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If You Want Your Digital Transformation to Succeed, Align Your Operating Model to Your Strategy

Sponsor content from Deloitte.

deloitte business capability model

Leaders, revising their five-year plans every quarter, are constantly seeking ways to reinvent their companies and stay ahead of the pack, given competitors of varying capabilities and scale and customers who expect more for less. For many companies, the answer is large-scale global transformation. Eighty percent of CEOs in one study claim to have transformations in place to make their businesses more digital; 87 percent expect to see a change in their operating models within three years.

But leaders see establishing those operating models as their top challenge in achieving digital transformation. So how might they move forward? A review of transformations across industries reveals a common theme: Successful transformations realign the organization to a singular vision; failed endeavors typically do not.

An organization has a far better chance at succeeding when its operating model—or how the organization creates value—is aligned to its strategy. And this means that for transformations to succeed, leadership teams should examine and possibly revise their organizations’ operating models. Given the pace of change, executives may struggle to determine where to place bets, how much to invest, and when to do it. Wait too long, and they risk seeing market value quickly erode; invest inefficiently or ineffectively, and they could face a cash crunch or investor backlash.

The good news for companies born before the digital era is that they often quickly understand the value in transforming to agile, adaptive, and responsive enterprises because they already have the other intangibles in place: strong brands, an entrenched customer base, established sales methods, and partners—suppliers, distributors, and technology.

Successfully driving these changes, though, depends on executives addressing a range of organizational barriers and risks—particularly functional silos, incomplete enterprise data, and a product-out (versus a market-in) philosophy of value creation. A well-designed and purposefully executed enterprise operating model can help companies balance growth with risk and overcome organizational barriers.

Target Operating Model Poll any number of executives, and you’ll likely find yourself with as many definitions of operating model. But most commonly, operating model transformations are associated with cost takeouts or organizational redesigns. While these can be byproducts of an operating model shift, the common associations are myopic and discount the full value.

Instead, leaders should think about their operating models as their unique set of capabilities aligned to the enterprise’s strategy, with skilled leadership teams, tailored metrics, unique investment profiles, and tight coordination across the value chain.

What Work Needs to Be Done? In moving forward with a digital transformation, the first step is to identify the holistic set of capabilities required to meet the enterprise’s strategic ambitions. The capability set should include both existing capabilities and new ones (as needed) and address front-, mid-, and back-office functions across all product lines.

For example, product strategy is a capability that creates product road maps to realize customer requirements; campaign management is a capability that launches, measures, and reports on the success of marketing campaigns. When brought together, capabilities comprise a capability map, representing the collective set required to execute against the strategy and business model. A capability map provides a foundation on which organizations can build their target operating model. It can be used to determine skill set requirements, hire talent, set performance metrics, build teams, and identify partnership opportunities.

Where Does the Work Get Done? Once leaders have established the capability map, the next step is sourcing capabilities. Several capabilities will likely already exist—some mature or fit-for-purpose, others recent arrivals. This step is often the most difficult to execute, as companies can be resistant to changing their existing ways of working when instead they can leverage the opportunity to untether themselves from legacy processes and technologies.

Enterprises typically have four sources for capabilities: They can develop, transform, or mature them internally (use as is); they can acquire capabilities through targeted hires or outright M&A; they can partner to access them; or they can outsource the capabilities and have them delivered as-a-service. The decision to develop, acquire, partner, or outsource is a critical one, since each lever provides organizations with unique advantages. Executives should consider the following in making decisions:

• Speed. How urgently do we need this capability? • Control. How important is it that we control the outcomes? • Specificity. To what degree do we need to tailor this capability to our business? • Competitive advantage. To what extent does this capability provide us an edge over competitors? • Operational leverage. How much do we want to take on in fixed/on-balance-sheet commitments?

Who Does the Work? This step involves allocating work to the most efficient parts of the organization.

Capabilities typically provide one of two types of value: demand-side or supply-side. Demand-side advantages drive increased attention toward a company’s offering, driving up pricing, revenues, and margins. These include capabilities such as sales, product engineering, recruiting, branding, and corporate strategy, where processes and skill sets are less repeatable, and where talent is a significant driver of value. Supply-side advantages allow a company to operate more effectively and get the most out of resources. These usually include areas in which value is related to scale, such as sales-quote capabilities, self-service, accounting, and manufacturing.

Similarly, the relationship to the business is twofold. Capabilities significantly tethered to the line of business often rely on some expert ability such as localization, R&D, product marketing, or technical sales. Those with limited relationships to the business—for instance, M&A, e-commerce, and supply chain management—rely on generalist skill sets and play across the enterprise.

Each capability has a different place within the operating model, and companies can opt for different ways to deliver similar capabilities. Those decisions should be closely linked to the strategy.

How Can Organizations Drive Better Outcomes? Operating models are ever-evolving, driven by feedback from employees and customers, the effectiveness of business processes, and evolving competitive landscapes. Leading organizations augment their capabilities through simple cross-functional processes, hyper-focused incentives, and best-in-class tools to drive simplicity, clarity, and speed in execution.

