Build Before You Die: Why Proactive Capability Building Is Crucial

“When disruptive change appears on the horizon, managers need to assemble the capabilities to confront the change before it has affected the mainstream business. In other words, they need an organization that is geared toward the new challenge before the old one, whose processes are tuned to the existing business model, has reached a crisis that demands fundamental change.” ― Clayton M.?Christensen, The Innovator's Dilemma

"Usually people only feel the need for a change when there is a clear and undeniable evidence that survival and people's chances for success, are at stake." - Stan Deetz

"The more you sweat in times of peace, the less you bleed in war." - Spartan Warrior Mantra

In "Conan the Barbarian", a young slave spends years pushing a giant flywheel, repeatedly performing a monotonous and burdensome task. Over time, this repetitive effort sculpts his body and builds incredible strength, which allows him to dominate later in life. His quiet preparation eventually became his distinct advantage, even though the benefits weren’t immediately obvious. Like a Spartan warrior preparing for battle, or Conan pushing the giant flywheel, companies must "sweat in times of peace" to avoid bleeding when disruption hits.

In the age of AI, digital-first companies have already built these hidden capabilities. They have the data, the infrastructure, and the talent to push the AI flywheel, while their less-prepared competitors scramble to catch up. Often, incumbents realize too late that these digital upstarts have built implicit strengths—skills honed through battle and problem-solving that can't be easily captured in a balance sheet. In the modern business arena, technology, business strategy, and execution have become a Gordian knot and organisational capabilities are a core ingredient of success.

Laggards usually wait until the evidence for change is undeniable and then try to buy versus build this capability. If laggards do try to build that capability, they often do so with an existing and resistant workforce that is brainwashed in the previous paradigm. Once an organisation is in fight or flight mode and performance is in decline, decision makers from the core's legacy departments influence crucial decisions like the closure or resource starvation of new initiatives. To stem the bleed they cut off supply and jettison anyone seen as a stem cell, you have to have a clear impact on the bottom line or you are superfluous.

So, what can companies do to avoid being also-rans?

Rather than buy in talent, organisations must proactively build capabilities, whether through internal development (and failure), through acquihires or partnerships. The key is to do so before it is necessary. When technologies evolve and the tectonic plates or disruption recalibrate the landscape, organisations "suddenly" require new capabilities. Organisations rarely prepare for this inevitability. When it happens leaders rarely recognise a capability failure as a problem. Regardless of what claims these leaders make, it is often because it has been more lucrative to milk the cash cow today than prepare new pastures for tomorrow.

In a similar way, a new entrant competes with an incumbent fighting for the least profitable customers. As Michael Raynor told us on The Innovation Show , most incumbents cede the lower part of the market and might even send the entrant a bouquet of 12 red roses and a note to say thanks. Low-end customers are often the most demanding and least profitable so it makes sense to jettison them to an apparent "numbskull" competitor. Sales teams are (temporarily) happy because they can make larger commissions on the cash cows with existing customers. Marketing teams can message to the upper tier clients with premium campaigns. And finance like the look of the spreadsheets. Until they don't.

Disruptive markets often start by serving customers that established companies overlook or dismiss. This creates an opening for new entrants to gain a foothold in the market. While incumbents could seize this opportunity by developing new capabilities early on, they often hesitate or engage in cognitive dissonance. This hesitancy allows those new entrants to grow stronger and eventually become serious competitors. Unfortunately, the corporate innovator know this is wrong. They know their company is outsourcing their future to a competitor who may seem puny today, but will build competing capabilities for tomorrow.

How does it end for the incumbent? The pattern is predictable. By the time an incumbent realises the landscape has forever changed, the entrant has firmly established themselves. Most leaders respond with a common refrain, "We didn't see that coming!" Take that famous Nokia press meeting, when Stephen Elop, former Nokia CEO said, "We didn't do anything wrong, but somehow we lost." While there is more than just a dearth of capabilities behind stories of organisational failure, they are a common ingredient. An incumbent who dismisses new business models, cannot become a viable competitor overnight. It takes time to build capabilities. What's more, often the entrant has forged strengths that are not readily observable to outsiders and hard to capture on a balance sheet. Because they have battled and have solved problems, they have developed implicit skills and the requisite scar tissue.

