7 years, 6 months ago

On Enterprise Capabilities

In enterprise change environments – be they driven by architecture, process improvement, supply chain transformation, or any other kind of organisational change – we often focus on capabilities. As an example:

  1. “Business capability” is the ability for the organisation to perform a certain function, process, or service in order to serve a particular market, client, or stakeholder.
  2. “Technical capability” is often regarded as having the technology platforms and skills to better support a particular business capability.
  3. “Personal capability” is about having skilled and trained people who can perform their work activities to very high standards and with minimum errors or rework.

But what exactly is a capability anyway?

The Dictionary View

Merriam-Webster defines a capability as:

  1. the quality or state of being capable; also :  ability
  2. feature or faculty capable of development :  potentiality
  3. the facility or potential for an indicated use or deployment <the capability of a metal to be fused> <nuclear capability>

Similar, Oxford Advanced Learner’s dictionary provides the following definitions:

  1. the ability or qualities necessary to do something
  2. the power or weapons that a country has for war or for military action

The Systems Engineering View

Wikipedia has many different references to different definitions of capabilities, but what comes closest in the field of enterprise change is probably the article about Capability Management, which has its roots in defense and military theory:

“Capability management aims to balance economy in meeting current operational requirements, with the sustainable use of current capabilities, and the development of future capabilities, to meet the sometimes competing strategic and current operational objectives of an enterprise.”

In a similar article on capabilities in systems engineering Wikipedia furthermore claims:

“A Capability, in the systems engineering sense, is defined as the ability to execute a specified course of action. A capability may or may not be accompanied by an intention. The term Capability is used in the defense industry but also in private industry (e.g. Gap analysis).”

A capability is thus the ability to perform and execute a certain operational plan, intent, or course of action. If the capability to do this does not exist, future state and gap analyses are put in place in order to build an implementation plan for how to build and deliver the capability. This sounds very much like what Enterprise Architecture sets out to solve in the first place. Note that the main sources for the Wikipedia articles are defense-related architecture frameworks such as DODAF and MODAF.

In the context of the service-oriented enterprise, capabilities are often used to express the business services offered by the organisation. Capabilities are organised in a simple functional catalogue or repository, which is also called a capability map or capability model. For instance in the context of a financial services provider, a sample capability would be to “Manage Load Requests”. At this point we have sufficiently blurred the semantic boundaries between capabilities, services, and business processes so that the words do not carry much value anymore.

The Business School View

Makadok (2001) provides a different, more stringent and academic definition of capability management (or capability building as he calls it) and how it links to the resource-based theory of the firm (Grant …). The theory of resource picking, as it is also called, asserts that firms can gain economic advantages by being better than their competitors at selecting and protecting resources. Resources, in this sense, can be anything from a physical or natural asset (minerals, mines, a particular equipment or technology, etc.) over people and talent (specialised engineers or researchers) to intellectual capital (software, patents, blueprints, etc). The theory of capability building then focuses on how firms can gain competitive advantages by deploying these resources in an optimal manner. Capabilities express the firm’s capacity to deploy, utilise, and leverage its resources in combination with its business processes in order to deliver a certain value to a particular market and customer. Capabilities bring the physical, intellectual, and skills based resources of the company to life.
A second, very important distinction between resources and capabilities is that resources can easily be transferred to a competitor whilst capabilities are deeply embedded in the ongoing learning, culture, and processes of the organisation. A patent, source code, or blueprint can easily be copied or sold to a competitor, but the knowledge and behaviour of how to utilise is much harder to replicate. Capability building is thus largely about institutionalisation and retention of good business processes and cultural practices, which rely and operate on the resources available to the firm.

Towards a Stringent, Uniform Definition of Business Capabilities in EA

Makadok’s definition is extremely relevant to the various enterprise disciplines because it adds semantic rigour arounds the words and buzz. Where the former definitions of capabilities, from capability management over capabilities as systems to capabilities as services, are somewhat ambiguous, Makadok adds theoretical meat on the bone by using formal definitions rooted in the theory of the firm.

Business designers can start drawing capability maps first by starting with the most important resources the organisation has at its disposal. The capability map will then automatically flow from these resource maps by investigating what processes, functions, departments, and systems operate and depend on these resources with respect to the surrounding markets and the wider supply chain. Finally, and this is probably the most important step, the capabilities can be explicitly linked to the surrounding macro- and microeconomic factors and forces and thereby link the business architecture and operating models to both the inside-out and outside-in parameters, which determine the probability of strategic success.

References

  • Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-capability views of rent creation. Strategic Management Journal, 22: 387-401.
  • Grant, Robert M. (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review, 33 (3): 114-135.