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Business capabilities and why they are important

A capability is that a company can perform something, or, in other words, that a company has a certain ability to "carry out something".

An example of such a capability is the capability to innovate and yet another example is the ability to carry out marketing. A capability is usually something that is arranged internally in order to achieve something externally. For example, innovation as a capability includes everything that a company has to arrange within the company in order to bring new products and services to the market.

It is important to know about capabilities that a capability usually does not change fundamentally during the life of a company or organization. However, new capabilities are sometimes required, especially in the event of major changes, for example when launching a new business model, or when the product portfolio is expanded as a result of an acquisition or a merger.

So, if a capability is "what" a company does, then business processes, technology, and the way people manage the company are "how" the company work. Contrary to capabilities, processes, technology, and people often change drastically.

Just think of improvement projects. This usually concerns process changes, tool implementations, and change initiatives with which we mainly want to influence the 'how we work', rather than the 'what' we want to change as a company.

Product-process companies

Since capabilities are, in a way, the pillars of a company (it contains just about all the important functions that a company has), it is usually very difficult to introduce new capabilities or change existing capabilities, because adapting a foundation while a house is already built on it is quite difficult.

Many new capabilities were invented and introduced during the industrial revolution. Then the first product / process companies arose because efficiency and productivity then became extremely important (think of mass production).

Many companies that were built upon the basis of these product / process capabilities, now often find it difficult to change and to become a customer-centric company (an experience / engagement company). And they suddenly have to change very quickly and very suddenly, because the impact of digital innovation has a huge impact on what consumers expect from a service, and experience, and a product, and it has also influenced how markets work (the platform economy has a huge impact on how consumers search, buy and rate products and services).

Great opportunities for change and about intrinsic inertia

Many conventional companies find it difficult to renew and change capabilities. However, that is not only due to the fact that they have been around for a longer time. It mainly has to do with people, culture, and 'deep-seated routines'.

We also call this the 'intrinsic inertia': wanting to change, but not being able to do so - because the way the company works cannot simply be adjusted.

Many companies that are currently struggling in the current "always-on" economy suffer from this intrinsic inertia. Capability thinking offers great opportunities to change structurally, provided you have a structure available that supports that thinking and working with capabilities from a broad, holistic perspective, and provided that you do this on the principle that everything (everything) is eventually for your customers.

By doing this you get overview and insights and you understand how a company actually works. If you know that, and you know (roughly) where you want to go when it comes to proposition, branding, and transactional channels, you can get started with a redesign using the same holistic approach. And communicating with people through a holistic approach, connecting customers to employees, is much simpler, more consistent, and transparent and can help reduce that intrinsic inertia.

Capabilities are essential and real

Capabilities are essential building blocks of your company. That is why it is important to understand what capabilities are before you can start using them. A capability is, therefore, an "ability" to be able to do something as a company, or the capacity and expertise that a company needs to fulfill its core functions.

Capabilities are sometimes confused with other business architecture concepts, such as business processes, systems, and functions. Business processes describe the methods that an organization uses to design and utilize capabilities. Functions describe the roles that departments, actors, and systems within the company play in achieving business objectives.

While processes, functions, and roles tend to change rapidly as new employees enter the company, improvement projects are executed and strategy is rolled out, capabilities often remain relatively stable.

Enterprise level capabilities (level 1 capabilities) encompass real concepts such as sales, procurement, and supply chain, which hold a number of different business processes, that in turn contain a variety of tasks, activities and functions.

Capabilities can be further broken down to a more detailed, and even more real level. Human Resource Management, for example, can be split into HR Strategy and planning, Talent Management, Recruitment and Hiring, etc. These are also referred to as level 2 capabilities, or sub-capabilities.

For example, Recruitment and Hiring consist of Recruitment Management and other sub-capabilities. Level 2 capabilities can then be further divided into level 3 and level 4 capabilities.

Capabilities are recursive

The nice thing about this model is that if you look closely at the building blocks of a business capability, each building block in itself is also a capability. Maybe not always a business capability, usually a sub-capability. A building block of another, larger building block, which in itself consists of smaller but uniform building blocks.

You probably recognize this picture. Capabilities are a bit like Russian matryoshkas; they are recursive. They fit together nicely, each means 'something' in itself and together make a beautiful, sturdy whole.

Capabilities help you to see more

As you can see, you can "design" and "map" capabilities using these structures. This is often an essential part of business architecture and takes place independently of the structure, processes, people, or domains of the organization. In other words, it is a holistic activity. By using capabilities you can find out redundancies and shortages at the organizational level.

This often plays a role when used in the context of IT projects. McKinsey estimates the savings potential of uncovering IT redundancies through capability mapping at 15 - 20%.

Business capability mapping, therefore, enables companies to see more clearly what a company is doing to achieve its objectives and what a company must do to support change and how it can prepare for (digital) transformations.

You can achieve important things through capabilities

You can define "what" a company does, instead of describing "how" the company works

By working with business capabilities you can clearly see what the company can do, what can be standardized and outsourced, and what the company lacks to achieve certain objectives. A 360-degree view of 'what' the company does provides a coherent and comprehensive view of the business motivators, opportunities, and capabilities, supporting business processes, data, and resources, and helps to understand interconnectedness, overlaps, and synergies.

You can provide a platform for discussion and planning, where teams with different backgrounds and specializations can understand each other by using a common language: the language of capabilities

Capabilities create a common language for people from different departments and areas of competence. They can communicate better, without business and technical lingo.

You can make a clear link from strategy to guidelines, to implementation

By means of capability planning you can link implementation to strategy, by determining which capabilities support the strategic pillars, align financing based on capabilities and allocate, measure, and monitor important (operational) performance indicators.

In summary, capabilities have three main features:

  • They are the most stable building blocks for strategic planning

  • They make the strategy much more tangible

  • They can, if well defined, help overcome organizational silos and get all the ducks in a row: horizontally across the organization (between departments) and also vertically across the company (between strategy, tactics and operation.

Capabilities do not arise "by themselves"

Conceptually working with capabilities is an interesting exercise, but of course it does not make much difference. If you really want to get serious about capabilities and create impact, you have to think about a number of things, for example:

  • Instead of arranging departments and silos, can I also set up my company in terms of capabilities? (example: processing complaints – across various departments and teams)

  • Do I have the right people and do I have enough people and skills on board to do this?

  • How can I make the improved performance measurable through business capabilities?

  • And how do I measure it?

And there are many other things to keep in mind. The bottom line is that in addition to capabilities, you also need an organization, tools, and people to achieve positive things with capabilities.


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