Retail business capability model

Theory: What is a Business Capability? A business capability is an ability or capacity for a company to deliver value, either to customers or shareholders. Business capabilities are a useful abstraction because they represent the next level of detail beneath the business strategy. A business capability consists of three major components: business processes, people, and physical assets.

There are two kinds of capabilities: customer-facing and operational. Customer-facing capabilities directly deliver value to customers. A network of retail stores, a product or service offering, or a transportation service such as rail or air are all examples of customer-facing capabilities. Operational capabilities deliver value to shareholders instead of customers. Examples of operational capabilities include strategic planning, mergers and acquisitions, and financial planning.

Business capabilities are extremely valuable as a mechanism to translate strategy into action. First, they represent discrete ways a business generates measurable value, so we can associate benefits and costs with them. Second, capabilities are hierarchical. They can be modeled using parent/child relationships, allowing us to understand them at multiple levels of detail. Third, they can be managed as assets. We can think about them as a portfolio of investments and proactively manage them to meet or exceed a target return on investment. Finally, business capabilities allow companies to create sustainable competitive advantage through unique combinations of people, processes, and physical assets.

Practice: Business Capability Modeling Techniques

Business capabilities can be modeled using a variety of simple techniques, using low-cost tools. There are four steps to create a capability model:

1. Develop the capability hierarchy.
2. Identify key relationships between capabilities and other planning elements.
3. Develop demand models for the capabilities.
4. Develop financial models for the capabilities.

Develop the Capability Hierarchy

To complete the first step, collect information about the organization’s capabilities starting with customer-facing capabilities. Since most companies do not use the term “business capabilities” to describe the capabilities they bring to market, the architect may have to derive the capabilities from other kinds of information. Useful sources of information about capabilities include annual reports, interviews with business planners and line-of-business leaders, strategy documentation, business process models, product/service marketing materials, and the company’s organization chart.