The Case for Capability Modelling

Most architects will have heard of capability models, but some may be unsure what benefits they bring, how to create them, or, perhaps more importantly, how to use them. Find out more with this short introduction to capabilities and capability modelling.

What are capabilities?

Capabilities represent the overall potential or capacity of an organization to perform certain tasks or achieve specific goals: namely fulfilling its business objectives and delivering value.

They are:

• What an organisation does to achieve its strategic objectives: that is, the activities an organisation performs that are critical to its success. Capabilities are observable, tangible, and can be managed, but do not specify ‘how’ an organisation goes about those activities.?
• Self-contained and should not overlap: Each capability should have a well-defined scope, indicating the boundaries of its responsibilities and the extent of its coverage.
• Extend across organisational boundaries: they are not aligned to an organisation’s hierarchy in terms of its structure. For example, while a finance capability may be fulfilled – in whole or in part – by the organisation’s Finance department, such alignment should be considered coincidental at best.
• Usually grouped into higher-level, functionally coherent groups: such as Finance, Operations, Sales & Marketing etc.

Capabilities are often interrelated and can have dependencies on other capabilities, and they require resources (people, infrastructure, data etc.) to operate. Capabilities can, and do, evolve over time but are usually static in the short to medium term.

Naming convention

The first step in identifying capabilities is to name them. Capability names generally take a noun-verb format, with the noun part referencing a unique business object and an associated activity as the verb. For example, Project Management, Resource Planning, Opportunity Qualification, etc.

Capabilities, Departments, and Processes

Often, when creating first creating capability models, modellers tend to confuse capabilities with other taxonomic or functional facets of the organisation and its business. Departments and business processes being two sources of confusion.

• Departments - Capabilities are not the same as departments.?Departments are functional units or divisions within an organization that are responsible for specific areas of work and are typically organized based on the different functions or activities performed within the organisation, such as finance, marketing, operations, human resources, etc. with each department focusing on a particular aspect of the organisation's operations and having its own set of responsibilities, goals, and objectives. They provide the organisational structure that helps manage and coordinate the different functions and activities required to effectively leverage the organisation’s capabilities. Whilst an organisation’s capabilities tend to remain relatively static, its organisational structure can change. Any similarity between departments and capabilities should be viewed as coincidental at best. Although, it is useful to understand which departments are responsible for fulfilling a specific capability.
• Business processes - Capabilities are not the same as business processes.?Processes define the specific sequence of activities that need to be followed to achieve a desired result. They provide a structured approach to accomplishing goals and ensure efficiency, consistency, and quality in the execution of tasks.

The easiest way to think about this is that, if a capability is something an organisation does (the what) , processes are how they do it, whilst departments are who does it.

The key benefits of capability models

1. Understanding: In the same way as with other strategic analysis tools (value-chain etc.), capability modelling helps you better understand your business
2. Communication: A single view of the business enables a common language underpinning internal and external communications
3. Strategic planning: By identifying its core capabilities, an organisation is better placed to identify, develop, and refine its strategic goals and objectives.
4. Business transformation: Capability models are useful when defining a target operating model, especially when looking at business transformation
5. Capability planning: An organisation can identify the core capabilities that it needs to achieve its goals and objectives, and develop a plan to build, enhance, or acquire those capabilities over time
6. Risk management: Capability models highlight any gaps or redundancy, critical activities, underfunding or underperformance, and enable an organisation to better understand and mitigate its business risks
7. Performance management: By using a capability model to identify areas for improvement, and then tracking the performance of these capabilities over time, an organisation can improve overall performance
8. Business process improvement: While capabilities are not processes, there’s a strong tie between critical business capabilities and their underlying processes. By identifying poorly functioning capabilities, it’s then possible to focus investment on improving those areas and any underlying processes
9. Talent management: An understanding of what the organisation does – and specifically what it does well or not so well – can help to focus funding for future talent-management activities. This ensures the organisation is better able to recruit new personnel with key skills, or upskill existing staff

Value chain modelling

Combining capability modelling with value chain modelling ([1]) is especially useful in identifying gaps, redundancy, and – ultimately – areas for improvement. Both feed into strategic planning, which enables the organisation to better align itself to its objectives, and to prioritise any subsequent business-improvement opportunities and investment.

Heat maps and city plans

Capability models can also be used to create heat maps showing –?for example – the relative maturity of specific capabilities, areas for investment, and pain-points. When overlaid with systems (resulting in what’s often called a ‘city plan’) they can show technology coverage within the organisation, which in turn can be used to highlight duplication, gaps, and critical systems coverage, which can then help to better focus future technology spend.