Our research points to at least six ways to potentially increase your chances of building a model that can help guide a successful digital transformation:

• Nominate and empower function and business leaders early on to drive the cultural change required across the organization. • Define clear roles and responsibilities across businesses, regions, and functional support groups. • Create complementary incentives and goals for businesses and functions to reduce conflict and optimize resource allocation. • Establish cross-functional debriefs to keep relevant parties informed, and nominate an owner to manage the process early. • Institute a governance model with clear KPIs for each leadership team—one that supports quick, independent decision-making. • Standardize resource and knowledge exchange to ensure that skill sets are cultivated and proliferated.

Transformation demands that leaders develop a clear sense of their strategic ambitions—where to play and how to win—and the business models they wish to employ, including target customer segments, channels, pricing, and delivery models. There are many questions to be answered. Both the strategy and the business model directly influence the operating model design.

Organizations that try to short-cut their way to a new operating model may find the design ineffective and the implementation lacking employee traction—or worse, dilutive to value.

Most critically, an organization’s operating model must be inextricably linked to the corporate and business-unit strategy and varying business models. The operating model is the anchor for the enterprise and is critical to the strategy’s effectiveness and longevity. And understanding how your organization maps onto the model is key to an effective digital transformation.

To learn more about how successful transformations align models with clear strategies click here .

  • Only See Possible

deloitte business capability model

BUILDING CAPABILITY

The 5 Core Capabilities You Need in a Truly Impactful Leadership Capability Model

Leadership is often touted as  the  key business driver, yet we see many organisations fail to even plan for it. Enter: The leadership capability model. 

Why should you plan for and develop leaders? No employee will come to you fully formed as an ideal leader, let alone encapsulate all the capabilities your company needs to succeed. Most leadership skills and traits can be developed, though, with a little guidance.  

In this article, we discuss leadership in all its forms, some universal leadership capabilities and how to effectively implement a capability model.  

Leadership capability vs leadership potential

Why assess both leadership capability and potential? 

Leadership capability refers to the knowledge and skills a person can learn to do in a leadership role, while leadership potential covers those innate qualities that reflect who a person is. Assessing both helps organisations understand the skills gaps that need to be bridged to develop individual contributors into leaders, as well as how fast emerging leaders will be able to upskill. 

Infographic of Deloitte's leadership capability model

Deloitte’s  leadership capability model  pegs influence as a learned leadership capability. It can easily evolve over time to meet the changing needs of a person’s audience, particularly as the complexities of their role increases.  

People potential (like social flexibility and emotional intelligence) refers to a personal trait that is usually developed early in life, making them harder to learn. If a person has “slow potential” when it comes to emotional intelligence, for example, they’re likely to be more detached compared to the empathic quality of “fast potential”. In layman’s terms, we’re talking how easily and/or quickly they can develop a trait. 

It’s crucial to look at both because one gives an indication of past and current performance and skillsets, while the other shows the personal factors that enable someone to grow. Consider how an employee who has learned how to influence their peers has a good foundation for leadership. Yet, if they are often unaccommodating when those same peers are struggling with their work, they might not have the personal quality needed to become a manager. See the dilemma? 

The cost of poor leadership  

Before we go into what you need in leaders, let’s talk about exactly why you need them. Poor or lacking leadership tangibly impacts: 

  • Turnover by up to 32% (people don’t leave bad jobs, they leave bad managers) 
  • Revenue margins by 7% per annum 
  • Market value by up to 25%. 

On the culture side, lacking leadership means vision isn’t effectively turned into direction for employees. The disconnect between working on the ground and goal setting higher up can foster resentment and affect morale. As leaders set the bar for employees (your  future  leaders), any undesirable behaviours or attributes will multiply, and you can kiss  fruitful succession planning  goodbye. Ergo, you can’t afford leaders who don’t drive the workforce you need to achieve business results. 

This can also bleed into any investments you make to develop leaders. If your learning programs aren’t impactful, whether because of content or the learning management system (LMS) used to deliver it, then there’s no way you can pretty the data up to show business impacts. Which could mean budget cuts or reduced social equity for L&D initiatives.

We created the performance learning management system (PLMS) to counteract this. It bases all leadership training on capabilities, guiding leaders step-by-step through the capabilities needed to succeed in their role or an emerging one. Content is mapped to capabilities so learning opportunities are relevant, timely, and contextual, and learning outcomes are directly aligned with business outcomes.

5 key leadership capabilities 

There are many ways you could define leadership capabilities. If we refer back to Deloitte’s model, each is derived from complex leadership challenges.  

Infographic of Deloitte chart showing the complexity of leadership demands

Starting with more detail isn’t necessarily better, though. You’ll find that many examples out there utilise different language for the same meaning when it comes to five crucial leadership capabilities. Lean, concise leadership frameworks—with say, five high-level capabilities—are scalable to different levels of management while retaining a core set expected of leadership.  

