The Definitive Guide to

Business Capability

Business capability is the expression or articulation of the capacity, materials, and expertise an organization needs to perform core functions.

Business Capability

Introduction

In the digital age the role of technology shifts from supporting processes of the business strategy to the key factory of strategy execution itself.

Information Technology helps customers receive their shirts ordered online the next day, it helps that they can read their newspaper during their commute on an iPad and that the invoices for these services are processed without friction.

As a result, the challenge of how to bridge the gap between strategy and execution in IT becomes much more pressing.

This gap is often caused by organizations speaking many languages. They speak of missions, strategies, goals, processes, and projects. The CEO speaks of “making mobile-first a priority”, Marketing of “increasing the share of wallet with millennials” and IT of “load balancing the Linux server cluster”.

Which one is the right language? Business Capability maps have the potential to serve as this common language.

📚 Related: 2024 Gartner® Magic Quadrant™ for Enterprise Architecture Tools

 

What is a business capability?

A business capability is a representation of an organization’s business anchor model independent of the organization’s structure, processes, people, or domains.

It is a fundamental building block of an organization, representing what the organization needs to do to fulfill its mission and achieve its strategic goals. Unlike processes, which detail how tasks are carried out, capabilities focus on the outcomes and functions that drive business success.

As a tool for enterprise architects, business capability maps enable the discussion of strategic investment or divestment. Also, business capabilities can serve as the structuring element to uncover redundancies in IT.

Full spectrum of all architectures and position of business capabilities within an enterprise.Full spectrum of all architectures and position of business capabilities within an enterprise. (Source: itarch.info)

Key characteristics

At its essence, business capabilities should lie at the top layer of the business architecture, carry three main characteristics.

  • Outcome-oriented: Capabilities define what needs to be accomplished, not how. For example, "Customer Relationship Management" is a capability, whereas the processes and systems to manage customers are the how.
  • Stable over time: While processes, roles, and technologies evolve, core business capabilities remain relatively stable, making strategy more tangible.
  • Cross-functional: A single capability often spans multiple departments or functions within an organization helping overcome organizational silos.

If one business capability says “recruit great employees," it involves various people – HR team, the process – attract, screen, interview, hire, and the technology needed – online assessment center, digital personnel file, etc., into one capability of the organization. 

Business capabilities form a crucial part of great IT strategies, as they specify the path to winning, and point out the necessary steps of both IT and business along the way.

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List of common business capabilities

Business capabilities vary across organizations but can be categorized into functional domains to provide clarity and focus.

Table below shows Level 1 to Level 3 examples across common business functions (You can download a full list to open all Level 3 examples):

List of Business Capabilities

This list of business capabilities highlight the diverse nature of capabilities across departments and demonstrate how organizations can create tailored capability maps to support their unique strategies.

Value of business capability mapping

Business capabilities provide a foundational framework that enables organizations to align strategy with execution, optimize resources, and adapt to changing business needs.

By leveraging capability mapping, organizations unlock a range of benefits, from breaking down silos to driving innovation and managing risk effectively.

Key benefits

  1. Strategic alignment
    Business capabilities link execution to strategy by associating capabilities with strategic pillars. This alignment allows organizations to focus funding on core capabilities, monitor performance through key metrics, and prioritize initiatives that drive competitive advantage.
  2. Resource optimization
    Capability-driven thinking helps uncover redundancies, enabling organizations to reduce costs and streamline operations. According to McKinsey, this approach can save 15-20% in operational redundancies and up to $590K per IT incident through better risk mitigation.
  3. Comprehensive organizational view
    A 360-degree view of the enterprise provides a coherent understanding of business motivations, processes, data, and resources. This transparency fosters an understanding of interconnectedness, overlaps, and synergies.
  4. Common language across teams
    Business capabilities establish an actionable framework that bridges communication gaps between IT and business teams. They define "what" a business does, rather than "how," providing a universal reference point for discussions and planning.
  5. Breaking down silos
    By operating from a capability-centric perspective, organizations can eliminate silos across IT and business units, enabling faster time to market and more cohesive operations.
  6. Technology and architecture efficiency
    Capability maps guide IT architecture definitions, leading to effective and cost-efficient technology solutions. They enable organizations to reuse IT assets and avoid unnecessary hardware and software purchases.

