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8 Steps to Effective Capability-Based Planning

Guides | 8 Steps to Effective Capability-Based Planning

Align Your Business to Success

As a concept, capability-based planning is fairly straightforward. It’s the idea that an organization’s planning, investments, and delivery are aligned to provide the business capabilities that will deliver strategic success. However, implementing that concept can be very difficult. You need the right approaches, the right support, and the ability to deliver on the investments aligned with your strategy.

What is Capability Based Planning? 

Capability based planning is a fundamental shift in how organizations consider, plan, and deliver on their strategies.  It starts with the process of defining and understanding existing business capabilities and how they operate as an integrated organization – establishing critical business functionality as the heart of how the business operates.  Then it allows for the analyzing of those capabilities and the modeling of proposed future capabilities.  This provides a complete 360-degree view of the way that different elements of the business interact and integrate through the lens of the business capabilities that the business delivers – both in the current state, and in a desired future state. 

Why is Business Capability Planning Important? 

Business capabilities are the things that an organization does or wants to do. Put simply, capability-based planning creates a more direct connection between strategy and outcomes. They’re the way that value is delivered to customers (internal and external) and the way that value is earned by the organization. By aligning plans, investments, work, and benefits directly with those business capabilities, organizations create better visibility into what they are trying to achieve. 

This helps ensure that all areas of the organization are aligned, that there is improved understanding of how work translates into value, and that all decision making is geared around optimizing outcomes. It also helps to streamline the operations of the business by eliminating redundant, outdated, or misaligned functions and assets, reducing costs and risks and driving returns. 

The 8 steps of Capability Based Planning  

Because capability-based planning is an approach that impacts all elements of strategic planning and delivery, it is important that organizations embrace all aspects of it. 

1. Define & Communicate Business Capabilities 

To begin planning around business capabilities, an organization must first understand those capabilities. That means accurately defining the capabilities, effectively and efficiently communicating with all areas of the business around those capabilities, and ensuring that capabilities are being maintained, matured, and otherwise developed. This is most effectively achieved by leveraging a business architecture approach, including visually mapping current business capabilities. 

It’s also important to note that business capability mapping cannot be a one-time exercise, capabilities are constantly evolving to meet the needs of the operating environment and customers, to reflect the growing abilities of the enterprise, and to leverage evolving technologies and approaches. Capabilities and associated maps must therefore be maintained, socializing evolving capabilities with all stakeholders, and understanding dependencies and relationships across those capabilities. 

2. Integrate Business Capabilities 

Business capabilities don’t exist in isolation – the ability to deliver capabilities is based on strategy, organizational value streams, technology, information, people, processes, supply chains, etc. These form both upstream and downstream dependencies for business capabilities and constitute the way that those capabilities are structured and converted to value. Only when all of these aspects and entities are integrated, can the organization fully understand what it does and how it operates, and only then can it successfully evolve through concepts like digital transformation. 

The ability to transform a business is critical to sustainable success in today’s world.  Organizations must be capable of managing their end-to-end strategic capabilities from enterprise architecture models to validating investment performance, and everything in between. That requires skilled enterprise architects developing and maintaining those capabilities and the ability to integrate capability maps and modeling with the entire strategic portfolio management approach of the enterprise. When that is achieved, organizations create a powerful springboard for successful transformation. 

3. Analyze & Model Business Capabilities  

Business capability modeling builds on an organization’s existing capabilities by mapping potential future state capabilities. That allows for discussion around the need to invest in the development of existing capabilities, to expand into new business functions, or to move away from an element of the current state. 

Organizations must be able to combine the capability inventory with user surveys to understand and score capability maturity. This then allows for analysis of current state vs. target state and fuels the development of appropriate strategic objectives and measures that become inputs to strategic planning and investments decisions. In turn, this ensures that the organization’s strategic priorities are aligned with the need to enhance and grow business capabilities. 

A well-formed and valuable business capability model is so much more than simply the hierarchical capability map. To be of real value, the business capabilities in that map must be cross-related to other elements of the business and enterprise architecture in a consistent manner that allows those cross-relationships to be the “secret sauce” for dynamic, meaningful models, dashboards, and further analysis such as maturity modeling. 

4. Develop Strategic & Technical Roadmaps 

Roadmaps provide a powerful way to visualize, collaborate on, and communicate the strategies that will develop and refine business capabilities. Using the right integrated tools, the outputs of the previous analysis work can be developed into roadmaps and rendered as investments – value streams, programs, products, projects, etc. 

Demand will also come from many other areas of the business, but effective capability-based planning, in conjunction with roadmaps, allows that demand to be assessed in one location, ensuring that all proposed work aligns with the development of business capabilities and the current strategic priorities. This eliminates redundancy and misalignment, while improving return on organizational investments. 

5. Create Detailed Investment Plans 

Proposed roadmap investments then require a more comprehensive analysis. Business cases must be developed to allow for effective evaluation of the costs and expected benefits, as well as the way those benefits will be defined and measured. This analysis must consider both financial, and non-financial metrics to ensure the full and accurate picture of expected outcomes is understood. Based on these business cases, decisions can be made to confirm or reconsider investments, and on the scheduling of work. 

The development and evaluation of these business cases must use the appropriate approach for the type of work being undertaken – formal business cases for more traditional work, or stripped down, lighter analyses for lean portfolio management driven epics. In all cases, capital management software is needed to capture common necessary data points – costs, benefits, milestones, dependencies, resourcing, scoring, etc. to allow for the best possible decision making against the strategic roadmap. 

6. Analyze Funding & Portfolios 

Shifting an organization to a business capability-based planning model requires several adjustments. Many organizations already struggle to develop effective strategic planning, running into difficulties with silo-based, bottom-up planning that only nominally aligns with strategic priorities. Effective capability-based planning, and in particular the ability to leverage capability models to enable strategy, requires a commitment to the previously mentioned strategic portfolio management. 

Strategic Portfolio Management is increasingly recognized as a more effective approach to strategic planning and delivery. It requires priorities, goals, and objectives to be set by executives – in the case of business capability modeling that will be the business capabilities that are considered the highest priority, and the performance goals that each capability has to deliver. Executives then approve and fund one or more investments for each of those investments, appoint an accountable owner and define success metrics (more on that later). 

This top-down approach helps eliminate silos, improve alignment between strategy, work and outcomes, and increase return on investments. Investments must be capable of being prioritized directly from roadmap items, allowing for seamless integration between business capabilities and investments, and providing transparency to all stakeholders on how funded work aligns with strategic priorities. 

This approach must evolve to support the organization as it matures.  Support for different funding models is important – project level for less mature enterprises, or bulk funding at the investment level for those that are further along their maturity journey. Ultimately, effective capability-based planning requires the ability to derive investments directly from strategy, helping an organization mature to a more comprehensive and effective Strategic Portfolio Management approach to strategy. Detailed analyses of prioritization, optimization, resource capacity planning, fiscal planning, etc. are necessary to help an organization ensure it always makes the right decision based on the best information available. 

7. Deliver Effectively & Perform What-if Analysis 

To deliver on your business capabilities you ultimately need to structure and deliver work. That work will be done using any number of different structures and each element of the tri-modal reality. 

The software solution you use to support your business capability planning must integrate with whatever work management tools teams prefer, consolidating data from multiple sources into a single, value-based, automated status reporting approach. That allows for optimized work delivery while retaining actionable insight across all capabilities and investments. 

Additionally, there must be the ability to plan continuously and adaptively, so that investment owners can ensure that the work in support of their business capabilities is always optimally aligned with the organization’s needs. This also requires dynamic portfolio what-if analysis tools , allowing for easy and rapid analysis of options and impacts should the need to adjust course arise. Only then can decisions be optimized in less time and with less disruption, improving the ability of the organization to maximize ROI even in highly fluid operating environments. 

8. Manage & Realize Benefits 

Capability based planning ultimately only benefits the organization if it results in improved capabilities. Benefits realization is an area that organizations have historically struggled with, especially when it comes to non-financial performance metrics. 

It is essential that organizations can reliably measure performance against strategy aligned metrics easily, and in a timely manner. This allows organizations to understand the improvements being made to the business capabilities that the work supports. Benefits realization software tools must be capable of providing early indicators of areas where performance is deviating from the expected capabilities, driving adjustments more quickly and accurately. Actual performance must feed the capability portfolio, updating current capabilities, and resulting in adjustments to the capability roadmap that then fuel the next cycle of prioritization, investment, and delivery. 

Pitfalls to Avoid 

Capability based planning isn’t a methodology or a set of processes, it’s more of a mindset – a way of thinking about the business. As a result, most of the pitfalls around the concept are around a lack of understanding and misinterpreting what business capabilities really are. 

Organizations shouldn’t view business capability maps, or even capability-based planning in isolation. It requires an understanding of enterprise architecture and the related discipline of business architecture. Without this, there are likely to be problems in defining and mapping capabilities, often resulting in a focus on functions and processes rather than capabilities. 

Similarly, to optimize capability-based planning, organizations must be willing to embrace a value stream management approach.  Value streams represent a series of activities that combine to deliver customer value, enabling business capabilities in the process.  Combining business capabilities with value streams helps organizations optimize performance. 

Modeling vs Planning 

But simply understanding capabilities and modeling possible futures isn’t enough.  Organizations must also execute to create those capabilities. Capability based planning helps ensure that all resources – people and financial – are used optimally to support those capabilities. This happens through approval and delivery of the right investments and the right work, delivered through effective strategy execution management. 

