Capability-Based Development

Handbook

Document information
Version 1.0
Status First version
Created 2022-12-30
Modified 2023-03-24
Author Eero Hosiaisluoma
Capability-Based Development
Handbook

Table Of Contents
1. Introduction 3
1.1 Purpose And Scope 3
1. Business Capabilities - the DNA of an organization 3
1.2 "Stable from the outside, versatile from the inside" 4
1.3 Anatomy of a Business Capability 4
1.4 Business Capabilities - Key Components of the business 5
2. Business Capability Map 7
2.1 Capability Map Levels 1-n 8
2.2 Value Streams and Business Capabilities 10
2.3 Value Stream-based Capability Map 10
3. Capability-Based Development 12
3.1 Capability-Based Functional Decomposition 12
3.2 Starting the Capability-Based Development 13
3.3 Executing the Capability-Based Development Approach 14
3.4 Development vs. Planning 15
3.5 Business Capability Characteristics - how to identify business capabilities? 16
3.6 Business Capability Definitions 17
3.7 Business Capability - Business and IT together, and more... 18
3.8 Changes in the Organization are changes to its Business Capabilities 19
3.9 Business Capability misconceptions 20
4. Business Capability Views 21
4.1 Business Capability Canvas 22
4.2 Behavior and structure 24
4.3 Business Capability and Resources 25
4.4 Business Capability Modelling 26
4.4.1 Business Capability Canvas Example 27
4.4.2 Additional diagrams 28
4.5 Business Transformation Roadmap 30
4.6 Capability Transformation Roadmap 31
5. Business Capability-Based practical approach 33
5.1.1 Goal Analysis View Method 34
5.2 Goal Analysis View Method - an extended version 34
5.3 Paradigm shift to Value Stream- and Capability-Based approach 35
5.3.1 Considerations 35
5.3.2 Value Stream and Capability-Based approach 36
5.3.2.1 Development perspective 37
5.3.2.2 Operational perspective 38
5.3.2.3 Management perspective 39
5.3.2.4 Organization structure perspective 39
5.4 Value Demand, Value Stream & Business Capabilities 39
6. Summary 42
7. Reference material 44

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7.1 Extra material 44

7.2 Additional material 44
7.2.1 BIAN - Banking Industry Architecture Network 44
7.2.2 IT4IT 45
7.2.3 IT-CMF 45

1. Introduction
1.1 Purpose And Scope
This document introduces the Capability-Based Development approach for developing an organization.
This document is a living document, it is continuously updated. The latest version can be found from the blog site:
https://www.hosiaisluoma.fi/blog/capability-based-development/

1. Business Capabilities - the DNA of an organization

Business capabilities represent WHAT an organization needs to fulfill its mission and execute its business.
Capability-Based development is an approach that
focuses on business capabilities. Not solely business or
IT, but them both together, as business capabilities
contain all the operational elements of an organization.
Business Capabilities are high-level abstractions of
organizational properties, organization-level business
activities or business features that are needed for an
organization to do its business. As such, business
capabilities are the basic building blocks, from which an
organization is made of. Business capabilities
altogether are the core of the business, the DNA of an
organization.

Business capabilities represent WHAT an Figure 1: Business Capabilities – the DNA of an

organization needs to fulfill its mission and organization.
execute its business.

● The mission refers to the existential fundamentals of an organization, to motivate its purpose: why the
organization exists, what are the reasons for being, and what are the strategic goals.
● The business refers to the operations by which the organization performs its business model.
● A business capability describes what the business does and should not be confused with just the skills or
competencies of the people [Chuen Seet].

Figure 2: Business Capabilities are the basic building blocks of the organization.
Note! Business capabilities are nothing new or something extra. Business capabilities already exist in the
organization, even though we don't talk about biz capabilities or we haven't visualized them. Business capabilities

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are behavioral things we already have in place in the organization, anyway. It is just that business capabilities can
be identified and their content can be harvested and made visible. Then they can be used as basic building blocks
of business operations, business development and business management.

1.2 "Stable from the outside, versatile from the inside"

As business capabilities represent the business, they are relatively stable by their nature. Business capabilities
won't change frequently. They stay the same as long as the business remains the same. New business capabilities
are created in the organization when a new business is created or when the existing business changes so radically,
that it cannot be managed by the existing business capabilities. By contrast, the content of a business capability is
subject to continuous change and evolution (volatile in a positive way). The elements of a business capability may
change quite often. The operational elements such as services, processes or applications may vary quite often
within a business capability. For example, new or modified services may exist according to the continuously
changing customer needs, and new or better ways of doing things may raise as the operations evolve over time.
Business Capability - constant by nature,
though subject to continuous change and endless evolution internally.

1.3 Anatomy of a Business Capability

Figure 3: The anatomy of a Business Capability.

Business capabilities are behavioral organization-level entities. They are units, that can be managed, developed
and operated as a whole. They are realized by the resources of the organization.
A business capability is composed of concrete, operational-level elements as shown in the figure beside. These
elements are both behavioral and structural by nature. Behavioral elements are as follows: business services
and/or products, business processes and -functions, and application services. Structural elements, the resources,
are as follows: business actors and -roles, applications and information.
It is worth noticing, that these elements from which a business capability is made, are the very same elements that
characterize the whole organization. This is natural, as a business capability is a fragment of the whole business.

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Based on the behavioral nature, the very core of a business capability can be characterized by the business
processes and/or -functions. Consequently, a business capability is typically built up around a process, a
performance, a capacity of doing something and producing desired outcomes. By default, this behavior is
something that needs to be done - according to the strategy and business model of the organization. Commonly
this behavior is directed to information of some kind. So, a business capability is a coherent business component,
that is a composition of elements belonging together, based on certain cohesion criteria.
A business capability is a behavioral, coherent business component,
that is a composition of elements belonging together, based on certain cohesion criteria.

