Company Capabilities: Types of business capabilities in a company

Company capabilities or enterprise business capabilities are what a business does and can do and is an encapsulation of end-to-end functions into an abstraction that is agnostic to the underlying process and supporting system. The capabilities of a company are the building blocks of what constitutes the enterprise and necessary to operationalize the strategic intent and achieve business results.

Not all company capabilities are the same. Not every company needs or has all capabilities. The sector, the industry, the geography, the types of products/services, the customer segments, the competitive dynamics are some of the factors that influence and shape the capabilities a company needs. For example, today’s retailers are desperate for omnichannel capabilities to compete with the e-commerce giants. On the other hand, for a B2B (Business to Business) company, while online commerce may play a smaller role, digital capabilities which optimize the supply chain – the procure to pay value chain – are extremely valuable.

Let’s distinguish various concepts:

Company Business Capabilities: In essence, a capability is an articulation of what a company does, not how it does it. (Here are the definitions of capabilities and business architecture.)

Business Process: A business process is a detailed activity of various actors and the flows that take place to consummate a business operation.

Value Streams: Value Streams are high-level stakeholder oriented flows – which are a step above detailed process maps – that reflect an outcome.

All the above are an integral part of the enterprise business architecture.

Company capabilities can be soft capabilities or hard capabilities:

Soft Capabilities Examples:

Leadership
Innovation and Transformation
Culture and Change Management

Hard Capabilities Examples:

Distribution
Manufacturing
Product Design and Development

The business capabilities of a company are of various stripes – Strategic Capabilities, Core Capabilities, Context Capabilities, Foundational Capabilities. This categorization is of relative importance and value of the capabilities, and the segmentation helps in the level of executive focus and the amount of capital allocation, among other things.

Company Capabilities - Categories of Business Capabilities

Categories of Company Capabilities:

There are several categories of enterprise business capabilities.

Strategic Capabilities:

Strategic capabilities offer the company a competitive differentiation. These can be existing capabilities that need to evolve or new capabilities a company needs to build/acquire. For example, for businesses embarking on inorganic growth, a robust “Corporate Development” and “Merger Integration” capabilities are paramount. On the other hand, for manufacturing companies “Supply Chain Networks” may be a critical factor. For others, digital capabilities may be the difference between surviving and thriving.

Core Capabilities: Core capabilities are those that are inherent to the existence of the company. For example, for multi-brand companies like Procter and Gamble, or Unilever a capability such as “Product Management” is core to their existence. On the other hand, for a company like Sharper Image, “Design and Industrial Engineering” are core capabilities. Moreover, for professional services companies, “Recruitment” and “Training” are core capabilities.

Context Capabilities:

Context capabilities are essential capabilities to get things done for a company. The context capabilities constitute the transactional services that typically are under the radar but surface when they do not work well. For example, Finance and Accounting are context capabilities for most companies. This capability becomes an issue when there is a lacuna or a compliance issue. For example, when companies want to improve and reduce the time it takes for the “Close Process” or when a regulatory agency dings the reputation, it becomes a candidate for transformation. (Of course, there are exceptions where companies rely on finance and accounting as a strategic differentiator.)

Foundational or Commodity Capabilities:

All other capabilities which offer no significant value, but are necessary to the functioning of the company may be deemed Foundational or Commodity capabilities. The essential strategy for foundational or commodity capabilities is to lower the cost of operation and hence standardization and business process outsourcing become levers for optimization. For example, a commodity capability could be something like “Accounts Payable” where lowering the cost and maintaining a steady operation is the value-add.

There are occasions when a company may transform a context capability into a core or strategic capability. For example, hitherto for most retail businesses distribution and warehousing were context capabilities, but Walmart and more recently Amazon have made it their core capability to cut down the delivery times.

Similarly, for most companies “Design” was one of the functions, but in Apple under the vision of Steve Jobs and the leadership of Jonny Ive, Design is a strategic capability for Apple and a cornerstone of its stupendous success.

Note: Capstera offers several pre-built and customizable business capability maps to jump-start enterprise business capability modeling endeavors. Please check them out.