Capability based planning then becomes an enabler of further business transformation, supporting an organization’s ability to evolve and grow by ensuring that the focus is always on optimizing the ability to deliver what matters to organizations and their customers. At the same time, it helps prevent the dilution of strategic plans through the approval of tactical, bottom-up initiatives that don’t align with those capabilities, and don’t move the organization forward. 

Capability Based Planning Software 

While there are processes and business approaches involved in capability-based planning, success or failure begins with a mindset – a commitment to a better way of planning and delivering on strategy. Only you can make that commitment, but when you do, North Highland’s Business Capability Planning Solution is there to help. The combination of our highly experienced consultants and our proven framework can help you connect all of the different aspects of your business, working with you to eliminate silos, drive maturity, and improve strategic performance. 

Our NH360 Strategic Portfolio Manager platform can assist you with everything from business capability mapping to benefits realization, and our integrations allow you to connect your technology infrastructure providing comprehensive insight and decision support with total transparency. That allows you to focus on driving business capability modeling, letting us manage the details that will help you make it a reality. 

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Unlocking the Power of Capability-Based Planning: A Quick Guide

Are you looking for a more effective way to plan and execute your business strategy? Look no further than capability-based planning. Identifying and using your organization’s capabilities will help you achieve goals. Align resources, processes, and people to deliver core capabilities to unlock potential and drive growth. This guide will discuss capability-based planning and its implementation. Whether you’re a seasoned business leader or a new business architect, this guide will give you the tools you need to take your strategy to the next level. So, let’s dive in and unlock the power of capability-based planning!

Understanding capabilities and their importance in planning

Before we dive into the specifics of capability-based planning, it’s important to understand what we mean by “ capability .” We use business capabilities in Enterprise Architecture to focus management attention on improvement and expertise. In TOGAF , a capability is simply defined as “an ability to do something”. If follows that a business capability represents the ability for a business to do something.

Capabilities describe “what” not “how” something is done. In Business Architecture , capability is a powerful shorthand. We hide all the complexity and detail. Using capabilities, we don’t have to explain how, why, or where the business uses the capability. No explanation of people, organization, skills, etc. is required. We simply talk about the capability.

We move the conversation from specific potential improvements to a core set of questions:

• What things do we need to start doing
• What things we need to stop doing
• What things do we need to keep doing well
• What things do we need to improve how we do them

Capability Map

Best-practice capability-maps are not comprehensive lists of everything an organization needs to do. Instead, we focus attention on strengths or advantage that your organization possesses. The set of particular skill set, a specialized process, or a unique resource that sets you apart from your competitors.

A capability map is a visual representation of the capabilities required to achieve your business objectives. It’s an essential tool for aligning your resources with your strategic goals and unlocking your business potential.

Identifying and using capabilities to meet your goals is key to effective planning. By focusing on what your organization needs to do best, you can optimize your resources and investments to achieve the greatest impact.

You will enterprise architecture capabilities

Advantages of capability-based planning

So, what makes capability-based planning such a powerful tool? There are several advantages to this approach, including:

Alignment with organizational strengths

Capability-based planning is all about leveraging your organization’s unique strengths to achieve your goals. By focusing on what you do best, you can optimize your resources and investments for maximum impact. Aligning your capabilities and strategy can help you reach your objectives effectively.

Flexibility and adaptability

One challenge with traditional planning approaches is that they can be rigid. Once a plan is in place, it’s difficult to make changes or pivot in response to new information or market conditions. Capability-based planning is flexible and adaptable. By focusing on your core capabilities, you can adjust your approach as needed to respond to changing circumstances.

Competitive advantage

By leveraging your unique capabilities, you can create a competitive advantage that sets you apart from your competitors. This could be a particular process that allows you to deliver products or services more efficiently, a specialized skill set that allows you to offer unique solutions, or a resource that gives you a distinct advantage in the marketplace.

Capability-based planning vs. traditional planning

So how does capability-based planning differ from traditional planning approaches? The biggest difference is the focus on capabilities rather than objectives. Traditional planning starts with a set of objectives and then works backwards to identify the resources and processes needed to achieve those objectives. Capability-based planning, on the other hand, starts with an assessment of your required organization’s strengths and then identifies the strategic goals that can be achieved by leveraging those strengths.

Another key difference is the level of detail involved. Capability-based planning is less granular than traditional planning. Rather than disassociated improvements you focus on specific capabilities and how they can be leveraged to achieve specific objectives. This level of detail can make it easier to focus on the resources and investments needed to achieve your goals.

The most important difference is Capability-based Planning is like an Architecture Roadmap .

Like an Architecture Roadmap, a Capability Roadmap will help answer the following questions:

• When will value be delivered – Transition States
• What change to pursue given different criteria – Architecture Roadmap Type 4: Scenarios
• What work will deliver value, and the cost and uncertainty – Architecture Roadmap Type 1: Heatmap
• When work, change, and value delivery will occur – Architecture Roadmap Type 2: Lifecycle
• What is the dependency & impact of work and change – Architecture Roadmap Type 3: Work Package
• What decisions are deferred – Architecture Roadmap Type 4: Scenarios
• What kind of change are we pursuing – Implementation Strategy Model

>>> Download the Capability-based Planning Guide

Assessing and prioritizing capabilities

The first step in capability-based planning is to develop a capability-map . Then use the map and assess your organization’s capabilities. We typically assess capabilities by 2-4 attributes. In Navigate , we maintain a set of attributes we select from:

• Competency How good we are relative to our peers
• Performance State How complete to best-imagined capability is desired
• Efficiency How much output we get for a unit of input
• Fitness How well the capability aligns with expectations
• Automation / Repeatability The level of automation (where systems do the work) or repeatability (where the work is done production-line style
• Agility The level of unexpected threat or opportunity (Change) the capability must be able to adapt to
• Maturity Strict CMMI Maturity assessment—the ability to manage and control the capability
• Operating Model Is the Capability Unified, Replicated, Coordinated or Diversified
• Performer Who delivers the capability—internal, division, partner, vendor

Navigate Capability Properties

For a complete discussion of assessing a Capability see Conexiam's Business Architecture Capability Assessment Guide .

Identify the difference between your capability and what you need to improve. This involves identifying what part of the capability needs to be changed. Capability-based planning drives consistent improvement. You can start by asking questions like:

• What skills or expertise do we have that are hard to find in the market
• What processes or technologies do we use that give us a competitive advantage
• What resources (e.g., equipment, facilities, intellectual property) do we have that are difficult or expensive to replicate

Below we have a quick example of  enterprise architecture capabilities using the  EA Capability Reference Architecture . We see the basic operating model of the EA Team.

Once you’ve identified the potential improvements, you’ll need to align improvements to outcomes, cost to improve , and risk. Best practice is ensuring your Business Architect’s work with the rest of the EA Team . Improving one thing won’t create an improved capability.

Capability-based planning is a foundational activity to develop a good architecture roadmap . All good roadmaps are based on the minimum change to reach consumable value. The minimum change is packaged as work packages that reach transition stages, where value is consumable. Every organization has more potential improvements than it can complete. Winnowing weak change ideas frees resources for successful changes.

Steps for implementing capability-based planning

Once you’ve identified and prioritized your capabilities, it’s time to implement capability-based planning. Here are some key steps to consider:

Define your strategic goals

The first step is to test the alignment of your prioritized capabilities with your strategic goals. We assume you have a solid strategic goals. Strategic goals aligned with your overall mission and vision.

Map your capabilities to your goals

Once you have your strategic goals in place, you’ll need to map your capabilities to those goals. This involves identifying which capabilities are most relevant to each goal and how they can be leveraged to achieve it. Use the initial assessment in the Capability Map.

Frankly, best-practice capability-based planning will adjust your capabilities or goals based on this mapping exercise.

Align your resources and investments

With your goals and capabilities mapped out, it’s time to align your resources and investments accordingly. You know which capabilities lead to which strategic goals. You know the type of improvement (Competency, agility, efficiency, etc.). You know what needs to be improved (skill, process, etc.).

Identifying the changes needed for each goal and assigning them appropriately. When you are looking at the capability, you will see the need to change your organizational structure, processes, or technology. You have a consolidated set of potential changes aligned to value. You are ready to build a Capability Roadmap.

Develop a Capability Roadmap

The Capability Roadmap exercise, like developing an Architecture Roadmap , requires further winnowing of potential changes. The process of winnowing requires stakeholders to perform trade-off and selecting transition states.

Trade-off compares the four aspects of change – value, cost, uncertainty, and option. Measure value and cost of change using criteria that matter to our stakeholders. Successful trade-off requires understanding:

• Dependency between the set of changes. (Work Package & Gap dependency
• Value, effort, and risk associated with each change and work package
• How stakeholder priority and preference adjust in response to value, effort, and risk of change

The best capability-based plans built to transition states (also called Value Resting Points and Capability Increments). A transition stage is a step toward improvement. A step where you can stop, change your attention, and still receive harvestable value.

It is important to winnow potential changes. Remember your organization has more potential improvements than it can accomplish. You are looking for the minimum set of changes that deliver the most value on the journey towards a strategic goal. Never defend weak improvement ideas. The moment an idea looks weak, winnow it out. Hunt for chaff! Kill weak ideas! Then, celebrate your victory! Celebrate that you are enabling successful change!

Many possible changes fail key tests. Look for changes that are:

• Too much work for the return
• Success is too uncertain for the return
• The change is not directly aligned with improving a capability
• The change doesn’t lead to an increment where you can stop work and harvest value

Frankly, best-practice capability-based planning will adjust your capabilities and goals. Your Capability roadmap will be optimized to value. It will be filled with transition states. Remember, every transition is a future decision.

