Why Business Capabilities Are Key in Business Architecture

In recent years, we have produced numerous blog posts, whitepapers, and webinars on the topic of business capabilities and capability-based planning. With this new blog series, we want to take you through this subject step-by-step and help you understand and apply this somewhat elusive concept of ‘capability’.

We don’t want to start bombarding you with definitions (although we will discuss the definition of this capability concept in a next instalment in this series), but let’s first have a look at some key challenges we see in our customer organizations.

Key Challenges

Many organizations struggle to make optimal strategic decisions, because they lack an understanding of the ‘big picture’ of their enterprise. They have challenges like:

It is difficult to assess global performance, rather than performance of local businesses and applications: Businesses often find it difficult to get an enterprise-wide perspective on business performance. An enterprise is made up of people, processes, information, and technology (both IT and operational), but it is often unclear how these assets contribute to business goals. This lack of alignment makes it difficult to assess performance of the organization against the strategic goals of the business at a global level.
Budgets are not unlimited and multiple initiatives compete for those budgets: Prioritizing investments is a complex task. Portfolios are often crowded with initiatives competing for limited budget, so how do we decide which initiatives will contribute the most to strategic goals? All too often, portfolio management is ‘decibel-driven’, where those with the loudest voices will get their projects approved.
Outcomes of individual projects do not always support common business goals: There are many change initiatives taking place at the same time, often executed using agile approaches, mostly in a fairly independent way. How do we make sure these initiatives stay aligned in with the goals of the business?

Business Architecture to the Rescue

As an architect or designer, you will of course know that any good design starts with the why, the purpose and desired effects of what you design. In designing enterprises, this purpose is captured in things like its mission statement and in its business model, in terms of e.g. the customers it serves and the value it offers them.

Next, you look at what your enterprise can or must do to achieve those effects. And only then will you design how you are going to do that. You don’t want to get bogged down in organizational or technical details when trying to understand what an enterprise does for its customers, for instance.

Designing this ‘what’ of enterprises is where the discipline of business architecture comes in. Business architecture has several important contributions to make:

It lets you accurately describe what the organization does and how it functions. This creates a common understanding of the enterprise for business and IT stakeholders alike.
It supports the alignment of strategic objectives and tactical demands, ensuring optimal strategy execution.
It guides and informs senior management’s decision-making process and contributes to the enterprise’s long-term success.

What is the ‘What’ of an Enterprise?

As mentioned, you need to understand and design what an enterprise can and must do to fulfil its mission, before diving into the organization structure, business processes, IT systems, and other implementation aspects. This provides the ‘big picture’ needed to deal with the challenges above: First, get away from organizational politics and technical limitations and look at the essence of what is needed.

This is where the concept of business capability comes in. Business capabilities are used to describe the abilities of an enterprise, i.e., what it is able to do, independent from implementation. Looking for example at a bank, there they do pretty much the same things today as they did 100 years ago. So you could say that the set of business capabilities is pretty much still the same. But how they do it is very differently today, especially the last few decades driven by technological advances.

Moreover, you can use capabilities not only to describe what the enterprise does today, but also to design the abilities it needs to have tomorrow. And you might even discover new capabilities you didn’t even know your enterprise had. Maturing existing, or even building new capabilities is where the concept of capability-based planning comes in, and provides a structured, and balanced approach to support an organizations strategic planning cycle.

This differentiates business capabilities from concepts like ‘business function’ which is more focused on day-to-day operations, on what the enterprise does rather than what the enterprise can do (or can do better); what it can do of course includes what it does today, but it also describes its potential. This is what makes it especially relevant in strategic discussions.

The Concept of Business Capabilities is Cross-functional and Cross-organizational

Capabilities are not tied to specific departments, functions, or roles in the organization. Rather, what gives you a capability is the combination of various people, processes, technology, information, and other resources, from across the entire enterprise.

This also makes it a notion that is very much focused on collaboration. Different parts of the organization together provide your enterprise with its capabilities, and possibly this collaboration even stretches beyond the borders of the organization, including partners in its ecosystem.

In the next instalment in this series, we will look more closely at the capability concept, how it can be defined, and how it differs from other concepts in business and enterprise architecture. Stay tuned!

To learn more about business capabilities, download the Whitepaper: From Strategy to Execution with Capability-Based Planning.