1.4 Business Capabilities - Key Components of the business

The business capabilities are in the middle of organization design and development. They are central, key
components that bridge the gap between strategy and operations. They are at the right level of abstraction to
define the business at so high-level, that the business model can easily be understood by the management (C-
level). In addition, the business capabilities are the right level of abstractions to be enough detailed and low-level,
so that they can be interpreted and agreed by the operational personnel.

Figure 4: Business Capabilities in action.

Business capabilities are in the intersection area, they are where strategy meets practice. Business capabilities
represent the linking point where the strategic goals and the business mode are translated into real-world elements
of the operating model.

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Figure 5: Abstraction levels of organization development.

Business Capabilities are useful and valuable concepts to share the common understanding of the development of
the organization. A business capability is the crossroads, an intersection of business development aspects of an
organization. This illustration below highlights the focal role of capability in the middle, as it interprets the strategic
goals and business model to the practice: to the operating model (which defines the operating context and reflects
the operational business of the organization).

Figure 6: Role of a business capability as a central, focal component.

Business Capability defines what an organization does at a high abstraction level.

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2. Business Capability Map

When harvesting the business capabilities of the organization, it is practical and useful to place the capabilities into
a visual business capability map. The business capability map makes all the capabilities visible, so that they can be
discussed, evaluated, agreed, committed and shared - throughout the organization, from the management to the
operational levels.
There are several ways to create a business capability map, some of which are introduced here. A basic form is
based on categories into which the capabilities are positioned based on their role: a) management, b) core
business or c) supporting. Another way is to connect capabilities to the value stream. The value stream-based
capability map is somewhat more informatical than the basic form, as the value stream makes it visible and
illustrates the reason why certain business capabilities are needed, and what is their role in the overall business, in
the end2end flow of activities.
A business capability map shows the organization on one page. The structure of a Business Capability can be
divided into groups (aka tiers) as follows:

● Business Operations, this contains the core operational (operating) business capabilities (incl. customer-
facing capabilities, used by customers)
● Business Support, this contains the capabilities that enable the core business
● Business Management & -Development, contains the capabilities that direct the change of the business
(incl. planning-, transforming- and dynamic capabilities)

An example basic structure of a business capability map is shown below.

Figure 7: An example structure of a Business Capability Map - the basic form.

Note! In this context, management refers primarily to business management, managing the business, setting
strategies, making business decisions and directing the business and its changes, or in other words, managing the
"behavior": what the organization does now and where it is going, and why the business is what it is. Thus,
management focuses on a) running the business and b) changing the business. Therefore, managing the
personnel (staff), a.k.a. leadership, in the operations by command and control, is not the case here.

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2.1 Capability Map Levels 1-n

Capability maps can be created in different granularity levels, depending on the "size" (depth and breadth) of the
business. For example, level-1 defines the business capabilities at a high(est) level, so that the business can be
easily understood and communicated, also with the top management (C-level). Level-2 defines the business
capabilities at a detailed level, so that all the relevant atomic business capabilities can be identified. From level-2 it
is easy to continue to the actual, operational level elements such as services, processes, actors, data and
applications.
In addition, it is common practice to create heatmaps of the capability maps to highlight some features of the
business capabilities. Heatmaps can be created based on certain criteria such as importance, status, complexity
etc. For example, the strategic capabilities can be pointed out by highlighting them with special color.
Business capabilities can be harvested, identified and classified into a table (figure below), in which they can be
shortly described. When harvested into a table, it is easy to create a visualization.

Table A: A table structure for harvesting and classifying business capabilities for visualizing them in a business
capability map.
This above-mentioned structure of the business capability map is aligned with the actual business as shown in the
figure below. All the business capabilities can be placed into certain dimensions of the overall business. Core
capabilities are necessary for business operations, some capabilities support the core business, and some
capabilities are needed to direct and change the overall business landscape. The latter category of business
capabilities is a kind of dynamic capabilities, as they are necessary for the dynamics: for managing the change
activities with which the organization performs, ensuring and controlling the changes that are needed for managing
the continuous change. These dimensions of business are illustrated in the figure below.

Figure 8: Business development dimensions, that are analogous to the categories of the business
capability map.

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Figure 9: Business Capability Map level-1 example.

High level-1 business capabilities can be defined in more detail at level-2 as illustrated in the example below.

Figure 10: Business capability mapping example: from level-1 to level-2.

In the capability map example above, the operational business -section consists of core operational capabilities,
that are required so that the organization can execute its business. The business support -section consists of
supporting capabilities that are needed for enabling the business. The business management -section consists of
capabilities for managing the business. As the business capability map describes the business, it is a practical
management tool.
Map. When we lay out elements (such as business capabilities) in a visualized diagram, within groups of certain
criteria, we call it a map. It is a visualized list of elements.
Heat Map. When elements are highlighted with colors based on certain criteria, we call such business capability
maps heat maps. We can create heatmaps from the capability maps with several different criteria, e.g. status,
complexity, and importance.

A business capability map - the organization on a page.

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2.2 Value Streams and Business Capabilities

Another approach for identifying the business capabilities is to connect them to the operational value stream. A
value stream explains why certain business capabilities are needed in the organization - why they exist. In fact,
capability-based development is actually value stream-based development. A value stream enables flexible
organizational structure and prevents silos.
A value stream defines the operational business, typically from the customer's perspective. A value stream and
related business capabilities define how an organization responds to the value demand of customers. A defined,
well-known and shared value stream with business capabilities is the best way to tackle failure demand, which is
caused by the poor quality of services. Good quality of services can be achieved with the business capabilities, as
they make it possible to deep dive into details of how the organization operates when performing a certain
behavior. (Specific organizational behavior = business capability). Capability assessment is a tool for analyzing
how an organization responds to value demand. As an implication of that, capability assessment is a tool for
preventing unnecessary failure demand. Customer value demand is the starting point, and customer insight is an
important aspect to get a better understanding of what customers really need. From where customer demands
come from.
Customer Insight, understanding of the value demand + Business Capabilities, responding to value
demand = Value Stream, putting all together.
The value stream consists of value stages, into which all the operational business capabilities can be connected as
shown in the figure below. Value Stream and business capabilities represent the actual business. They are the
business.

Figure 11: Value Stream, Value Stages and related Business Capabilities - an overview of the organization.

A value stream enables and encourages flexible organizational structure and prevents silos.
A value stream explains why business capabilities exist in the organization.
A value stream defines how an organization responds to the value demand of customers.

2.3 Value Stream-based Capability Map

An example value stream-based capability map is shown below.

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Figure 12: Value Stream-Based Capability Map.

Yet another capability map view is shown in the figure below. This version is applied from the Milky Way Map
concept, the great book by Cecilia Nordén [link to Amazon] (more details here). This view is based on the value
stream, which is shown in the inner circle. The value stream is divided into sectors, each of which represents a
certain value stage (of the value stream). Business capabilities are positioned in those value stage sectors. In
addition, business capabilities are connected with information flows. In practice, these flows are data flows between
applications and/or actors and/or processes.
Note! The customer journey can be illustrated on the top of the diagram, as the outer circle. The customer journey
links the business capabilities with the customer via business services, that are included in the business
capabilities. This visualizes which are the customer-facing business capabilities.

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Figure 13: Applied Milky Way Map as a Business Capability Map.

A customer journey illustrates which are customer-facing business capabilities.

Value Stream and business capabilities represent the actual business. They are the business.

3. Capability-Based Development
3.1 Capability-Based Functional Decomposition
The Capability-Based Development approach is a view of the organization. It focuses on business behavior. The
whole business is divided into logically coherent behavioral parts, into business capabilities as shown in the figure
below. This is so-called functional decomposition of the whole organization.
A business capability is the most comprehensive concept to define those "behavioral business things", that have to
be in place so that the organization can run its business and produce wanted outcomes. By splitting the business
into business capabilities, it is practical a) to operate the business, b) develop the business and c) manage the
business.

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Figure 14: Capability-Based functional decomposition of an organization.

There can be other ways to divide business behavior, such as business services, -processes or -functions. Or,
there can be organization development styles that divide the organization, not by behavior of any kind, but based
on organizational units, divisions, groups etc. But there is no other comprehensive, all-round concept than the
business capability.
The Capability-Based Development approach divides the business into logically coherent behavioral
parts, that can be operated, developed and managed.

3.2 Starting the Capability-Based Development

When starting the business-capability-based approach, first the business capabilities have to be identified, then it is
recommendable to document them, and evaluate their status (with some criteria), and finally, it is possible to create
a development roadmap. This approach is illustrated in the figure below.

Figure 15: Steps to start the business capability-based development in an organization.

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The capability-based development approach is a journey. It requires certain steps to be taken for achieving higher
maturity and getting the most applicable benefits out of business capabilities: e.g. better insight into the business
and fact-based knowledge of the operational level elements for the overall development. This organization-level
collaborative learning path is an advantageous and rewarding joint effort. See the applied maturity levels in the
figure below.

Figure 16: Capability-Based development maturity levels.

Start the capability-based journey by identifying the business capabilities and documenting their content.

3.3 Executing the Capability-Based Development Approach

The idea behind capability-based development is crystallized in the figure below. Business Capabilities are
essential entities in the overall development of the organization's business.

1. The business strategy is executed via business capabilities.

2. The business demands are targeted to business capabilities, or in other words: all the demands are
evaluated against the business capabilities, as they contain all the operational elements that are subject to
change.
3. The business is run by the business capabilities, as they contain all the operational elements that are
needed to run operations.

Figure 17: The role of a business capability in Capability-Based Development - the continuous flow of
tuning the business.

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In this overall development, the business capabilities are crucial, fundamental concepts, as all (!) the demands can
be pointed to specific business capabilities. Why? How? Because business capabilities represent the whole
business, and all the operational elements are included in those business capabilities.

Figure 18: Business Capabilities - the crucial concepts in the overall development of an organization.
The business operations, the operational business is the beef. The simplified picture of the operational business is
shown below. The basic elements of all the organizations are as follows: the actual behavior is represented by the
processes, in which the personnel/employees work and handles information (data) with the applications -all this is
provided as business services to the customers.

Figure 19: Business Capabilities compose all the relevant elements of daily business operations.
Business development can be organized around the development value stream, "idea to production" (according to
Lean EA).
Business operations are the most important.
They can be managed and developed by Business Capabilities.

3.4 Development vs. Planning

Business Capability-Based Development (CBD) is analogous to the Capability-Based Planning (CBP) concept, with
a substantial difference: development is wider in scope, as it refers to business operations, business development
and business management of the whole organization. So capability-based development approach can be utilized,

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not only in case of planning the changes, but also in executing the business operations and managing the whole
business.
The overall development of an organization covers, when thinking broadly, the whole development value stream
from demand management to business operations (from "idea to production", see Lean EA and LEAF and LEAD).
The overall development looks like a waterfall, but it has a built-in feedback loop as illustrated in the figure below.
This is a high-level abstraction of the overall development, that can be further defined in a detailed development
process.

Figure 20: Development of an organization.

Capability-Based Development is an overall, holistic approach - not just planning - but managing,
developing and operating the business!

3.5 Business Capability Characteristics - how to identify business

capabilities?
A business Capability is a composition of elements that have something
in common. Typically a business capability is composed around certain
organizational behavior. Alternatively, a business capability can be built
around an information entity or concept. In any case, a business
capability represents some organizational behavior, which has an
attraction, "gravity", that brings related elements together. As a result of
this, the business capability represents a cohesive composition of
elements that cooperate to produce specific outcomes.

Considerations when identifying Business Capabilities:

● Business capabilities are organization-level

● Business capabilities are unique, there shouldn't be any
overlapping or redundancy Figure 21: Cohesion of elements
● Business capabilities are static, they rarely change (only when
composes a business capability.
the business changes)
● The granularity of capabilities is to be agreed, typically one or
two levels are enough (depending on the "size" of the business)
● Business capabilities define WHAT, so if you are defining HOW, you are most probably defining a process,
not a capability

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o All the behavior in the organization is not necessarily needed to be expressed as capabilities, but
perhaps processes that enable the capability
● Business capabilities are the most comprehensive concepts, as they consist of all the other concepts!
● Business capabilities are the highest level of business abstraction - "when we are already at the North
pole, we can't go north anymore"
● Business capabilities are to be agreed & committed with the management (C-level), as business
capabilities are their tools in the first place.

A business capability represents a cohesive composition of elements

that cooperate to produce specific outcomes .

3.6 Business Capability Definitions

There are several definitions of Business Capability, some of which are shown in the table below.

Table B: Business Capability Definitions.

Note! A capability describes what the business does and should not be confused with just the skills or
competencies of the people (actors and roles). Those things are managed under the are human resource
development, in HR capability of the organization.
Some definitions that summarize the fundaments of a business capability are shown below.
Business Capability is a behavioral element of an organization,
which is needed for executing or enabling the business.
Business Capability = cohesive composition of organizational elements that are meaningful as a whole
to the business.
Business Capabilities are actionable properties of an organization
Business Capability IS NOT skills or competencies -
they relate to actors, which are parts of a business capability.

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Business Capability defines what a business does.

3.7 Business Capability - Business and IT together, and more...

Figure 22: Business and IT. Inseparable.

Business capability combines business and IT aspects together. A business
capability consists of both business- and IT-related elements. There is no
need to make a distinction between business and IT when developing
something nowadays. Instead, it is reasonable that all the relevant things
can be analyzed at once. This is possible, as business capability covers all
(!) that is relevant to be considered within a behavioral thing of an
organization. Not solely the business, not the IT either, but them both.
Digital transformation (DX) or "digital firm" should consider not only
business and IT, but also the information aspect. Every business is a digital
business these days - data and information are at the core of everything.
That's why we should take them all into account when developing
something. It's about time to set the "I" free from the "T", information from
the technology (as nicely put by Ruben Sardaryan here). Figure 23: Business,
information and technology
aspects.
Now, to be more precise, a business capability covers business-,
information- and technology things altogether. They are different areas, but interrelated, and it is appropriate to
handle them together. They are complementary areas, they complete each other. Together they comprise a
comprehensive "whole", that is greater than the sum of its parts. A business capability is a way to consider all
aspects at once.
In addition, a business capability contains also all the applications that are needed to support the business
behavior (business processes, business functions).
So finally we can end up with the conclusion, that a business capability contains all that is relevant for performing a
certain activity, which is a necessary part of the overall business of an organization.
Despite the name "business capability", a business capability is a comprehensive entity, that consists of all the
required elements, not solely business elements, but also applications, technologies, devices, equipments, facilities
etc. as shown in the figure below. It is just that the 'business first' mindset should be the guiding light when
developing the organization. Not the product or service, nor 'digital first', but 'business first' thinking should be the
starting point. And to be more precise: 'customer-first' is where all begins.
With customer insight, an organization can get an understanding of what customers really need. Not just what they
want. Customer insight explains why value demands are what they are. Based on customer insight, an organization
has to know how to respond to customer value demand. What has to be in place to provide the requested value?
This can be done best with business capabilities, as they are the 'elements of everything'. Business capabilities are
tools with which we can link value demand to the resources of the organization: business capabilities are
components of the value stream, that link the business capabilities to the customer. So the 'customer-first' thinking
is existential by its nature in the context of an organization, as customer value is related to the reason for being for
an organization. Though, 'customer-first' and 'business-first' mindsets are tightly related to each other: they are
different sides of the same coin. Business development responds to the value demand, which is initiated by the
customer.

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Figure 24: Business Capability hexagon.

Data = Information Objects = Business Objects & Data Objects.
Business Capability = Business + Information + Applications + Technology.

3.8 Changes in the Organization are changes to its Business

Capabilities
A business capability provides all the relevant views to be considered at the same time. A business capability
enables many ways to consider what is important and meaningful. The same things that are relevant at the
organizational level, are also interesting at the capability level. For example, it is possible to consider from the
customer's viewpoint, what are the services. From the organization's viewpoint, it is possible to consider what are
processes, which actors are involved and what competence roles are needed, what information is handled with
which applications etc. These views are illustrated in the figure below.

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Figure 25: Business Capability Views.

Whenever new ideas and/or demands are to be handled in the development value stream of an organization, it is
practical to evaluate the demands against the business capabilities. This can be done by analyzing the changes
from different viewpoints (as shown in the figure above). There is, for sure, a certain business capability (or a few of
them), that is related to the new change request. All the changes in an organization are changes to its business
capabilities.
All the changes in an organization are changes to its business capabilities and vice versa.

3.9 Business Capability misconceptions

A business capability is behavioral by its nature. The behavior can be defined as a process or function. However, a
capability is not solely equal to a process or a function, which is quite a common misconception. A process or a
function corresponds to a series of activities belonging together, either a) a sequence of activities producing output
(process), or b) just non-sequential activities (function). Both are operating-level concepts, and business functions
are closely related to organizational structures (units, groups, teams etc.). A business capability is more than that.
The core of a business capability consists of behavioral processes and/or functions, but a capability also consists
of resources needed for the concerning performance. These resources are e.g. the business actors, applications
and information. As such, a business capability consists of two parts: 1) the behavioral part, the actual performance
and 2) the resources that enable the performance. All the relevant elements of a business capability can be defined
as a composition as illustrated by the anatomy of a business capability (figure below).

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Figure 26: Business Capability viewpoints: a) the business perspective and b) the resource-based view.
A quite common misconception is to associate capabilities with the skills or competencies of the people. Those are
not capabilities, but they belong to capabilities, they are parts of capabilities, as they are related to actors (of
capabilities).
Business Capability represents behavior that the organization can perform. Behavior can be defined as
business processes and/or business functions. They represent what is the action that is performed by
the business capability. The behavior requires an actor, the "doer". The actor uses applications for
handling data. The actor has some skills and competencies, these can be defined with business roles.
All these elements compose a business capability.

4. Business Capability Views

A business capability is a behavioral thing, which is realized by the resources. Business capabilities and resources
are strategic concepts, that can be used for strategic planning and business model creation purposes, in the first
place. However, as business capabilities cover all the operational level elements too, business capabilities can be
used as all-round, overall concepts of the holistic development of an organization.

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Figure 27: Business Capability is behavior that is realized by resources.

Figure 28: Business Capability realization.

A Business Capability is an organizational behavior that is realized by the resources.

4.1 Business Capability Canvas

The operational elements of a business capability can be defined within the capability canvas (figure below). That
is a template, with which the content of a capability can be placed for visualization purposes. The business
capability canvas is a simplification of the business capability as a concept: behavioral elements and resources are
defined & visualized in the same template.

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Figure 29: The Business Capability Canvas -template view.

In practice, all the elements can be harvested first with a table format with an appropriate tool (such as plain old
Excel or Confluence). When the elements are gathered, then they can be visualized with the capability canvas for
further discussions and development purposes. With the capability canvas, it is easy to communicate what the
capability is and what it contains, what are the resources needed etc.
Note! Also, the security aspects (threats, risks and control objectives) can be included in the canvas and visualized,
whenever appropriate.

Figure 30: The Business Capability Canvas with content.

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Customer View. All the business-relevant elements can be introduced in the business capability canvas, which is
a simplified representation of a business capability. In addition to the intra-organizational elements, it is also
possible to identify the customers and/or customer roles in the content area named "Business Actors & -Roles".
This extends the usage of the business capability canvas also from the inside-out aspect to the outside-in aspect:
to the customer view by showing which customer groups have some touch points with the business capability in
question.
Where a business capability map is a map of organizational elements,
a business capability canvas is a map of business capability elements.

4.2 Behavior and structure

An organization consists of behavioral and structural elements. This is the dualistic nature of an organization, which
actually eases development as all the elements are either behavioral or structural. That is the case also with
business capabilities.

Figure 31: Organization contains behavioral and structural elements.

Business Capabilities are combinations of business behavior and business structure, as shown in the figure below.
When analyzing the content of a business capability, it is practical to identify a) what is the actual behavior and b)
with which structural elements the behavior is realized.

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Figure 32: Capability and resources.

Where an organization is a combination of behavioral and structural elements,

so is a business capability too.

4.3 Business Capability and Resources

Capability analyses start by identifying the value stream (or value stream stage) into which the capability can be
connected. The value stream is the reason for being of the capability.

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Figure 33: Capability analyses.

Capability represents the behavior, which is realized by the resources as shown in the figure below. Resources are
implemented by operational elements such as business actors, information entities (business objects and/or data
objects) and applications.

Figure 34: Capability and resources.

4.4 Business Capability Modelling

Business capability can be modeled with Open Group ArchiMate standard notation by utilizing the business
capability canvas. With the business capability canvas, it is possible to make the content of a capability visible, so
that it can be easily communicated and further developed.

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Figure 35: Business Capability Canvas ArchiMate version - the business capability content diagram.
Modelling a business capability with this business capability canvas is an easy task to do within an appropriate
enterprise architecture modelling tool. From the business capability map, it is possible to drill down into a specific
business capability content diagram. From a diagram to a sub-diagram, from a map to an element.
Resources. When planning and developing business capabilities, for the sake of simplicity, it is practical to include
resources in the business capability (and not having resource -elements in the repository of the enterprise
architecture modelling tool). In this way it is easy to analyze and communicate what is the meaning of a business
capability, and how it is implemented. It is practical to visualize all the relevant elements together as a whole.
However, we might have good reasons to model certain things with the resource -element. For example, when we
are planning a new business capability, or we don't yet know or we don't want to go into details, then it is possible
to add the resource elements into the business model canvas content areas (though not suggested according to
ArchiMate standard). In such cases, we can add named resource elements such as "Customer-facing
Application(s)" or "Customer Support" without specifying what they actually are, or how they are to be
implemented.

4.4.1 Business Capability Canvas Example

As an example, the Claims Management business capability can be visualized in the business capability canvas as
shown below. This is a practical tool for communicating the contents of a business capability, harvesting the
elements, and sharing common understanding. As a result of the cooperation with the subject matter experts, a
business capability canvas can be created easily and exposed to the organization-wide discussion.

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Figure 36: Claims Management Business Capability visualized within the Business Capability Canvas.
It is valuable to make all the elements of a business capability visible so that it is possible to analyze what is
needed for such behavior in the organization. In this example above, even the technologies are shown, as they are
known (see the Layered View below). However, specifying technologies is not at the core of a business capability,
as underlying technologies can be changed without touching the other elements of the business capability (such as
processes or applications).
Note! When modelling a business capability canvas with an appropriate EA-tool, be aware that the realization
relations between the capability and the included (nested) elements have to be created manually, if the tool does
not create those connections automatically (like the Archi -tool does). Creating realization relations explicitly
between the elements is not a necessity, but it is important to enabling further analysis, and getting relations
automatically from the repository when creating new diagrams. In addition to the realization relation types, other
relation types, such as serving or flow, are to be created in other diagrams (such as Layered Views and/or
Cooperation Views).
A business capability canvas defines the content of a business capability.

4.4.2 Additional diagrams

In addition to the business capability canvas, it can be valuable to model the claims handling business behavior in
more detail. This can be done with the Layered View -diagram as shown in the figure below.

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Figure 37: Layered View of the Claims handling.

When analyzing business capabilities, some more detailed diagrams can be modelled. The capability realization
example view is shown below.

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Figure 38: Capability Planning View. A capability is realized by resources.

It depends on the case what is the most appropriate, useful and valuable documentation. Which diagram is to be
created first: a business capability canvas or a layered view? If there is no available documentation covering a
business capability, a good starting point is to gather the elements within the business capability canvas. Then,
when necessary, a layered view can be created. If there is a mature practice of enterprise architecture
management in the organization, there can be already plenty of diagrams created covering the organization's
business architecture. Then there might be a layered view, from which the elements can be picked up to the
business capability canvas. A business capability canvas defines the content of a business capability.

4.5 Business Transformation Roadmap

Business transformation / Digital transformation -programs/projects can be planned and executed with the help of
the capability-based approach. Such a transformation program can be expressed as an architecture roadmap with
transition architectures as shown in the figure below.

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Figure 39: Transformation roadmap.

A transformation roadmap with transitions defines which capabilities are changed in which phases.
A transformation roadmap can be linked with strategic goals, outcomes and requirements as shown in the figure
below. This view illustrates with which capabilities the goals are realized.

Figure 40: Figure 39: Transformation roadmap linked with goals.

4.6 Capability Transformation Roadmap

Capability increments within a transformation program can be illustrated in a more detailed manner as shown in the
figure below. This is an architectural roadmap, which contains all the relevant elements that are to be modified
within the transformation change program (or project).

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Each capability increment contains certain elements of the capability that are to be modified within the transition
phase. Those elements can be a) existing elements (such as processes or interfaces), or they can be b) completely
new elements or features (such as new functions, applications or sub-systems etc.).
High-level Capability Transformation Roadmap. This high-level capability transformation roadmap introduces
which changes are to be made at the enterprise architecture (EA) level. Elements are EA elements, that are
maintained in the EA tool of the organization.

Figure 41: High-level capability transformation roadmap.

Detailed Capability Transformation Roadmap. This level of detail connects Enterprise Architecture (EA) to
Solution Architecture (SA). This roadmap makes it possible to analyze what applications (a.k.a. systems, or
subsystems) are affected, which application functions and/or application processes (such as batch processing) are
involved, which user interfaces (GUIs) and/or app2app interfaces (APIs) are to be modified, which technologies are
used etc.

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Figure 42: Capability roadmap.

A capability roadmap is an architectural way to define

a detailed plan of incremental changes to a business capability.

5. Business Capability-Based practical approach

As business capabilities are high-level concepts, they are useful for the overall development of an organization.
Here is introduced a simple and easy approach to how to start with business capabilities. And when they are
identified and their content is modelled, they boost each and every development case whenever new business
demands arise.
A practical approach:

1. First, define the capability map

o It is a matter of choice to select and agree on the appropriate granularity levels.
o For example, typically two levels can be enough as follows: 1) level-1, at a high level, with
capability groups, and then 2) level-2, at a detail level, with atomic capabilities.
o Use heat mapping to point out the most interesting business capabilities (use criteria such as
importance, status, complexity etc.)
2. Then define the contents of the atomic business capabilities into business capability canvases
o The most important business capabilities first
o Start with the behavioral elements (processes), then add complementary elements (such as actors,
data and applications)
3. Then illustrate the roadmap of the changes to be implemented
o A roadmap can be created at the necessary level, e.g. a) for a large change program, at the
business / digital transformation program level, b) at the capability level or c) at both levels.
4. Then model necessary enterprise architecture and/or solution architecture diagrams to dive deeper into
changes to be made.
o Utilize the most valuable diagram types (link): 1) Layered View, 2) Cooperation View (a.k.a.
Information flows between actors, processes and/or applications), and/or 3) Conceptual Data
Model
5. When business demands are to be conceptualized, evaluate the changes against the business capabilities
o When creating a concept of business demand, utilize the following methods & tools:
▪ Goal Analysis View method
▪ Business Model Canvas
▪ Identify which capability/capabilities are affected, and provide architecture diagrams (e.g.
Layered View, Cooperation View, for more details see ArchiMate Cookbook)

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After business capabilities are documented, they provide a foundation for change demand management in the
organization. Whenever new change requests, ideas and demands occur, a practical Goal Analysis Method can be
used for analyzing the change effects on the organization.

5.1.1 Goal Analysis View Method

In all the development cases, it is important to analyze at least the following things: 1) WHY a change is needed, 2)
WHAT are the goals and 3) HOW the change is to be implemented. These things can be analyzed with the simple
goal analysis method as shown in the table below. The goal analysis goes from left to right by 1-2-3, it is as easy
as ABC.

Table C: Goal analysis view expressed in the table format. This can be easily implemented e.g. in plain old Excel
or Confluence, by adding new rows for each goal.
The basic facts of any development case, of any change demand, can be first discussed and listed in this simple
table format. First, the drivers are discussed: why we need something to be changed. Before doing anything, we
should understand and agree on what are the problems now. Then we can set the goals and finally identify the
concrete outcomes. This simple method is analytical and pragmatic. Its remarkable advantage is based on the
order of the questions: it forces us first to analyze problems in the current situation, and rationalize the reasons why
something needs to be changed. Then, only after the drivers are listed, it is beneficial to continue goal setting, and
defining the outcomes. Making all these aspects visible is important for motivation purposes: people like to see the
reasons so that they can orientate and commit. So let's start with why (as Simon Sinek has pointed out in his
famous TED speech, link).
This three-phased Goal analysis approach differs e.g. from the way how the OKR (Objectives and Key Results)
method, which two-phased approach, concentrates on objectives and results only. The main difference is
concerning the drivers of why certain goals & outcomes are needed.
The Goal Analysis Method is a simple approach to evaluate the basics of a business demand:
WHY, WHAT and HOW.

5.2 Goal Analysis View Method - an extended version

The advanced version of the goal analysis (table below) covers the overall end2end decision path from drivers to
business capabilities. By analyzing goals this way, it is possible to point out why and what business capabilities
need to be changed (or new business capabilities need to be created) in the organization. This method is a
practical approach for each change program (business transformation, digital transformation).

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Table D: Goal analysis method -extended view.

The goal analysis method forces us to analyze all the relevant aspects
from the reasons via the goals to business capabilities.

5.3 Paradigm shift to Value Stream- and Capability-Based approach

5.3.1 Considerations
The conventional Enterprise Architecture (EA) approach (e.g. Togaf) is based on architecture domains Business -,
Data-, Application- and Technology Architectures, so-called BDAT -domains (figure 37). This is a constrained, false
approach, which makes the overall development of an organization siloed by nature. In practice, the business of an
organization is not divided into such "architecture domains" in reality. Instead, it is typically divided into "business
domains" a.k.a. "business units", each of which contains elements from all those conventional architecture domains
(BDAT) (figure 38). There is no business reason to separate elements into distinct architecture domains. That is
one of the root causes making EA so difficult: the architectural abstraction of an organization differs from the
common understanding of business people.

Figure 43: Conventional, centralized EA approach.

Figure 44: Business Unit focused, de-centralized development approach.

Figure 45: Centralized and de-centralized hybrid approach. Focus on business unit content, from which the
EA content is aggregated gradually.

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5.3.2 Value Stream and Capability-Based approach

Now, in this digital age, and speed of change, it is possible - and reasonable -
to make a paradigm shift from a siloed approach to a value stream-based and
capability-based approach. Business capabilities are the fundamental
components, to which all the changes can be targeted, as all the operational
elements of an organization are included in the business capabilities.
A business capability consists of all the conventional enterprise architecture
aspects: business, data, application and technology (BDAT). As such, a
business capability consists of the same characteristics that are typical on the
organizational level too: business unit- and the whole organization levels.
To model business capability maps and business capability contents is a fast
track to modeling the as-is state of the whole organization (the current state
architecture). This can be done by starting with those business capabilities Figure 46: Business
that are the most important from the business point of view. All in all, the Capability consists of
overall view of the organization is visible all time with help of the business business, data, application
capability maps. More detailed content is created - whenever necessary - by and technology elements.
the following principles: 1) new content is created just in time (not just in
case), and 2) new content is created just enough (quite often is not necessary to dive deep too much into details.
Remember KISS-rule, Occam's razor, and other good practices). With the as-is capability model in place, we can
concentrate on making changes, and running transformations - as the target, to-be state (the future state
architecture) constantly moves.
When developing business capabilities, we are developing the organization. When developing the organization, we
are developing its business capabilities. All the business capabilities can be placed in the operational value
streams of the organization.

Figure 47: Value Stream and capability-based development approach. Each capability consists of a specific
set of BDAT elements.
Business capabilities altogether represent the most valuable approach to analyzing the whole organization and its
business. When the organization's operational value stream(s) are described, and concerned business capabilities
are identified and defined (within the business capability maps), and the content of business capabilities are
modelled, then we have a business capability model - the capability architecture in place. That can help the
organization speed up the development, and ease the management, as the operational business is known well

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enough. Then we might tune the organization's development value stream (e.g. according to Lean EA), and utilize
the capability architecture in all the development cases (ideas, demands, strategic requirements etc.).
The capability-based approach can be defined also within an applied Milky Way Map, which visualizes the
operational value stream, business capabilities and the customer journey in one overall view. The value stream
with value stages is visualized in the inner circle (yellow), and the business capabilities are shown as sectors
(blue). Customer journey on the outer circle on top of the picture.

Figure 48: Operational Value Stream, Business Capabilities and Customer Journey overview (applied from
the Milky Way Map).

5.3.2.1 Development perspective

The development value stream of the organization can also be described, into which all the development
capabilities can be placed.

Figure 49: Development Value Stream.

When handling incoming demands, we are creating a concept of change (Concepting phase). A concept is a
diagnosis of the current state and a description of changes to be made. Then we evaluate concepts, and if agreed,

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they are added to the development portfolio. Then the changes are implemented and deployed to the operational
business.
Concept Design is a co-working phase, in which different roles (such as service designers and business architects)
together analyze the value demand of the customer. In this phase, customer insight is one of the most important
aspects. It is crucial to get an understanding, of what is the actual need (behind desires). This customer need is
defined in the concept, which contains all the relevant information. The concept document can be created based on
a common template, that consists e.g. of the following information: drivers, goals & outcomes, a business model
canvas (BMC), an information flow diagram, alternative options, and the suggested solution.

5.3.2.2 Operational perspective

The continuously changing environment of an organization
can be illustrated by the OODA loop (figure beside), which
defines a recurring cycle of processing unfolding
information. This process consists of observation,
orientation, deciding and acting phases, that occur typically
in business. Organizations observe the conditions in their
environment, and then by orientating, they make decisions
of change - as reactions to the observations.

The OODA loop is originally developed for mission-critical

combat operation processes by US Air Force colonel John Figure 50: OODA Loop.
Boyd.
Now there is momentum to take advantage of business capabilities, as many organizations have been awakened
to think business-oriented, because of customer orientation. It is known that is reasonable to start with business
architecture, and not jump into the technologies right away. Many digital transformations have failed when
technology is the driver (see e.g. "8 Reasons Why Digital Transformations Fail" by Myles Suer, link.) According to
McKinsey's report, 70% of transformations fail (link). The business is the beef, and business capabilities are the
keys. All the changes and transformations should start with the customer-first and/or business-first -mindset, as we
are already in the digital world.

Figure 51: Capability Architecture - the runway to the business-driven architecture and viable enterprise
architecture.
Note! "Capability Architecture" is not just an architectural view, it is the view of the organization and its business.

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5.3.2.3 Management perspective

The capability-based development approach encourages also modern management practices, as business
capabilities represent the behavioral entities of the organization. As such, the business capabilities are natural
choices for operational, development and management "units". These modern management practices take
leverage from agile practices and self-organizing teams. Business capabilities are, at the lowest level, atomic by
their nature, so they can be operated, developed and managed independently. An example of self-organization and
self-leadership is the holacracy as shown in the figure below.

Figure 52: Holacracy vs. Hierarchy. (See link for more information.)

5.3.2.4 Organization structure perspective

Self-organization and self-leadership in operational work can be achieved with the help of a capability-based
approach. When organizing units, groups and/or teams, the primary focus should be on behavior, around which the
work should be organized. This can be done with capability-aligned organization structures (group or team
structure). Each capability-aligned structural entity (e.g. team) is responsible for operating, developing and
managing a specific business capability. As such these organization structures (structural entities) are aligned with
the business capabilities, which have built-in, intrinsic business relevance. This capability-aligned team structure is
an interesting possibility to speed up the development work and the pace of the overall flow of the development
value stream, with faster lead time from idea to production.
When developing business capabilities, we are developing the organization. And vice versa.

5.4 Value Demand, Value Stream & Business Capabilities

Quality creates value. The organization responds to the value demand with
quality. Good quality can be performed and provided by well-performance
business capabilities.
We can identify values of three types as follows:
1. Customer Value
2. Business Value
3. Employee Value

Figure 53: Value types.

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Figure 54: Operational value stream illustrates how the organization responds to the value demand - how
the organization creates value.
It is beneficial and practical to define the operational value stream, and connect it with the business capabilities.
The operational value stream with business capabilities makes it visible how the organization responds to the value
demand initiated by customers. And, with business capabilities, it is also possible to tackle the failure demand,
which is a consequence of failures and bad quality in services.
It is widely known that failure demand generates a lot of extra work, which - in turn - creates extra costs as it intensively uses
the organization's resources. And what is extremely harmful, failure demand causes decreased customer experience (CX),
which affects to organization's (and brand) image etc. It also affects negatively to the employee experience. As we know,
“Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”
[Richard Branson].
Business capabilities have an impact on value creation, customer value and business value, and also on intra-
organizational efficiency. This is obvious, as business capabilities contain all the operational elements from which
the business is made of. Therefore, both customer value and business value creation can be affected by
(fine)tuning and trimming the business capabilities to be as efficient as possible.
Service Design + Business-Driven Architecture = Customer Value + Business Value (market value)
Together with service design and business-driven architecture, it is possible to get the best available customer
insight and business insight, both of which are necessary to get the overall understanding of how the customer's
value demands can be fulfilled in daily business operations. And when developing the business, during the concept
design phase, service design and business-driven architecture methods and tools together enable the most
comprehensive and practical approach to analyze, design, and make the changes to the organization as follows:

● With service design methods and tools, it is possible to get the best overview of customer insight,
supported by data analytics (DA).
● With business capabilities, which are the core of the business-driven architecture, it is possible to get the
best understanding of business insight (business services, -processes, -functions, -actors, data,
applications, technologies etc.).

Customer insight and business insight provide the most valuable information for overall business development, and
also for knowledge-based business management.

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Figure 55: Service Design and Business-Driven Architecture are complementary methods.
By considering the organization from the customer's point of view and the organization's view together, it is
possible to achieve the most comprehensive overview. This can be illustrated with the iceberg analogy, in which
the customer view is all that customers see, and the organization view is below the waterline. The organization
view covers all the intra-organizational elements, that are not visible to customers, but those are the elements with
which the organization produces the services and/or products for customers. These views are interconnected and
inseparable. That's why it is reasonable to consider them together. Holistically. Business capabilities help with this
as they combine all these elements to be considered, analyzed, developed and operated together as clearly
defined building blocks of business (as business components).

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Figure 56: Organization and views of development.

Customer Insight & Business Insight = Enablers of Successful Business
The operational Value Stream with Business Capabilities makes it visible
how the organization responds to the Value Demand initiated by customers.

6. Summary
Business Capability-based development is an approach, that serves all the levels of an organization: from the
strategic level to the operational level. Business capabilities are central concepts and components of an
organization, with which business can be operated, developed and managed. Business capabilities capture all the
relevant elements together, so that they can be easily understood, shared and communicated.
Capability-Based development approach supports e.g. implementation of large business transformation programs
and/or digital transformations. The focus of business capabilities is on the core of the business: what is needed in
an organization so that it can execute its business according to its strategic goals.
Business capabilities are realized by the resources of the organization. When focusing on business capabilities,
there is no distinction between business and IT. Instead, there is only one approach that combines both business
and IT together: the business capability-based development approach.

Figure 57: Capability is realized by the resources.

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Figure 58: Capability-Based Development approach combines business and IT.

With business capabilities, it can be understood clearly why an organization is like it is,
and why it works as it works.

Figure 59: Business Capability - the central component of an organization.

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Figure 60: Elements of a Business Capability.

7. Reference material
1. ArchiMate specification (v. 3.2), Open Group, 2022, link
2. ArchiMate User Community link
3. TOGAF (v.10), Business Capabilities version 2 (Business Capability Guide), Open Group, 2022, link
4. TOGAF (v.10), Value Streams (Value Stream Guide), Open Group, 2022, link
5. BIZBOK(R) by the Business Architecture Guild, link

7.1 Extra material

1. Lots of useful material covering business capability topics is provided by Bizzdesign, authors: Marc
Lankhorst, Jeeps Rekhi, Sven van Dijk, Bernd Ihnen, Nick Reed, via this link .
2. Excellent Youtube videos by Jesper Lowgren, e.g. "Business Architecture and Capability Mapping to Build
Agile and Scalable Solutions" link and "Capability Mapping Mastery in less than 15 minutes!" link.
3. Good quick overviews on the topic by Chuen Seet, e.g. "What Is Capability-Based Planning?" link,
"Business Capability Definition and Examples" link, "How To Create a Business Capability Map" link.
4. Great blog posts by Markus Freimuth:
o Business Architecture concepts that help Business and IT to align (Value Streams, Business
Capabilities, Business Processes) link
o What you Need to Know About Business Capabilities (in a Nutshell) link
o Top 5 Use Cases for Business Capabilities to Transform an Organization link
o 12 Must-Dos to Get Business Capabilities Right link

7.2 Additional material

7.2.1 BIAN - Banking Industry Architecture Network
BIAN Capability Model (v.10) link for the banking sector.

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Figure 61: BIAN (Banking Industry Architecture Network) Business Capabilities Top Level View.

7.2.2 IT4IT
Open Group IT4IT reference architecture Capability Map for IT organizations.

Figure 62: IT4IT 3.0 Capability Map level-1.

7.2.3 IT-CMF
IT-CMF capability maturity framework for IT organizations.

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Figure 63: IT-CMF (source: IT-CMF, link).

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