When writing definitions for each capability, it also reduces the need for lengthy discussions on “what leadership means to us”. (Consensus is not absolutely necessary here; rather, you want to build a core model that can be contextualised or granularised at local levels. Plus, capabilities are meant to be as succinct as possible.) 

By and large, most great leaders embody the same capabilities. The following five are both hard and soft skills that most people can learn and that support them in being successful in their work environment.  

Infographic of 5 key leadership capabilities

Strategic thinking 

Clarity of vision, future direction and strategic intelligence are commonly sought-after capabilities in leaders. This is because the environment in which organisations exist is constantly changing (“the only constant is change”). Leaders should constantly be looking ahead while enabling their teams to create value now, contextualising outcomes to the strategy of their business function.  

In practice

  • Senior leaders look to and take advantage of future opportunities  
  • Clear links exist between day-to-day work and bigger picture of the organisation 
  • Workloads prioritised by key strategic drivers 
  • Environmental changes are expected, talked about and planned for 
  • Decisions are made by considering impacts on other departments and their strategies.  

Thought leadership 

Business know-how is critical at all levels of an organisation. Thought leaders, though, can drive conversation, influence others, lead change and shape perceptions where others can’t. That makes them pretty damn powerful when it comes to, say, getting buy-in on a company mission or new project.  

It’s also important for conveying best practices and  mission-critical knowledge . Leaders set the scene for knowledge sharing, meaning that how employees share information reflects the level of transparency your leaders demonstrate.  

  • Initiates change through reviews of systems, processes and behaviours 
  • Clearly articulates research for and benefits of change 
  • Demonstrates willingness to explore creative solutions  
  • Maintains awareness of current innovations and trends 
  • Cultivates own professional knowledge, efficiency and effectiveness. 

Execution is a capability based on leading  for the organisation . You have a reputation and marketing standing to maintain. Leaders ensure engagement with company outcomes through result-based high performance.  

They’re the ones who know what decisions (in terms of work, strategy and talent management) are going to positively impact the bottom line. By  aligning jobs and strategy , they are better able to address specific elements of an organisation’s strategy.  

Say a tech company is launching a new product, but the marketing team’s current roles don’t have the capabilities to lead a product launch. The CMO would choose to either hire a Product Marketer or encourage upskilling for the ideal internal candidate based on current resources.    

  • Measures value creation by business impact, not just financial performance 
  • Manages resources, particularly budget, based on strategic alignment 
  • Defines performance expectations and provides necessary support and resources 
  • Takes responsibility for personal decisions and maintains composure in difficult situations.  

Develop people & culture 

It’s an inherent leadership quality to be able to empathise with, influence and manage the needs of multiple people outside of oneself—making people leadership the most behavioural capability of all.  

For example, organising training and development is a facet of people management. But  role modelling  professional development for employees shows leadership through self-awareness. Inspiring peers through a passion for work and a belief in the company mission demonstrates the  human benefit  for other employees. While effective leadership involves a level of humility, it is based on professional will and putting the purpose of the organisation before personal ambition. (And those who feel drive for their companies usually pick similar successors.) 

Infographic of Jim Collins' level 5 leadership personal and professional needs

  • Situational communication taking into account backgrounds, perspectives, moods and personal characteristics 
  • Exemplify accountability, transparency, integrity, resilience, and honesty 
  • Democratic delegation of tasks, recognising strengths, passions and workloads 
  • Seeking feedback from team members as much as giving it 
  • Champions company values to drive an empowering culture 
  • Encourages and support personal and professional development.  

Competitive advantage

We’ve seen impact, talent building, and capability development used in the same vein. McKinsey calls it  capturing return on leadership . Building capability and talent fits in here, because above all else, capability drives business and people drive capability. A lack of talent can force the wrong people into critical roles at any time, let alone precisely the wrong time. It also points to a lack of assessment, both of your internal and external environments.  

  • Suggest and/or arrange leadership development pathways by aligning business priorities and individual needs 
  • Teams are learning-centred and built with a diverse range of perspectives 
  • Champion innovation and improved ways of working. 

Assessing leadership capability and potential 

Without a reliable gauge of leadership potential, much of your organisation’s long-term success is left to chance. That’s not to mention how a lack of clarity can lead to uncertainty amongst your key business drivers.  

A leadership capability framework is the most helpful tool for assessment here, not least of all because it is: 

  • Blind to selection bias  
  • Stable and reliable 
  • Highly contextualised 
  • Benchmarked 
  • Written in a common language. 

So, how does one effectively gauge leadership potential and assess leadership capability? 

Define your pathways

Succession planning should be part of all organisations. Considering things like lateral career moves, the trajectory for leadership doesn’t always need to be straight up the totem pole. But there should be structures in place for employees to progress and for HR to track candidates’ potential. 

Consider the management tiers you have now in contrast with your leadership capabilities. What a front-line manager is required to do will be less taxing than expectations for senior executives. Formal training and development is somewhat easier this way, as you can map role responsibilities to relevant content. 

