The Overseas Development Institute’s Research and Policy in Development Programme has increasingly collaborated with or managed large multi-year projects where it has been responsible for helping local institutions and organisations to build their capacity to use knowledge to improve policies and practices. This paper serves to 1) reflect on what capacity is and how it develops; 2) identify implications of this for approaches used to promote capacity improvement processes; and 3) assess what this means for funding practices. The paper highlights key findings from ODI’s work, and proffers recommendations for consultants and funders to improve their capacity building processes and projects.