This post has been updated, and all updated text should be highlighted blue.
I was asked the question I love to get the other day, “what do you mean by capability?”. I usually try to be brief when I explain my point of view and so I was this time to. However in this post I’ve elaborated somewhat on the details of my explanation. This is not the last answer on this topic but it will give an indication to how I’m currently viewing capabilities.
My first attempt at getting some sort of definition down
Only a “whole” can contain a capability. Thus a human or an organization could be said to be able to posses capabilities to perform a certain set of activities that will ensure delivery of an anticipated value. An application, a device or any combination of products and services can not be said to be able to contain capabilities. Applications, devices and such types of things contain functions. These functions are at times marketed under the label “capabilities”, but they are functions nothing else.
Where I am now NOT including the above
I once created a 7 day training on Enterprise architecture from a holistic and practical perspective. In that course on day five or six it must have been, I challenged everyone to explore the possibility of viewing a complete business model as one capability of the business. Why may I have this view on capabilities one may ask. The business model as I’m used to describe them is a static description of how the enterprise will service the customer, as well as how it will utilize the services of other organizations. In my mind this idea of business models as capabilities fits well with the notion that only animate and social systems can be purposeful (1).
- The business model is a complete architecture description in such a sense that it covers the whole that we seek to explore.
- The business model represents a high level perspective of the detailed architecture.
- Using the business model as a foundation we can detail things as far as we need to understand them in a solutions perspective.
- When a business model needs to change there is a possibility that the underlying capability will need to change.
- We can pre-produce business models and put them on the shelves.
- We select the business models we would like to use.
- Business functions in general is a configuration used across a set of capabilities.
Some rough definitions:
- Business model = A static description of what a business must coordinate to meet a coherent set of value propositions.
- Value proposition = The perceived value of the products and services offered as viewed from the customers perspective.
- Customer segments = The way we segment the customers and non-customers in the market as targets for the offered value propositions.
- Customer relations = The link we maintain between the customer segments and the value proposition.
- Processes = The activities we need to perform to be able to service the value propositions.
- Value network = The partners and suppliers we work together with in our processes.
- Resources = The things and competences we use in our processes.
- Costs = The collection of costs accrued by executing the business model.
- Revenue = The collection of revenues generated by the customer segments as they consume the value propositions.
What is a complete business model?
One may ask what do I mean by a complete business model, and why is that different from any one business model? When I use the business model framework I may use it on different levels within an enterprise. Using the business model framework like this means that there will be business models that are not of a directly value creating perspective, rather they are supporting the value creation/value consumption. The easy way to spot these supporting structures is to look at the customer segments. If there are only enterprise internal customer segments then this is a supporting business model. I would not consider a supporting business model a capability but rather a function that must be performed within a larger structure. I do however consider it appropriate to use the business model framework as a means to design and link these supporting functions.
Why is a supporting business model a business function and not a business capability?
A supporting business model as one could construct for human resources, finance or IT has no intent outside of the intent of the complete business. Yes you may very well have HR-, Finance- and IT-strategies but they are just relative to the business strategy. Each business function maintains its autonomy relative to the constraints set by its environment, but contributes to the production of the larger enterprise system. Each and everyone of these business functions will make use of parts of the capabilities available to the enterprise, but that does not make them a capability of their own right. As I’ve come to see it there there is a true difference between a business function and a business capability. Let me make it clear that what I describe in this section is not aimed at defining what makes up a business model or a business function, it is about using a tool designed to find business models to find candidate business functions.
The good things with this definition
If one use the definition that I’ve described above then
- There will not be an abundant of capabilities floating around in the enterprise.
- The very small set of capabilities is the focus of the entire enterprise.
- There is no need for capabilities within capabilities.
- Functions clearly hold their own right to be in the architecture.