Concepts Map of 'Business Capability'

The potential for a company to achieve its strategy can be said to be enabled or limited by the sum of its capabilities. This idea has been strongly adopted by the business archiecture community, which pursues a 'scientific' approach to business design, and where it has become popular to map or model an organisation's capabilities with a view to finding gaps or opportunities for improvement.

An issue here is that capability models tend to look similar to process models, or at least their components, the capabilities could easily be mistaken for business processes. So the question is how do they differ?  Or to phrase it another way, is there any architecturally significant difference between a business capability and a business process?   (And indeed, does it matter?)

Rather than attempting to describe this by quoting different definitions of process vs capability I have attempted to analyse the different meanings by developing a concepts map.

An important part of the objective was, to clarify the relationship between business Processes and Business Capabilities, particularly because I see so many instances of the term ‘Business Capability’ being used in situations where business ‘Process’ appears to work equally well and where using ‘Business Capability’ doesn’t seem to add anything other than being a more fashionable way of describing Processes by 'inversion'.  For example, a ‘customer billing’ Process becomes a Business Capability to bill customers.   Are these really different, if so, how?  The model is a tool for pursuing answers.

There is an article on the Open Group web site that depicts a capability map of a financial institution. This cites capabilities such as: 'funding and liquidity mangagement', 'position management', 'counterparty and account maintenance', 'commodities and banknotes processing' and so forth.  To me these decriptions seem remarkably similar to 'functions'.  Nor does there seem to be anything in the rest of the article that distinguishes them otherwise. In fact the example is contrary to The Open Group Architectural Framework (Enterprise IT Architecture) which describes Capability as being horizontally managed, with Functions vertically managed (http://pubs.opengroup.org/architecture/togaf9-doc/arch/chap32.html).  To be horizontal, capabilities would need to be more abstract; perhaps in a financial institute something like 'general financial knowledge' that is spread across the organisation. So there is a question, is the notion of 'business capability' just a fancy new term for 'business function'?

My interest in Business Capability is mainly from a structural, business planning perspective, where it seems to me that even for large, diverse enterprises it is usually possible to identify a very short list (no more than a dozen, say) of core Business Capabilities that in different combinations enable the outputs and outcomes of every Business Unit.   If this is the case and those core Business Capabilities can be identified, then an optimum approach can be planned for developing and improving those core Business Capabilities for enterprises as a whole, avoiding inefficient, ad hoc, fragmented development by individual Business Units and even projects.   

Concepts maps I’ve found to be a useful tool for both analysing and communicating elusive, complex concepts like ‘capability’.  A concepts map describes things of interest relatively to one another by joining them with truth propositions, e.g. Customer -> may  purchase -> Brand.  The power of the tool is in its ability to communicate the meaning of a complex concept, by describing a minimum network of ‘truths’. These need account only for the particular contexts or purposes for which the concept is being defined ( in this case structural business planning). 

In this case the viewpoint that I have taken is based on practical experience of establishing start-up businesses and new business units, and indeed merging existing businesses.  It represents top level fragments intended to be sufficient for a discussion of the concepts and propositions presented.

The main proposition here is very simple, that in almost every case the capability to conduct that business was based on acquiring the knowledge needed to do so, including people with a workable plan, supported by a few key resources, e.g. partnerships, finance, computer systems.  In my observations business Processes have always been secondary, as the Know-how and key Resources must be available, following which they can be put to work by utilising them in Processes that are adapted to fit the detailed circumstances.

Another goal here by the way, is to keep the number of concepts to a minimum. Ideally this should be no more than Miller’s Magic Number Seven, plus or minus two, which is the number of chunks that most people can hold in short term memory (http://www.musanim.com/miller1956/).

So:

Business Capability - Main Proposition

Figure 1 – Business Capability - Main Proposition

Business Capability -> potentially enables -> Outcome

A reason for selecting ‘Outcome’ over ‘Output’ is that Outcome is more relevant to structural planning, where  the focus is more on achieving overall business goals than intermediate products on the way to goals. Outputs are associated more with processes.   This seems to be one difference between Business Capabilities and Processes. Though I accept that this is arguable, particularly as Outcome versus Output often depends on where you sit.

Business Capability -> is comprised of -> Know-how

This is a major thrust of the proposed definition of Business Capability that it is largely about knowing how to achieve an Outcome.   An example is a coach knowing how to win a soccer match., which includes everything from player selection, fitness, knowing the opposition, rules of tactical play etc When the ball ends up in the oppositions net we might observe that a process has been applied that implies that the coach knows how to win a football match, however the capability is in the overall Know-how of which the process is just one manifestation, albeit an important one.

Business Capability -> is comprised of -> Production Capacity

Apart from Know-how the coach needs players, support staff, practice grounds, sports equipment, and particularly finance, to achieve the Outcome of winning matches.  The football club is of course the business that needs those things to achieve its capability to win matches, including hiring a coach.   Those things (Resources) must have the potential to be harnessed into Processes that do work to produce outputs that contribute to achieving the required Outcomes.  Such as preparing the practise pitch, and organising transport to matches.  The potential to produce needed Outputs is in a manufacturing context often referred to as Production Capacity, which can be latent or extant (immediate).   I have borrowed this term to use in the wider business context, as have others.  However, ‘capacity’ in this sense is more than just throughput; it is also about the ability to produce the breadth of required Outputs with required characteristics.