Monitor and adjust your Capability-based Plan

Finally, it’s important to monitor your progress and adjust your plan as needed. Capability-based planning delivers flexibility through transitions and increments. When you reach a transition stage, further decisions are required. An implementation plan should never go past a transition state. Transition states are where the Stakeholders make informed decisions about when and how to adjust your plan.

We think of transition states as off-ramps on the Capability-based Plan. Stakeholder will exercise an off-ramp for two reasons:

• The work to reach the next value resting point exceeds the current assessment of value.
• The work to reach the next value resting point could be used on a different change that delivers a more exciting or rewarding resting point.

Capability-based planning is a powerful tool for organizations looking to achieve their strategic goals. By identifying and leveraging your unique strengths, you can create a competitive advantage and optimize your resources and investments for maximum impact. Capability-based planning can help business leaders advance their strategies. So why not try it and see what results you can achieve?

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What are business capabilities definition, guidelines, and examples in a concise guide.

by Deborah Theseira

Since its inception decades ago, IT has transformed from a traditional support function into a pivotal operational element, serving as a cornerstone for many enterprises.

Today, the average large business leverages IT to do so much. Collecting and analyzing data, streamlining and automating processes, reducing costs, accelerating onboarding, among many other critical functions and processes that enable the modern organization to function successfully.

With IT's immense importance, comes a pressing need to ensure it is efficient and effective. To fully exploit the technological resources available to them, organizations must formulate strategies while maintaining alignment of IT with business objectives. One important aspect of achieving this successfully lies in understanding and defining business’ capabilities.

By mapping out an organization's business capabilities, vital insights into the current state and future direction of the company are gained, facilitating informed decision-making and strategic planning. This article will explore exactly what a business capability is.

What Is A Business Capability?

What is the difference between business capabilities and business processes, examples of business capabilities, how to identify and name business capabilities: guidelines, types of business capabilities, the importance of documenting business capabilities, what are the benefits of business capabilities and analyzing them, business capability modeling: kickstart the process with ardoq.

Key Takeaways on Business Capabilities

By definition, business capability is an activity or ability that enables an organization to achieve specific goals or objectives.

Enterprise Architecture and business capability are related concepts in organizational management and strategy, but they serve different purposes.

• Enterprise Architecture (EA) is a holistic approach to designing, analyzing, and managing an organization's structures, processes, information, and technology. It provides a blueprint for aligning business processes and goals with IT infrastructure and applications.
• Business capability refers to the specific abilities and capacities an organization has to carry out its business functions and achieve its strategic objectives. It represents what the organization can do or is good at doing.

To cut through all the jargon, modelling business capabilities is a way to get an understand what a company does and can do. It’s a helpful method of pinpointing gaps and redundancies within an organization, identifying pain points, and prioritizing where to focus resources.

By defining its business capabilities, an organization can identify where it is and where it needs to be, ensuring it is prepared for current trends and future changes.

For more information on organizational capability, Business Capabilities: Examples for Modeling Your Organization Effectively provides more detailed examples of defining business capabilities.

See how one of the world's largest media organizations became agile by using Ardoq to map their capabilities and more.

Business capabilities can be further broken down into more specific sub-capabilities. It is important to note that capabilities may sound like organizational structures and specific teams. Still, they are decoupled from the “who” and “how,” focusing only on describing “what” an organization can do.

The organization’s technology is part of the “how,” and organizational structure informs part of the “who.” It is also important not to confuse business capabilities with business processes, although they can deal with the same type of information. Business processes are logical sequences of activities for a specific outcome, while business capabilities are logical groups of activities around a common resource or information type.

• General Accounting
• Corporate Communications
• Recruitment and Hiring
• Financial Management
• Product Development

To tackle the question of "What are business capabilities in my organization?", we must first answer: “What tasks are needed to keep this business going?”

For example, a company needs to know how much it will earn at the end of the month after tax. The capability for this is identified as “Monthly Net Revenue Management.” Note that the capability describes the what, not the how (e.g., which digital tools or systems to use) or the who (e.g., which team or department would be responsible for it). These details will come in later in the process of business capability modeling.

It’s important to remember that while tools may change over time, a company’s objectives will almost always stay the same. So, by separating the what from the how a capability model can streamline any future change or transformation.

For the full guide on the best way to model capabilities, read: 6 Best Practices for Defining Your Business Capabilities

Before assigning business capabilities to teams in the company, it must first be determined what function these capabilities will serve. Business capabilities can be broadly divided into three types: 

Core: Capabilities necessary for the organization’s primary value chain for products or services.

Supporting: Capabilities that are necessary for the organization to operate but are not directly related to creating value for customers.

Strategic: Capabilities that are necessary for the organization to plan, develop strategy, and execute change.

For example, if a business has a product, and the objective is to get this product from the drawing board to customers, the business capabilities are core capabilities.

There is always more to running a business than just serving the customers. The business has to be able to manage itself by managing budgets, attracting and hiring new talent, maintaining relationships with other businesses, and much more. None of these things directly affect the customer, so these are supporting capabilities.

An organization must also monitor and influence its position among its peers, so capabilities such as market analysis and strategic planning are categorized as strategic capabilities.

Dividing capabilities into these three buckets will help management and key decision-makers better analyze where to invest and what the different impacts may be for stakeholders. 

Business capabilities are the fundamental elements that describe what a business does—or has the skills and resources to do—to reach its objectives, independent of the organization’s structure or its personnel. A high-end PR company, for example, may have crisis management as one of its key business capabilities.

Determining and documenting a company’s capabilities provides insights into its core business functions, which can clarify the structural changes needed to deliver modernization, expansion, and digital transformation. A clear set of business capabilities can serve as a unifying language between business and IT, aiding alignment and collaboration.

Every business capability provides value, whether it’s monetized or simply helps the organization run more smoothly. The more capabilities a business possesses, the more options it has at its disposal. Particularly during tough economic times, it’s the most flexible businesses that thrive.

But having numerous capabilities isn’t enough to succeed, as they must be used effectively and efficiently. This is where in-depth analysis becomes vital. Carrying out a thorough business capability analysis returns the following two key benefits:

1. Clarifying the State of the Business

Codifying a precise assessment of the business's current operations will improve understanding of the business as a whole, making it clear what it actually is (which may not be what it was previously thought to be). This awareness will help with choosing long-term objectives.

2. Establishing a Unified Language

Modeling a company’s capabilities is often seen as bridging the gap between IT and other organizational functions. Business capabilities help unify the organization’s understanding of how people, process, technology and information serve the business’ strategic goals.

When a business’ capabilities are defined and modeled, the model can provide valuable insight into areas of investment, innovation, and optimization.  Once modeled, an organization's next stage is to understand how its capabilities are realized through Business Capability Realization (BCR).

A well-defined business architecture can empower businesses to adapt quickly and efficiently to changes triggered by growth, mergers, acquisitions, or evolving legislation. It also helps in budgetary planning processes.

Think of a business capability model or map as akin to a jigsaw puzzle, where each capability represents a piece. With clearly defined capabilities, a business can gain a comprehensive view of the overall picture it is attempting to assemble.

To enhance the value of a business capability model , organizations should map their technical capabilities as well. This offers insights into the IT systems within a business and their role in supporting or facilitating business goals and objectives.

With the Ardoq platform, organizations can leverage ready-to-use, expert-curated solutions for Business Capability Modeling, Business Capability Realization , and Technical Capability Modeling and Realization. These resources help a team to initiate the process swiftly within an organization. Additionally, businesses may benefit from a collection of industry-specific reference models, which can be preloaded to expedite the setup process and save valuable time.

These include:

• Asset Management
• Broadcast Media
• Health Insurance
• Life Insurance
• Property and Casualty Insurance
• Manufacturing
• Software Development

Key Takeaways on Business Capabilities:

• Amid digital transformation and escalating IT demands, ensuring the alignment of business capabilities with IT on a large scale is crucial.
• By identifying essential business capabilities, an organization can upgrade its strategic focus, increase organizational agility, improve efficiency and effectiveness, enhance decision-making, and facilitate better change management.
• Business capability modeling is just the beginning. Organizations can unlock further value by modeling their technical capabilities and connecting the models to people and teams.

Read our full guide to get top tips for creating a business capability model that drives value for your organization.

• Best Practice Guides Business Capability Modeling Business Capability Realization
• Blog Posts Business Capabilities Examples Cross-Departmental Strategic Capabilities in Action: UMCG Case Study
• Customer Stories Regaining Control of Costs and Capabilities With IT Cost Management Faster M&A Due Diligence Through Capabilities Mapping

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Business Capability Models: Why You Might Be Missing Out on Better Business Outcomes

May 15, 2014 Andrew Swindell Strategy & Planning 1

INTRODUCTION

In this article, I will explore practical examples for developing and applying a Business Capability Model and answer questions such as:

• What is a Business Capability Model?
• What are business capabilities and how are they enabled?
• What are the misconceptions about business capabilities
• How are they developed and why use them?
• What strategic questions do they help answer?

Delivering architecture value to your stakeholders can take many forms, and one key outcome is simplicity and the ability to tell the organizational story. The Business Capability Model transcends political agendas, divisional boundaries, misunderstood business strategy, lack of skills, and program and project duplication. It enables the architect to position all organizational inputs in context.

Business capabilities are modeled in the business conceptual layer and represent what the business does (or needs to do) in order to fulfill its objectives and responsibilities. Figure 1 is the TOGAF Meta Model, which positions business capabilities as an over-arching representation of the business.

