Organizations are changing fast.
As digitalization, automation, and analytics transform both your organization’s operational model and the products and services it brings to its customers and communities, you need a business planning tool that can enable that change.
A tool that is able to generate insight into current operations and adapt to new missions. A tool to unify your understanding of people, process, technology, and information to enable truly integrated business planning.
The tool to enable this? Business capabilities.
Here we’ll go through the first three of our best practices to define business capabilities, show examples of how this can work, and explain why these principles will set your organization up for success.
Business Capability Modeling: The Building Blocks of Your Organization
Business capabilities are a simple but powerful method for understanding not just where you are but also where you need to be. They are a way of creating a common language to improve cross-departmental understanding of your organization and a lens for creating answers to a host of critical business questions including:
- Where do I need to invest in people and technology?
- Where do I need to manage business and technology risk better?
- Where do I need to drive innovation, and where do I need to commoditize?
Before answering any of those pressing questions, define your capabilities and the business capability model for your organization. It is helpful to first understand how business capabilities are put together, regardless of whether you choose to use one of Ardoq’s best practice models, an existing standard, or go your own way.
Here are just some of our best practices for defining a business capability model that drives real value for your organization. To get the full guide, download our 6 Best Practices for Defining Your Business Capabilities.
1: Define Your Business Capabilities by What Is Done, Not How It’s Done
Definitions are important ways of framing any exercise so it might be a good idea to begin with clear definitions of what we mean when we talk about business capabilities and a business capability model.
Business capabilities are a list of the activities an organization carries out, or needs to be able to carry out, to conduct its business. A business capability model is an abstracted model of the business and its operations. Abstracted means that it describes what needs to be done without saying how these things are done in the business. When defining business capabilities, it is important to exclude all references to specific applications, technologies, business products or channels, people, vendors, or projects.
The separation of what the business can do and how the business is able to do it is crucial for understanding transformation. The “what,” which is essentially an organization’s core business model, changes very slowly. The “how,” which is processes, systems, and departments your organization uses to realize those business capabilities, will definitely change much faster over time. By decoupling the “what” from the “how,” you can ensure the model’s ongoing relevance and maximize the insight you will get out of it.
At first, it may seem like you’re discarding a lot of valuable information, but this information will be captured. Instead of building it directly into the business capability model, it will be modeled separately and linked back to the model later.
2: Divide Your Business Capabilities Between Core, Supporting and Strategic
Your organization’s primary operations are made up of one or more value chains that create products and services. The capabilities that underpin those value chains are what Ardoq calls core capabilities. In effect, they are the main reason your organization exists.
The organization also needs the ability to run itself. These activities, such as recruitment and accounting, don’t directly create value for customers but are a necessary prerequisite of running an organization. These can be defined as your organization’s supporting capabilities.
Finally, your organization must also be aware of its own market, communities, and its performance within them. It needs the ability to set direction, and to plan and execute the changes that will move it to where it wants to be. These are the organization’s strategic capabilities.
This simple separation of capabilities into core, supporting and strategic divides the model into manageable portions. This separation also enables business and IT planners to understand how investment in different business capabilities drives different outcomes for customers, employees, and sponsors or investors.
3: Center Your Business Capabilities on Information, Not Processes
Center your business capabilities on information, but what does “information” refer to? Broadly, information can be categorized into three major types:
- Structured Information (e.g, customer account record in a database)
- Aggregated Information (e.g, sales trend analysis from business intelligence dashboard)
- Unstructured Content (e.g, press releases, training videos)
With this understanding of information, we can start to pull apart the key differences between business processes and capabilities and clear up this common area of confusion.
Business Capabilities: Examples of How They Differ From Business Processes
Business processes are the de facto language of business operations. Business capabilities are the building blocks of your organization’s business value streams and business processes, but business capabilities are not processes themselves.
Business processes are logical sequences of activities that delivers a defined outcome, typically in response to a common event. While business capabilities are logical groups of activities. These activities are usually grouped by a common resource that they access, such as a particular type of information.
As you can see in the example above, different business processes carry out the same activities and hit the same information at different times. So building a business capability model around processes and not information would lead to many duplicated activities. This makes it a poor foundation for analyzing business and IT efficiency.
However, business capabilities are de-duplicated, so they serve as an efficiency benchmark for an organization’s business processes and IT systems. They are also modular, so they can be recombined to build new operating models, products and services.
It’s this componentized nature of business capabilities that makes them so powerful.
Next Steps to Gain Value from Your Business Capabilities
Don’t make the mistake of thinking that once you’ve defined your business capability model, you’ve finished the job. Now you must use it to provide answers to business questions around cost, investment, risk, and much more.
The good news is, once defined, most of the hard work is done, and now you can reap the rewards. Business capability models change slowly, so the model can generate value for years to come. Even though technology evolves at a bewildering pace, the core truths about the business stay constant.
It’s this ability to represent stable core truths about your organization among the confusion of change that business capability models derive their true power.
Don’t stop here, read about all 6 Best Practices for Defining Your Business Capabilities to build a solid foundation that will connect systems, processes, and people in your organization.
These best practices help frame the foundational work for defining business capabilities, examples of how they should be structured, and what to avoid. If you’re looking for a reliable recipe to kickstart business capability modeling for your organization, Ardoq’s Guides combine years of domain expertise with customer feedback. We’ve formulated best practice approaches to ensure swift execution and tangible value. Our Guides for Business Capability Modeling and Business Capability Realization can help you with:
- Facilitating collaboration between business and IT to better manage costs and risk
- Understanding how the business operates in practice
- Clear documentation on who the experts are in the organization for key capabilities