How to create a capability model

Capability modelling is an iterative and collaborative process. There are several key steps to defining a capability model.

Top tip: don’t be too keen to rush in and create a visual representation – it’s best to collate the information first, before deciding how to present it.

1. Define the scope

Which business-units are you looking at, and are you restricting yourself to key areas within those business-units? I advise looking at the entire enterprise, as this makes for a more comprehensive view of the business, and it’s harder for things to fall down the cracks. However, there may be times when you need to constrain yourself to a particular business domain or business unit. Just make sure that the scope is clearly defined.

2. Identify the capabilities

It can be notoriously difficult to create a coherent capability model in isolation, so this should be a collaborative exercise involving representatives from key business-units and departments. By all means, create a strawman, but expect to then walk through this, adapting it as necessary, with your business stakeholders.

Interviews work very well, but the most effective approach in my mind is workshop-based. Clear a wall, get lots of coloured sticky notes, and ask people to start brainstorming (note there are alternatives to brainstorming if this doesn’t work for some group members –?for example, brainwriting, and brain-dumping). Just don’t rush to bring out your favourite mapping software – you may get too invested in how it looks, and resistant to change (since change means effort in these tools).

Don’t be afraid to remove duplicate capabilities, or ones that are not applicable (don’t throw them away, just park them to one side – you may want to return to them at some point).

Finally, don’t worry about creating the perfect capability model – it just doesn’t exist. Instead focus on building one that’s good enough for your immediate purposes. These models tend to be stable over time and, short of a seismic shift in business focus, they can be tweaked as your understanding of the organisation grows.

3. Top-down versus bottom-up

With a top-down approach, you establish the higher-level capability groups (usually referred to as level-1 capabilities) before trying to identify the capabilities belonging to each group.

Personally, I find this to be a less effective approach as it is often harder to anticipate the relevant groups in advance and this can cause you to become fixated on organisational taxonomies etc. as your starting position (see elsewhere in this article for why this is a bad idea). It can also cause you to become somewhat blinkered and reluctant to remove, amend, or add new groups as necessary.

Instead, I prefer the bottom-up approach whereby you identify all the candidate capabilities before looking to collate them into higher level groups. Whilst this requires some work, it is work that will be needed anyway, and it tends to lead to more effective models and less effort overall.

4. Build a visual representation

Once you’re happy you’ve captured the key capabilities, and have grouped them appropriately, then it’s time to decide how you want to represent them. Again, there is no right and wrong format. You can find lots of examples online, all varying in complexity.

I like to keep my models as simple as possible, adding complexity only where necessary and where doing so adds real, tangible value. Figures 1 and 2 below illustrate a capability model I recently created for a client. In this example, I have aligned the capabilities against an organisation’s value chain. This tie-in can add an extra level of validation, positioning you to better spot areas for refinement. However, for some clients – especially those new to these approaches – even this can be a layer of complexity too much. Go with what feels right for the organisation. Often a simple grid layout will suffice.

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I tend to use mind-mapping software for this part of the process as it allows me to move things around quickly whilst still seeing the bigger picture. It’s also often easier than trying to do it in a formal capability modelling tool, even though this may be where your model ultimately sits. Use whatever works for you. Post-its on a wall are also an effective tool.

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5. Final check-in with stakeholders

Once you have the model in a state that you are happy with, play it back to your stakeholders. This is really a final sanity check, and don’t be surprised if you find that more changes are needed as a result. Capability modelling is an iterative process and requires collaboration with the business. Don't be afraid to amend the model but, as always, ensure you understand why a change is being made.

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Look and feel

If you do a search on the internet, you will find lots and lots of examples of capability models. All very different. Some incredibly complex, some less so. As usual, my advice is to start with as simple a version as works for you. Consider your target audience, and the use that is going to be made of it. There’s no such thing as a wrong answer, only one that is more, or less, effective in a particular instance. Be prepared to adapt your style as necessary, and don’t be afraid to use colour, although don’t go overboard here.

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[1] For more information on value chains, please refer to Michael Porter’s seminal work on the subject: Competitive Advantage: Creating and Sustaining Superior Performance, first published in 1985 (ISBN:0-7432-6087-2)

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And finally…

If you’re not already embracing capability models, I hope this article will be a catalyst for you to at least start evaluating what is in effect a very useful tool.

Good luck – I’m very happy to hear feedback or answer questions, and can be contacted via email at [email protected] or directly via LinkedIn.