What are Business Capabilities and why are they important?

The theoretical definition of Business Capabilities is actually quite a simple one as the term refers to the core functions that a business undertakes. For example, a real estate company buys and sells properties, manages rentals, often has a finance division arranging mortgages, and so on.

What Business Capabilities do not define is how these functions are performed. In our example, Business Capabilities does not cover the application used for marketing properties on the internet or the institutions that can supply finance for a purchase.

The processes, systems, departments, and information an organization uses to realize its business capabilities will change over time but the underlying business model, the Business Capabilities, change far more slowly.

Defining, clarifying, and documenting the Business Capabilities of an organization gives it an understanding of its actual business, and, importantly, the business structure needed to support modernization, expansion and digital transformation. Once defined, the Business Capabilities become the enabler for other use cases that, once adopted, will make a business more competitive.

Business Capabilities are the building blocks and language of the organization’s business value streams and business processes, with each capability having a clear outcome. They are the enabler for the business to develop through application rationalization, budgeting, mergers and acquisitions, and so forth.

How are Business Capabilities categorized?

Business Capabilities themselves are defined for each business, as every organization is different. Each capability is unique for the business and is based on the information that it needs, uses, and processes. However, industry-specific reference model capability maps have been defined and can be used as an appropriate starting point. Examples of these include TMForum for Telecom, BIAN for Banking, and multiple Business Architecture Guild industry reference models.

Identifying, naming, and clarifying each capability not only determines the services provided by the business but also creates a common framework and structure that all parts of the company can understand.

Business Capabilities can usually be categorized in terms of Strategic, Core, and Supporting capabilities:

  • Strategic: Capabilities that set the direction for the organization, understanding environmental and market opportunities and challenges, defining the direction of travel and objectives, planning changes to operating models and IT provision, funding and prioritizing change initiatives, and tracking them to completion.

  • Core: Capabilities that define the organization's proposition to the market, defining its products and services, promoting them to the market and potential customers, setting up partnership and supply channels required to establish a business ecosystem within which to operate, provisioning, and servicing those products and services, and maintaining the ongoing relationship with clients and customers.

  • Supporting: Capabilities required to support the ongoing operation or trading of the organization, through the management of finances, the provision of resources, the operation of Information Technology, and the ongoing control and governance of relations between the organization and the social environment it operates within, as well as the management of risk and provisions to ensure its continuing operation.

Supporting capabilities, although critical to the organization's operations, are not generally perceived as being core to its core generation of value, and are likely to be classified primarily as cost centers rather than profit centers.

Because organizations can be large and complex, capability models can also be large and complex. The normal way of dealing with this is to build the models as hierarchies, with the top level being broad-brush generalized descriptions of major functions or activities, and the lower levels describing those activities in progressively more detail.

A high-level capability might be Finance, which consists of a number of sub-capabilities that describe in more detail the activities that make up the Finance Capability. For example, Payroll, Tax Management, or General Accounting; and each of those will, in turn, have sub-capabilities. For example, General Accounting will have sub-capabilities such as Project Accounting, Investment Accounting and Reporting, and Accounts Consolidation.

Using a hierarchical model allows for structured capability definitions that show relationships and dependencies with typically three or four levels offering sufficient detail.

A set of identified and defined Business Capabilities is referred to as a Capability model.

An Architecture function is typically the driver for the creation of the Capability model. They will use their experience, processes, reference capability models, and engagement with relevant business personnel, to build the capabilities and overall model. Once defined, EAs will remain as stewards of the model, ensuring that it is maintained and updated on an ongoing basis.

Our Business Capability Realization use case provides an out-of-the-box module, based on our best practices, to show how a capability is implemented.

What are the benefits of Business Capabilities?

The key benefits that a business will get from defining its Business Capabilities include:

1) Business clarification

To create a clear definition of what the business actually does and to identify what it wants or needs to do in the future.

2) Common language

Business capabilities are often described as a bridging language between business and IT. But just as often they are a bridging language between one department and another.

Defining a common language through the use of Business Capabilities corporations will ensure a standard understanding of the business, removing potential conflict, minimizing duplication of work, and saving cost.

It is the common language that is the key enabler for the business as it allows you to perform, for example, Business Capability Realization (BCR). BCR provides the lens on the application landscape that allows for the identification of inefficiencies and duplications within the business model. This in turn leads to application rationalization, streamlining, standardization, and cost savings.

A well-defined set of Business Capabilities enables a business to respond more quickly and efficiently to changes in its business caused by growth, mergers, acquisitions, or new legislation, and to assist with budget planning.

Summary

Companies are striving to grow and modernize, and want to digitally transform themselves in an ever-changing landscape. To enable this digital transformation the business needs to create its Capability model.

The model comprises a set of Business Capabilities, where a Business Capability is simply a core service that is either provided or required, by the business.

The Business Capabilities need to be clearly identified and defined, often in a hierarchy, using recognizable language that is familiar across the company.

However, defining Business Capabilities alone will not provide any business benefit. These capabilities are the enabler for the business to flourish, providing a focus for application rationalization, budget planning, mergers and acquisitions, and many other strategic activities.

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