McKinsey reports that business capabilities can help uncover redundancies - saving potentials often range from 15 to 20%. capability-driven thinking helps organizations to understand and mitigate technology risks better, saving upwards of $590K – which is the cost of a single IT incident.

 

Real-world use cases

1. Merger management

Business capability maps structure organizations by their activities, making them indispensable for managing highly strategic mergers and acquisitions (M&As). These maps provide a unified framework for assessing and integrating capabilities, even when two merging organizations have vastly different processes and structures.

Example: Imagine a multinational insurance company acquiring a regional player. During a post-merger IT integration, both organizations need to decide which applications to retain and which to retire. A business capability map enables teams to objectively evaluate the best-fit applications based on functionality and strategic importance. Instead of relying on subjective decisions, the map provides a clear framework for identifying redundancies and gaps.

Helvetia utilized SAP LeanIX during its merger with Swiss Re to reduce IT redundancies. By mapping business capabilities and linking them to applications, the company realized substantial savings and established transparency. The SAP LeanIX inventory now serves as the single source of truth for strategic IT management decisions.

2. IT risk management

Linking business capabilities to applications and underlying technologies allows organizations to conduct quick, technology risk assessments. By identifying dependencies, CIOs can make informed decisions to mitigate risks associated with aging or vulnerable infrastructure.

Example: Consider a scenario where an end-of-life server cluster supports a crucial online booking system tied to the "Sell Directly to Customers" capability. If this server fails, the impact on revenue and customer experience could be severe. A business capability map enables CIOs to prioritize replacing or securing the server cluster to avoid disruptions.

This proactive approach ensures that strategic capabilities—especially those with high financial impact—remain resilient and secure.

3. Innovation management

Business capabilities provide a structured way to drive innovation, enabling organizations to rethink and enhance their operations one capability at a time. By analyzing and updating specific capabilities, businesses can adapt to new trends and remain competitive.

Example: A SaaS provider reviewing its "Manage Pricing" capability might innovate by replacing static pricing models with dynamic, data-driven approaches. Instead of relying on spreadsheets, the company could implement AI-powered pricing tools that adjust in real-time based on customer behavior and market conditions.

This capability-focused approach ensures that innovation efforts are targeted, measurable, and aligned with business goals.

How to define your business capabilities in 6 steps?

Defining your business capability map is a strategic process that aligns your organization's functions with its overarching goals. Here are six essential steps to guide you:

1. Understand strategic objectives

“Know where your company is heading and how IT can help.”

Start by understanding your organization’s strategic direction. Review company strategy documents, business goals, and objectives. Engage stakeholders who shape these strategies, such as the corporate development or strategy department, to ensure IT decisions are grounded in the larger business context.

2. Identify high-level capabilities

“Focus on core capabilities that drive the business. When in doubt, go for breadth rather than depth.”

Begin by defining the primary functions of the organization. On the first level (Level 1), identify 5-10 critical capabilities that are essential to your business operations. These should provide a broad but clear overview of what the business does to achieve its objectives.

How to identify:

  • Top-down thinking: Start by asking, What does the company aim to achieve?
  • Bottom-up insights: Consider existing processes, people, and organizational structures already in place.

3. Develop a hierarchical structure

“Break capabilities into manageable levels for clarity.”

Expand each high-level capability into sub-capabilities, creating a multi-level structure. This hierarchy allows for a more detailed understanding of each capability, from overarching goals to specific functions.

4. Ensure mutual exclusivity and completeness

“Make sure each capability is distinct and comprehensive.”

Capabilities should be mutually exclusive, meaning no overlap between them, and collectively exhaustive, covering all critical areas of the business. This clarity ensures a clean, actionable capability map.

5. Assess and prioritize your capabilities

“Not all business capabilities are equal in terms of value for the customer and financial impact.”

Evaluate each capability based on its strategic importance and current performance. Prioritize them to identify areas needing improvement or additional investment, helping to focus resources where they’ll have the greatest impact.

6. Link capabilities to applications

“Bridge the gap between business and IT.”

Connect your capabilities to the applications that support them. Unlike IT components, applications are directly tied to specific business purposes and are used by business users to create value.

