What do business capabilities look like? In abstract terms, your business capabilities are the building blocks of your organisation to carry out its most important business processes and functions. To be more straightforward, they describe what your business does.
So, how do you define your different business capabilities for business capability mapping, and what do they look like? In this article, we’ll take a look at some examples of business capabilities and how you can assess them.
What is a business capability?
Business capabilities come from your business goals. They describe the skills, knowledge, processes, systems and resources possessed by an organisation that allow it to perform core functions and business strategy. They can be used to identify and prioritise projects and make strategic decisions, driving agility and generating value in the face of change.
The importance of creating business capabilities
Business capability modelling shows all the core capabilities that work together to help generate business value. With the right combination of core business capabilities, you’ll be able to drive success and meet business objectives.
- Improves organisational performance. Business capabilities define what it is that your company does to your workforce, and instils your workforce with the means (i.e. knowledge, skills and expertise) to achieve business functions, developing employees to meet their potential. They reveal the business motivators, processes, and opportunities that drive productivity and efficiency, improving your business performance.
- Supports strategic planning. Business capabilities are a collaboration across departments, people, and processes, bringing these together under an organisation’s strategic objectives. Well-defined business capabilities provide a roadmap for an organisation’s strategy planning, and identify gaps between an organisation’s current and future business capabilities, highlighting pain points (or soon-to-be pain points) that need addressing. This allows businesses to plan and prioritise resources for strategy execution. When you don’t use business capabilities to align your strategy, different departments, people and processes work in isolation from each other rather than stepping towards your common goal. This means that your processes become inefficient, unfocused, and lacking strategic direction, leading to cost inefficiencies, poor financial returns and a lack of agility.
- Increases your competitive advantage. Business capabilities should look to the future, not just the now. This means scenario planning and better decision-making, allowing organisations to effectively manage their resources and abilities to prepare for future situations, staying ahead of the competition. When you don’t utilise business capabilities your capabilities stagnate and become dated, leaving your organisation behind while competition excels.
- Builds agility. Part of maintaining a competitive advantage is adapting to change. Business capabilities should be aligned with employees, customer demands and emerging trends to better foresee and plan new directions so that you’ll be prepared even in the event of the unexpected. Capability-based planning is crucial to delivering organisational transformation, giving your workforce the baseline skills and knowledge needed to innovate and drive the organisation forward. Without it, your company will struggle to adapt to changes in the industry.
Of course, building and creating business capabilities isn’t possible without providing learning and development. But corporate learning is broken. This is why Acorn has prioneered the first ever performance learning management system (PLMS), a dynamic AI-powered platform for L&D experiences synchronised to business performance. It’s designed to codify and operationalise business capabilities to improve organisational efficiency.
How to define business capabilities
Defining business capabilities is essential in creating a foundation for organisational success. A business capability should be derived from your business strategy as a measurable and repeatable ability that delivers value to stakeholders.
There are a few key elements business capabilities must have.
- Strategic alignment: Business capabilities need to align with the organisation’s vision, mission, values, and overall strategic direction. Ask yourself what the CEO’s strategic goals and desired outcomes are, because this will in turn inform the how of achieving those goals.
- Value delivery: They have to directly support the delivery of value to stakeholders (including customers, employees, shareholders, and other partners). As we said above, business capabilities are what you do to meet your goals, as well as your intended outcome. So, “writing content” is a process, but “content creation” is both the what and the goal.
- Sustainability: Business capabilities must be able to be consistently repeated to deliver the desired outcomes. (That is, they can’t be one-time activities.) This ensures that your business capabilities can be used to continuously drive value.
- Measurable outcomes: The way you define your business capabilities should create the opportunity for quantifiable outcomes, such as increased revenue, improved customer satisfaction, or reduced costs. If your capability can’t be measured to prove its effectiveness, then it isn’t a capability.
- Cross-functional: Business capabilities should encompass a range of functions and disciplines across the organisation. This involves collaboration across different business units and departments, but the idea is that you can’t just remove one element of the organisation and its associated capabilities from the table and expect everything to continue running smoothly.
- Adaptable: A business capability must be adaptable to changes in the business environment. You want your company to adapt to keep up with industry trends rather than reinvent what it stands for from scratch. Therefore, your strategic objectives and business capabilities stay the same, but can be tweaked slightly to deliver value.
6 business capability examples
When you build your business capability model, there are broad categories that your specific business capabilities are organised into.
Business capabilities fall under six different types:
- Strategic CSF
- Strategic firm resources
Once you’ve identified and categorised your capabilities, you’ll also need to define their competency levels.
So, without further ado, let’s look at some examples of each.
We define a behavioural capability as:
“By using the necessary information and abilities, a person is actually able to carry out a behaviour. One must understand what to do and how to accomplish it in order to successfully conduct an activity. People discover lessons from their actions’ results, which have an impact on their environment as well.”
Essentially, a behavioural capability is just a habit that employees can easily and automatically carry out.