Some accepted definitions are applicable as follows:

• Capability represents what the organization can do.
• Function represents what the organization is doing with that capability.
• Process identifies how the organization is performing the function.
• Organization Unit identifies the department responsible for performing the process.

Much as a “city plan” seeks to describe how a city will look, a Business Capability Model seeks to describe how an enterprise will ideally operate through its constituent parts. All enterprises, both large and small, function using a series of inter-operating business capabilities. In modern enterprises, these business capabilities are numerous and complex, and are becoming increasingly integrated and automated through the use of technology.

Business Capability Models provide a stable, overarching view of what is important to the business. They offer the following benefits:

• Provide a common language: Used to align business objectives with processes that are then enabled via information technology.
• Are organizationally neutral: Changes in the organization do not impact prior analysis.
• Identify what’s strategically important: Strategic themes and performance metrics can be “heatmapped” against capabilities, providing a powerful visual tool to help facilitate decision making.
• Help to focus improvement opportunities: They help to prioritize process and system improvement efforts by linking them to the capabilities that need the most improvement or greatest strategic impact.
• Accurately depict a program’s scope: Mapping program objectives to capabilities produces a more complete and accurate picture of the true scope.

BUSINESS CAPABILITY MODEL DEVELOPMENT

Developing your Business Capability Model can be as simple as a loose positioning of dependent organizational business units or programs of work or a solid course of business stakeholder engagement to discuss and Business Capability Models: Why You Might Be Missing Out on Better Business Outcomes A&G understand what capability the business is really delivering. The architecture concepts of levelling, layering, and language are critical to ensuring you don’t end up with a large number of level 1/2 capabilities—both of which can create way too much complexity in telling the organizational story.

An ideal rule of thumb is that there should be no more than 12–20 level 1 business capabilities to enable business and technology executives to see how key business capability should be organized to tell and deliver the organizational story. This simplifies executive understanding and communication and also enables an effective ownership model to be established across the executive team. Lo and behold, business and technology executives can also discuss business and technology priorities using one simple model of business capability, leading to business and IT alignment through use of one reference and a common language.

Importantly, the Business Capability Model can also be used to highlight capability gaps, current application support (coverage and quality), and future solution options, among other uses. The Business Capability Model essentially provides a common, shared definition for both business and technology professionals in order to discuss information- and systems-related issues, including investment priorities and ICT applications/systems enablement of the organization’s strategic direction.

To support development of the Business Capability Model, you can position capabilities as front office customer facing and back office support capabilities or use one of the many other layering techniques to nest or position business capability, i.e., manage, operate, and enable the business. An agreed Business Capability Model with an external orientation provides a consistent reference point, and a wide range of data can be mapped against the model to support stakeholder engagement.

Because it is externally oriented, it focuses executive attention not only on the makeup of business capabilities but also representation of the external inputs and external outcomes generated by the company. A critical first step is to gain executive agreement on the business outcomes to be achieved. This provides a strong hook for measuring contributions to the business outcomes.

Figure 2 is a sample of an externally oriented summary Business Capability Model for a mining company that outlines “What” inputs are coming into the business, “What” business capabilities are required, and “What” outcomes are being generated by the business.

In summary, deploying a Business Capability Model at this level captures the CEO’s attention and reinforces the value of architecture to achieving the organizational goals.

The Business Capability Model can be utilized to identify strategic focus areas by mapping strategies, scorecards, and/or executive priorities to the business capabilities. Current capability performance/maturity level can be assessed through industry benchmarking or by assessing pain points/improvement opportunities. (See figure 3.)

By assessing each of these responses, the different levels of investment and value are aligned to address specific problems.

In summary, simplifying your environment through applying logical filters to your data against the backdrop of your company strategy and existing business capability enables many questions to be raised on the scoping, validity, and value of the investment choices to be made.

Mapping planned programs/projects and costs to capabilities will highlight where investment is taking place and confirm if the amount invested is appropriate. This can be overlayed on the capability “heat map” to understand the alignment between investment and strategic priority areas.

Showing on a page a clear line of sight between investments made, business challenges, and divisional contributions to the organizational strategy is the best way of engaging and winning the hearts and minds of executive teams. It also encourages and drives debate from a single reference point on the potential decisions and funding options available. (See figure 4.)

Key conclusions to draw from this article are that architects primarily support projects and programs with specific solution architectures that show a project team how projects will be delivered and show business stakeholders what they will be getting. While this creates delivery strength, the real architecture value at the CEO/CxO level is in developing and applying the Business Capability Model to answer the major strategic questions being asked.

Development of your firm’s architecture library of artifacts is critical and starting top-down with a Business Capability Model sets the agenda for developing all other architecture artifacts and positioning the company story.

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Business Capability Definition and Examples

Understanding and accurately defining business capability is something with which many people struggle.

This is partly because the word ‘capability’ is overloaded and means different things to different people. For example, if you talk to the folks in HR, they’ll immediately equate capability to only competencies and skills.

Let’s clear up the distinction and discuss some techniques for identifying and explaining capabilities. Having a common language in your organization is the first step towards being able to realize value from business capabilities .

Industry definitions of 'capability'

To start, here are the definitions of business capability from two highly respected industry groups for the business architecture and enterprise architecture disciplines:

From the BIZBOK® Guide V9.0 :

“A business capability, or simply a ‘Capability’, defines what a business does.”

From TOGAF® V9.2 ‍ :

“[A business capability is] a particular ability that a business may possess or exchange to achieve a specific purpose.” ‍

From Jibility :

“Business capabilities are the tangible and intangible building blocks of a business that give it the ability to do what it does.” Still – what does this mean in practice? What does a business capability look like? How is it different from a business function?

Let’s break it down into three areas:

• Why a business capability is like a building block of a business
• The difference between tangible and intangible capabilities
• How to name a business capability, and why proper naming can be the difference between describing a business capability or something else ‍

How to define business capabilities

Capabilities as building blocks – a different way to describe a business.

Many elements make up a business, and these can generally be sorted into the categories of people, process or physical. We often view a business using different diagrams that describe these elements. For the people elements, we use an organization chart that shows who is responsible for what, and the role they perform.

To describe the process elements of a business, we use a process model or a functional chart. With this, we can understand how an area of the business works, as shown below for our example company, RedYabber. 

To describe the physical elements, we use an asset diagram. Armed with an asset diagram, we know which tangible equipment or facility is engaged in the business. Note that The Open Group prefers the word material rather than physical. This makes sense, particularly for digital services and systems, but, for simplicity, we’ll stick with physical.

Now imagine that we can combine the people, process and physical views into one diagram. The composition of these elements forms the building blocks of a business, and this is what we call business capabilities. 

For example: a Human Resource (HR) Management business capability is a building block of the business that manages its human resources. It is led by a Head of HR role; it executes HR processes; it is based in the head office; and it uses an HR system

Fundamentally, the difference between a business capability and an organizational role, process, function or asset, is that a capability describes what the business does – not just how, who or which. For example, the difference between a function and a business capability is that a function describes how an area of the business works through its processes, and a business capability describes what it does through the elements of people, process and physical – not just one element in isolation. Again, looking at our example company, we can determine that the RedYabber business is composed of a few business capabilities as illustrated below. 

When we take these business capabilities and lay them out as a map rather than a hierarchical chart, then we have the following RedYabber capability map. 

Tangible and intangible capabilities

A tangible business capability is something that you can touch, see or sense. Product Manufacturing is a good example because you would be able to see the factory floor and the equipment used to make the products. Some digital business capabilities, such as Data Management or Digital Collaboration, are less apparent; nevertheless, we can still identify the people or roles involved and the systems used to execute the capabilities. Given, that we said earlier that a business capability is comprised of people, process and physical. Surely, then, it would be safe to say that all business capabilities are tangible because there are always elements of people and physical assets involved? Intangible capabilities do, however, exist. These capabilities are usually articulated at a very high level or are generically vague – for example, Leadership, Branding, Innovation or Agile. It depends on the author’s meaning or intent of the capability, but without further elaboration, these capabilities are open to interpretation. Let’s take the Agile capability as an example. If the Agile capability is describing that the organization has an ability for an agile mindset aligned to agile principles, then this would be an intangible capability. Alternatively, if the Agile capability were describing that the organization has an agile delivery capability based on agile roles such as Scrum Master, and methods like Scrum and Kanban tools, then this would be a tangible capability. Pragmatically, we define business capabilities to help us understand what a business does and what needs to change for the capability to meet our objectives and address our challenges. Therefore, defining intangible capabilities is not particularly useful for identifying what people, process and physical elements of the capability need to change. Try to keep to tangible business capabilities.

How to name business capabilities

How you name a business capability is critical to whether you are describing a business capability or something else entirely. The name that you give to a business capability: 

• Choose words with suffixes like -tion, -ment, -ance or -ing, such as Operations, Coordination, Management, Placement, Assurance, Governance, Monitoring, Auditing.
• Use a noun to qualify and clarify the object or context the business capability is referencing. For example, Production Operations, Events Coordination, Sales Management, People Placement, Quality Assurance, Data Governance, Production Monitoring, and Tax Auditing.
• Must be distinct and independent Each business capability is standalone. A conjunction of two words, for example, Strategy and Architecture, should be two distinct capabilities. ‍
• Must be unique There is only one business capability of that name that does what it does. You should not have two capabilities of the same name that do different things. ‍
• May be a composition or an aggregate of other distinct capabilities A business capability may comprise other capabilities, and we show this in a nested diagram like the following:

Putting it all together

Let’s apply everything that we’ve just covered: take a look at the following example. Are these business capabilities?

