Business Capabilities: Introduction and Benefits

From SMBs to Enterprises, national to global, digital transformation is a necessity for all companies that want to remain competitive in fast-evolving markets. Implementing digital transformation across an organization is a long and intensive process that brings consequences and impact for the entire organization. That’s why a clear strategy and a structured approach are crucial for success.

So, how can you balance change with structure? And where should you start? It all begins with understanding your business capabilities.

In this blog post, we'll introduce the fundamentals of business capabilities and the benefits of using a business capability model for a successful digital transformation. 

What are business capabilities?

Business capabilities are lasting, cross-domain or function elements that play a role in realizing various business objectives. All businesses, large and small, function with a set of interacting business capabilities. In modern enterprises, capabilities are numerous, complex, and highly interconnected.

According to the Open Group’s standard architecture methodology, TOGAF, a capability is “an ability that an organization, person, or system possesses". They are typically expressed in general and high-level terms and require a combination of organization, people, processes, and technology.

Examples of business capabilities include:

• Recruitment 
• Pricing
• Risk management
• Product design.

Why are they called building blocks? 

Business capabilities represent the various activities a company performs to deliver value - through products, services, or customer experience. You can, therefore, imagine them as distinct building blocks that make up the entire structure of the business.

They can be split into several groups:

• Hard capabilities (e.g., manufacturing, invoicing),
• Soft capabilities (e.g., innovation, employee training),
• Core capabilities (e.g., software development), or 
• Contextual capabilities (e.g., lead qualification, brand awareness).
  

No matter how you label them, it's important to define and map your business capabilities to understand how the company executes and achieves its goals.

When defining capabilities, you should think about what the organization needs to be able to do to be successful. At this stage, it's not yet important to understand which resources it requires. The capability answers the “what” question and leaves the “how” question for later. 

Business capability guidelines

Use the following questions as guidelines for identifying and differentiating your business capabilities: 

1. Is it a capability or a process?

Focus on defining what the organization needs to do, not how it does it. A capability states the goal, while a process explains the people, technology, and resources involved. For instance, creating a financial dashboard is a process. But financial management is the business capability.

2. Is it clearly defined?

Business capabilities should be easy to understand for all teams – from technical experts to business leaders. Be sure to assign clear definitions so your business capability model stays useful and relevant over time.

3. Does it have an intended result?

Capabilities should be measurable and have a clear result. For example, communication with a customer is not a capability because it does not have a clearly defined outcome. However, customer information management (which includes customer communication) would have the intended result of a customer accessing up-to-date account information. 

4. Are you focusing on the definition or strength?

No matter how well it's performed, a capability can be labeled as one if the business can and does perform that activity. When starting, be sure to define what the capability is first, and focus on assessing its strength later. 

Building a Business Capability Model

Identifying business capabilities alone does not yet give you real insight into the entire functioning of the business. To see the full picture, you should aim to create a Business Capability Model. This will give you a structured view of the capabilities, including their relationships and hierarchy. 

If you're an Enterprise Architect, you know the importance of demonstrating the value of Enterprise Architecture (EA) to stakeholders. The Business Capability Model is key for telling this story in a clear and simple way. You can use it to connect the architecture to strategic capabilities, and place transformation projects in a business context.

Let’s consider an analogy to help illustrate the concept. A construction plan describes what a new neighborhood or building should look like. Similarly, a Business Capability Model describes how an organization will ideally look and operate through its constituent parts. 

Business Capability Model example in BlueDolphin

Benefits of a Business Capability Model 

A Business Capability Model provides an overview of what is important to the business. They offer the following benefits: 

1. A shared language

The model can be used to communicate transformation projects in language that all stakeholders understand.

2. Clarity for strategic priorities

The model helps with prioritization of process and system improvements by linking them to critical or strategic capabilities. This provides a powerful visual tool that facilitates decision-making.

3. An accurate assessment of transformation projects

Mapping transformation objectives to capabilities provides a more complete and accurate picture of the true scope of the project.

4. Transformation without disruption

Rather than disrupting existing analyses and projects, the business capability model enables organizations to connect and expand on insights. This will help you get stakeholders on board and accelerate transformation across functions.

Of course, this is a high-level overview of the many potential benefits of using a business capability model. But essentially, it should serve as a foundation for numerous digital transformation projects, including Application Portfolio Management, Business Process Management, and Project & Portfolio Architecture.

Taking the next steps

Business capability mapping is more than just a tool - it's the foundation for planning effective digital transformation initiatives. By modeling your organization's capabilities, you can create a shared language to ensure strategic clarity and prioritize transformation efforts without disrupting ongoing projects. Whether you're aligning IT with business goals, driving operational efficiency, or planning for the future, business capabilities provide the structure to drive efforts in the right direction. 

Ready to take the next step? Download our free ebook, "Business Capability Mapping: Strategies for Transformation Planning", and discover practical frameworks and proven strategies to accelerate your transformation journey.