Business Capability Analysis
A business capability is what an organisation is able to do in order to create or protect value: claims management, the pricing of a policy, product development. Named by a noun phrase, it acts on a business object and it outlives the department that exercises it, the process that executes it and the software that supports it. Business capability analysis maps these capabilities, then scores each one on a few dimensions agreed in advance: importance to the strategy, performance gap, risk, maturity. The deliverable is that map and its assessment, whose colours form the heat map: it says what falls inside the scope of a change and in which order to commit the spend.
Goal
Business capability analysis is the inventory of what an organisation is able to do, followed by the assessment of each entry. A business capability is what the organisation knows how to do in order to create or protect value. The inventory takes the form of a capability map that the assessment scores dimension by dimension.
The technique serves three decisions: the scope of a project, the ranking of competing investments and the design of a target operating model. All three are handled in a single vocabulary, read the same way by management, by finance and by IT. The BABOK (§10.6.1) places the technique as a scoping and prioritisation filter that produces a shared understanding of the outcomes expected.
Capability, process, function and value stream
Four objects describe an organisation and they get mixed up in most workshops. The capability says what the organisation knows how to do. The process says how it does it: a sequence of activities that exercises one or more capabilities to produce a result. The function says who does it and where: an organisational unit that holds capabilities. The value stream says the end-to-end path, triggered by a stakeholder need and completed when the value is handed over; every one of its steps is made possible by capabilities.
| Object | Question | Example | Lifespan |
|---|---|---|---|
| Capability | What the organisation knows how to do | Claims management | Stable as long as the business stays the same |
| Process | How the work gets done | Handling a claim notification received through the portal | Rewritten at every automation or change of tool |
| Function | Who does it and where | Claims department, Lausanne site | Redrawn at every reorganisation |
| Value stream | Which path leads from the need to the value handed over | From the claim notification to the policyholder's reimbursement | Stable in its intent, variable in its steps |
The test is stability. Reorganise the company: the capabilities change function without changing themselves. Replace the software package: the process is rewritten, the capability stays. The BABOK (§10.6.2) puts it this way: as long as the enterprise stays in the same line of business, the capabilities it needs remain constant, even when the method of execution changes beyond recognition. One capability makes steps in several value streams possible.
The confusion shows on the map. A box named "Handling a complaint" describes a process; a box named "Claims department" names an organisational unit. In both cases the map loses the property that made it useful, its lifespan. The correct wording names what the organisation knows how to do: "Claims management".
Usage
When to use it
- Framing a transformation programme: name the capabilities affected before carving up the projects.
- Prioritising a portfolio: compare competing investment requests on one and the same scale.
- A new product or a new market: establish whether the organisation already knows how to do what the offering demands.
- Target operating model: decide capability by capability between building, buying, sharing and dropping.
- Merger or acquisition of a business: overlay two maps to find the duplicates and the holes before integrating.
- Silos with no common language: give units that share neither process nor system one reference to discuss against.
When not to use it
- No agreement to collaborate between the units: a map built by one of them aligns nobody; the stakeholder list and map establish who has to sign up to the model.
- A question confined to a known process: for a bottleneck already located, go to process analysis.
- A decision to be taken within days: the mapping workshop costs more than it returns; use multi-criteria decision analysis on the options at hand.
Building the capability map
The levels of decomposition
The map is built from the top down. The first level sets out domains that cover the whole enterprise. The second breaks each domain into groupings of capabilities. The third breaks those groupings into individual capabilities. The BIZBOK Guide (chapter "Capability Mapping") and the TOGAF guides agree on this depth of three levels for strategy and portfolio decisions. They put the first level at between five and a dozen domains depending on the size of the organisation. The level at which the assessment and the funding are decided is the second or the third: a mid-sized health insurer decides at the second, an international group at the third. Going deeper than that across the whole map usually signals that the modeller has slid into describing a process, since the question being asked has gone back to being how the work is done.
