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Understanding Capability, Competence, and Capacity

Ever been confused over what people are talking about when they use the terms capabilities, competencies, and capacity?

In everyday business communications these terms are often used interchangeably. Even the thesaurus and dictionary definitions suggest they are alternatives for each other. What is this about?

Of course, language evolves and meanings shift gently with each new generation. There is a risk, though, that meanings shift so much that words become conflated and confused, one with another.

However, when we use words in the fields of change management, process excellence, and people development, I would suggest that we would want to be quite careful and precise in what we’re saying. Recently, I have again been working with others to help define what it is that a group of people do and how we observe and coach them to become better at it. In this work, I have attempted to use these words accurately, and was prompted by a colleague to share these definitions with others (hence this post).


The term capability describes the ability to perform a specific set of actions or achieve a specified set of outcomes. In business particularly it describes loosely what an organization, functional unit, or team does. In considering whether a team has the capability to do something, we are really looking at whether they know how to do it. Do they understand the process or have the equipment required?


The term competency describes the quality or state of being functionally adequate, of having sufficient knowledge, strength and skill to do something well enough. Competence is another word for know-how or skill. In considering whether a team has the competence to do something, we are really looking at how effective they are. Do they have experience with that process or the right training to use the equipment?


The term capacity describes the quantity of something, whether it is sufficient in order to achieve and complete something. This could be the amount of space (e.g. cubic capacity), the number of people or even hours. In considering whether a team has the capacity to do something, we are really looking at whether they can complete it within a specific time-frame. Do they have the time and/or enough team members?

Which do you want to increase?

Imagine a software development team that needs to start developing automated tests in the same sprint as the code to be tested. Which of these three should they look at?

If the team has some experience at this, they should look at improving their competence. Maybe add a spike to their backlog, so they can flex that skill or remove any concerns they might have.

If they have no experience at all, then look at getting them some training, to add this as a capability to the whole team. If the need is more urgent (rarely the case), then consider adding someone who does have this skill. It is still adding capability to the team. Focus on getting that knowledge spread in the team too, and add this to everyone’s capabilities.

However, if the team’s throughout reduces, don’t just add another person. The tendency is often to think, “let’s throw more people at this”, to increase capacity. That, however, typically results in slowing things down. with more people in a team, the need to communicate goes up and the risk of confusion also increases. It is more effective to focus in improving competence, or adding the capability.

In this case, it is likely that as the quality will increases, this should lead to a lower total cost of ownership and improve morale as well.

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