Line graph showing the increasing strategic & business requirements of leaders

You could also hone in on capabilities from the get-go. This is how Jim Collins determines what he calls  Level 5 Leadership , his descriptor for truly great leaders. Leadership is measured by  execution of capabilities and degree of organisational success . Framing your pathways around competency can be supported by hands-on and behavioural methods of learning and development, like mentoring, job shadowing and coaching.  

Jim Collins' level 5 hierarchy

Choose your methodologies 

In other words, how are you assessing potential? There are pros and cons to all, so weigh them up. 

  • 360 feedback sources perspectives from managers, peers and subordinates, providing a holistic view of an individual’s performance. Anonymous surveys can be used here.  
  • Self-assessments encourage reflection but can be biased as most people have blind spots or may want to downplay weaknesses if they believe career progression is at risk. 
  • Training progress from within an LMS gives insight into the development of any hard skills or technical capabilities. 
  • Performance reviews  and one-on-ones focus on results and value creation.  
  • Stretch assignments  are useful for developing dynamic capabilities.  
  • Some organisations even utilise personality tests to understand leadership styles (and to structure cohesive and balanced teams). 

Key takeaways

Part and parcel of leadership is human nature. This can be hard to account for in stable, business-focused capabilities, but it’s important when assessing potential. You especially want to be looking at employee relationships: With their direct reports, with their peers, with their managers. 

Leadership potential is best nurtured with a leadership capability model. Defining the core capabilities needed in your key roles helps shape the learning opportunities for developing leaders, as well as creating a common language for assessing their performance.   

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Home > Insights > Capability Model

  • Capability Model

By: Ciopages Staff Writer

Updated on: Feb 25, 2023

What is a Capability Model?

A Capability Model or a Business Capabilities Model is an integrated and comprehensive set of business capabilities. The capability model is a decomposition of what a business does and can do in a logical and granular grouping.  A business capability model is one of the critical business architecture deliverables and a bridge between business and IT, and a foundation for enterprise transformation.

However, if you are looking for a “Competency Model” – which is about soft skills or competencies, or a “Capability Maturity Model (CMM)” – which is a way to measure the maturity of the processes, those are distinct and different from a capability model in the business architecture realm.

Business architects and enterprise architects build business capability models as a part of the overall business architecture and enterprise architecture mandate.

A capability model is an integral part of the business architecture deliverables and is a significant component of BizBok (Business Architecture Book of Knowledge). A capability model is an essential part of the TOGAF framework (The Open Group Architecture Framework).

Capability Model within BizBok

So, that begs the question: What is a Business Capability?

A business capability is an elemental building block (or a Lego block) of what a business does or can do.  At its core, it is an abstraction of the underlying functionality and flows expressed as a noun form (some business architects use Gerunds as well, but we are not the grammar police.) An agglomeration of a  cluster of underlying business capabilities can manifest a product, a service, a platform, a business unit, a department, and of course, an enterprise.

Let’s also look at what is NOT a business capability:

Dissecting a Capability Model: Capability Model Example

A capability model (or business capabilities map or capabilities model) is a structurally sound and internally logical group of capabilities, which conforms to a MECE model (Mutually Exclusive, Collectively Exhaustive.)

Capability Model Example

For example, one can combine a bunch of underlying capabilities to manifest a “Sales” or a “Sales Management Capability.  As the picture below illustrates, “Sales” is an agglomeration of 7 level 2 capabilities:

  • Sales Planning and Forecasting
  • Territory Management
  • Lead and Opportunity Management
  • Customer Relationship Management
  • Quotes, Contracts, and Negotiations
  • Order Management

Why is a Capability Model Framework a swiss army knife in the enterprise toolkit?

The capability-based view is:

  • Logical and intuitive,
  • Stable, and
  • Non-redundant yet comprehensive

A capability model provides a better way to:

  • Organize how we think about a business
  • Instill & track business strategy & performance
  • Communicate across disciplines (e.g., business & IT)
  • Gather requirements & develop evolution roadmaps

For example, if one wants to define what constitutes “CRM (Customer Relationship Management) Capability Model, one can look at the picture above and fathom that CRM comprises of the following capabilities:

  • Client Segmentation
  • Client Contact Details Management
  • Interaction Management, and History
  • Customer Analytics
  • Activity Planning and Meetings Management

Hence, if a company is keen on assessing their CRM capabilities and then decide on whether to replace or re-platform the CRM capabilities, the detailed composition of the CRM capabilities will come in handy. In particular to a) assess the current state b) envision future state capabilities c) conduct gap analysis d) define a transformation roadmap e) conduct a vendor analysis of competing CRM platforms.

Enterprise Business Capabilities Model

Category : Capability Models

Finance Capability Model

Emerging digital technologies assessment.

Category : Accelerators

How do we build a Capability Model?

We believe there are two viable approaches to building a capability model.