One capability, one box
Each capability appears once on the map, even when several units exercise it. The BIZBOK Guide makes this a rule for building the map, and the BABOK states it in the same terms (§10.6.3.1). This discipline makes the map usable for a portfolio decision: two units that exercise the same capability without knowing it fund the same tool twice; the map shows both spends under a single box. Duplicating a box under two domains because two divisions claim it takes the map back down to an organisation chart.
Customer relationship
Claims management
Products and underwriting
Compliance and risk
Naming and attaching the name to a business object
The BIZBOK Guide (chapter "Business Capabilities") attaches every capability to the business object it acts on: "Claims management" acts on the claim, "Pricing" acts on the policy. The object supplies the decomposition test: a child that changes object belongs to another parent. The name stays a noun phrase.
Assessing the capabilities
The assessment turns the map into an instrument of decision. It gives each capability a level on a few agreed dimensions. The literature holds no single set of dimensions: the BABOK's figure (Figure 10.6.1) names business value, customer value, the performance gap and risk, each scored high, medium or low. The BIZBOK Guide (chapter "Capability Mapping") and the practice of the mapping tools keep a similar set: strategic importance, performance, risk and maturity. The BABOK records the absence of a standard notation for capability maps (§10.6.3.6). The organisation settles its own set and its own scale before it scores, failing which two assessments six months apart cannot be compared.
Two dimensions need a definition. The performance gap is the difference between current performance and the performance wanted in the light of the strategy (§10.6.3.3): it presupposes measures that exist or have to be established, through benchmarking or through the metrics and key performance indicators already in place. Risk sits in the exercise of the capability or in the failure to exercise it; the BABOK (§10.6.3.4) distinguishes four families: business, technology, organisational and market. Risk analysis and management supplies the scale for grading them.
From the assessment to the heat map
The heat map is the capability map with each box carrying a colour according to its assessed level. The BIZBOK Guide's "Capability Mapping" chapter describes two forms of it. The first gives one colour per capability, which forces several dimensions to be melted into a single score and erases the contradictions between them. The second repeats the list of capabilities in columns, one per dimension, and colours each cell; the BABOK's grid (Figure 10.6.3) is an instance of it. The second form is preferable because the contradiction is the information that decides: a capability that performs poorly but carries little risk does not call for the same trade-off as a capability that performs well but whose failure would be expensive.
The warm colour marks the level that calls for attention, which inverts the scale from one column to the next: the legend carries that convention, without which the map reads backwards on one column.
Pitfalls to avoid
The most frequent defect is the map that reproduces the organisation chart: the first-level domains carry the names of the divisions and each box repeats a department. That map dies at the first reorganisation and it reveals no duplication, since two units doing the same thing each keep their own box. Organizational modelling describes the structure; the capability map describes what the structure knows how to do.
The second defect is exhaustiveness. A map taken down to the fourth or the fifth level runs to several hundred boxes, costs months and serves no decision, since no committee deliberates on three hundred lines. The useful depth is the one that allows a trade-off: one further level is opened only on the capabilities the assessment has singled out.
The third defect is an assessment with neither data nor challenge. Scored by one analyst, the heat map reflects the opinion of its author, and the organisation rejects it the moment it discovers the colours. The BABOK lists this among the technique's limitations (§10.6.4.2): built in a vacuum, it misses its purpose of alignment. Defining the capability model and the value criteria used to score it takes collaboration across the units. Finally the map points out the weak capability and stops there: the remedy is sought through process analysis, through root cause analysis or through a redesign of the organisation, according to what is blocking.
AI considerations
A language model speeds up the first draft of the map. Fed with job descriptions, internal procedures and the application inventory, it proposes a decomposition into domains and capabilities that the analyst corrects and cross-checks. It spots naming duplicates in an existing map, two boxes that say the same thing under two labels. On a portfolio of projects or requests, it attaches each item to a capability and shows where the investment is already concentrated, to be set against the declared priorities.
