A Brief Introduction to Business Capabilities and Capability Model

Capabilities and resources are not new concepts. They are integral part of strategy development process. Like strategy, they also have their roots in the ancient warfare. Planning a strategy for a complex business has a lot in common with planning for a warfare and so these concepts have natural fit within the business context.

A capability from military perspective is defined as “an ability to achieve a desired effect in a specific operating environment”, and a military capability signifies three elements. First, the combat readiness – this addresses the effective use of limited resources – e.g., weapons, technology, and equipment. Second the sustainability – this addresses the processes and tactics to be applied. And the last one, the force structure – this addresses the skills, combat and non-combat roles, authority, etc. To this day capabilities and capability-based planning are very much at the core of the modern warfare and strategy formulations and have proven to be invaluable and effective techniques.

In the business context, a business capability is a conceptual entity, and it describes the ability of business to perform a value-added function that delivers incremental value directly or indirectly to its customers by making the best use of its limited resources, effectively and efficiently.

It is the smallest logical unit of a business representing its unique ability to perform a self-contained work unit. The notion of business capability is a fundamental concept in business domain architecture and very useful in describing the incremental changes needed within a business to achieve its strategic goals and objectives.  

In enterprise architecture within the business domain there is only one type of capability defined and that is the business capability. Any other capabilities that you may have encountered in the architecture literature (e.g., technical capability, application capability, etc.) are all business capabilities.

Resources in the business context fall into the following three main categories –

• Tangible – Some examples of tangible resources are business assets such as, buildings, equipment, cash, and of course, available time.
• Intangible – Some examples of intangible resources are brand equity, industry knowhow, patents, etc.
• Human – these are available skilled people.

Operating models represent preparedness of business to perform its operations to deliver value to their customers. From architecture standpoint operating models are described in terms of logical sequence of business functions and associated value streams supported by sets of business capabilities and resources to create new products or fulfill requests from users for existing products. Here products refer to both goods and services offered by the business.

A capability as a noun indicates ‘what’ business does under a given business function; it does not say anything about ‘when’ or ‘how’ or ‘who’ does the work. For these answers the business capability must be further broken down into its constituent components. The following four components of the business capability holistically describe the ability of business to perform a specific unit of work.

• Roles with specific skills: A role is a set of specific but necessary skills required by a person (or group of people) to be able to perform specific business activities. A role also has a level of decision authority granted to it which is commensurate with the importance and nature of the activity. Roles are assigned to real people who do the actual work.
• Business process: in its simplest form, it is a workflow with a clear start, triggered by an event or external action and has a finite end. It consists of steps, with possible conditional loops, that certain roles (assigned to individuals or groups) follow to collectively deliver a well-defined unit of work at the end.
• Information: is a set of conceptual transactional data entities that are exchanged within the steps of business process that enables the business capability. Information is exchanged among people playing various roles and among various systems used to automate activities within the business process.
• Tools & Technology: These are various applications and systems used by the people to expedite their work within given business process and technologies used to integrate, monitor, and host these systems and applications.

Note that roles are not necessarily same as titles given to certain positions in an organizational structure. A role is a fundamental concept and is a description of skills required for performing activities under a given business function; it is assumed or played by a person. A person can play multiple roles, if the person has enough bandwidth; on the other hand, there may be many people playing the same role depending on the cognitive capacity of people and amount of workload at any given time.

Unfortunately, quite often we see people with the titles that do not necessarily reflect the actual roles they play and the work they do in the organization. So, it is more accurate to use roles instead of titles when describing the person performing a business activity.

(Also read – The Problem with Architect Job Titles, Roles, and Responsibilities).

Business capability is an abstract or conceptual entity. It is actualized and operationalized by assignment of roles to real people who follow certain business process and use certain tools to perform activities to deliver the defined unit of work. A business function and its associated value stream, which are also conceptual entities, are actualized with a physical entity called business unit or department. One or many business capabilities that are closely related are grouped together to support a business function via its associated value stream.

Realization of a business function entails creation of an organization structure in the form of business unit or department. This is a part of implementation of operating model. Oftentimes some people conflate business capability and business unit/department; as you can see, although they are related concepts, they are not the same.

Business unit structures and assignment of roles and responsibilities to people can and do change frequently. The capabilities and roles, on the other hand, seldom change. Business capabilities and roles are fundamental concepts and are durable, and therefore are more suitable for representing business changes in abstract terms. These concepts form the basis for, and are the basic architypes used for, creating architecture models.

That said, the description of operating model is not complete without the description of the physical business unit structures and its people.

Capability-based Planning

At the heart of the strategy implementation stage is the process of planning and prioritizing implementation of target operating models. Changes required in business are expressed in its target operating models in terms of capabilities that the business must newly establish or improve. The analysis of gap between current state and target state operating models provides list of business capabilities that must be acquired or improved by the business. This is the capability-based planning process, which is a part of enterprise architecture development.

Operating models are the connecting tissue between strategy and business domain architecture; business capabilities are the connecting tissue between the business domain architecture and technology architecture.

Capability-based planning is about identifying and defining necessary business capabilities needed to support strategic changes. This planning is a collaborative activity and requires co-ordination and alignment among all impacted business units and IT organizations.

The architecture development requires flushing out the details of identified business and technical capabilities in terms of impact to people, process, information, and technology. It requires identifying interdependencies among these impacted business capabilities. It involves consolidating these business capabilities into logical units to be planned for implementation, called initiatives, and then prioritizing these initiatives based on various factors such as business importance, impact to the business units/departments, urgency, complexity, efforts, cost, etc.

