Capabilities Demystified - Part 4

Business capabilities have quickly become the core element of most business architecture models. Their appeal is largely driven by three factors. First, business leaders at all levels find capabilities an appealing and useful way to think about growing their organization’s impact. Second, capabilities are versatile, easily applied to high level strategic activities such as scenario planning or outsourcing investigations as well as lower level operational analysis. And third, capabilities can be linked to other elements in the planning process such as people, process, technology, and information.  However, capabilities remain poorly understood and often confused with processes, functions, or services. This series of posts will take a deep look at capabilities from different perspectives.

Capability models provide a powerful tool for facilitating both strategic and operational dialog across disparate organizations providing a foundation for objective analysis and understanding of how and where an organization creates value. The ways they are applied are as varied as the organizations using them. Here are ten ways I have seen companies applying capabilities.

Strategic project portfolio development. The most common application of capability modeling is in developing the strategic projects portfolio. Organizations struggle with identifying strategic projects because each manager submits project proposals based on how their organization can support the strategic plan rather than defining what projects the plan requires. A capability approach resolves this problem by identifying the capabilities necessary to support the strategic plan and assessing the organization’s ability to support the plan. Then, requesting projects to close the capability gaps identified. 

 Scenario planning. Scenario planning is a strategy development technique used to explore future possibilities in light of the events likely to support them. A typical process looks at both expected and unexpected events. Expected events are assumptions about trends that are relatively predictable like demographic shifts and technology trends. Unexpected events can include a wide range of topics that are difficult to predict such as political elections, cultural and fashion shifts, and climate change. Capabilities bring an inside out view to the exercise by identifying the capabilities needed in each scenario and assessing the organization’s expected future performance on those capabilities.  

 Strategic sourcing decisions. Organizations do not necessarily need to provide all the capabilities required by their business model. They often look to others who have highly developed specific capabilities, can provide a capability at a lower price point, or can fill a short-term skills gap. Adding the dimensions of proprietary knowledge and process integration to the value contribution matrix discussed in Capabilities Demystified Part 3 creates a sourcing canvas that can clarify the best options for alternative capability sourcing.

Project prioritization. Most companies have many more project proposals than their discretionary funding can support. They all have positive ROIs but the important question is: “Which projects create the most business value?” A quick alignment of projects to capability value contribution categories provides a first pass triage. Then a more detailed assessment of each project’s impact to capability enhancement will refine the prioritization.  

Organizational design. Good organizational designs strike the right balance between distributed and centralized capabilities - distributing capabilities to support agility and customer alignment and centralizing capabilities to grow expertise and reduce cost and complexity. Looking at the organization through a capability lens can keep this balance in alignment and uncover opportunities for synergy and collaboration. Capability analysis also identifies organizational development needs.  

Merger integration analysis. Mergers and acquisitions provide a unique organizational design opportunity. Here the goal is to quickly, and with as little political angst possible, get to an integrated organization that creates operational efficiencies through combining redundant capabilities wherever they exist in the two organizations and identifying how the combined capabilities might create new opportunities. 

IT/business alignment. You can use capability models in a number of ways to support IT to business alignment. One of the most common approaches is to create a capability heat map representing IT cost per capability. Looking at this through a capability value contribution lens allows executive leaders to quickly see if they are making appropriate technology investments. Another approach is to organize project requests from different organizations by capabilities and combine projects with common objectives or bundle them into a single project portfolio.

Application portfolio rationalization. Over time, application portfolios grow in a haphazard fashion as each business function attempts to improve its performance and address its challenges. The result is redundant applications or disparate usage of the same application. Mapping applications (and for larger applications, their lower level functions) to capabilities identifies opportunities for process alignment and reductions in the application portfolio.

Human resources analysis. Capabilities are comprised of people, process, and technology. Business architects typically spend most of their time with technology and process. Looking at the capability model through a people lens can identify where training and career development are needed. In Five Essential Capabilities Every Organization Should Have, I pointed out people centric capabilities that rarely show up on a capability map.  

Comprehensive SWOT analysis. A Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis is a relatively simple technique to help teams and mid-sized organizations quickly assess their opportunities and ability to seize them. Mapping capabilities into the SWOT framework identifies capabilities that can be leveraged and where remedial action is necessary.