What are Business Capabilities?

Business capabilities were first envisioned in the mid-2000s as a response to the disconnect between business and IT leaders that often hindered the productivity of IT investments. It was born out of earlier attempts to bridge the business-IT divide through business process modeling. This approach frequently succeeded in optimizing processes within individual business units. But it often created more interconnections that increased complexity of the enterprise as a whole, which in turn led to higher costs and longer time-to-market for new products. 

The pioneers of the business capability approach sought to move away from the traditional view of the enterprise as a collection of business units working with their own internal processes—and toward an activity-centric view that transcends product, channel, customer, and geographical lines. 

The main benefit of the business capability approach is its strength in helping the enterprise zero in on the functions that are most critical to business success. By associating applications to the business capabilities they support—and focusing on organization-wide functions, rather than specific business processes—business and IT can tackle discontinuities what would otherwise stifle performance. This approach enables companies to better invest in projects and applications with a common purpose, thereby minimizing wasteful spending, and ensures the IT landscape is laser focused on delivering business value. 

 To realize these benefits, enterprises commonly develop business capability maps, which help stakeholders visualize the elements of their business architecture. These maps consist of multiple levels of detail—beginning at a very high level and down to a level where capabilities are linked to business functions that are supported by IT. The more detailed layers are critical to documenting business needs in a structured way and translating them into a specific IT functionality. They enable business to formulate its IT requirements in a manner that’s functionally precise yet non-technical—and accessible to staff from both the business and IT side of the enterprise. 

Business capabilities can be used to support a wide variety of use cases, all of which relate to the wider goal of making IT more productive. Common use cases include:

• Cloud migration. Assess which applications related to your respective business capabilities would benefit from cloud deployment. Would migrating them to the cloud reduce capability cost, while enhancing scalability and digital differentiation? 
• Transparency. Understand how your IT landscape supports business in all its functional aspects. View the business capability map from various perspectives to gain a clearer view of the cost of IT support for each capability, the degree of digitalization, and instances where the technical obsolescence of supporting systems represents a potential threat.  
• Investment portfolio management. Ensure you’re making the right IT investments by identifying business capabilities that are mission critical, associating them to projects and their related costs, and understanding which investments are best matched with business strategy.
• Application rationalization. Reduce IT costs and complexity of business capabilities by identifying applications you can outsource—or eliminate entirely. Do this with a full understanding of the importance of the business capability to overall business strategy. 

A key first step in building a business capability map is bringing business and IT stakeholders together. Enterprises often start by holding workshops involving IT managers, enterprise architects, business analysts, and business managers. Staff representing different hierarchical views may participate as well. These sessions are usually designed to relate architecture to business goals and visualize capabilities in a collaborative manner. The end deliverable is typically a draft of a map and set of goals to be achieved though the ongoing capability program. Templates exist for maps specific to a variety of industries, including banking, retail, and manufacturing, which can be used to aid the process.

After the initial map is in place, the focus shifts to business capability management—and ongoing improvement. Stakeholders meet periodically to manage project portfolios, analyze strategies for capability improvements, and design metrics for their evaluation. Firms may elect to carry out a gap analysis; most develop some mechanism for analysis and reporting, which forms the basis for capability governance. The overarching goal is to forge a culture of continuous improvement—in the quality of the capability program, and, by extension, in building a portfolio that brings more value to the enterprise.

Business capabilities play an integral role in two common approaches to harmonizing IT and business: enterprise architecture management (EAM) and strategic portfolio management (SPM). EAM gives firms a real-time view into the full repository of their IT assets, how they interrelate, and how they align with the business vision. SPM, in turn, helps them visualize the cost, complexity, and feasibility of changes to the IT portfolio, and the impact of those changes on business outcomes. An EAM/SPM tool can help enterprises get more value out of business capabilities by mapping them to business strategy, assessing their current and required strength for achieving business strategy, relating them to IT costs, and assessing the potential of projects to fill existing capability gaps. 

Using an EAM/SPM tool built on a business capability foundation can help enterprises avoid wasting expenditure on unnecessary or ill-timed projects, prevent the accumulation of technical debt, efficiently fulfill compliance regulations, and build top line growth in revenue through an IT portfolio that optimally supports the goals of business. It can help firms catalog their interdependencies to keep business running smoothly—and enable business and IT to act like co-creators driving innovation.

Many of the tools designed for EAM and SPM can also help you manage business capabilities across a range of use cases. If you’re in the market for such a product, we advise seeking out a platform with the ability to track a wide range of KPIs relevant to your company and industry. It should offer multiple displays, including dashboards and reports, that capture an accurate, complete, and real-time view of your IT landscape. It should have the ability to connect this information from the business capability map upstream to business strategy and goals, value streams and business processes—and downstream to applications, technologies, and services impacting the customer experience. In an era where most enterprises are operating in a hybrid IT landscape, it should ideally offer flexible deployment options, including on-premises and SaaS.

Are you looking to adopt a business capability framework to drive IT transformation in your business? If so, we’d recommend taking a deeper look at Alfabet, our market-leading enterprise architecture and strategic portfolio management solution. With Alfabet, you’ll understand when, where, how, and why to make changes to your IT portfolio based on business capabilities. You’ll be able to spend your money more wisely, more effectively manage risk, and accelerate your innovation strategy. Above all, you’ll be able to transform your business faster with more certainty.