Introduction to Capability Maps

Capability maps are an incredibly useful tool from the field of Enterprise Architecture, but aren’t widely known outside of this discipline. A recent talk I gave with a room full of smart IT consultants revealed how only a small proportion of people working in the field of IT have worked with them (and many have never even heard of them).

WHAT IS A CAPABILITY MAP?

A capability map identifies hierarchically all the activities that a company engages with to run it’s business. This involves all the direct customer value providing activities such as sales related activity, but can also include supporting activities such as Recruiting and Payroll etc.

Perhaps the best way to understand a Capability map is to look at some examples.

It is not necessary to follow a specific layout or structure. Indeed, if you look at other examples of Capability Maps you will find many different layouts and structures (Take a look at some Google Images search results for ideas). The layout should assist in the discovery of these capabilities, so choose something which supports this process (hint: something approximating the value chain is a good candidate).

Each capability is then broken down into sub-capabilities and the process repeated. The capabilities are now forming a shallow hierarchy of about 2 or 3 levels depending on how much detail you want to capture as well as how much time you have to invest in building this map. It isn’t necessary to go too deep (to sub-divide too far) as many of the insights are already gained on the higher level. As the goal is to create an overview of the organisation, ensuring it fits into a single page is probably a good rule of thumb.

Given that capabilities are abstract and on a high level, we do not expect the capabilities to change frequently. It’s reasonable that a capability map remains stable over a number of years.

While creating a capability map sounds easy, for any organisation of non-trivial complexity it is likely more difficult than it first seems. The devil really is in the detail! How should sub-capabilities be clustered? Do we agree on the naming? Are capabilities on the right level in the hierarchy? It is worth investing the time to get this right and have those difficult discussions. Indeed, when capability mapping, finding where people disagree is a useful exercise in itself as there it may uncover misalignments in your organisation.

When capability mapping, finding where people disagree is a useful exercise in itself as there it may uncover misalignments in your organisation

Congratulations, you have now just described what the company does in a holistic sense, which will help everyone understand in reality what the business is all about. This is a great onboarding document for people joining the business, but that’s not all you can do with it (see below).

DEFINING CAPABILITIES

Not everything is a capability of course. Not everything that a company does should be considered a capability. How can we identify what is and what isn’t a capability?

Capabilities tend to have the following attributes:

• They often contain processes
• They operate with and are often responsible for specific data
• People and teams are sometimes organised around them (but not necessarily: See Conway’s Law)

A capability also describes a what rather than a how.

What is not a capability?

• A project or initiative
• A department or team (although departments may be engaged in a capability)
• A best practice
• A process

EXAMPLES OF CAPABILITIES

While there is no “standard” set of capabilities, businesses often do have areas where the same sorts of activities are done. It’s a great idea to look at other capability maps to get inspiration and to see which capabilities they have identified. While you won’t be able (or necessarily want to) use them directly, it can be a shopping basket of ideas which you can adapt to your own needs.

With this in mind, there are many very common capabilities which occur frequently. Unless you’re doing something very distinct or unusual, it’s likely many of these can be directly incorporated into your capability map.

• Accounting
• Customer Relationship Management (CRM)
• Customer Service
• Compliance
• Procurement
• Warehouse Management
• Payroll
• Recruitment and Hiring
• Research and Development (R&D)
• Pricing
• R&D

VALUE CHAIN CAPABILITIES VS SUPPORTING

While there are many ways to organise your capabilities, one useful approach is to organise them according to your value chain.

For example in an eCommerce company you’ll need to:

• Source or produce products
• Market and sell those products
• Manage logistics and shipping
• Support the customer

A company providing B2B services will have a different value chain.

The value chain (and there can be several operating in more complex organisations) can be a great way to discover and structure your capabilities in your capability map.

Doing so you will find several capabilities, however, which do not directly add value to the value chain, even thought they are important. Recruitment, for example, is essential for any organisation. However, it doesn’t directly contribute to the generation of profit for your company. Such capabilities can be identified as “supporting” and can be classified separately from the other capabilities.

STRATEGIC VS NON STRATEGIC CAPABILITIES

Not all capabilities are created equal for an organisation. How well you need to deliver on each of your capabilities is the question we will now examine.

Some capabilities drive your market differentiation and will define which market segment you can operate in. Others will determine your brand and play an important role in how customers identify with your business. We can identify such capabilities as “strategic”, which means we must deliver them beyond what our competition is doing (or is able to do).

Note: Some people describe strategic capabilities as being those capabilities which are strategically relevant, such as portfolio management, or strategic planning. I’m using the term differently, however, in this article, but it is important to know that some differences in terminology exist.

