This post is the first in a series about using business capabilities to support strategic business transformation. Upcoming posts will discuss more details about strategic planning, and building technology portfolios to meet business objectives.
This article is based on the observations of Atul Totre, who has helped many organizations define strategy, assess business capabilities, and develop transformation roadmaps.
When businesses consider business transformation, they do so to meet strategic business goals, not necessarily technology goals. Project teams throughout a business seek quantifiable value from maturing business capabilities, without focusing on details about IT, data center modernization, identity, or other infrastructure issues.
When business problems need to be solved, an organization using a business capability model can launch a planning program to first identify and clarify strategic objectives, and then consider the business capabilities that need to be transformed, prior to designing a technical solution.
After strategy and capabilities are aligned, solution teams can implement services as collections of capabilities, specifying the infrastructure, team, data, and process elements.
This method delivers an integrated plan for business value-driven transformation, aligning business strategy with technology investments and reducing cost and waste.
Understanding Business Capabilities
A business capability represents what a company needs to be able to do to carry out its business strategy, support its mission, and maintain its position in the marketplace. For example, to manage warehouses efficiently, one company has developed capabilities for integrated planning, advanced forecasting, and flexible supply chains.
Business capabilities are not intended to model processes or define how a business does work. By focusing on capabilities rather than processes, business leaders can create the right mix and sequence of initiatives to align with strategy, not just on doing things “better, faster, cheaper.”
Business capability models vary between businesses and industries. Even in a single business, several unaligned capability models may be in use at the same time. Often, the most difficult part of developing a capability model or approach is aligning the strategies of different groups, who often use different language to describe their priorities, and differing KPIs for monitoring success and making operational adjustments.
Without performing strategic alignment, though, it remains difficult to specify or implement the services that would enable the organization to realize strategic value from investments in transformation.
Representing Business Functions and Services with Capabilities
Business capabilities exist in hierarchies within an organization: Strategic capabilities are made up of underlying core business capabilities, and supported with enabling business capabilities. For example, corporate strategy is aligned with sales and product development capabilities, which in turn are enabled by human resources, IT, finance, and other capabilities.
Capabilities are aligned with business functions, business services, and business processes. For example, human resources capabilities include talent acquisition business function supported by recruiting.
Multiple services typically support a business function, with each service further described by groupings of aligned capabilities. For example, talent assessment, performance management, and career planning are services that comprise the talent management business function.
Using Business Capabilities to Support Strategic Objectives
When managing business capabilities, a business establishes performance goals for capabilities based on the amount they contribute to the value proposition defined in the business strategy.
From the perspective of a business capability model, the driving force behind investment is to transform business capabilities. Capabilities are intended to support strategy; investments in projects enable the new and matured capabilities.
After defining strategic objectives, a planning team begins determining information about pertinent business capabilities, functions, and services. A business asks:
- What services do we deliver?
- What capabilities, data, technology, and team deliver the services?
- How do we measure the success of the services?
- How are we currently doing according to our metrics?
Early collaboration with business leaders about strategy helps ensure an organization realizes strategic business value when transforming their capabilities. A Microsoft Architect helps a business rationalize capabilities across departments and look at how strategy can be realized by maturing groups of capabilities.
Importantly, by focusing on strategic objectives first, and understanding how value is achieved through those objectives, capabilities can be chosen and matured in ways that address specific goals and KPIs, and produce demonstrable value. Microsoft Architects often become involved during strategy planning when organizations have difficulty mapping IT investments to the balance sheet or identifying return on business strategy and innovation.
Assessing capability requirements and maturity is very difficult if strategy issues are not resolved first. A strong understanding of strategy is needed to start answering the following questions, while giving appropriate context to them:
- What are the desired business outcomes of the strategy?
- Which business services are impacted by the strategy?
- What is the desired future state for each business service?
- Within each business service, which business capabilities contribute?
- What is the current health and maturity of each capability?
- What initiatives are needed for transforming business capabilities?
After defining strategy objectives, an organization considers the business capabilities that will enable the strategy.
An Approach to Business Capability Transformation
Business capability work is largely conceptual, and precedes process modeling or designing physical implementations. The approach is shown in the following steps:
- Review business strategies
- Review and prioritize business imperatives and opportunities
- Define capabilities
- Define value chain segments
- Assess capabilities
- Create capability roadmaps
Since business capabilities can span departments, functions, and services, a business can assign shared responsibility for business capabilities among appropriate business groups. Considering capabilities intact, rather than breaking them down into enabling components, makes it easier to align transformation with strategic objectives, and in turn with the associated initiatives and benefits.
Roadmaps can provide a multi-year view of technology investment needs for a capability, while supporting an integrated planning process. The language used in the roadmap is based on descriptions of key business functions, not systems. Planning discussions around these roadmaps relate to business problems, not technology.
We use several tools during a capability assessment, creating materials that become sources for the transformation roadmaps:
- Strategy documents
- Capability maps
- Capability health/maturity assessments
- Capability health/maturity criteria
- Process and technology inventories
In the next post about using business capabilities to drive transformation, we’ll discuss more about the approach, strategy planning, and the value of defining a strategic technology portfolio to enable business capabilities.
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