Create a capability model from scratch:

A cross-functional team of experts gathers together to define a capability model.  Typically, the capability modeling team will comprise of business architects, enterprise architects, process owners, product owners, functional specialists from areas like Human Resources, Finance and Accounting, Marketing and Sales, Operations et al.  Through a series of facilitated workshops – and countless hours in meeting rooms, gallons of caffeine, and innumerable arguments – the team comes up with a capability model.  We’ve seen this process take months or in some large companies around 18-24 months.

The advantage of creating a capability model from scratch is that it is home-grown and the process will be cathartic, and given the many rounds of consensus building, the business capabilities have a chance of getting used in real use cases across the enterprise.

As you can guess, we are not fans of this approach, and we have seen the time, energy, effort, and friction is not commensurate with the results.

Straw-model or Sample Reference Capability Model-based Approach:

A sample business capability model template helps accelerates capability mapping efforts by reducing the time, energy, and cost. We may be biased as CIOPages.com sells full-fledged business capability frameworks in functional areas as well as for various industries, but we are fans of a business capability model template approach wherein you retain, refine, reinforce, and are ready to go.

A sample/straw model-centric approach minimizes the effort, cuts down the time to completion, reduces friction, and allows the teams to focus on the 20% that may be important to the enterprise, rather than get bogged down by the 80% minutiae and peripheral capabilities that may not matter much.

Of course, you are under no obligation to buy our pre-built and customizable business capability models — instead, a few select groups of experts (perhaps with representation from business architecture, enterprise architecture, and a few business/IT leader who are familiar with the paradigm of business capability mapping to come together and create a draft business capability map.  Seeing something in front of them helps the rest of the team members to participate effectively and contribute to the evolution of the capability model to what the enterprise needs.  The capability model validation sessions will be more productive and fun (is fun the right word in an enterprise context?).

There are also sample capability models from Gartner or Forrester , even though you may want to examine the granularity of the models.

Where do we start to build a capability model?

Obviously, if you are not interested in starting with a sample or reference capability model – whether it is purchased from a vendor or an internal draft model developed by a small group of experts – and instead insist on building from scratch, here are a few starting pointers.

  • Begin with a value chain: A value chain (of Michael Porter fame) is a classic and well-respected framework which the top leadership is typically familiar. So, starting with a company value chain will be a great starting point.

For example, if you are a drug company, the value chain and the primary capabilities may look something like the following:

Capabilities of a Pharmaceutical Firm:

A sample set of primary capabilities for a Pharmaceutical company.

  • Research and Drug Discovery
  • Drug Development
  • Trials and Regulatory Approvals
  • Manufacturing
  • Distribution
  • Sales and Marketing

And there will be a lot of support capabilities that fill out the value chain.

Then you can decompose the value chain level capabilities into granular entities to create a holistic and integrated business capabilities map.

How low do you go?  Business Capabilities Model Granularity

We think that if we consider business capabilities to be Lego blocks or atomic building blocks, then the logical interpretation of that principle is to decompose to a deeper level of granularity.

We think capability models that stop at Level 1 are nothing but wall art – an excellent summation of “Oh! That’s what we do.”  If the model were to comprise of capabilities at Level 1, and Level 2, then we consider that a strategic picture and an executive level deliverable to have interesting conversations.

A capability map with up to Levels 3, 4, and 5 (as necessary) contains a lot of the execution detail which will be extremely valuable in operations optimization, transformation roadmap development, and IT enablement.

While one can start with Level 1 and 2 for gaining executive level support, we urge business architecture teams to forge ahead and decompose to a logical level of granularity for increasing the value-add from the capability mapping endeavors.

Is a capability model one and done?

Business capabilities, while more stable and long-term, do evolve, morph, or newly emerging.  So, a capability model is never done. It is continually changing and evolving. Even if the capability itself doesn’t change, the underlying maturity which a company wants to foster, or the way the capability is realized changes. Hence, business architects and other stewards of business capabilities maps should continuously strive to update and upgrade the artifact. Also, period re-assessments of capabilities – regarding the strategic importance, the level of maturity, and the desired target state – is an essential exercise.

What tools should we use to create and manage a capability model?

A capability model is a dynamic and living entity, and hence static tools to create and manage capabilities are not appropriate. Therefore, general purpose office productivity software doesn’t stand muster.  Using one of the many available capability modeling software tools is the way to go.

For executive consumption using data visualization tools – such as Tableau or Domo or equivalent – may help as well. Also, Excel for advanced data manipulations and PowerPoint for executive presentations may be acceptable. But the day-to-day management of capabilities should be within a specialized software.

After building a Business Capability Model: What comes next after creating a capability map?

Once you have a coherent and comprehensive business capabilities model, the next steps are as follows:

  • Capability definition
  • Goals and objectives of the capability
  • Current state capability assessment
  • Capability needs to reach the desired target state
  • Capability to Systems Footprint
  • Capabilities to Services Footprint (SOA services or Microservices)
  • Capability to Location Mapping
  • Capabilities to Roles Mapping
  • Capabilities to Data Mapping
  • Capabilities to IT product model mapping
  • And any others are per the needs of the enterprise
  • Align backlog and future needs to capabilities.
  • Use capabilities to develop functional level or business unit level or enterprise level transformation roadmaps.
  • Leverage capability models for vendor functionality and feature mapping.
  • Influence the modularity and granularity of SOA services or Microservices using capabilities as the driver.

