Business Capabilities: How to Identify, Define and Leverage Them

Over the last 40 years, IT has evolved from being a company’s support function to becoming the core of many businesses. This is inevitable living as we do in the digital age where data in all its different forms is traded and processed at breathtaking speeds. For organizations to make full use of all the technology at their disposal, they need to have clear strategies that align IT with the overarching organizational goals for the business.

The key to doing this effectively? Defining and leveraging business capabilities. Mapping out an organization’s business capabilities provides critical oversight into the present state of the company and also how to proceed into the future.

Building Your Business With Your Business Capabilities

To cut through all the jargon, modelling business capabilities is simply a way to get an understanding of what a company does and can do. It’s a great method of pinpointing gaps and redundancies within an organization, identifying pain points, and prioritizing where to focus resources. By defining a business’s capabilities, you identify where your organization is and where it needs to be to ensure it can adapt to current trends and future changes.

So What Are Business Capabilities?

One straightforward definition of business capabilities is the activities or abilities that enable an organization to achieve specific goals or objectives. Some common high-level business capabilities that most will be familiar with are:

• General accounting

• Corporate communications

• Recruitment and hiring

• Financial management

• Product development

These high-level capabilities can be further broken down into more specific sub-capabilities. It is important here to note that capabilities may sound like organizational structures and specific teams, but they are actually decoupled from the “who” and “how,” focusing only on describing “what” an organization can do. The organization’s technology is part of the “how,” and organizational structure informs part of the “who.” It is also important not to confuse business capabilities with business processes, although they can deal with the same type of information. Business processes are logical sequences of activities for a specific outcome, while business capabilities are logical groups of activities around a common resource or information type.

Business Capabilities: The What in the Organization Without the How

To tackle the question of “What are business capabilities in my organization?” you should start with answering: What are the tasks that are needed to keep this business going?

For example, let’s say a company needs to know how much it will earn at the end of the month after tax. The capability for this is identified as “Monthly Net Revenue Management.” Note that the capability describes the what, not the how (e.g., which digital tools or systems to use) or the who (e.g., which team or department would be responsible for it). These details will come in later in the process of business capability modeling.

It’s important to remember that while tools may change over time, a company’s objectives will almost always stay the same. So by separating the what and the how, a capability model can enable any future change or transformation to be more streamlined.

Know Which Capability Is Which

Before starting to assign business capabilities to teams in the company, you need to first determine what function these capabilities will serve. Business capabilities can be broadly divided into three types:

• Core: Capabilities that are necessary for the organization’s primary value chain for products or services.

• Supporting: Capabilities that are necessary for the organization to operate but are not directly related to creating value for customers.

• Strategic: Capabilities that are necessary for the organization to plan, develop strategy, and execute change.

For example, if you have a product, and the objective is to get this product from the drawing board to customers. The business capabilities involved in that are core capabilities.

There is always more to running a business than just serving the customers. The business has to be able to manage itself by managing budgets, attracting and hiring new talent, maintaining relationships with other businesses, and much more. None of these things directly affect the customer, so these are supporting capabilities.

An organization also needs the ability to monitor and influence its position among its peers, so capabilities such as market analysis and strategic planning are categorized as strategic capabilities.

Dividing capabilities into these three buckets will help management and key decision-makers better analyze where to invest and what the different impacts may be for stakeholders.

Setting the Foundation Through Your Business Capabilities

A business capability map is a lot like a jigsaw puzzle, with all the capabilities making up the pieces. With adequately defined capabilities, you can get an excellent overview of the picture you’re trying to build.

To make a business capability model even more valuable, an organization should also look to map its technical capabilities. This will provide insight into what IT systems a business has and how technology supports or enables business goals and objectives.

Quick Takeaways on Business Capabilities:

• Through digital transformation and increasing IT demands, business capabilities must align with IT at scale.

• Identifying necessary business capabilities will allow you to maintain focus on fundamental business goals.

• By dividing your business capabilities, you will gain oversight into different budgetary scenarios and their potential outcomes.