This paper explores the perceptions of local government leaders towards appreciative inquiry approach as innovative capacity building at local government context. Thematic qualitative approach was used to collect, analyze and interpret the findings of this study. Fifteen participants from seven selected local government councils in Unguja and Pemba were purposively selected for in-depth interview. Nine themes were observed during data analysis whose results showed that Appreciative Inquiry significantly influences employee's capacity which in general improve firm performance. The study recommended is that, building a firm's human resource capacity is an effective strategy for improving firm performance. Organizations should strive at increasing their human resource capacity because it can lead to superior organizational outcomes. The human resource professionals can help their respective Organizations in achieving this by embracing intensive AI training programs aimed at imparting human resource capacity.
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