The scoring stays human and negotiated. A model knows neither the unwritten strategy nor the political history of a unit. It produces a plausible score for any capability put to it, including where no measurement exists, and an invented heat map is indistinguishable from one built on real readings. Every level is therefore tied back to a measurement or to a dated agreement between the people who hold the capability. Data sensitivity sets the second limit: the application inventory and the claims statistics that feed the exercise stay within the data processing that has been authorised, which rules out pouring health data into an online service to have a capability scored.
Examples
Alpina Assurances SA is a mid-sized health insurer in the canton of Vaud, active in basic insurance (KVG/LAMal, supervised by the Federal Office of Public Health) and in supplementary cover (VVG/LCA, supervised by FINMA). Seven second-level capabilities under three domains, scored on four dimensions.
| Domain | Capability | Strategic importance | Performance gap | Risk | Maturity |
|---|---|---|---|---|---|
| Customer relationship | Policyholder affiliation | Medium | Medium | Low | Medium |
| Customer relationship | Claims management | High | High | Medium | Low |
| Customer relationship | Policyholder support | High | Low | Low | High |
| Products and underwriting | Product development | High | Medium | Medium | Medium |
| Products and underwriting | Pricing and underwriting | High | Low | Medium | High |
| Compliance and risk | Regulatory compliance (KVG, VVG) | High | Low | High | Medium |
| Compliance and risk | Actuarial risk management | Medium | Medium | Medium | Medium |
Two rows carry the decision. Claims management combines high importance, a high gap and low maturity: it is the first investment, a claims digitisation programme costed at CHF 2'400'000 over eighteen months. Regulatory compliance shows a low gap and a high risk, because the process holds but a breach is expensive, which justifies CHF 900'000 of control automation. Reading the performance gap alone would have picked the first and left the second out.
Cost
The effort concentrates upstream of the workshop: the preparation costs more than the drawing of the map and decides the value of the result.
| Phase | Level | Justification |
|---|---|---|
| Preparation | High | Getting the units to agree on a shared model, bringing together the people who hold the capabilities, settling the set of dimensions and its scale. |
| Execution | Medium | Two to four workshops for the first two levels; the scoring adds one session per domain. |
| Documentation | Medium | Every assessment is kept with its date so that the comparisons over time hold. |
Tooling
A whiteboard and sticky notes are enough for the first draft: the discussion about what a box is called is the work, and a medium you can move around serves it better than a tool. A spreadsheet then carries the assessed list and its colouring, through conditional formatting, which covers a one-off exercise on a few dozen capabilities. A diagramming tool keeps the map cleanly drawn for communicating to management.
Beyond that, the enterprise architecture repositories (Bizzdesign, LeanIX, Ardoq, MEGA) are the tools built for this use: they hold the hierarchy of capabilities, cross each capability with the applications that support it and the value streams it makes possible, then regenerate the heat map at every assessment campaign. The cost of the licence and of keeping it fed is justified only if the model is maintained year after year, failing which the organisation pays for a repository to produce a map the spreadsheet would have delivered.
Sources
- Business Architecture Guild, A Guide to the Business Architecture Body of Knowledge (BIZBOK Guide), chapter "Business Capabilities": the definition of a capability, its attachment to a business object, the levels of decomposition and the naming rules. The Business Architecture Guild is the body that established this instrument.
- Business Architecture Guild, BIZBOK Guide, chapter "Capability Mapping": the construction of the map, the heat map and the crossing of capabilities with value streams.
- IIBA, A Guide to the Business Analysis Body of Knowledge (BABOK Guide) v3, §10.6 Business Capability Analysis: the framing of the technique in business analysis, the uniqueness of each capability on the map, the four dimensions of its assessment grid, the four families of risk, the absence of a standard notation, its strengths and its limits.
- The Open Group, TOGAF Series Guide: Business Capabilities (G189): a second voice on the distinction between capability, process and function.
- The Open Group, TOGAF Series Guide: Business Capability Planning (G233): the use of a capability assessment for planning and for allocating an investment.