Many organisations confuse past performance with future capability – and it’s costing them. Ban Satchwell explains why relying on outcomes alone leads to flawed decisions, missed potential and ineffective people development. To build resilient, adaptable teams, we must treat performance and capability as utterly distinct, and assess them through separate processes. 

In HR, we often mistake what someone has done for what they can do. This confusion between performance and capability is one of the most persistent and costly errors in people management. When we assess performance alone, we’re looking at outcomes. Think elements like what was achieved, when, and in what context. But capability is about the underlying potential. It’s the transferable skills, knowledge and behaviours that drive performance… if the conditions are right.

If you don’t know whether you’re looking at a capability gap or a performance barrier, you can’t intervene effectively

Treating performance and capability as interchangeable leads to flawed talent decisions. We promote people who delivered outcomes without understanding the environment that enabled their success. We penalise others whose performance dipped without considering whether they had the capability but lacked support or faced external blockers.

In short, we reward results and ignore roots. It’s no wonder many high performers fail in new roles, while overlooked team members quietly hold untapped potential. This isn’t a theoretical distinction. It has real-world implications for hiring, promotion, succession planning, and development. If you don’t know whether you’re looking at a capability gap or a performance barrier, you can’t intervene effectively.

That’s why understanding the difference matters; especially in organisations striving for strategic workforce planning and future-fit leadership.

Performance is contextual, capability is enduring.

Performance is always tied to a specific time, role and set of circumstances. It answers the question: Did they deliver? This is valuable but limited. A strong performance in one context doesn’t guarantee success in another. Someone may have performed well because of a supportive team, generous resourcing, or favourable market conditions. Change those variables, and the outcomes might not follow.

Capability, on the other hand, is more stable. It reflects what someone is able to do regardless of context. It includes things like critical thinking, adaptability, stakeholder engagement, and communication. Skills within these capabilities that can be applied across roles and situations. A capability assessment asks: Do they have what it takes to succeed in this or a future role, even if the conditions change?

Unfortunately, many organisations still rely solely on performance reviews to drive development and progression. These reviews often attempt to cover too much: feedback, objectives, behaviours, potential, and career aspirations; all in one conversation or form.

The outcome is usually a blur, with no clear signal about someone’s actual strengths or development needs. Managers struggle to differentiate between short-term delivery and long-term capability. Employees leave reviews unclear on how to grow.

We need to stop asking one process to do the work of two. Performance reviews are about accountability and recognition. Capability assessments are about potential and development. When we treat them as separate tools, we unlock better insight, clearer decisions, and stronger alignment between people and strategy.

Split the streams to make smarter people decisions

To make the shift start by splitting the streams. Design your processes so that performance reviews focus exclusively on delivery; what was achieved, how it was done, and how it aligned to business goals. This is where you look at KPIs, outcomes, timelines and feedback on execution.

Separately, run capability assessments focused on core role requirements and future potential. This is where you evaluate whether someone is growing in key areas that matter across roles. Thinking areas like problem solving, emotional intelligence, leadership, influencing, strategic thinking. These assessments can draw from observations, self-assessment, 360 feedback, or structured frameworks. But the point is: they stand apart from performance.

When you do this, several benefits follow. You stop mistaking confidence for competence. You identify high-potential employees earlier. You provide more targeted development. You support people who are capable but currently underperforming. You build succession plans based on readiness, not recency bias.

Crucially, capability assessments don’t need to be burdensome. You don’t need pages of forms or endless ratings. You need a well-defined capability framework, shared language for what good looks like, and a process that is easy to embed into regular development conversations. When done well, capability becomes the scaffolding for your learning strategy, leadership pipeline and workforce planning.

And let’s be clear: capability isn’t soft. It’s not vague or optional. It’s measurable, observable, and essential to building a resilient organisation. You can track it over time, link it to development investment, and even connect it to performance when both streams are in place. But that’s the key: when both streams are in place.

If you’re still using last quarter’s results to judge someone’s readiness for the next challenge, you’re not managing talent. You’re gambling with it. And in a world where the pace of change is relentless, that’s a risk most organisations can’t afford.

Different but important

Capability and performance both matter. But they are not the same. One is about potential. The other is about results. One is forward-looking. The other is retrospective. When you understand and apply both, you make better, faster, fairer decisions about your people.

Stop forcing your reviews to carry the load of capability. Start creating systems that assess both what people have done, and what they’re capable of doing next. Because if you want a workforce that can adapt, grow and deliver long-term value, performance alone won’t get you there. Capability will.

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