Why Capabilities Matter More Than Skills and Competencies in the Future of Work

Cutting Through the Mumbo Jumbo of Jobs and Skills

With rapid change now the norm, we must rethink how we approach work, learning, and careers. The traditional focus on jobs, skills, and competencies is losing relevance in an era of AI-driven disruption and digital transformation.

Despite widespread conversations about "skills gaps" and "job shortages", these discussions often recycle outdated models designed for the previous industrial age. Governments continue to fund large-scale education and training systems that were effective when jobs were stable, careers were linear, and skill requirements tied to occupational classifications were predictable. But today, many of the fastest-growing work opportunities don’t have clear job titles, formal qualifications, or even a defined industry.

So, how do we prepare for a future where four out of every ten jobs in 2030 don’t yet exist? Or build skills and qualifications for a workforce where 30 percent of the technical skills in a workforce will need to be updated every two to three years?

The answer is capabilities.

Rather than focusing on narrowly defined skills or competency models built for a static past, we need to invest in human capabilities—the general, more durable and transferrable qualities that allow individuals and organisations to collaborate, create, innovate, adapt, and overcome complex problems.

The Problem with a Skills- and Jobs-Focused Approach

The Australian Government’s national dialogue on skills and jobs aims to address workforce shortages, declining real wages, and the need for a more productive economy. However, the solutions proposed—more funding for traditional education and training or industrial protections enshrining job tasks and boundaries into law—reflect an outdated belief: that preparing people for specific jobs through predefined skill sets is still the best way to future-proof the workforce.

This thinking ignores the reality of nextgen work, where:

• Many emerging fields (e.g., AI, cybersecurity, sustainability) evolve and become out-of-date faster than qualifications can be designed.
• Jobs are increasingly unbundled into tasks and projects, requiring fluid and adaptive teams and ways of working.
• Digital transformation has reshaped work so profoundly that the notions of ‘job stability’ and a ‘career for life’ are now myths.

We cannot solve 21st-century workforce challenges with century-old educational models. The future of work demands adaptive capacity—the ability to pivot, upskill on the go, and apply knowledge across contexts. This is where capabilities come in.

Skills vs. Competencies vs. Capabilities: Understanding the Difference

These terms are often used interchangeably, but they are not the same. Precision in language matters if we are to make meaningful changes to how we develop talent.

• Skills are specific learned abilities, typically tied to a task (e.g., coding in Python, writing reports, Deal with complaints). They are tangible and can be taught, tested, and certified.
• Competencies bundle related skills, knowledge, and attributes into standards of job performance (e.g., project management, leadership, communication). They define role requirements but are usually limited to specific jobs, vocations, or industries.
• Capabilities extend beyond job performance. They represent a person’s skills and innate human abilities—regardless of job title or industry. Capabilities include intangible attributes such as behaviours and mindsets, which are exhibited in a social context, unlike skills and competencies. They are associated with an individual rather than a specific job and thus relate to the workforce's capabilities and preparedness for future challenges.

Skills define what a person can do. Competencies indicate how well they fit a specific role. Capabilities, however, are more durable and reveal how effectively a person can adapt, perform, and engage in diverse cultural contexts or when meeting future challenges.

Figure - The components in a capability

?

Why Capabilities Are the Currency of the Future Workforce

Capabilities offer a higher-order lens for workforce development because they are:

? ??? Transferrable across industries and jobs – Unlike job-specific competencies, capabilities such as problem-solving, adaptability, and critical thinking can be applied across various fields and careers.

? ??? More durable than skills – The shelf life of a technical skill is now less than 2.5 years. In contrast, human traits such as resilience, empathy, and systems thinking endure a lifetime.

? ??? Essential for agility and innovation – Businesses that prioritise capability-building over skills training create employees who are more adaptable, better at learning from mistakes, and equipped to create novel solutions or solve complex problems.

? ??? Aligned with the future of work – The rise of AI and automation means that technical skills alone are no longer enough. Organisations need people who can integrate technology with human insight, make sound judgments, and navigate ambiguity.

The Capability-Driven Workforce: A Practical Approach

Organisations that take a capability-first approach move beyond rigid job architectures and skills taxonomies. Instead, they focus on human capability standards that combine:

• Skills: The technical and functional knowledge required to perform tasks effectively.
• Mindsets: The cognitive, emotional, and behavioural attributes that drive disposition, attitude, and cultural fit.

By investing in capabilities, businesses can cultivate a workforce that is not just trained for today’s jobs but mentally prepared for tomorrow’s challenges.

Inner Human Capabilities: The Key to Talent Attraction and Retention

The old model of hiring based on job descriptions and past experience is no longer fit for purpose. Employers need to look beyond qualifications and competencies to unlock hidden potential. This means:

• Identifying employees' inner strengths – Many professionals have untapped capabilities that don’t align with their current job titles. Organisations need better tools to assess these latent strengths and then match and mobiles them to fill emerging work needs.
• Focusing on purpose and engagement – Employees thrive when their work aligns with their natural talents and intrinsic motivations. Capability-driven organisations attract top talent by offering flexibility, autonomy, and career growth beyond traditional hierarchies.
• Shifting from performance reviews to potential reviews – Rather than measuring employees against rigid KPIs, organisations should assess their adaptability, learning agility, and ability to contribute to future strategic goals.

A Call for Change: Moving from Skills-Based to Capability-Driven Workforce Planning

The shift from skills and competencies to capabilities is not just a theoretical discussion—it is an urgent necessity. If we want to build a future-ready, more resilient workforce, we must:

1. Change the national conversation – Stop equating skills training with employability or future readiness. Workforce planning must prioritise our inner human abilities that enhance resilience and adaptability.
2. Rethink hiring and development – Move beyond static skill-based job descriptions, hiring and educational approaches, to focus on capability profiling, which assesses a person’s mindset, long term potential, and matches them to careers where they can flourish.
3. Invest in capability frameworks – Organisations and nations need to develop simple, high-impact capability models that provide people more mobile, long-lasting abilities that can, in turn, raise access to employment and power more adaptable workforces and businesses.
4. Integrate education with practical experience – Universities and vocational programs should shift from theoretical, discipline-specific qualifications to promoting cross-curricular or graduate attributes and capabilities acquired in the real-world.

Final Thought: Future-Proofing Your Career

For individuals, understanding your own capabilities is key to career success. Rather than just chasing skills that may soon be obsolete, focus on building enduring capabilities that prepare you for a career, not a job and confirm your long-term potential to those employers already building their nextgen workforce today.

Instead of asking, 'What skills and qualification do I need for my next job?' ask, 'What capabilities make me more valuable and ready for a sustainable career—no matter what changes lie ahead’?’

The world of work is transforming. It’s time our approach to workforce development did too.

For more detail on this topic see my paper commissioned by Capability.Co - Capabilities and the next generation of work.

Dr Marcus Bowles, Chair, The Institute for Working Futures