It’s one of the more obvious behavioural capabilities, but that doesn’t mean its cliché. Communication is the ability to exchange information and ideas through speaking, writing, or technology, allowing individuals to share thoughts, feelings and ideas with others.
It’s important not just for individual contributors but business leaders as well. Communication allows for relationship building, collaboration and achieving goals.
Let’s see how it looks through levels of competence.
- Beginner: This is an ability to use common forms of communication, like face-to-face, email and phone. Individuals at this level of competency might have difficulty with more advanced methods of communication or adapting their communication style for different audiences or contexts.
- Intermediate: At this level, individuals understand a wider variety of communication styles. Unlike the previous level, at an intermediate level, individuals can adapt their communication style for different contexts and now comfortable with more complex forms like presentations, negotiations and written communication (such as reports).
- Advanced: Individuals can communicate using any form or style in any context. At an advanced level, they understand the uses of different forms of communication and when and how they can be utilised strategically, and can use it to influence others.
Organisational economist and Professor in Global Business at the University of California’s Haas School of Business David J. Teece said it best:
“The firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.”
In other words, these are the capabilities that allow you to adapt to and address industry change.
It might sound too broad to be a capability, but we promise that learning is one of the crucial capabilities to keep your business functioning.
Learning is gaining or acquiring knowledge or skill through study or experience. Generated organisational knowledge presents itself in new patterns of activity which successfully solve problems for the business. Learning helps in recognising dysfunctional routines (also known as areas of improvement) and preventing strategic blind spots.
So, how does it look in terms of competence levels?
- Beginner: At a beginner level, individuals absorb new information and apply it to their work. They learn the necessary skills to complete tasks effectively and are open to improving their skills, meaning they’re receptive to feedback, ask questions and seek resources to help them understand and learn new concepts. They may not have a lot of experience or expertise in a particular area, but they are eager to learn.
- Intermediate: Here, an individual goes beyond just absorbing new information and now analyses it for problem-solving and decision-making. They can take on more complex tasks and responsibilities and adapt to new situations and challenges. Now they’re proactive in their own development as well as that of others, by communicating knowledge and ideas to others as a mentor or guide. They may have some subject matter expertise in a specific area, but are also able to learn and apply their knowledge in other areas as needed.
- Advanced: An individual have a deep understanding of their field and think critically and creatively to solve complex problems and make decisions. They stay up-to-date on the latest developments and trends in their industry, anticipate and prepare for future changes, and think strategically to plan and execute initiatives for business success. They can effectively lead and mentor others, while also routinely seeking out new opportunities to learn and improve.
This is your company’s ability to carry out its core activities and operations in an effective and efficient manner. Operational capabilities can include the ability to produce and deliver goods and services, manage supply chain operations, and respond to market demands.
Operational capabilities are integral to running a successful business, because they have a significant impact on its overall competitiveness and performance.
This is a company’s ability to improve its processes and operations, increasing efficiency and effectiveness. It involves new technology, processes, or management methods, leading to increased productivity and competitiveness. Operational innovation allows businesses to remain competitive and continuously improve operations in response to industry changes.
Let’s take a look at operational innovation’s competence levels.
- Beginner: Individuals have a basic understanding of business principles and operations, the tools and techniques for analysing and improving them, and have strong problem-solving and critical thinking abilities. This allows them to identify areas for improvement, develop and implement solutions, and track and measure the results of their efforts.
- Intermediate: Here, individuals have a more in-depth understanding of business operations and the tools and techniques used to analyse and improve them. They can apply these skills and knowledge to more complex challenges, adapt their approach to different organisational contexts, and have some knowledge of industry-specific processes, allowing them to apply best practices and emerging trends. They have more advanced problem-solving and critical thinking skills, and are able to work effectively with teams and stakeholders to drive change and achieve goals.
- Advanced: Individuals are considered experts in their field, with extensive experience in analysing, improving, and optimising business operations. They can tackle complex, high-level challenges, and develop and implement innovative solutions driving significant improvements in organisational performance. Advanced-level competency in operational improvement also involves leadership abilities, such as developing and executing a strategic vision for improvement, motivating teams, and managing complex projects and initiatives. Individuals also have a deep understanding of industry trends and developments, and can apply their knowledge to their work.
Strategic capability (CSF)
Strategic capability refers to a company’s unique abilities that allow it to create and sustain a competitive advantage in its industry. These abilities can be based on an organisation’s intangible and tangible resources, like the skills and expertise of employees and financial resources.
Critical success factors (CSF) are a specific area or activity essential for a business to achieve its goals as set by business leaders.
Reliable designs refer to designs that consistently perform their intended function without failure or malfunction. For example, is your design robust enough to withstand normal wear and tear? Does it behave as intended? Reliable designs reduce the risk of product failures, decreasing customer dissatisfaction and financial losses for a business.
Let’s look at its level of competence in more detail.
- Beginner: Individuals can create basic designs meeting the requirements of a project and are functional and user-friendly. They have a basic understanding of design principles and apply them to their work, as well as using design software to create and edit their designs, but are also able collaborate with others and take feedback to improve their designs. They understand the importance of reliability in design and implement strategies to ensure their designs can withstand real-world use.
