What Are the Differences Between Business Capabilities, Processes, and Value Streams?

In Enterprise Architecture (EA), business capabilities are a key term and concept; however, they are often confused with business processes, a focus area of Business Process Management (BPM). To add to the confusion, it’s not immediately clear how either term or practice relates to value streams.

It’s important to know the definition and role of each of these concepts and how they can shed insight into an organization's workings. This article will explain these fundamental terms, the key differences between them, and how they relate to one another.

What Are Business Capabilities?

Business capabilities represent the core functions or abilities an organization needs to conduct its business. One of the key benefits with defining a business’ capabilities is that they function as a common language across the organization. 

Business capabilities help clarify the business model, enable better strategic planning and transformation, identify redundancies, and align people, processes, and technology to realize capabilities effectively. Well-defined capabilities serve as building blocks for optimizing value streams and operational excellence.

Fig 1: An Example of Sub-capabilities for Order Fulfillment

Learn more about business capabilities, how to define them, examples, and how they deliver value to the business: What are Business Capabilities? Definition, Guidelines, and Examples in a Concise Guide

What are Business Processes?

A business process is a series of interconnected activities or tasks that transform inputs into outputs, following a defined sequence and set of rules. It represents the operational flow of activities within an organization. It is like a recipe, with a series of steps and instructions that must be followed to achieve the desired outcome.

Processes are typically expressed in a verb-noun format such as “Receive Order” or “Ship Product,” and focus on the specific sequence of activities required to complete a particular task or deliver a specific output. They provide a detailed, operational view of how work is performed within an organization and are often used for process improvement, automation, and compliance purposes.

While business capabilities, processes, and value streams are interconnected concepts, they serve different purposes and provide distinct perspectives on an organization's operations.

Fig 2: An Example of a Business Process

What Are Value Streams? 

A value stream is a high-level, end-to-end sequence of activities that delivers value to a customer or stakeholder. It represents the flow of value creation from start to finish. A value stream is initiated by a triggering event, such as a customer request or an internal need.

It consists of a series of value-adding stages, each representing a set of activities that transform inputs into outputs, incrementally creating value for the stakeholder. Unlike business capabilities, value streams are typically expressed in a verb-noun format such as “Acquire Product” or “Fulfil Order.” Names of value streams focus on the customer's perspective, highlighting the value delivered at each stage. They provide a holistic view of the business, enabling strategic analysis and optimization.

Fig 3: An Example of a Value Stream

What Are the Relationships Between Business Capabilities, Business Processes, and Value Streams?

Fig 4: An Illustration of How Business Capabilities, Business Processes, and Value Streams Are Related

Business capabilities enable the execution of value stream stages while business processes are the operational manifestations of capabilities within specific value stream stages. Understanding the roles and relationships between business capabilities, business processes, and value streams is critical when:

1. Analyzing and Optimizing the End-to-End Delivery of Value to Customers/Stakeholders
   Value streams represent the end-to-end collection of activities that create value for a customer or stakeholder. Mapping out these value streams provides a customer-centric view of how value is delivered through the core operational processes.
2. Aligning Business Capabilities With Value-Creation Activities
   Capabilities define what the organization can do, while value streams show how those capabilities are leveraged to produce value. Mapping capabilities to the stages of a value stream helps identify the key capabilities required to execute each value-creating activity effectively.
3. Shaping Business Strategy, Planning, and Transformation Initiatives
   Value streams combined with capability mapping provide the context for strategic analysis, prioritization, and informed decision-making around investments, operating models, and business solutions. They enable a value-based approach to business architecture and transformation roadmaps.
4. Improving Processes and Eliminating Waste or Inefficiencies
   While value streams are often higher-level than processes, they can be decomposed into underlying process flows. Analyzing value streams highlights opportunities to streamline, optimize, and reengineer processes to enhance value delivery.
5. Enabling Effective Requirements Gathering and Solution Design
   Value streams offer a framework for capturing business requirements in the context of how customer value is created, facilitating more effective solution design and case management.

Mapping capabilities to value streams bridges the strategic "what" with the operational "how," while processes provide the execution details. Understanding value streams illuminates how an organization delivers its core value proposition.

Collectively, this allows organizations to conduct holistic analysis, optimization, and transformation of the end-to-end value creation model to better align with customer needs.

Key Similarities and Differences

It is helpful to compare these three concepts according to their perspective, level of abstraction, and purpose to better understand them.

A Practical Example of the Differences

The relationships between business capabilities, processes, and value streams can be more complex than a simple hierarchy. For example, a process such as Order Fulfilment can span across multiple capabilities such as Order Management, Inventory Management, and Delivery Management. A process can also sit across multiple value streams.

Example Capabilities Involved in an Order Fulfilment Process

• Order Management Capability: 
  • Receive and validate customer order
  • Process payment
  • Generate order confirmation
• Inventory Management Capability: 
  • Check product availability
  • Allocate inventory for the order
  • Update inventory levels
• Delivery Management Capability: 
  • Schedule shipment
  • Coordinate with the logistics provider
  • Track shipment status

While each capability represents a distinct organizational ability or competency, the end-to-end Order Fulfilment process cuts across and leverages multiple capabilities to deliver value to the customer.

It is also possible for a single capability to span more than one value stream. For example, a capability like "Product Management" can span multiple value streams, such as "Develop New Product" and "Enhance Existing Product."

Example Activities and Value Streams Involved in a Product Management Capability

• Develop New Product value stream:
  • Conduct market research
  • Define product requirements
  • Coordinate with R&D for new product development
  • Launch new product

• Enhance Existing Product value stream:
  • Gather customer feedback
  • Prioritize product enhancements
  • Manage product roadmap
  • Oversee product updates/releases

While each value stream represents an end-to-end flow of activities delivering value to the customer, the Product Management capability provides the necessary skills, knowledge, and resources to enable critical stages across multiple value streams.

This highlights how processes provide an operational view that transcends individual capabilities, orchestrating the activities required to achieve a specific business outcome or deliver a particular value stream. It also illustrates how capabilities represent an organization's cross-functional abilities that can be leveraged across various value streams, providing a stable foundation for delivering value to customers through different processes and activities.

How to Model and Maximize Your Business Capabilities With Ardoq

Organizations seeking to evolve and transform effectively should leverage the insights and overview that Business Capability Modeling offers. It is vital in making the business’s true abilities transparent and expressing them in a way that improves communication across teams, domains, and geographies.

With Ardoq, organizations get a powerful data-driven platform packaged with expert-curated solutions to kickstart business capability modeling initiatives as well as expand their practice to Business Capability Realization and Technical Capability Modeling and Realization. Ardoq also has a collection of industry-specific reference models, which can be leveraged to expedite setup. 

Ardoq empowers Enterprise Architecture and digital transformation teams to spend less time debating the nitty gritty of capability definitions and more time getting the overview businesses need of what they’re actually able to do and which teams' technologies support their most critical capabilities.

Key Takeaways on Value Streams

In summary, business capabilities, business processes, and value streams are complementary concepts that provide different lenses for understanding and optimizing an organization's operations. While there isn’t one universal way to approach their relationship, effective business architecture and transformation efforts should leverage all three perspectives to achieve a comprehensive and holistic view of the enterprise.