What Are Capabilities, Really?
What are the real definition of Capabilities? This article will tie up loose ends.
“Capabilities” is a popular term during strategic conversations but is often misunderstood in its depth and complexity. It’s not just about being competent or functional; a capability is a structured, repeatable ability that allows an organization to achieve specific outcomes by integrating resources, processes, and knowledge. More than just an operational tool, capabilities are the engine of innovation, resilience, and competitive advantage.
At their core, capabilities are made of three interconnected components: resources, processes, and knowledge. Resources represent the “what”—the tangible and intangible assets a company leverages, from technology and data to expertise and brand equity. Processes define the “how”—the structured activities and workflows that transform resources into value. Knowledge serves as the “glue,” ensuring alignment between resources, processes, and the organization’s strategic objectives. Together, these elements create a system that consistently delivers value and enables growth.
As Nielsen and Momeni (2016) outline, capabilities can be categorized into four distinct types: technological, operational, managerial, and transactional. Each plays a vital role in organizational success. Technological capabilities enable innovation and the integration of new tools into existing workflows. Operational capabilities focus on efficiency and reliability in day-to-day activities. Managerial capabilities steer strategic decision-making and leadership in navigating complex environments. Transactional capabilities facilitate collaboration and resource acquisition by managing relationships with external stakeholders.
These diverse yet interdependent elements form the backbone of a firm’s ability to compete and adapt.
Yet, capabilities are not static. Organizations operate in dynamic environments, where agility and innovation are key to survival. This is where dynamic capabilities come into play. As Helfat (2022) and Schilke et al. (2018) explain, dynamic capabilities allow firms to sense opportunities, seize them, and reconfigure their resources to respond to change. Unlike ordinary capabilities, which focus on operational excellence, dynamic capabilities are about adaptability. They ensure that businesses are not only reactive to external changes but also proactive in reshaping their trajectory.
Leonardo Camacho
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However, whether ordinary or dynamic, capabilities share common characteristics: they are difficult to imitate, expensive to develop, and challenging to measure. As Zawislak et al. (2012) emphasize, capabilities are deeply embedded in a firm’s culture, history, and market context. They are not off-the-shelf solutions but unique to each organization, shaped by its specific challenges, goals, and momentum. Developing capabilities requires moving beyond generic frameworks to approaches tailored to the organization’s DNA.
The challenges in capability development are compounded by the difficulty of measurement. As Saunila and Ukko (2013) point out, the impact of capabilities, particularly innovation capabilities, is often intangible and tied to long-term outcomes rather than immediate metrics. Organizations must look beyond surface-level indicators like efficiency or market share and evaluate how capabilities contribute to adaptability, innovation, and sustained growth.
Ultimately, capabilities are more than operational tools—they define the identity and potential of an organization. They shape not only what a business can do but what it can become. By aligning resources, processes, and knowledge with strategic intent, companies can create systems that not only deliver results but also enable evolution. In a world defined by constant change, the ability to develop, adapt, and leverage capabilities is the ultimate differentiator.
I hope you have enjoyed the reading.
Those final notes are just to say that the concept of health-oriented growth underscores my academic and consulting work as well as my entire C-suite executive life. It is a true and deep pursuit.
Growth is often an end in itself, but without the right capabilities, it can become unsustainable or misaligned with long-term goals. My research and practice focuses on diagnosing a firm’s existing capabilities, identifying gaps, and crafting bespoke strategies to address them. The aim is to help companies build systems that balance operational excellence with innovation, ensuring they can thrive in an unpredictable world.
This work of mine seeks to transform capabilities from abstract academic concepts into actionable strategic constructs that executives can use to drive sustainable growth. Building on systematic and rigorous research and backed by immersive practice, it bridges theory and practice by providing tools to assess, refine, and align capabilities with strategic objectives.
References
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Helfat, C. E. (2022). Strategic organization, dynamic capabilities, and the external environment. Strategic Organization, 20(4), 734–742. https://doi.org/10.1177/14761270221115377
Lawson, B., & Samson, D. (2001). Developing innovation capability in organisations: A dynamic capabilities approach. International Journal of Innovation Management, 5(3), 377–400. https://doi.org/10.1142/S1363919601000427
Nielsen, S., & Momeni, M. (2016). Structural capability of an organization toward innovation capability. Journal of Management Research, 8(2), 86–98. https://doi.org/10.5296/jmr.v8i2.8987
Saunila, M., & Ukko, J. (2013). Facilitating innovation capability through performance measurement. Management Research Review, 36(10), 991–1010. https://doi.org/10.1108/MRR-11-2011-0252
Schilke, O., Hu, S., & Helfat, C. E. (2018). Quo vadis, dynamic capabilities? A content-analytic review of the current state of knowledge and recommendations for future research. Academy of Management Annals, 12(1), 390–439. https://doi.org/10.5465/annals.2016.0014
Winter, S. G. (2003). Understanding dynamic capabilities. Strategic Management Journal, 24(10), 991–995. https://doi.org/10.1002/smj.318
Zawislak, P. A., Alves, A. C., Tello‐Gamarra, J., Barbieux, D., & Reichert, F. M. (2012). Innovation capability: From technology development to transaction capability. Journal of Technology Management & Innovation, 7(2), 14–27. https://doi.org/10.4067/S0718-27242012000200002
Zollo, M., & Winter, S. G. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13(3), 339–351. https://doi.org/10.1287/orsc.13.3.339.2780