Human Resources Capabilities Model

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Business Capability Model Explained with Examples

Editorial Team

Business Capability Model Explained with Examples

Businesses may see how they achieve their objectives using business capability modeling. A crucial understanding for IT managers is business capability modeling. Business needs must shape your IT infrastructure. Processes, needs, and goals alter due to organizational change, innovation, and preparation for digital transformation. It is essential to re-evaluate the underlying technology after extensive and complicated changes.

One of the significant issues in planning service operations is connecting the planning to the organization’s strategy and business model and ensuring that it is strategically aligned. Applying the “resource-based perspective of the company (RBV)” and a related strategy termed “business competency modeling” is one attractive way to accomplish this.

The basic premise is that organizations must be able to do specific things to execute their business model and strategy. To do this, they need a set of “business capabilities” created by having access to various tangible and intangible “resources,” including people, places, processes, technologies, and people. Business skills are concerned with “what,” not “how.” They do not focus on how to do things or how to do them but rather on their capacity.

These skills are “conventional competencies” required to manage the business. Others, either separately or together, help an organization achieve organizational performance, which is essential to its success. “Core Competency” (also known as “Core Strengths” or “Strategic Capabilities”) is used.

Business capabilities are used to build the operating model by determining the resources required to accomplish each feature. The strategic architecture uses business capabilities to develop business competencies and core abilities.

Essential Features Of A Business Capability

Business capabilities have certain essential features:

Stability:  The company’s needs for business capabilities are constant and won’t alter unless the business model undergoes a significant change. This is because a business must be capable of doing specific tasks as frequently as they change. For instance, checking in for a flight could only be done in person. You can now register online or at a self-service kiosk in the airport. Although it is still possible to check in for a flight, the process has changed dramatically.

Uniqueness:  Businesses have specific and clearly defined skills. It does not repeat in the model or combine with another feature. One feature in the model might only mention “Case Management” once, but it is probably a property of several other features. But because these features established a dependency relationship on the model, they are only called once and linked to other properties.

Decomposition:  Lower-level capabilities are separated into business capabilities; these detail the more specific characteristics necessary for the higher-level skill. For instance, “ customer management ” is highly abstract, and people will have different interpretations. High-level concepts must break it down into lower-tier characteristics that demonstrate the essential capabilities to eliminate this.

Building Your Business Capability Model:

A business capability model requires both science and art to build. Since it is neither a start-up nor a small company, its development requires a gradual and iterative strategy based on corporate priorities.

Identifying current capabilities is the initial stage in the case of an existing organization. It’s easier to develop a basic structure and develop it from the bottom up by speaking with the organization about the skills they need in a specific area. This is sometimes treated as a top-down activity.

If a new business model is created, business capabilities should be outlined as part of the business model and strategy. If you use business model design, switch the business model view to “Key Functions” and “Key Resources” to emphasize the crucial components of the company on which the business model depends.

A definition and a name are the two components of a business capability. A precise, unambiguous, and thorough definition is necessary. It must always be expressed as “the capacity to do x.” This takes time; for instance, “brand management” may be a well-known concept, but it may be difficult to define it in the context of your organization.

The business capability entry must be related to the definition. A noun, a compound noun, or a noun should be used, such as “creativity,” “strategic planning,” or “customer management.”

Determine each business’ capacity before building a model of that capability. These should then be grouped to form a logical framework. Then, further, dissect each business capability to find specific features that are distinct, clearly defined, and demanding in and of themselves. Noting that understanding lower-level competencies can help you better grasp higher-level competencies frequently aids in ultimately defining a high-level business capability.

“Normalization” comes after the basic model has been created. By doing this, all redundant business pieces are eliminated from the model. Typically, a business capability model’s initial draft contains a few dispersed examples of the business capability (especially if it was developed from the bottom up). The normalization process entails locating them, grouping them under an individual business capability, and establishing connections within the model. Keep in mind that overlap might happen on several levels and at any tier of the model.

They have included a straightforward, functional example below centered on finance, a dull but crucial business component that every company requires.

deloitte business capability model

The following phase is to determine the organization’s core competencies, or those people or groups of business skills that, currently or in the future, will be essential to the company’s success. The title and definition of the core competency are once again present. As part of the process of strategic planning, this must be done.

The last stage of establishing connections with your operating model is determining the resources connected to each business capability. Below, we go into more depth about this phase.

In reality, it is doubtful that you will create a flawless business capability model the first time. An original high-level version or a version that concentrates on particular business sectors are the versions you are most likely to generate. Remember to keep this in mind when developing the model, mainly if you use it to construct relationships with other design aspects — unless you are up for a lot of rework! You will likely need to report on the framework as you expand it further.