Visualizing capabilities as nested boxes with assigned applications provides a clear overview of the relationship between business and technology architecture, creating a powerful tool for both planning and execution.

The 4 steps to creating a Business Capability model

The 4 steps to creating a Business Capability model

 

Best practices

Defining business capabilities can feel complex, but it doesn’t have to be. Here are four essential practices to help you get started and create a clear, effective capabilities.

For a deeper dive into this process, check out our full best practices to define business capability maps poster, which outlines eight proven steps for success.

1. Avoid overlapping

Each capability should represent a distinct function or outcome. Avoid duplication or overlaps to maintain a clear and actionable map.

Tip: Regularly review your capability map to eliminate redundancies as your organization evolves.

2. Focus on "what," not "how"

Capabilities define what a business does, not how it does it. Separate the outcomes (capabilities) from the processes and tools used to achieve them.

Example: "Customer Relationship Management" is a capability, while the CRM software you use is part of the "how."

3. Plan for the long term

Build capability maps that can adapt to organizational growth, technological changes, and evolving business strategies.

Advice: Incorporate flexibility into your capability definitions to accommodate future transformations.

4. Think strategically

Capabilities should align with your organization's strategic objectives and priorities. Use them as a tool to drive innovation, efficiency, and competitive advantage.

Action: Regularly align capability planning sessions with strategic reviews.

 

Conclusion

Business capabilities have the potential to serve as a common language between business and IT. Properly defined, business capabilities can help to save money, decrease risk and enable growth.

Best practices show that business capability models of companies with a lean philosophy have around 10 top-level capabilities and three levels of depth.

The resulting model can be used to support analyses to align IT investments with strategy, draw technology risk maps, and consolidate IT applications. SAP LeanIX supports these analyses with out-of-the-box best practice reports. 

Free poster

Best Practices to Define Business Capability Maps

See how IT and business align with a complete overview of your business capability landscape.

  • Whether you are from the banking or insurance industry, automotive or logistics industries or others, this generic business capability map is the perfect start point!
  • See mapping examples and model your own business capabilities!
  • Additionally, we have added tips and best practices on how to get started with business capability maps and to create a complete overview of your business capability landscape.
Best-practices-to-define-business-capability-maps

FAQs

How do you define business capabilities?

Business Capabilities can serve as a structuring element to uncover redundancies in IT.

Business Capabilities provide you with a coherent and comprehensive view of business motivation, skills, processes, data and resources, enabling you to understand relationships, overlaps and synergies.

They are a critical part of great IT strategies, as they set the path to success and show the necessary steps for both IT and the business to take on the way.

What are core business capabilities?

Core capabilities are associated with the existence of the company. This includes the core competence of a company, such as content production, like films and series for Netflix or product management for brands like Coca Cola.

For other companies logistics or manufacturing could be an existential core capability and for others it could be the development of an IT infrastructure. What can be seen is that the core capabilities depend more on IT over time.

What are advantages of business capabilities?

With business capabilities, you can link the execution of your business to the strategy you want to achieve by mapping which capabilities the strategy pillars support.

Based on this, you can align financing with the core capabilities and assign key performance indicators to better measure and monitor performance.

By focusing on the core capabilities, you can give your company a competitive advantage by standardizing the contextual capabilities and outsourcing the product capabilities. Business capabilities provide a common language that offers a framework for business and IT.

Starting with an overview of business capabilities, IT and business managers are able to communicate across the organization's functions without business and technical jargon.

Business capabilities enable more focused architecture definitions, as capabilities help deliver a better business definition that leads to effective and efficient technology solutions.

Once organized, IT assets can be used and reused multiple times, saving costs and reducing the purchase of unnecessary software and hardware. In essence, business capabilities should be at the top level of the business architecture. Business capabilities have three main characteristics.

  • They are the most stable reference for planning organizations,
  • they make strategy much more tangible
  • and, if properly defined, they can help to overcome organizational silos.

What is business capability modeling?

Business capability models can be considered as a tool of enterprise architecture and allow discussions and insights on strategic investments or divestitures within the business units.

Business capability modeling is considered independent of the structure, process, people or domains of the organization.
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