The result of this exercise is to define a business capabilities implementation roadmap identifying all the high-level initiatives to be launched in the order of their relevance and priority to operationalize the target operating models.

Sometimes the identified capabilities are complex and as a result the corresponding initiatives must be broken down into parts and delivered in multiple increments. The capability-based planning process also defines such capability increments to deliver complex capabilities in phases.

Capability Model

All the top-level business capabilities (identified within the top-level operating models) can be grouped and summarized using a single page canvas called Business Capability Model. This single page view is a convenient way to represent a static conceptual view of the current state (or future state) of the entire business. A baseline current state Capability Model is one of the artifacts created under enterprise architecture for business.

Note that standard / reference business capability models are based on industry capabilities and include the business capabilities that ought to be supported by business within that industry (e.g., BIAN, eTOM, Accord, etc.). Depending on the maturity level of a business some business capabilities may or may not be part of their current state business capabilities model.

A Capability Model can be a very useful tool in presenting summary information about business in several different ways; for example, baseline Capability Model shows the current state of the business in only in terms of high-level capabilities. With the Capability Model one can also holistically represent future impact of a large strategic initiative to the business by highlighting individual affected business capabilities with a coloured heatmap.

One can use the Capability Model to show mapping of various IT objects such as ongoing programs/ epics/ projects and group of stakeholders with various interests. One can use the Capability Model to map the lifecycle states of IT applications and other IT assets with the capabilities with their associated IT spend (Capex and Opex), etc.

The Capability Models presents a static view of the state of business, so it has limited use cases. It is not very useful when one needs to showcase dynamic aspect of business impact. There are other architecture artifacts (such as Value Streams and Journey maps) that are better suited to present dynamic view of how relevant business capabilities can be strung together to incrementally create value under the business function impacted by given strategic initiative.

Business capabilities can be made as fine grained as it is necessary; however, to make them manageable and useful the fine-grained capabilities must be organized into a hierarchical structure with the most coarse-grained capabilities at the top with the secondary lower-level capabilities nested under them with increasingly finer level of granularity. Typical maps can be as deep as up to five levels. To navigate the hierarchical Capability Model easily they should be made interactive using web-based tools and presented with the ability to zoom-in and out to only showcase relevant layers of capabilities one level at a time. The Capability Model can be maintained in EA tools or database repositories (including good old Excel sheet).

The business capabilities must be defined such that they are mutually exclusive and cumulatively exhaustive. In other words, there must be no duplication and overlap between any two capabilities and collectively all business capabilities must describe completely every aspect of what the business does. 

In general, business capabilities in the business Capability Model for a business, regardless of its industry and sector, follow a three-tiered grouping namely, Strategic, Core, and Support.

(Also read – The Business Model and Operating Model). 

The Strategic capabilities include strategy planning and business administration related capabilities. The Core business capabilities vary depending on the nature of business and its industry /sector; however, they do have some common top-level capabilities like, marketing, sales, services, operations, logistics, manufacturing, etc. And lastly, the support capabilities which are universal in all modern businesses and common across most industries and sector, such as managing human resources, information and technology, accounting, finance, and facilities.

Every established industry such as Banking, Insurance, Telecom, etc., have standardized reference Business Capability Models available e.g., BIAN, ACCORD, eTOM, respectively. Such standard Capability Models may be leveraged as a starting point for creating business Capability Model for your business. There are other commercial sources for similar reference capability models or other industries (health, retail, manufacturing, etc.) are available online.

It is possible to create current state Capability Model using the template from one such standard mentioned above and filling it out based on the information collected by surveying and interviewing the key business leaders. There are other sources of information in your organization that you may find useful in creating the capabilities model, for example, organization charts from your HR organizations, and IT asset and CMDB data repositories.

Here is an illustration of a simplified Capability Model showing only the top-level business capabilities for a public library.

Since business capability is a fundamental concept, it can be used as a common vocabulary by both business and IT leaders to communicate changes to the business (that is, the changes to its operating models). It is a powerful tool used by the enterprise architects to communicate with both business and IT stakeholders. Therefore, socializing the detailed capability model is a very important responsibility of the EA leaders. Once the Capability model is accepted by all stakeholders then it makes it that much easier to communicate with them.  Business capabilities are the missing link and glue that connect business to IT.

While creating the business capabilities model it is very important to get agreement on definitions of business capability names and stick to the agreed naming convention.

The naming convention for business capability used in the above example Capability Model is in a “<verb><noun>” format. You might say that business has an ability to “<Plan> <Strategy>”, so you might call the capability “Plan Strategy”. Here are some other example names – Manage Programs, Manage Finance, Manage Information & Technology, Manage Architecture, etc.

Some people prefer capability naming convention with a <noun><verb> format – e.g., “<Strategy>< Planning>”. This naming convention is easier to understand however it is very likely to collide with naming conventions for other equally prevalent business objects like business functions and business processes, so it is best to avoid it.

Defining business capabilities and creating the baseline current state Capability Model for your enterprise is the first “low hanging fruit” the enterprise architecture practice should consider completing to score an easy and quick win. As mentioned before, socializing the Capability Model within IT and in Business is one of the primary responsibilities of the architecture practice leads. Once you get passed this first hurdle then the Capability Model can become invaluable tool for architecture assessments and can be leveraged to present variety of impact analysis views to IT and Business leaders.

Author: Sunil Rananavare, IT Strategy Planning and Architecture (CIO Advisory)

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The views in the article are author’s own and not necessarily of his employer.