The answer is no: Expense Claims are action steps; Sales are intangible sales funnel stages; Corporate are functions of the business; Vehicle is a collection of components; and Transport is a list of transportation categories. None of these define what it does.

Using what we have discussed, we can rename these and realize our business capabilities as follows.

Once you have a clear understanding of the definition of business capabilities, put them at the core of your strategic planning process – i.e. time for capability-based planning.

Capability-based planning (capability modelling) is a method that uses techniques such as capability mapping in order to understand which capabilities need to be changed so that your organization can meet its strategic objectives. It can be complex, but it doesn’t have to be.

Your tool for capability-based planning

We’re strong advocates for capability-based planning’s effectiveness, and this belief was a major driver behind our creation of Jibility. We want capability-based planning to be accessible to anyone, in a simple and efficient way, and a free dedicated tool is the answer.

Related blogs

Capability-Based Planning vs. Traditional Project Planning Approaches

Capability-based planning can rewire a traditional approach to project planning. This is how the two approaches can work together.

How To Create a Business Capability Map

Business capability mapping helps you to identify what needs to change. There are two key frameworks for deriving your business capabilities.

Business capabilities are the tangible and intangible building blocks of a business that give it the ability to do what it does.

By using this website, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. View our Privacy Policy for more information. ‍

Home » Enterprise Architecture » TOGAF ADM: Top 10 techniques – Part 10: Capability-based planning

TOGAF ADM: Top 10 techniques – Part 10: Capability-based planning

• Posted on March 24, 2023
• / Under Enterprise Architecture , TOGAF , Uncategorized

Capability-based planning is a business-focused approach to strategic planning that aims to deliver the required capabilities to an organization. It brings together all lines of business to achieve a shared goal, and is particularly useful in organizations where resources are involved in multiple capabilities, such as emergency preparedness units.

From an IT perspective, capability-based planning is highly relevant, especially when it comes to setting up a data center. This is because IT architects and planners are often involved in managing not just the IT implementation, but also other tasks such as personnel training and change management. In the past, many IT projects failed because these other tasks were not effectively controlled by Enterprise Architects and planners, despite the brilliance of the IT implementation itself.

Capability-based planning frames all phases of the architecture development in the context of business outcomes, linking the IT vision, architectures, and implementation plans with the corporate strategic, business, and line-of-business plans. This ensures that IT projects are described in terms of business outcomes, making it easier for businesses to appreciate what is being delivered, while helping IT architects to stay focused on the ultimate business goal.

In many governments, horizontal interoperability and shared services are emerging as cornerstones of e-Government implementations, while in the private sector, supply chain management and Service-Oriented Architecture (SOA) are driving planners and managers to govern both horizontally and vertically.

Concept of Capability-Based Planning

Capability-based planning is a crucial approach from both an Enterprise Architecture and IT perspective to ensure that the strategic business plan drives the enterprise. It allows for adaptability and innovation through capability engineering, leveraging both top-down and bottom-up approaches.

Regardless of how the corporation is structured, delivering business capabilities requires coordination and alignment across different business verticals. Ideally, capabilities should be business-driven and led, and the challenge is to ensure that the benefits are reaped at the enterprise level rather than just the line-of-business level. Projects within line-of-business-led portfolios tend to have a narrow perspective and can benefit from a corporate perspective.

SMART guidelines

Managing the delivery of a capability is challenging, but adopting a capability-based perspective within an organization can deliver synergistic business value that can ultimately lead to increased profitability and stock value. To ensure clarity and avoid ambiguity, it’s important to specify capabilities using the same discipline as in business scenarios, following the SMART guidelines.

The SMART guidelines help to ensure that objectives are specific, measurable, achievable, relevant, and time-bound, which can lead to greater clarity, motivation, and success in achieving organizational goals.

SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-bound. The SMART guidelines provide a framework for setting objectives that are clear, concise, and actionable.

• Specific: Objectives should be specific and focused on a particular outcome or result. This helps to avoid ambiguity and ensures that everyone is clear on what needs to be achieved.
• Measurable: Objectives should be measurable so that progress can be tracked and success can be evaluated. This allows for adjustments to be made as needed and provides motivation for those working towards the objective.
• Achievable: Objectives should be achievable and realistic given the available resources and constraints. This ensures that the objective is attainable and does not lead to frustration or demotivation.
• Relevant: Objectives should be relevant and aligned with the organization’s overall strategy and goals. This helps to ensure that the objective contributes to the success of the organization as a whole.
• Time-bound: Objectives should be time-bound, with a specific deadline or timeframe for completion. This helps to ensure that progress is made within a reasonable timeframe and that the objective does not become a never-ending task.

Radar Charts for Capability Planning

Delivering a capability can be a lengthy process, varying depending on the organization and industry vertical. It typically involves multiple projects and increments to provide real business value to stakeholders, while also maintaining momentum towards the Target Architecture, executive support, and funding. To ensure successful delivery, capabilities should be broken down into increments that produce discrete, visible, and quantifiable outcomes, which serve as Critical Success Factors (CSFs) for continued capability support. Communicating these complex incremental changes to stakeholders is crucial for establishing buy-in at the start and maintaining it during the transition.

• Developing a capability is a long-term effort that involves multiple projects and incremental deliveries over an extended period of time.
• Breaking down the capability into smaller, manageable projects is essential to deliver real business value to stakeholders as soon as possible.
• The smaller projects should be designed with the overall capability in mind and aligned with enterprise architecture principles and standards.
• The specific timeline for capability development varies depending on the organization and industry vertical.
• Executive support and corporate funding are crucial for capability development.
• Effective communication and collaboration between enterprise architects, project managers, and business stakeholders are necessary for success.

What is a Radar Chart?

A Radar Chart, also known as a Spider Chart or Polar Chart, is a graphical representation that displays data in a two-dimensional format with multiple variables. It consists of a central point from which several axis lines extend, with each axis representing a different variable. The data is plotted on each axis line, and a shape is formed by connecting the data points. The resulting shape resembles a spider web or radar sweep, hence the name.

The Radar Chart is commonly used in business and marketing to compare different products or services based on various criteria, such as price, quality, features, and performance. It is also useful in capability planning to describe how a capability will evolve over time, as it can display the critical success factors (CSFs) and show the progress made towards achieving them.

In capability planning, a Capability Increment Radar diagram can be used to communicate the incremental evolution of a capability to stakeholders. The diagram shows the different increments of the capability along the axis lines and the progress made towards achieving each increment. The stakeholders can use the chart to understand how the capability will evolve over time and to monitor the progress made towards achieving the CSFs.

The Capability Increment “Radar” diagram, depicted in Figure below, is an effective tool for illustrating a capability’s evolution over time.

How to Create a Radar Chart for Capability Planning

A company wants to grow its capabilities from its current state to a target state, but it doesn’t have a clear understanding of where it currently stands and what areas it needs to focus on to reach the target state. The company needs a tool to assess its current capabilities and identify gaps that need to be filled in order to achieve its growth objectives.

To address this problem, the company can use a Radar Chart to visualize its current capabilities and compare them to its target state. A Radar Chart, also known as a Spider Chart or a Polar Chart, is a graphical tool used to display data in a circular format with multiple axes. Each axis represents a different dimension or capability, and the data is plotted as a series of points on each axis, forming a polygon.

The Radar Chart can be used to evaluate the company’s capabilities across several dimensions such as technology, process, skills, resources, and culture. The company can identify areas of strength and weakness and develop a roadmap to enhance its capabilities in the weaker areas.

For example, if the company wants to improve its technology capabilities, it can use the Radar Chart to assess its current state and identify areas for improvement such as upgrading its hardware and software, investing in new technologies, or hiring new talent with specialized skills. By using the Radar Chart, the company can prioritize its investments in areas that are most critical for achieving its growth objectives.

Let’s say a software development company wants to improve its capabilities in order to expand its business. The company has identified several key areas that it wants to focus on, including technology, process, skills, resources, and culture. The company wants to use a Radar Chart to assess its current state and develop a roadmap for growth.

The company conducts a survey of its employees to evaluate its capabilities across these dimensions. The results of the survey are as follows:

The table summarizes the current and target state for each dimension being evaluated and outlines specific actions that can be taken to improve capabilities in each area. By taking a comprehensive approach and addressing multiple dimensions simultaneously, organizations can create a roadmap for growth and work towards achieving their target state.

Based on these results, the company creates a Radar Chart using Echart.JS to visualize its current state:

The Radar Chart shows two polygons, one representing the current state and the other representing the target state. The five axes represent the five dimensions being evaluated: Technology, Process, Skills, Resources, and Culture.

• The current state polygon is in blue
• The target state polygon is in green.

The chart shows that the company is currently strong in Skills but needs improvement in Process and Culture to reach its target state. By using this chart, the company can identify the areas that need the most attention and create a roadmap for growth.

Here a legend table with simple descriptions for each of the dimensions being evaluated in the Radar Chart:

This legend table provides a brief overview of each dimension being evaluated in the Radar Chart and helps viewers understand what each axis represents.

A Radar Chart can be a valuable tool for capability planning because it allows organizations to assess their current capabilities across multiple dimensions and create a roadmap for growth. By evaluating different dimensions such as technology, process, skills, resources, and culture, organizations can identify areas of strength and weakness and develop strategies to improve their capabilities.

A Radar Chart provides a visual representation of an organization’s current state and the target state, making it easier to identify areas that require attention. The chart allows organizations to see how different dimensions are interconnected and how improvements in one area can impact other areas. This holistic view enables organizations to develop a comprehensive plan that addresses multiple dimensions simultaneously.

Radar Charts can also be used to track progress over time by comparing current and target state charts. By regularly evaluating their capabilities and tracking progress, organizations can ensure that they are on track to achieve their goals.

Overall, a Radar Chart is a useful tool for capability planning because it provides a clear and concise view of an organization’s current and target state across multiple dimensions. This helps organizations develop a roadmap for growth and continuously monitor progress towards achieving their goals.

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Business Capabilities Guide - Everything you need to know

As business digitization has accelerated, and every business project is an IT project, IT is under pressure to enable and support business transformation. 

By defining what the organization does, business capabilities are a key concept that allows business and IT teams to speak the same language. 

Business capability definition

A Business capability is defined as a representation of an organization's needs.

Business capabilities represent an organization's needs and what it does and can do. They depict the core functions of the business and break down the industry into building blocks, which are laid out in a business capability diagram called business capability maps. If needed, they can be broken down into sub-capabilities. 

Their regular assessment will help enterprise or business architects identify and prioritize the corresponding IT initiatives with business needs.  

Of course, since they depict an organization, business capabilities are not static and evolve; some might even become irrelevant and be replaced or consolidated by another capability. Business capabilities assessment can be based on various parameters, including efficiency, priority, and complexity.

What is a business capability example?  

Take a car rental company, for example. An excellent example of business capability might be an "online booking" capability. This competence is supported by one or multiple applications, like the car rental mobile app.  

Another example would be a "mortgage loan" capability for a bank supported by an in-house application that computes loans. 

The example below shows the capability map of an airport, including applications. Each application has been assessed using color-coded icons to understand better how applications support business capabilities. 

Business capability map with applications 

Business capability mapping helps IT leaders shape the IT architecture to meet business needs. 

Business capabilities are an essential concept that enables enterprise architects to link IT operations to the business.  

Through business capability planning, organizations can develop strategic plans that incorporate IT investments and prioritize projects.  

Business Capability mapping allows companies to see what is done to reach their objectives. 

To help shape the map of an organization, there is a list of concepts that "business people" connect to: 

Business objectives

From the business side, capabilities connect objectives as defined by the business. By doing so, enterprise architects ensure that the company’s goals are well supported by capabilities and reciprocally that a business capability is not unreliable to the organization's needs.

Customer Experience

One can identify the business capabilities necessary to support the desired customer experience. Customer journey maps describe the customer experience, designing the buying cycle (research, evaluate, purchase), and the various channels available to customers, such as a company website, a mobile app, or a store.  

During their journey, customers follow various touchpoints to interact with the organization.  

Each touchpoint is linked to business capabilities, providing an outside-in perspective on the capabilities needed to support the customer experience. 

Map customer experience in customer journey maps

Value streams.

In today’s world, especially in Agile environments, a customer-centric approach is critical to ensuring that released products deliver value and match customers' needs.  

By describing the stages needed to deliver value to customers, value streams translate to IT customers' needs thanks to business capabilities.  

Each stage is enabled by business capabilities so that enterprise architects can identify the required capabilities and the missing ones and plan the related IT projects. 

Value stream with supporting business capabilities

To map an organization, here is a list of concepts that the "it side" can link to business capabilities: , applications   .

As we mentioned previously in our examples, business capabilities are supported by one or multiple applications.  

The link between applications and business capabilities enables enterprise architects to understand the business value of applications and whether an application supports a critical capability. 

Projects 

Organizations must build the corresponding strategic projects and link them to business capabilities to transform or create new business capabilities.  

By doing so, enterprise architects understand how projects impact business capabilities and their related applications.

Business capabilities, along with projects displayed in a business capability map  

Business processes.

Finally, the organizational view with business process mapping brings the perspective on the different organizational tasks people must perform to support business capabilities.  

The importance of business capabilities and business capability mapping

The ability of a business to achieve its objectives depends on its capabilities. Business capability mapping is essential to identify the capabilities required to achieve specific business objectives and to track progress over time. This helps businesses focus on the right things, invest in the right areas, and make better resource allocation decisions. 

Strategic planning

Business capabilities are the foundation for strategic planning. An organization's strategic plan provides long-term visibility on a company's direction and includes action plans and resources to achieve these goals.  

By associating strategy with capabilities, an enterprise architect can view the impact of business projects on their application and the IT landscape. 

 It will help them plan future architecture to support these business capabilities. 

Strategic roadmap with supporting business capabilities

Customer experience in agile developments..

Agile enterprises are organized around the customer. Even though product owners translate business requirements into user stories and software developments, they don't necessarily have the complete picture of the value delivered to the customer or the customer experience. Using value streams, enterprise architects can formalize the delivered value.  

They also use customer journey maps to describe the desired customer experience. Enterprise architects plan the required business capabilities by connecting touchpoints and stages of the value streams to business capabilities. Most importantly, they can link these business capabilities to Epics and user stories so software developments are directly tied to customer experience! 

Application Rationalization

Organizations have often accumulated many applications and other IT assets due to company growth or past mergers and acquisitions.  

Many IT organizations fail to rationalize their  application portfolio  because they only have a cost perspective.  

Indeed, organizations won't eliminate a business-critical application simply because it costs too much! 

By linking applications to business capabilities, IT organizations can see how an application supports the business, whether it supports a critical or minor capability.  

Using business capabilities also helps identify redundant applications, especially in the case of mergers and acquisitions, where the new company gains applications from the acquired company. 

Technology Risk Management

In EA repositories , underlying technology components supporting applications, such as databases or software frameworks, are linked to applications linked to business capabilities and objectives.  

By monitoring the end-of-life of these technology components, enterprise architects can easily understand the impact of an obsolete technology component on strategic goals. 

This is also the case for an application that would use a technology that has been prohibited, as set by the company policy.  

Reciprocally, enterprise architects can monitor critical business capabilities and view if they are not being put at risk due to obsolete or prohibited technology. 

Benefits of business capabilities

There are many benefits to having well-defined business capabilities. The main advantages are listed below. 

Increased visibility of the business value of an IT asset

Capabilities are a great way to organize IT assets from a business standpoint. CMDBs are a critical component when managing IT assets, but they are often difficult to maintain and do not provide visibility into the business value of IT assets.  

Business capabilities give an immediate understanding of the value for the business by linking IT assets to capabilities.  

They enable IT departments to focus on critical assets. It is also a communication tool that offers a common language between business and IT. 

Reduce IT Costs

By mapping applications to business capabilities, redundancies are more accessible to analyze and reduce costs. If two applications support the same business capability, they will likely provide the same functionalities or functional overlaps.  

Adding other information, such as application cost, end-of-life, or technology obsolescence, also helps improve decision-making to remove or modernize an application. 

Greater flexibility 

IT departments are often swamped with existing projects or assets when managing IT projects. Don’t they see how new projects or applications fit into their existing IT systems? How will the new project impact the IT landscape? Is it redundant with another project or application? Thanks to business capabilities, IT departments increase their ability to embrace new projects by streamlining the IT landscape.  

They can also focus their resources on projects critical to the business and work on what matters the most. 

Improved IT investments 

Business capabilities are crucial to linking strategy to execution. Business capabilities are planned in time, with strategic objectives forming the strategic roadmap.  

Based on this roadmap, IT leaders determine the related IT projects, the applications, and the impacted architecture.  

By aligning projects with business needs, IT departments ensure that resources are spent on suitable projects and that investments are better planned through greater visibility into upcoming projects.  

It is also easier to reprioritize projects as strategic objectives change, especially in agile environments. 

How do you map business capabilities?

Business capabilities link business needs to IT assets so that IT assets genuinely support the business. Additionally, business-capability planning helps enterprise architects map strategic plans and ensure that projects are aligned with business objectives.  

To make sure capability maps are named and defined in business terms. Here are our guidelines for doing so: 

1 - Understand your organization’s strategic goals

Understanding where your organization is heading and the strategic goals defined by the executive team is crucial.  

Define the mission, vision, strategies, tactics, objectives, and goals using the business motivation model to help you with this task.  

Enterprise architects must work closely with the business to get insights into the organization's strategy and ensure that the business's capabilities are comprehensive. 

Map out business strategy, including tactics, objectives, goals, mission, and vision 

2 - break down the business into building blocks .

Meet with business leaders to understand the relevant level of detail that fits your organization’s needs and then break down capabilities into sub-business capabilities.  

Note that business capability templates are available to speed up this step. They are either generic or industry-specific.  

Standards bodies such as BIAN for the banking sector or the Business Architecture Guild provide generic or industry-specific templates. These business capability frameworks help accelerate business capability modeling. 

Review your findings with business leaders and adjust if necessary. Establish a process for regularly reviewing business capability mapping. 

3 - Link business capabilities to applications and impact analysis 

In this step, enterprise architects will link the business and IT by connecting applications to business capabilities and performing a business capability analysis. 

Since technology components are also tied to applications in the EA repository, you can quickly impact analysis from a technology component up to business objectives.  

Business capability maps view applications and business capabilities. By using indicators on applications and business capabilities, such as application lifecycle and business criticality, you can make better decisions about the evolution of the application portfolio. 

Impact analyses on projects, business capabilities, and applications

4 - integrate the customer perspective .

To plan initiatives that focus on customer needs, it is essential to connect business capabilities to the customer’s experience.  

Work with epic owners or business leaders to create value streams that depict the value delivered to customers.  

Work with marketing and product teams on customer journey maps to design optimal customer journeys. Identify the related business capabilities required to fulfill customer needs. 

5 - Prioritize and assess business capabilities to plan project  

Assess business capabilities based on priority, complexity, and efficiency to prioritize and plan business capabilities. Identify the related projects to create or transform business capabilities.  

The identified projects are then planned and put into a strategic roadmap. It's important to share the strategic roadmap with your organization to review the strategic roadmap. 

Assess business capabilities on various criteria.

With the help of business capabilities and Business capability maps, enterprise architects can act as strategic advisors to the business by explaining what can or cannot be done from an IT perspective.  

Business capability planning will also help CIOs communicate how IT value will be delivered to the business. 

In business, a capability is defined as a combination of skills, knowledge, experience, and resources that allow an organization to perform a particular task or set of tasks. A capability can be considered an organization's "secret sauce" - the unique combination of capabilities that gives it the ability to succeed at something others cannot. Capabilities are often described in terms of processes or functions; for example, a manufacturing organization might be capable of designing and producing products. However, it is important to remember that a capability is more than just a process or function - it is the combination of skills, knowledge, experience, and resources that allow an organization to perform that process or function in a way that is unique and successful.

Business capability planning is the process of identifying, documenting, and tracking the capabilities of an organization. This includes developing new products or services, entering new markets, responding to customer needs, or taking advantage of new technology. Business capability planning aims to ensure that the organization has the right mix of capabilities to achieve its strategic objectives.

A business capability heat map is a visual tool that helps organizations understand the relationships between their capabilities and other factors, such as business goals, processes, and organizational structures. The heat map allows organizations to identify high or low-performance areas and decide where to focus their resources.

The Togaf IT business capability map is a tool used to help organizations understand and manage their IT capabilities. It provides a common language for discussing and analyzing IT capabilities and can be used to identify gaps and areas for improvement. The Togaf map is based on the Open Group Architecture Framework (TOGAF), a framework for enterprise architecture.

To map business capabilities, you need first to identify the different areas or functions of the business. Once these are identified, you can start mapping out how they work together and what dependencies are between them. This can be done using various methods, such as process mapping or creating a value stream map.

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Building capabilities for performance

Capability building has remained a high strategic priority since we first surveyed executives on organizational capabilities in 2010. Four years later, many companies are using the same approaches to learning and skill development—namely, on-the-job teaching—that were most common in the earlier survey. Yet the responses to our latest survey on the topic 1 1. The online survey was in the field from May 6 to May 16, 2014, and garnered responses from 1,448 executives representing the full range of regions, industries, company sizes, functional specialties, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP. suggest that organizations, to perform at their best, now focus on a different set of capabilities 2 2. We define institutional capabilities as all skills, processes, tools, and systems that an organization uses as a whole to drive meaningful business results. Individual capabilities refer to training, learning, or specific skills. and different groups of employees to develop.

Amid their evolving needs and infrequent use of more novel skill-building approaches (digital or experiential learning methods, for example), executives report notable challenges in their capability-building programs. Among the most pressing are a lack of learning-related metrics and difficulty ensuring the continuous improvement of skills. In the results from organizations that are most effective at capability building, 3 3. Respondents who say capability building is a top or top-three strategic priority at their organizations and that their organizations’ learning programs for frontline staff and company leaders are very effective at preparing them to drive business performance. however, are some lessons for improvement. Respondents at these companies are much likelier than others to say sustaining capabilities over time and linking learning to company performance are integral parts of their capability-building programs. They typically use more methods than others to develop employee skills, more often say their human-resources functions and businesses co-own learning, more often use metrics to assess the impact of their programs on the business, and in turn report more success at meeting their programs’ targets.

New focus on functional capabilities and the front line

The strategic importance of capabilities is apparent around the globe: half of all respondents this year say capability building is at least a top-three priority at their companies. It’s even more significant in parts of Asia, particularly in India and China (Exhibit 1). This finding supports our experience with fast-growing organizations in the region, which face notable capability gaps as they expand. Regardless of region, though, most executives agree that they are not building capabilities for purely competitive reasons. They most often cite customer demand and strategic importance as the factors their companies consider when prioritizing capabilities (Exhibit 2). Company culture and the results from standardized diagnostics rate lower.

Half of executives rate capability building as one of their companies’ top-three priorities.

When deciding which capabilities to build, companies most often consider customer demand and strategic importance..

Although the high priority placed on capabilities is consistent with the 2010 results, 4 4. See Liz Gryger, Tom Saar, and Patti Schaar, “ Building organizational capabilities: McKinsey Global Survey results ,” March 2010. this year’s respondents identify changes in capability-related needs and challenges. On one hand, executives still believe leadership skills contribute most to their companies’ business performance—and at the companies we define as effective capability builders, executives are twice as likely as others to rank leadership skills first. Yet functional capabilities now rank second, replacing sector-specific capabilities in our earlier survey. 5 5. In 2014, 31 percent of respon-dents ranked functional capabilities as contributing most to their business performance, behind leadership capabilities (35 percent), while 10 percent said the same for sector-specific capabilities. In 2010, 19 percent ranked functional capabilities first, and 26 percent ranked sector-specific capabilities first. Among specific functional capabilities, executives most often identify skills in strategy, operations, and marketing and sales as the most important to business performance.

Organizations have also shifted the focus of their spending on capability building (Exhibit 3). Thirty-three percent of respondents now rank frontline employees first as the group with the most resources for learning and skill development (up from 22 percent in 2010), followed by senior and executive leaders as a spending priority.

Since 2010, companies have shifted their capability-building spending to focus more on frontline employees.

Untapped potential in assessment and program design.

The results indicate that today, few organizations have a robust approach to assessing their current capabilities and identifying skill gaps. Only 18 percent of all respondents—and 24 percent of effective capability builders—say their organizations use structured, objective third-party diagnostics to do so. Instead, manager assessments and self-assessments are the most popular methods of identifying capability needs, even though our experience suggests that the quality of initial diagnostics influences companies’ ability to design effective and targeted learning programs.

And despite their changing needs, executives tend to say their organizations rely on the same methods to deliver learning and build skills as they did four years ago. On-the-job teaching is used most extensively, followed by in-person training and coaching (Exhibit 4). Only one-third of all executives say their companies use formal or informal coaching extensively, which we also saw in 2010. At the most effective companies, though, 60 percent say the same, supporting our experience that coaching can successfully complement many other types of interventions.

On-the-job teaching remains the most popular method for building organizational capabilities.

Still fewer respondents report the use of more leading-edge learning methods, such as experiential environments (model factories or simulators, for example) or digital interventions beyond individual online classes, such as mobile learning exercises or group-based online courses. While respondents at the most effective companies are more likely than others to report using all of the interventions we asked about, even their use of these novel methods suggests room for improvement. Only 22 percent say they use experiential methods to teach adults in an experimental, risk-free environment that fosters exploration and innovation. They are still nearly four times likelier, though, than all other respondents to report the use of these methods. Interestingly, among their peers across regions, executives in India report the most extensive use of both experiential and digital methods.

These leading-edge training methods could enable all organizations to replicate or scale up their learning programs quickly and cost-effectively across multiple locations. But currently, companies tend to plan and execute large-scale learning programs with a train-the-trainer approach or with help from external providers to roll out their programs. At larger companies, respondents cite the use of pilots more often than their smaller-company peers. Just 9 percent of all executives say their companies use double pilots, where a program is run first to prove the concept and then again to prove that line leaders can scale it on their own and achieve the targets.

To sustain capabilities, alignment and measurement are key

To capitalize on the skill-development work they are already doing, it’s critical for organizations to formalize their approaches to maintaining and improving capabilities. Yet few executives report that their companies do this well. Nearly half say their organizations encourage employees to develop their skills. But less than one in five say their human-resources functions and business units co-own learning—a practice that reinforces the importance of skill development and also aligns learning objectives with business needs. Across all the activities to sustain capabilities that we asked about, the respondents who do report co-ownership are the most likely to say it’s been very effective in supporting their learning programs.

In their efforts to sustain and continuously improve, the most effective companies stand out from the rest. Forty percent of these respondents say their human-resources functions and business units co-own learning, compared with 14 percent of all others (Exhibit 5). Relative to their peers, this group reports a more structured approach to developing tools, methods, and procedures to support capability building. They also say their learning programs are more often based on competency models and “learning journeys” for all roles.

The most effective capability builders take more action than others to maintain and improve their capabilities.

In our experience, one way organizations can institutionalize and sustain capability building is with a corporate academy. 6 6. We define corporate academies as dedicated, integrated initiatives or units to develop and sustain capabilities that are in line with corporate strategy. Roughly one-third of executives say their organizations already have corporate academies, which tend to focus on developing functional and technical skills. They are most often governed by human-resources functions, either on their own or jointly with business units—the co-ownership that, again, fosters alignment between learning and business objectives.

And, fundamentally, metrics are a prerequisite for building capabilities in a sustainable way. They are top of mind for most organizations: more than half of executives say their companies formally link the skills employees acquire in learning programs with individual performance. At the same time, metrics are a growing concern. When asked about their companies’ biggest challenges in building capabilities, executives cite a lack of credible metrics much more often than they did in 2010 (Exhibit 6). One in five respondents say their organizations do not measure the impact of their learning programs at all. At the organizations that do measure impact, employee or manager feedback is the most commonly cited metric; only 13 percent say their organizations calculate the quantifiable returns on their learning investments.

Lack of metrics has become a greater challenge to capability building.

With respect to goals, too, there is much work to do. More than half of respondents say either that they do not know whether their capability-building programs have achieved quantitative targets in the past three years or that they have not set targets at all. Not surprisingly, the most effective companies put more emphasis on metrics and see better results than others do (Exhibit 7). Of executives whose companies set targets, 83 percent of those at the effective companies say their programs have either met or exceeded targets in the past three years. In contrast, only 61 percent of all other respondents report the same success.