Many disrupted firms see entrant capabilities improving, but still they are held hostage to heavy investments in the core business rather than modest investments in the new business.The new market is too small to affect the financial position of the incumbent (for now). What looked huge to hungry upstarts did not meet the company’s growth needs. Even though the incumbent had the resources to succeed, it didn’t make sense to squander resources building a new market when there was so much growth left in the existing one. By the time the right course is clear, it is too late.

There are are two ways to manage a capabilities gap, the first is to build them continually. the second is to humbly recognise the limits of your current capabilities and engage HR, L&D and your people to close critical capability gaps.

Build Capability - Before You Need It - Toyota

“When the organisation’s capabilities reside primarily in its people, changing capabilities to address the new problems is relatively simple. But when the capabilities have come to reside in processes and values, and especially when they have become embedded in culture, change can be extraordinarily difficult.”? ―?Clayton M. Christensen

While the shift to electric and hybrid cars may seem recent, Toyota has been building capability since 1969. Recognising the impending scarcity of oil, the company launched Project G21 in the mid-1990s, aiming to create a vehicle with fuel efficiency of 47.5 miles per gallon. Instead of improving existing technologies, General Manager Risuke Kubochi directed engineers to explore hybrid technology, a field Toyota had been researching for two decades. Despite the high costs, he insisted on developing a concept car capable of doubling fuel efficiency, with a deadline for the 1995 Tokyo Motor Show.

With full corporate backing, 1,000 engineers investigated 80 hybrid powertrain alternatives, narrowing the focus to four. The timeline was accelerated to deliver a full-production vehicle within 24 months—one-third less than typical. The team overcame significant challenges, such as designing a temperature-sensitive battery, ultimately unveiling the Prius in October 1997, ahead of schedule, and bringing it to market just two months later. The Prius resonated with environmentally conscious consumers, showcasing the payoff of Toyota’s sweating in times of peace.

Launching the Prius required an investment exceeding $1 billion—a substantial amount for a company smaller than its main competitors at the time. Yet Toyota's long-term vision and commitment to capability building positioned it to seize the green vehicle market. As Paul Nunes shares in "Jumping the S-Curve," it was only Toyota that wholeheartedly embraced this opportunity.

And even though the company has scored a huge hit with Prius, a hybrid car, Toyota continued to build capabilities in electric and fuel-cell technologies. “It’s very important when you do R&D to widen the scope, to have several competing technologies or systems, and then to choose what is best,” explained Masatami Takimoto, Toyota executive vice president. Even within hybrid technology, there are numerous types of systems, including several variations for the basic drivetrain. “We started our hybrid development work in 1969 and, since then, we’ve tried them all,” says Takimoto. (I gleaned this information from my friend Paul Nunes here .

To thrive amidst disruption, organisations must proactively build capabilities before they are needed. Waiting until challenges arise is often too late to address fundamental competency gaps. Toyota exemplifies how a forward-thinking approach to capability development not only fosters innovation but also secures a competitive edge in a rapidly changing market.

Viewing a company’s lifecycle through the lens of capability development reveals the unique advantages that contribute to its success. These include advanced production knowledge, proprietary technology, exclusive distribution channels, exceptional service capacity, unique location advantages, specially trained employees, and proprietary systems and processes. Together, these factors create a distinct offering that is difficult for competitors to replicate.

As you embark on any transformation, collaboration with HR leaders is essential to assess current capabilities and identify critical gaps. HR and L&D must have a seat at the boardroom table, aligning closely with your strategy to pave the way for future capabilities. Building organisational capability is a continuous journey—it's not a single event, workshop, or course, but an ongoing odyssey of reinvention and growth.

Check out the recent episode of Innovation Show with Stan Deetz below for a great conversation on how we got here and some unique insights.

That episode wih Paul Nunes here:

Michael Raynor here: