Defining and modeling business capabilities can be a challenging conceptual exercise. Whether organizations are approaching this for the first time or trying to pinpoint how they could do it better, this article will provide business capability examples to guide more effective modeling initiatives.
Being able to understand an organization in terms of its capabilities will help decision-makers get better insight into operations and how to make strategy a reality. Modeling business capabilities provides valuable insight into how people, technology, and processes are connected to create value.
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How to Define Business Capabilities
Why Defining Business Capabilities Matters
6 Business Capabilities Examples
Best Practices For Defining Business Capabilities
Business Capabilities vs. Business Processes
Assessing the Effectiveness of Business Capabilities
Drive Innovation and Agility Through Business Capabilities
FAQs About Business Capabilities
How to Define Business Capabilities
Business capabilities are a simple but powerful method for understanding not just where you are but also where you need to be. The building blocks of your organization 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:
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Where do I need to invest in people and technology?
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Where do I need to manage business and technology risk better?
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Where do I need to drive innovation, and where do I need to commoditize?
Before an organization can answer any of those pressing questions, it needs to define its capabilities and business capability model.
Why Defining Business Capabilities Matters
Defining a business’ capabilities provides important clarity around the true state of the organization, which may differ greatly from the assumed or perceived state of the organization.
The capabilities become a vital unifying language that helps bridge the gap between IT and other organizational functions. This improves communication and understanding across teams and functions.
With this unified language and improved transparency, business capabilities will help the business:
1. Improve Organizational Performance
A clearer understanding of a business’ current state and capabilities means a more informed perspective on what parts need investment, improvement, or optimization. These insights are vital to improving the business’ overall performance.
2. Support Strategic Planning
Often, decision-makers need to make decisions based on a perceived understanding of the organization, which may be based on hierarchical structures instead of a clearer understanding based on its actual capabilities. Business capabilities can help the organization better align around the initiatives and investments required to make its strategy a reality.
3. Increase Competitive Advantage
Insight into an organization’s capabilities also means a better understanding of internal strengths and weaknesses, leading to improved focus and strategic alignment. It enables businesses to prioritize investments in core strengths, optimize processes, and identify gaps for improvement. By aligning capabilities with customer needs, businesses can enhance the customer experience and strengthen their value proposition.
4. Build Agility
When an organization’s business capabilities are well defined, it enables the business to respond more quickly and efficiently to changes in its business caused by growth, mergers, acquisitions, or new legislation and to assist with budget planning.
6 Business Capabilities Examples
Your organization’s primary operations comprise 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 an 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 necessary for running an organization. These can be defined as an organization’s supporting capabilities.
Finally, an organization must also be aware of its own market, communities, and its performance within them. It needs the ability to set direction and plan and execute the changes to move it to where it wants to be. These are the organization’s strategic capabilities.
Below are examples of capabilities for each category using a bank as a reference organization:
Core Capabilities
1. Marketing Analysis: Market Analysis is a core capability that enables the bank to assess market trends, customer behaviors, and competitive dynamics, providing insights that inform strategic decision-making and drive targeted growth initiatives. This capability ensures the bank stays ahead of industry shifts and adapts its offerings to meet evolving customer needs.
2. Order Management: Order management is a core capability that allows the bank to process, track, and fulfill customer orders for financial products and services, ensuring seamless transactions and high customer satisfaction. This capability enhances operational efficiency and supports timely and accurate service delivery.
Strategic Capabilities
3. Innovation Management: Innovation Management as a strategic capability empowers the bank to develop and implement new financial products, services, and processes, fostering a culture of continuous improvement and staying competitive in a rapidly evolving market. This capability drives the bank’s ability to meet emerging customer needs and capitalize on new opportunities.
4. Enterprise Architecture: Enterprise Architecture as a strategic capability enables the bank to align its technology and business strategies, ensuring that IT investments support business goals and drive operational efficiency. This capability provides a structured framework for managing complexity, optimizing resources, and facilitating agile responses to market changes.
Supporting Capabilities
5. Financial Reporting: Financial Reporting as a supporting capability ensures the bank’s ability to accurately compile, analyze, and present financial data, meeting regulatory requirements and providing insights for informed decision-making. This capability underpins transparency, compliance, and strategic financial planning.
6. Facility Management: Facility management is a supporting capability that ensures the efficient operation and maintenance of the bank's physical assets, including branches and offices, creating a safe, secure, and productive environment for employees and customers. This capability supports the bank’s operational continuity and enhances customer experience.
Best Practices For Defining Business Capabilities
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 discussing 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 abstract 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.
Why?
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 the 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
As explained earlier in the article, with examples of business capabilities, capabilities can fall into one of three buckets depending on their role in the organization. Supporting capabilities are not more critical than strategic or core capabilities; they serve different and important purposes in an organization’s operations.
This simple separation of capabilities into core, supporting, and strategic divides the business capability 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 vs. 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 deliver 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, serving 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.
Assessing the Effectiveness of Business Capabilities
Just defining and modeling capabilities is not sufficient to deliver real value. It’s just the first step in understanding the organization’s activities. From there, organizations should:
- Define KPIs for given capabilities: Organizations should establish clear KPIs that align with the goals for each capability. These might include metrics related to efficiency, cost, customer satisfaction, or time-to-market.
- Assess maturity: Part of business capability modeling is to also determine the maturity levels of various capabilities. This should be undertaken with capability experts within the organization. In the Ardoq solution, capabilities can be ranked from No Capability, which means it doesn’t exist in the organization, to Optimized Capability, the highest level, meaning the organization has reproducible, efficient, and continuously adaptive processes, processes, or skills to realize this capability.
- Conduct regular performance reviews: Regularly review capability performance through various forms of feedback and metrics tracking. This could include internal input from employees as well as input from external sources such as customers. This helps identify gaps and areas for improvement.
- Assess alignment with strategic goals: It is important to assess and ensure each capability’s relevance and role in contributing to the organization's overall strategic objectives. If a capability is not aligned with these goals, its effectiveness is likely limited. This connection may be less clear for supporting capabilities that are necessary for ongoing operations of the organization but not directly connected to value creation.
Drive Innovation and Agility Through Business Capabilities
Unlike technology platforms and organizational hierarchies, which may change rapidly, the capability model of an organization is much less likely to change over time. The organization’s business capability model represents core truths about delivering and creating value. This means that the effort to define and model business capabilities will continue to deliver value in the long run.
The business capability examples illustrated here reference what is possible, but every organization’s instance and needs are unique. The important thing is to model what matters to your organization.
For more in-depth guidance on defining and modeling business capabilities, read our 6 Best Practices for Defining Your Business Capabilities.
The Ardoq platform also comes with prebuilt, expert-guided solutions for Business Capability Modeling and Business Capability Realization, which 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
FAQs About Business Capabilities
What is a Business Capability?
A business capability is a high-level definition of what activity an organization carries out or needs to be able to carry out to conduct its business.
Why are Business Capabilities Important?
Business capabilities are important because they provide a clear framework for understanding what an organization can do, separate from the technology or teams that these capabilities rely on. They guide strategic decision-making, help prioritize investments, and ensure alignment with business goals.
How Can an Organization Identify its Business Capabilities?
An organization can identify its business capabilities by mapping out what it does, not how the activities are done. This abstraction is important to reflect the true core model of the business. This ensures the model will be relevant in the long term regardless of changes in technology or processes.
Can Business Capabilities Change Over Time?
Yes, business capabilities can change slowly as the organization adapts to market changes, technological advancements, or shifts in strategy. Continuous assessment and adaptation are crucial for maintaining relevance.
How Can Organizations Improve Their Business Capabilities?
Organizations can improve their business capabilities by investing in process optimization, employee training, and technology upgrades and regularly reviewing and updating their capability models to align with strategic goals.