Companies that build skills most effectively do a better job of linking those skills to performance and of meeting targets.

Looking ahead.

• Diagnose systematically. In our experience, companies are best able to build strong capabilities when they systematically identify the capabilities, both institutional and individual , that can have the most positive impact on the business. Objective assessments are an important tool in this process—and few respondents say their companies use such assessments now. These diagnostics not only help companies assess their skill gaps relative to industry peers but also help them quantify the potential financial impact of addressing capability gaps. By diagnosing these gaps in a systematic, objective way, companies can better establish a foundation for the effective design of learning programs that link learning results to the business and include meaningful, quantitative targets.
• Design and deliver learning to address individual needs. The core principles of adult learning require that companies tailor their learning programs to employees’ specific strengths and needs, rather than developing a one-size-fits-all program for everyone. In our experience, the most effective approach to adult learning is blended—that is, complementing in-class learning with real work situations and other interventions, such as coaching. The results suggest that all companies could take advantage of more novel approaches, such as digital learning (which can reach large groups of employees anywhere, at once) and experiential learning (which links skill development to day-to-day work experience in a risk-free setting).
• Align with and link to business performance. To be effective and sustainable, capability building cannot happen in a vacuum. Learning objectives must align with strategic business interests, and, ideally, capability building should be a strategic priority in and of itself. Making human-resources functions and individual business units co-owners of skill-building responsibilities and then integrating learning results into performance management are effective steps toward achieving this alignment. These actions will also ensure broad buy-in for learning success, at both the organizational and individual levels. To ensure that their learning programs have real business impact, organizations must focus on metrics, as our most effective capability builders often do. They must establish rigorous performance-management systems with robust metrics and then measure progress against clear targets, to know where and how skill gaps are (and are not) being closed.

The contributors to the development and analysis of this survey include Richard Benson-Armer, a director in McKinsey’s Stamford office; Silke-Susann Otto, a specialist in the Hong Kong office; and Gina Webster, a specialist in the New York office.

They would also like to acknowledge Claus Benkert and Tomas Koch for their contributions to this work.

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Why leadership-development programs fail

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Home Blogs Business Capability What are Business Capabilities & How to Identify them?

What are Business Capabilities & How to Identify them?

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Business capabilities are stable building blocks that define what an organization does.  In the first instalment in this series , we gave an outline of the notion of ‘business capability’ and why it is so useful in strategy execution. But what exactly is this somewhat elusive concept and how do you define capabilities?

As mentioned in that previous blog post, you need to understand and design what an enterprise can and must do to fulfil its mission, before diving into the organization structure, business processes, IT systems, and other implementation aspects. This provides the ‘big picture’ needed to deal with the challenges above: First, get away from organizational politics and technical limitations and look at the essence of what is needed.

We said that business capabilities are used to describe the abilities of an enterprise, i.e., what it is able to do , independent from implementation. What it can do of course includes what it does today, but it also describes its potential . This is what makes it especially relevant in strategic discussions.

In enterprise and business architecture, the concept was introduced mainly from the defense domain. To quote from the NATO Architecture Framework : “A capability is the ability to achieve a desired effect under specified standards and conditions. […] In NAF, the term is reserved for the specification of an ability to achieve an outcome. In that sense, it is dispositional – i.e. resources may possess a Capability even if they have never manifested that capability.”

Importantly, the concept of capability is cross-functional and cross-organizational. Capabilities are not tied to specific departments, functions, or roles in the organization. Rather, what gives you a capability is the combination of various people, processes, technology, information, and other resources, from across the entire enterprise.

In identifying capabilities, you want to make sure that they are not bound to any specific implementation. For instance, ask yourself if a business capability would change if you would split up a department or implement a new system involved in delivering that capability. If it would, then probably you didn’t identify a true capability.

This abstraction from implementation is also what makes the concept sometimes a bit difficult to understand and communicate. Most people are used to reason in terms of organization structure, span of control, systems they own, business processes they manage or execute, et cetera. For instance, showing a capability map to managers often leads them to search out ‘their’ bit, where they think they are responsible because it resembles e.g. their department. This is of course a misconception, but it is not always easy to overcome this instinctive reaction.

Figure 1. Simplified capability map of an insurance company (inspired by the Panorama 360 reference model)

Identification and Naming of Business Capabilities

Most important in defining business capabilities is therefore that they are named and defined in business terms by subject matter experts (often called ‘the business’ by IT people, but that is a dangerous catch-all term that we’d rather avoid). For any capability, it should be crystal clear what it does for the business. All too often, we see capability maps that were dreamed up by IT architects without sufficient business input, using technical terms, system-level functionalities rather than true business capabilities, focused on producing some data rather than delivering real business outcomes, et cetera.

It helps to use a naming scheme that clearly differentiates capabilities from other concepts, for instance, business processes and value streams. Where a process or value stream defines the ‘business in motion’, sequencing activities to create a dynamic perspective on business behavior, capabilities define the potential behavior of an enterprise, the ‘business at rest’, and its abilities. Processes and value streams are often named with a verb-noun scheme, e.g. ‘Adjudicate Insurance Claim’. Verbs are therefore best avoided in capability names, to avoid confusion and stress the ‘business at rest’ perspective. Such a naming scheme also helps in identifying capabilities. If you are tempted to name a capability like a business process, are you sure you really found a capability?

One approach, advocated by the BIZBOK® Guide, is to identify every capability based on a specific business object and name it with a ‘business object – action’ naming convention. According to the BIZBOK, this action must not be expressed with a verb; even gerunds like Engineering, Marketing, and Accounting are explicitly forbidden: “Mapping teams should avoid using gerunds as the basis for capability names as they are not business objects and are only nouns in the nominal sense”. But their own examples don’t even adhere to this commandment… Moreover, this approach shows a focus on information/data rather than on the true abilities of the business.

Stay Focused on the Business

Rather than only allowing business objects as the basis for decomposing and discriminating between capabilities, we favor using the classical notions of coupling and cohesion . Pick those business-relevant criteria that create the highest internal cohesion and the lowest external coupling of capabilities. This gives you self-contained capabilities that have a relatively independent existence and can function as true business components. Business objects are certainly one way of clustering the abilities of an enterprise but are by no means the only criterion. Markets, regions, regulatory compliance regimes, the pace of change, social relations, and various other aspects can factor into the identification and decomposition of capabilities.

Of course, you want to stay away from implementation detail and stay focused on the essence, but this is a gradual distinction, not something absolute. As architects, we tend to be good at generalizing and abstracting, but we need to be careful. No enterprise exists without real people performing concrete activities in the context of a social fabric. If you abstract too much from that, you will surely lose your business audience.

So don’t be distracted by all too rigid or abstract identification or naming schemes. By far the most important is that the name of a capability is widely recognized, and its definition is understood by all stakeholders involved as something the enterprise is able to do . Consistency and abstraction from implementation detail are important and useful, but not if they come at the cost of business understanding .

These general guidelines will help you identify your business capabilities:

• Capabilities define what your business does or can do , not how it does it or who is doing it. They are different from business processes, functions, services, organization units, or IT systems, although these may all contribute to a capability. The same capability may be implemented in different ways, e.g. manually, IT-supported, or fully automated.
• Capabilities are owned by your business and named and defined in business terms . Their definition should be readily understandable by all stakeholders.
• Capabilities are unique and stable . They are defined only once for the whole enterprise and they rarely change, unless, for example, your organization undertakes a new line of business or divests some of its current operations.
• Capabilities may consist of sub-capabilities . A capability may also use other capabilities.
•  Capabilities can be organized in a capability map , which provides an overview of your entire enterprise.
• A capability’s maturity can be assessed across different dimensions, such as people, process, technology, information, and other resources. Such assessments are the basis for capability-based planning . You can read more about this in our whitepaper .

Do’s & Don’ts

• Involve business experts right from the start and create a cross-disciplinary capability mapping team. Don’t let the architects define the capabilities in isolation, only asking business experts for a review afterward.
• Use capability reference models from industry forums as inspiration and starting point for your own work. They can also help you identify what your differentiating capabilities are, by comparing them to what the industry standard is.
• Make sure your capabilities are mutually exclusive and collectively exhaustive: there should be no overlaps or gaps between them.
• Don’t be constrained by formal identification and naming schemes that don’t match business terms and understanding.

In future installments in this series, we will go into more detail on capability-based planning, analysis, relationships with other business architecture concepts, and more.

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Why Do Business Owners Sell Their Company Using an ESOP and Other Frequently Asked Questions About ESOPs

David B. Solomon

August 21, 2024

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When business owners consider their business succession options, they often determine their objectives, analyze company resources and capabilities, and review strategic alternatives. Among these strategic alternatives are options such as a recapitalization or selling to a strategic buyer. But there is another viable option: an ESOP transaction.

ESOPs – or employee stock ownership programs – are an excellent exit strategy for many business owners . As qualified “defined contribution” retirement plans sponsored by the company, ESOPs are similar to a 401(k) plan, but there are several key differences. Business owners considering an ESOP often have many questions about the structure, including differences between an ESOP and direct employee ownership, reasons to sell to an ESOP, and the characteristics that make a company a viable candidate for an ESOP. Find out answers to these and several other FAQs regarding ESOPs here .

David Solomon and Kevin Slaughter will be speaking at the upcoming Dealmakers Conference on October 16, 2024 at the Union League Club of Chicago.  Use promo code LEVENFELD for your complimentary registration here: www.smartbusinessdealmakers.com/chicago/event

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