Business capability

If the idea of value creation and delivery within an organization is injected into the notion of capabilities, we are then talking about business capabilities (Wilkes 2011b; van Dijk 2012; Ulrich & Rosen 2011a; Rosen 2010; Greski 2009b). Furthermore, (van Dijk 2012; Rosen 2010) follow the same logic for business capabilities as (Tagarev 2009) for capabilities in the security sector, describing them as the means to define the organization’s capacity to successfully perform a unique business activity and that deliver measurable value.

A Gartner report from 2010 considers the following definitions of a business capability, all of which illustrate what a business does to deliver value (Burton et al. 2010):

 “An ability of capacity for a company to deliver value, either to customers or shareholders.”7

 “A capability models what a business function does - its externally visible behavior (versus how it does it, its internal behavior) - and the expected level of performance.”8

 “The business capability is 'what' the organization does, the business processes are 'how' the organization executes its capabilities.”9

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“Business Capability Modeling”, Leonard Greski, Architecture and Governance Magazine, 2009 (Volume 5, Issue 7)

8_{http://msdn.microsoft.com/en-us/library/aa479368.aspx} 9

The authors of that report chose to adopt the definition by Balasubramanian, Kulatilaka and Storck from the Boston University School of Management, which states that “a business

capability is similar to the notion of a value discipline, which Treacy and Wiersema (1995) define as the way in which companies combine systems, processes, and their environment to deliver value to their customers”. The focus of this definition lies on the delivery of value to the customers, with “customer” being described in the broader sense to include both internal and external stakeholders of an organization.

A few years later, one of the authors came back to the definition of business capability and expanded it to put emphasis on the “what” character of capabilities: “Business capabilities are the ways in which enterprises combine resources, competences, information, processes and their environments to deliver consistent value to customers. They describe what the business does and what it will need to do differently in response to strategic challenges and opportunities” (Burton 2013). This definition reflects best the concept of the business capability, although the mention of ‘strategic challenges’ makes the definition more restrictive than it should, and hints towards the strategic business capability, which in this paper is considered a specialization of the business capability and explained in the next part (sub-chapter 3.3.3). Although a concrete definition of value is important, it is difficult to be found in the vast amount of related literature and attempting to extricate it is beyond the scope of this thesis. For the sake of completeness and comparison, some additional found definitions of business capability are presented next.

The plethora of definitions of business capabilities include the ones by (Freitag et al. 2011), (Wilkes 2011a), (Klinkmüller et al. 2010) and the one by (Homann 2006) who posits that a business capability is “a particular ability or capacity that a business may possess or exchange to achieve a specific purpose or outcome. A capability describes what the business does (outcomes and service levels) that creates value for customers; for example, pay employee or ship product”.

Alike capabilities, business capabilities as a specialization sub-type are also non-atomic; according to (Pandza et al. 2003) individual skills, implicit forms of knowledge and social

relations that are embedded in a firm's routines, managerial processes, forms of communication and culture, when collaboratively combined, can offer a capability. Pandza et al. (2003) follow the real options valuation approach (ROV) to managing resources and capabilities and mention that capability development is somewhat aligned with the application of the real options heuristic to strategy, through which a firm's resources, capabilities and knowledge create options for future exploitation (Brits et al. 2006). Compared to Burton’s (2013) definition, parallels are found regarding the combination of different assets for making decisions under uncertainty, but the value offering angle is missing.

Another similar definition comes from Bredemeyer Consulting10: business capabilities are “a combination of business processes, people (organization, knowledge and skills, culture), technology solutions, and assets (facilities, funds, etc.) aligned by strategic performance

objectives” (Bredemeyer et al. 2003). Additionally, in this definition the business capabilities are

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considered the building blocks of the enterprise and they have relationships to each other and to the environment. They mention that these three elements along with performance

management are the quality characteristics that are “important in driving the capability design process”. Something that differentiates this definition from the one by Burton (2013) is the explicit mention of the external and internal relationships of the capabilities; they are not independent and autonomous. Burton mentions that business capabilities are related to the business’ external environment, but not to each other. On the other hand, Jeff Scott of Forrester Research has a different opinion, that business capabilities are unique and independent from each other. Bridging the two, we could say that they represent discrete ways to generate measurable value, but at the same time they are hierarchically connected to each other (Greski 2009b) and are governed by a stimulus-response relationship with the organization’s

environment. This aspect of the business capabilities could be added to the Burton’s definition (2013) to make it more descriptive.

Concluding, a good definition for the business capability can be the following:

Business capabilities are the ways in which enterprises combine resources, competences, information, processes and their environments to deliver consistent value to customers. They describe what the business does and what it will need to do differently in response to strategic challenges and opportunities. They can be synthesized by or connected to other capabilities, business or otherwise.

The first two parts are taken from Burton’s definition and the last part aims to explicitly include the internal or external relationships that they can have, a point made in (Bredemeyer et al. 2003)