- Intermediate: An individual can create more complex and sophisticated designs that meet the specific needs of a project and target audience. They have a strong understanding of design principles, using them to create innovative and unique designs to a high level of detail and precision. They can collaborate effectively with others, taking on leadership roles to provide guidance and direction to ensure the success of a project. They have a deep understanding of the importance of reliability in design and implement strategies to ensure designs are robust and can withstand a range of real-world conditions and situations.
- Advanced: Individuals can create highly complex and sophisticated designs that are both innovative and effective in achieving their intended goals. They have a deep understanding of design principles which they use to create unique and cutting-edge designs that stand out in the market, and are experts in design software to create and edit their designs with a high-level of skill and precision. They lead and manage design teams effectively, providing expert guidance and direction to ensure project success, and implementing advanced strategies to ensure their designs are robust and can withstand real-world situations.
Strategic capability (firm resources)
A company’s firm resources are all the resources it has at its disposal, including physical assets, intangible assets, and human capital, which are used to create a competitive advantage and meet strategic objectives.
Organisational culture is the beliefs, values, and behaviours that characterise an organisation. It influences the way employees interact with each other and people outside the organisation. A strong organisational culture creates unity and purpose within the company, playing a role in attracting and retaining talented employees.
Let’s look at organisational culture through levels of competence.
- Beginner: Competence in organisational culture refers to an individual’s understanding of the values, norms, and beliefs that shape their organisation’s behaviours and practices. They should be able to identify key aspects of the culture (whether it’s hierarchal or flat) and how decisions are made. They can explain how the culture impacts the way work is done and how it influences the company’s overall success. Individuals can recognise when their actions and behaviours align with or contradict the organisation’s culture, and make efforts to align their actions with the desired culture.
- Intermediate: This includes being able to actively contribute to shaping and reinforcing the culture, like modelling desired behaviours and taking active roles in initiatives to promote the desired culture. Individuals can recognise the potential impact of changes to the culture, and be able to communicate the importance of preserving or adjusting it to others. They can effectively navigate and adapt to different cultural norms within the organisation including with external stakeholders. It involves a deep understanding of the culture and the ability to actively contribute to its evolution and maintenance.
- Advanced: Individuals are able to effectively lead and manage change within the culture, by leading initiatives to shift the culture in response to changing business needs or market conditions, and effectively communicating and managing the transition for all stakeholders. They have a deep understanding of the underlying drivers of the organisation’s culture and use this knowledge to make strategic decisions that align with it. They can also effectively assess and diagnose cultural issues, and develop and implement solutions to address them.
Structural capabilities are the structures and systems your company has in place to support operations and achieve organisational objectives. These include the company’s formal and informal networks, decision-making processes, and systems for coordinating and controlling activities. It can also encompass a company’s systems to facilitate communication within the organisation.
Project management is the process of planning, organising, and managing resources to achieve a specific goal. It involves setting objectives, determining tasks and resources, and coordinating the efforts of team members to ensure that the project is completed on time and budget.
How does this look through levels of competence?
- Beginner: A beginner may struggle to understand the basic concepts such as project planning, resource allocation, risk management, the importance of creating and adhering to a project plan. They may also have difficulty with time management and communicating with team members and stakeholders.
- Intermediate: Individuals understand the basic concepts of project management and can effectively communicate with team members and stakeholders. They have developed some level of problem-solving and can use this to effectively manage timelines, deliverables and project plans.
- Advanced: Individuals understand the basic concepts of project management and proactively anticipate future project management needs, taking steps to address them. They are experts in project planning, resource allocation, and risk management, and can effectively lead and coordinate teams to achieve common goals, possessing a deep understanding they can use to adapt to the needs of different individuals and situations. They can navigate complex situations, deliver high-quality results and have a strong sense of accountability allowing them to deliver results under pressure. They can align the efforts of different stakeholders, creating a shared vision and purpose for the project.
Assessing the effectiveness of business capabilities
When you ask how effective your business capabilities are, you’re asking how well your organisation’s resources align with business goals and strategy. There are a few ways you can assess the effectiveness of your business capabilities.
- Key performance indicators (KPIs) are metrics used to measure the performance of specific capabilities, such as using customer satisfaction to measure a customer service capability. Remember, your capabilities need to be measurable.
- The industry will have set standards and best practices which will change over time. By benchmarking your business’s capabilities against new industry standards and best practices, you can see where your organisation has met standards (or identify areas for improvement).
- Your return on investment (ROI) determines the monetary value returned to your business as a result of your capability-building activities. When you calculate your ROI, you’re calculating how your business capabilities have affected your financial performance.
You need to be linking business capabilities to success. Or, in other words, business capabilities are specific to a business and its goals, so they need to be tailored to address pain points and adapt to potential scenarios in the future, providing the what and how of meeting desired outcomes.
This means defining the capabilities in your business capability model so that they fit six criteria:
- Strategic alignment
- Value delivery
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