by Mike Rosen

November 2011

Business Capabilities – The Rosetta Stone of Business / IT Alignment

Businesses are faced with ever increasing complexity, competition, and cost pressures. New products and ‘silver bullet’ solutions are espoused by vendors, but more often than not, they fall short of expectations, and worse, add to the complexity of their information technology (IT) challenge. Yet, there is hope for getting a handle on the complexity and finally addressing the challenge of Business / IT alignment.

The approach is not based on a new product or technology, but rather on an architectural foundation that brings the complexity of IT into focus from a high-level business perspective. Then, starting from that perspective, enterprises can drive out the redundancies and gaps of existing systems and move toward streamlined IT solutions that maximize value and align effectively with business objectives.
This approach is based on the concept of a Business Capability. A business capability is the fundamental abstraction used to describe “what” a business does at the very core. Businesses can use the concept of a business capability to realign its thinking and address complex issues in highly targeted ways. Businesses can then map those capabilities to IT solutions, such as applications and business services, making the redundancies and inconsistencies of the current state much more obvious, and the transition to the future state much clearer.
Simply put, a business capability describes what an enterprise does, not how it does it. Capabilities provide an organization’s capacity to achieve a desired outcome. For example, a financial services company has many different capabilities such as risk management and payroll. Risk Management is core to their business and can value-add, or differentiate them from other financial services, so they may choose to implement this with a set of business processes and services, supported by various automated systems. Payroll is a commodity capability that they may choose to outsource. Either way, the company must be able to provide both in order to achieve their desired outcome of profitable customer support.
In an article titled “A Business-Oriented Foundation for Service Orientation”, author Ulrich Homann provides a more formal definition: “A business capability is a particular ability or capacity that a business may possess or exchange to achieve a specific purpose or outcome. A capability describes what the business does (outcomes and service levels) that creates value for customers; for example, pay employee or ship product. A business capability abstracts and encapsulates the people, process/procedures, technology, and information into the essential building blocks needed to facilitate performance improvement and redesign analysis.”
Capabilities are described in a capability map which is a hierarchical description of what the business does. Businesses usually refer to Level 1, Level 2, and Level 3 capabilities (or more levels depending on the complexity of the business), where each level is a decomposition of one or more capabilities at a higher level. Going back to the previous example, Risk Management would be Level 1, broken down into security, compliance, BCP, Credit Risk at Level 2, where Compliance might be further broken down into auditing, governance, regulatory compliance at Level 3. At Level 1, we typically order these models according to three categories of capabilities: strategic, core, and supporting.
Good capability models are relevant to the business and defined in business terms. The importance of a capability can be tied to specific outcomes and metrics. Capabilities models provide a fairly stable view of the business because the fundamental capabilities rarely change, although the processes, applications or sourcing of them do change over time.
So how does the business get to the heart of what business capabilities an enterprise needs? One approach is to start by looking at value streams. Value streams focus on the identification of the end-to-end value creation performed by a high-level process from the standpoint of the customer of that process. That may be the external customer of a business in the case of a loan, or an internal customer in a value stream such as risk management. The value stream is the tool of choice when there is an opportunity to restructure the way the organization interacts with its customers to increase the customer value proposition, or when it feels there is opportunity to improve how the existing process is working. Value streams are particularly useful in Lean activities. Value streams focus on the delivery of value, which many not directly reflect the way work actually flows through an organization, although they are generally arranged in a time-based order of value stages reflecting the most common scenario.
Analysis of the value stream leads to identification of the business capabilities that will be required to provide value in each of the stages of the value stream. Figure 1 illustrates the mapping of one phase of the value stream to one or more Level 1 or 2, value-added capabilities. Those capabilities are then expanded to Level 2 and Level 3 through further analysis. It should be pointed out that there are two primary relationships between capabilities and value streams. The relationship illustrated here is where the capabilities enable a stage of the value stream (a capability is a supporting component of the value stream). It is also possible that a capability is implemented by a value stream, in other words, the entire value stream supports a single capability. For simplicity, we have covered only the enables relationship in this illustration.
Business processes describe how the business performs, or implements, the given capability, and how capabilities connect to deliver a desired outcome. When we get down to Level 3, the capabilities often map fairly directly to the business processes that fulfill them. Business processes can be described by a sequence of tasks and flows that implement the process. The tasks of a business processes should be implemented by business services (or more specifically by an operation of a business service interface), which itself may be implemented by other smaller services.
One of the seemingly perpetual issues that we face is ‘business / IT alignment’. First, we might ask what that really means. Then, we can look for ways to specify and achieve the alignment. Leading business architect William Ulrich defines alignment as “The state in which business strategies, capabilities, semantics, processes, rules and governance structures interact in harmony with automated systems and data”. This definition gets right to the point and lays out the complexity of the alignment problem.
I have referred to the Business Capability Map as the ‘Rosetta Stone’ of Business / IT Alignment. The metaphor suggests that a disparity exists between the intentions of the business and the IT systems used to automate it. As anyone in either business or IT knows, this disparity is real, and we have been struggling to bridge the gap for decades.
What has been missing is a key that is capable of handling the complexity, expressing the important concepts, and translating between them. The business capability, by describing what the business needs to do, now how it should be done, provides that key. The business capability map provides the key that links two complex and widely different environments; business architecture and IT architecture and provides the foundation for alignment between them. Capability maps don’t reduce the complexity, rather they illustrate it in ways that provide new insight and which are meaningful to both the business and IT. Capability maps link the capabilities up to the strategies, goals, and objectives, and down to information assets, processes, applications, systems, services, and sourcing that implement them. I’m confident that they can play a key role in your business’ transformation and alignment by reducing complexity, providing new understanding and clarity of focus, and helping to bring the gap between your business and IT communities.