project teams faster.
Some of this is in Bersin’s report, much of the rest comes from a recent (October) publication from IBM Global Business Services. The 72-page Unlocking the DNA of the Adaptable Workforce is based on a representative survey of over 400 HR professionals, across 40 countries.
IBM’s phrase the “adaptable workforce” is their way of saying that you can no longer sheep dip people in training at the beginning of their working life and leave them to it. Their skills and knowledge need constant refreshing to stay current, productive and in line with strategy. Also, understanding future organisational skills needs is both more complex and more important than ever before.
A lot of the report covers the same ground as Bersin, but with a different perspective. It has four sections, “Driving Growth through Workforce Analytics” is one.

In this section, respondents were asked for their organisation’s primary business challenge. By far the most popular response (60%) was ‘improving operational effectiveness’. Guess which concern these 60% had for assuring operational effectiveness? Aligning employee skills with current organisational priorities. That’ll be Bersin’s points 2 and 3.

Of course, any work in this area is hampered by the fact that HR and its data systems are inadequately set up. Only 6% of respondents said they were very effective at using human capital data and information to make decisions about the workforce – and a huge factor here was the lack of integration between different HR systems and between HR’s systems and the rest of the organisation.
And this need for good information is a point that the IBM report drives home with this quote:
“No matter how much respect the C-suite may have for the CHRO, until the HR organisation has access to workforce data and information with the same level of timeliness, consistency and validity as the financial or operational data available to the CFO or the COO, its insights will not hold the same weight.”

This instance on the value of skills data reflects a simple truth: you can’t do capability management without it. And in their breadth of people surveyed, these reports show something else, too: this is something that is affecting people widely, and is unlikely to go away.

Repercussions
The repercussions for the Learning and Development professional may not be felt in the short term, but in the long term there will be two great effects. The first is that increasingly we can expect learning interventions to be part of a larger picture of systematic skills management, with line managers and others not in the L&D department playing a bigger role in deciding who should get what training.
The second effect is that this is a time of great opportunity. Running through the Bersin and IBM surveys like a spine is the need for information to support the capability management that executives want. Nobody is closer to employees’ skills than the L&D department. This is the time to seize the moment and build L&D into the organisation to supply that information. The alternative is that someone else will take the initiative, leaving L&D as a cog in something far larger.

As the IBM report concludes:
“The Human Resources function has a unique window to make a strategic business contribution by shaping the adaptable workforce. If there ever was a time and an opportunity for HR to prove its strategic mettle, it has arrived.”
It’s time to think about L&D’s future.