Your business capacity model must include your key partners and the extended organization. Once more, procurement is about “how” rather than “what.” Don’t fall into the trap of believing that simply because you’ve outsourced something, your company strategy no longer requires talent. Honestly, you can have a different perspective while creating a model on what to externalize and what to retain inside.

You should consider this when creating a business competency model if your business model depends on teamwork.

Identification of the resources needed for each business capability—or, more precisely, the connections between the capabilities and the operational model, such as processes, people, location, and IT planning areas—represents the last phase in the construction of the business capability model. Business capabilities have a unique and compelling advantage in the IT sphere, which requires special attention.

Business Capabilities Enabled By Technology

From the perspective of IT design, the business capability model has a vital component since it lends itself well to logical IT design, especially in IT Services Oriented Architecture (SOA). For this purpose, the business capability model—which primarily provides a direct link between business planning and IT—is frequently referred to as the “Rosetta Stone” of organizational design.

The strategy is to break down a business capability into a level that identifies a clearly defined capability offered by a single technological resource, commonly referred to as an “IT capability.” The components are divided into “logical application components” or “logical IT services” and then grouped (in the case of SOA).

By describing IT capabilities, you efficiently specify high-level; IT needs that may be utilized to influence the delivery of simple, reusable IT services directly. Remember that IT features are permanent, just like all other features. The exact IT requirements need only be defined once to avoid the issue that most businesses face. They must define the exact IT requirements across numerous instances, and generations of the same enabled IT.

Putting Business Capability Model Into Practice

The Business Capability Model has a variety of applications beyond just aiding in creating an operating model and purchasing decisions.

Investing Choices:  The organization has already created business skills in several areas if the business capability model is established within an existing operation. A business capability model is most frequently used to assess how these current capabilities (the current state) compare to the necessary strategic capabilities (the future situation) and to choose investment priorities. A heat map is created that shows the areas of the business that still require improvement and pinpoints work programs and projects that will build the necessary capabilities and offer new or modified business services.

Management Of The Lifecycle (Or Portfolio) Of IT Assets: For managing the lifecycle of IT assets, including IT services as well as the underlying technologies and infrastructure, the Business Capability Model offers a solid foundation. You may understand better how the lifecycle of these assets affects your business, such as the level of risk if they are approaching the end of their lives and where investors should invest. Suppose you know the relationship between these assets and your business capabilities. Relationship mapping can also be used to spot technology duplication or the availability of multiple solutions for a given business capability. It is also usual to see numerous case administration platforms and solutions used in various regions of the organization if you use a frequently required business capability, such as “Case management.”

Strategic Mindset A business capability model can be used to assess the impact of existing flight operations or new projects that are not directly related to the application of the business capability model, that is, the business capabilities that the project enhances. To make sure the project is aligned correctly, apply this assessment. In the course of such an exercise, it is not unusual to suspend an ongoing project.

Acquisitions And Mergers: When two organizations strategically merge, they can use the Business Capability Model to compare each organization’s business capabilities and how BMC might utilize them within the new, merged organization.

Implementation Of Industry Reference Models

It is easy to believe that all businesses in a particular industry need the same services, such as insurance, financial services, and logistics. Because of this, much effort has been put into developing industry-specific standard BMC reference models.

In good faith, they do not advise using these models. Your BCM must align with your business strategy rather than a less innovative, industry-standard version. It must be stated in ways that represent your character and strategic goals. When it makes sense, such as when you can concentrate on describing your key competencies rather than the more broad capabilities you need, they strongly advise creating an independent definition and utilizing these templates sparingly.

Methods And Techniques Based On Additional “Capability”

In addition to the RBV methodology described here, the word “ability” is employed in other settings and with different methodologies and techniques. A quick word about one of these because it mainly generates misunderstanding in the IT industry.

The terms “competence management” and “competence planning” should not be confused with business capability modeling based on RBV. This has to do with “operational skills,” typically characterized as “things a firm needs to accomplish to execute its business plan.”

Ability refers to the direct physical embodiment of an ability, action, or function because the emphasis in this context is on doing rather than just being able to. The pooling of assets to provide a defense capability is an often-mentioned example; capability planning is heavily utilized in the defense industry.

Although ArchiMate, an EA modeling language belonging to the same source, is much more compatible with the RBV-based approach described here, capacity planning is utilized in the TOGAF Enterprise Architecture framework.

Purchasing choices and introducing “specialization,” such as with the “business modeling component,” are other examples of how competency planning is used.

It is impossible to directly relate a business capability to a function or function in RBV-based business capability modeling. It is not about actually doing something; it is merely about being capable of doing something. An author can write a best-selling book, but that does not mean it will sell well.

It can be challenging for some individuals to comprehend this distinction because it is somewhat abstract, yet it is essential to execute business possibilities in enterprise architectural design successfully. Resource planning has a problem since it is fundamentally functional fragmentation, which leads to the development or strengthening of functional silos and the fragmentation of processes and responsibilities.