The notion of Production Capacity

Figure 2 - The notion of Production Capacity

The concept of Production Capacity raises the level of abstraction, decoupling Business Capability from detailed Processes and Resources; which can be handled for high level planning purposes as being inside a white box (white because we at least require a general understanding of what is in there without necessarily knowing the detail), which might be satisfied, for example, by entering into alliances. 

Production Capacity

Figure 3 - Production Capacity

Production Capacity is often divided into three different levels of ‘potentiality’:

  • Potential – What is theoretically available for longer term planning, e.g. given a budget and a list of suppliers.
  • Available – Capacity that can be brought on line relatively quickly, e.g. warehouse areas not currently in use.
  • Effective – The real, measureable Output that can be immediately be, or is being generated, accounting for broken machines, absences, flooded warehouse areas, etc,  and the inefficiencies of processes that reduce Output below what should theoretically be possible (not always accounted for particularly well in project estimates!).

 

Resource – Process

Figure 4 - Resource – Process

Production-Capacity -> utilises->  Resource

Production-Capacity -> realised by -> Process

Process -> harnesses -> Resource

Process -> delivers -> Output

Process needs to be understood in this model as just the orchestration of Resources delivering Outputs, excluding any concept of Process specifications and similar, which are part of Know-how. Figure 2 in some respects captures the relationships better.

As indicated earlier, although Processes (operational activity) are mandatory to the realisation of Business Capabilities they are perhaps more of an output of Business Capability, a manifestation of its existence, than a key input. On the other hand without Know-how, which in the current view includes process specifications, Business Capability cannot exist.

Resource – shows only examples of some typical tangible resources (accessible money in the bank or similar is usually considered tangible).   From a strict classification viewpoint, Know-how and Process (at least) can themselves be considered resources.  I had decided not to show these propositions to minimise the complexity of the map.  Process in the current context would become an intangible resource.

Alternative - Capability = Know-how, Resource, Process

Figure 5 - Alternative - Capability = Know-how, Resource, Process

An alternative map, something like Figure 5 isn’t wrong, but in my view doesn’t give sufficient weight to Know-how and misses the Resource/Process ‘gestalt’ and the ‘potentiality’ that is such an important aspect of Business Capability, which is captured by the three levels of Production Capacity. These level concepts are already well understood at the very least in economics, finance and manufacturing planning, so useful to piggy back on rather than inventing something new.

 Know-how to Outcome

Figure 6 - Know-how to Outcome

Business Capability –> is comprised of -> Know-how

For me this has to be the lynch-pin of Business Capability.

Eric Ries in his seminal work ‘The Lean Start-up’, (which now has a large cult following!), emphasises the importance of ‘Validated Learning’, as the major goal and output of any start-up, much more important initially than revenue!

My own past career as an applied psychologist working for military, very much reinforced how the whole setup, the’ military capability’ and perhaps ‘institute’, really just boils down to some guys with training and equipment (even if it is large, heavy and goes bang) out in a field somewhere.

The Know-how concept in Figure 6, really doesn’t do justice to what is really a huge area of knowledge in its own right, but at least it’s on the map, and in my view has appropriate emphasis. The split between Explicit and Tacit Know-how was as a result of a LinkedIn conversation on Business Capability.   These are really just place holders for this important split.   ‘Process Specification’ is a reminder that in this view a process design or plan is considered part of Know-how, as distinct from the operating Process, which is the orchestration of resources, the instance of the ‘machine’ that generates Production Capacity.  ‘Software Spec’ was added from another conversation as a useful reminder that software is really a kind of process design utilising machine resources (and maybe human resources also).

Tacit Know-how is a relatively difficult concept to grasp and more so to impart, and for that reason is probably the biggest competitive differentiator of the same type of Business Capability, consequently it ought to feature highly in Business Capability development. 

Org Unit -> is enabled by -> Business Capability

Org Unit -> is responsible for -> Outcome

Org Unit -> is responsible for -> Output

These propositions are probably self-evident.  Org Unit, maybe should be labelled just ‘Organisation’. The recursion allows for divisions. 

An Example

Compliance Monitoring

High level examples:

Know-how :

  • Monitoring methods, statistical techniques
  • Legal aspects
  • Model operational and control processes
  • Model business unit structure, job design, qualifications/experience requirements
  • Costs model

Production Capacity :

  • Finance
  • Staff
  • Accommodation
  • Communications resources
  • Computer Applications
  • Transportation
  • Production process
  • Production process assessment and improvement process

Production Capacity will shift from Potential to Immediate as the Business Capability is realised as operating processes.

Note – The above assumes a ‘standard’ business capability to operate and manage a business unit, e.g. hiring, financial accounting, reporting etc.

 

Current Business Capability Concepts Map

 

Figure 7 - Current Business Capability Concepts Map