How to Determine Your Business's Capability and Capacity

In today's competitive business landscape, deciding where and when you allocate resources will determine your export success or failure. Understanding what your business's capabilities and capacities are and how to leverage them more effectively is a skill that many businesses lack and fail to invest in. We'll explore why capability and capacity are essential and how to evaluate them inside your business to meet your corporate objectives. This article is for business owners and leaders who want to be more intentional about funnelling the right resources into the business to see growth, increased profits and develop new opportunities.

What are capabilities, and why do they matter?

Capabilities refer to the skills, abilities, and knowledge of an organisation. They give you the ability to do what you do, much like a business's toolbox. When faced with a new challenge, you rely on the tools you have available.

In order to export successfully, you need to sharpen your tools and add more items to your toolkit. Often, business owners try to rely on their existing capabilities to meet the demands of exporting. However, failing to upgrade or invest in a more diverse and complementary set of tools can leave you unprepared for international expansion. By expanding your capabilities, you can make quicker decisions and effectively respond to new export markets with the appropriate commercial strategy.

Conducting a capability review will help you understand which tools from your domestic toolkit you can work with, identify those that need an upgrade, and determine the new items that will be required. This review requires careful attention to the following areas of your business:

1. Skill Base: The people in your business possess capabilities. Across your team and your wider network, you should evaluate the people and look at the broader skills they have.

2. Decision Making: How quickly can your business make decisions? Exporting requires responding quickly to trends, changes and opportunities. How does your team make decisions currently?

3. Process Learning: How will you bring new capabilities across your export journey? You will need to acquire new knowledge and adopt new business practices related to logistics, international payments, legal and intellectual property (IP) issues. You will need to be across market entry requirements and develop strategies for each of your chosen markets. How are you currently bringing skills into the business?

4. Strategy: How is your business strategy currently set, and to what extent does it inform the day-to-day operations? Before you bring in a new export strategy, review how your current strategy is executed in the business.

5. Customer Connectivity: Consider how you establish and maintain enduring relationships. You will need to consider how this changes when your customers are not nearby.
   
   
6. Cultural Competency: Review the biases and perceptions you and the whole team have in relation to export markets. Everyone comes to business with their own cultural lens and set of unconscious biases. Having an open conversation about where you and your team are coming from culturally will help you recognise where future gaps in cultural competency may come from.

What is capacity, and how do you measure it?

Capacity refers to the ability to perform a task and can be described as your business's ability to absorb demand and change. Capacity is very similar to a sponge. A sponge soaks the liquid, but once it's absorbed all that it can take, the rest of the liquid goes down the sink. Your business is no different. You have finite resources; once you have soaked up all the demand and change, nothing else will be absorbed. 

 Some measurements to review capacity inside the business may include:

• Financial statements
• Value or quantity of production
• Costs of outputs
• Staff capacity (e.g. hours worked by staff or an employee's potential)
• Time spent by key personnel in production aspects
• Time spent on external functions such as sales, marketing, phone calls, and client meetings
• Time spent internally on emails, filing paperwork and resolving employee issues

What capacities do you need for export success?

In determining how to grow the sponge, there are several key commitment areas of capacity development. These include: 

1. Management: Exporting requires a company-wide commitment to be successful. Ensure that you have the support of your management team or business partner before involving your team. The management team must show buy-in, as exporting is a long-term commitment and not a quick fix. The long-term nature of building an export market can divide leadership if everyone is not on the same page about how exporting will achieve the company’s objectives.  

2. Human resources: An audit of the capacity for new projects is complex; as owners and leaders, we always want to say yes to new opportunities for growth. But your team can only work for a finite number of hours in the day. Before you allocate who is working on the export strategy and execution, consider the time in current priorities and how this will compete with the domestic business.  

3. Financial resources: Financial capacity is always something to want more of. For many new exporters, we've found it best to view exporting as a separate business unit, which will require its own budget and funding. This means the exporting activities have a seat at the table. Early financial decisions will be to discuss how you will manage the costs associated with exporting. Is your domestic business going to prop up your export business until you build momentum? Or will you finance exporting separately?

4. Communicating scalability and timeframes: Capacity to communicate and scale means you are communicating in a way that's both culturally competent to all stakeholders and you're managing expectations. This is everyone from suppliers to customers. It's essential to be transparent about any limitations to scale and ensure that your operations and services can meet demand from both domestic and export sales. Determine what the milestones are to export and how these will be communicated.

5. Competitor response: Global competitors and domestic competitors will be watching. If you're getting on a shelf, it means another business is coming off a shelf. You need to develop the capacity to plan for a competitor's response and be agile enough to counter any move in the business arena. Be aware that new competitors may not play by the same rules. Make sure to establish your boundaries and understand the legalities of operating abroad.

To succeed in international markets, it's important to identify areas for improvement, remain committed to capacity development, and seek external support to fill the gaps. When you start exporting, you must commit to following this process regularly, or else risk falling into the same trap as many other failed exporters who get caught up in the day-to-day and neglect their capabilities and capacities.  

Next steps: 

If you're interested in an independent capacity audit or need help developing a successful export strategy, contact our team for a consultation. You can also start with our comprehensive guide, "Exporting 101," which covers everything you need to know to rethink your exporting approach and avoid costly mistakes.