Using Business Capability Models With The Togaf Standard

The 10th edition of the TOGAF standard’s key components are business capabilities and functional mapping (see reference documents). We anticipate their introduction soon as part of identifying and building an organization and enterprise architecture team (see TOGAF Standard: Architecture Development Methodology) and outlining current business capabilities and enterprise. A crossbeam for TOGAF standard coordination has been identified as “business capability management,” which identifies which business capabilities are required to produce business value.

Phase A (Architectural Vision) is when the architect determines the organization’s business capabilities to achieve its strategic aims (see TOGAF Standard: Architecture Development Methodology). The Business Capability Map’s needs are then utilized to produce a high-level perspective of the foundation and target designs.

A thorough analysis of any potential business gaps is required for step B (Business Architecture). Heat mapping is performed to find and examine these gaps in this situation. The business’s effectiveness, maturity, productivity, and cost or value of each component are suggested heat map considerations.

Strategic plans, information systems, value streams, and organizational units are used to trace back business capabilities inside the Enterprise Architecture project according to the TOGAF Standard, Architecture Development Method (Implementing Business Capabilities). This relationship mapping provides a better understanding of the aims and management of each sector.

The creation and improvement of a company or enterprise architecture are based on business capabilities. Business context is given for the underlying people, information, resources, and process that collectively provide added value in the form of goods and services for the company’s stakeholders by connecting business capabilities to their underlying components.

Business capability maps give designers and stakeholders a thorough understanding of the business, independent of the organizational structure. The model outlines what the business currently does or anticipates doing in the future. Business managers can better control the full complexity of their organization using this abstraction.

Finally, corporate executives can improve decision-making by mapping business capabilities and observing various perspectives.

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  1. Everything to Know About the Leadership Capability Model

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  3. Learn from These Capability Framework Examples

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  5. Business Capability Map and Model

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COMMENTS

  1. Architecting an operating model

    Capabilities significantly tethered to the line of business often rely on some expert ability such as localisation, R&D, product marketing, or technical sales. Those with limited relationship to the business—for instance, M&A, e-commerce and supply chain management—rely on generalist skill sets and play across the enterprise.

  2. If You Want Your Digital Transformation to Succeed, Align Your

    Sponsor content from Deloitte. Each capability has a different place within the operating model, and companies can opt for different ways to deliver similar capabilities.

  3. Business capability model

    Overview. Business capability models represent high-level views of an organization from the perspective of its business capabilities. [1] [2] [4] Essentially, they briefly describe everything that an organization can do. Business capability models are very stable and organizationally neutral in nature. They are largely independent of specific ...

  4. Everything to Know About the Leadership Capability Model

    Content is mapped to capabilities so learning opportunities are relevant, timely, and contextual, and learning outcomes are directly aligned with business outcomes. 5 key leadership capabilities . There are many ways you could define leadership capabilities. If we refer back to Deloitte's model, each is derived from complex leadership challenges.

  5. Capability Model: In-depth overview of business capability mapping

    A capability model (or business capabilities map or capabilities model) is a structurally sound and internally logical group of capabilities, which conforms to a MECE model (Mutually Exclusive, Collectively Exhaustive.) For example, one can combine a bunch of underlying capabilities to manifest a "Sales" or a "Sales Management Capability.

  6. PDF Digital Capabilities Model for Supply Networks

    The model starts from level -1 Capabilities, which are depicted in the six nodes of the graphic on the left. • Each Capability has close ties with every other Capability, as portrayed by the relationship lines. • Every level -1 Capability has a series of level -2 Capabilities, which provide the exact content an

  7. Business Capability Model Explained with Examples

    A business capability model is most frequently used to assess how these current capabilities (the current state) compare to the necessary strategic capabilities (the future situation) and to choose investment priorities. A heat map is created that shows the areas of the business that still require improvement and pinpoints work programs and ...

  8. Digital Capabilities Model (DCM)

    Call us at (800) 444-2742 or complete the form below to connect with our Corporate Development team. ASCM's Digital Capabilities Model (DCM) helps companies assess their current capabilities and plan for the future - a future in which digitization leads to supply chains that are resilient against threats and disruptions.

  9. Insights to Action

    Level 1: Controlling & Bureaucratic. Organizations at Level 1 equate PM with an annual appraisal. Programs are historically focused, administrative, and HR-mandated to compensate for a lack of trust in business leaders and the workforce. Given the compliance orientation, it shouldn't be surprising that a command-and-control culture is common ...

  10. Digital Capabilities Model for Supply Chain

    Enter the Digital Capabilities Model (DCM) for Supply Networks. A collaboration between ASCM and Deloitte, the SCOR-compatible model helps professionals envision and build digitally-enabled capabilities required to transform their supply chains into dynamic networks. "When we invented DCM, we ensured it was fundamentally underlain by what can ...

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    The company that ushered in the generative AI revolution with ChatGPT just announced its newest flagship model, GPT-4o. The model is said to be faster and have enhanced capabilities across text ...

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    This Heads Up addresses the FASB's recently issued Accounting Standards Update (ASU) No. 2023-08, Accounting for and Disclosure of Crypto Assets. The ASU requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the ...