Other capabilities, such as doing Payroll or Compliance, while important, do not necessarily need to exceed that of the competition. It wouldn’t necessarily hurt your overall business if you used a cheaper, second-rate accounting system, whereas if your core capabilities aren’t working to a high level you’re unlikely to do well in the marketplace. When discussing strategic capabilities with business stakeholders make sure to make the distinction clear. Marking a capability as non-strategic capability does not mean it is not important (indeed, non-strategic capabilities can be essential to business operation).

Marking a capability as non-strategic does not mean it is not important

Think about some well known companies and think about what their strategic capabilities might be. Here are some simple examples:

It is also a good thing that not everything is considered strategic. No company has unlimited resources, so the less capabilities that are identified as strategic means more money and resources that can be invested into those which are strategic capabilities (see below: Capability Map as a tool to evaluate investment strategy)

CAPABILITY HEAT MAPS

Once your capability map is complete you can use it to visually highlight different perspectives on your organisation. We can ask simple questions such as:

• Which capabilities do we think are strategic to our organisation?
• Where am I currently investing money?
• How well does each capability support my business objectives right now?
• Which areas have most potential to drive future growth?

By highlighting the answer to such questions using colour codes we create a type of heat map, which management can use to easily see what is important and what is not relating to such questions.

As the capability map should be reasonably stable, it is possible to create such artefacts and for them to stay relevant for a long time (and to continue to inform decision making).

Heat maps can use binary (yes/no) colour schemes or use a gradient of colours to indicate to what extent a particular statement is true (for example). Remember to keep it simple, however, as we’re looking to generate a clear visual overview.

USES OF CAPABILITY MAPS

Building a Capability Map is not easy and it will take time to construct and will require effort. It doesn’t make much sense to spend time investing in this undertaking to understand a company’s capabilities if we’re not going to use it to achieve something or it it doesn’t provide any value!

Let’s look at some of the things you can do with your capability map once you have it.

A BASIS FOR SOLUTION ARCHITECTURE

Once you understand your capabilities you can begin mapping and clustering data around these capabilities. Identifying which capabilities should own certain data elements and which capabilities simply need to consume/have read access to certain data elements will be a good basis from which to design software solutions.

It may be that you design solutions using a combination of self written software systems integrated with off-the-shelf third party software. Having a clear understanding of the capability boundaries and which data should be under the capabilities management will help in choosing appropriate vendors as well as the scope of any custom built software systems (and will also help better understand how systems will be integrated together).

HELP BETTER STRUCTURE THE BUSINESS

Conway’s Law dictates that our IT-Systems will reflect our business structure (and vice versa). Similarly, our capabilities should also be visible in our department and teams structures. It makes sense for people who work on the same processes to achieve similar objectives to be co-located.

If you find that your capabilities do not map to your existing company structures, it is possible that either the capability map is not organised well, but it is also possible the the company structure is inefficient and should be changed.

CAPABILITY MAP AS A TOOL TO EVALUATE INVESTMENT STRATEGY

If we can identify where money and resources are invested (by capability) we can assess if this allocation is sensible from a strategic perspective. Being able to see these capabilities side-by-side and their relative cost to the company it is easier to make assessments than if they are viewed independently.

If, for example, you see that a lot of money is invested in various non-strategic capabilities, but comparatively little into another which is strategic, we will have some interesting discussions ahead of us. We can then use the capability map diagram as a clear and visual tool in explaining the situation to management.

SUPPORT MAKE-OR-BUY DECISIONS

Building and maintaining your own software systems is very expensive. Putting in this effort and incurring this expense is something that should be done with caution, especially given the plethora of great, easy to integrate, off-the-shelf tools out there these days.

It will probably make more sense to save money and use something off-the-shelf for your non-strategic capabilities.

For strategic capabilities, you should think twice before using third-party systems! If you can obtain this capability easily by buying a license, then so can your competitors and there isn’t any barrier to entry for them to do so.

It isn’t black or white, however, and many third-party systems allow deep and extensive customisation. This grey zone of of buying and extending still needs careful consideration, however. Other challenges may also be relevant here such as vendor lock-in, difficulty in upgrading heavily modified systems and limitations in customisability.

IN-HOUSE VS OUTSOURCING DECISIONS

There is probably a stronger case to keep development of strategic capabilities in-house rather than out-sourcing them to contractors or partners. You will want to ensure you can build upon your strategic capabilities as the company grows and faces new challenges. You should ensure that for these systems the build quality is very high and that the system knowledge continues to be available for future development.

SUPPORT WITH CORPORATE STRATEGY

An assessment of your current capabilities, how well they support your current and future objectives can form the basis of a corporate strategy.

Once you have identified what you want to accomplish ask the following questions:

• Which capabilities need to be improved?
• Which new capabilities are needed?
• Which capabilities are not needed in the future and can be reduced.

Such changes are likely large and have a strategic nature.

LOOKING FOR BUSINESS IDEAS?

Capabilities which are non-core non-strategic for most other businesses are great candidates for “buying” and customising.

If there is a good off-the-shelf product on the market which fits a companies needs they will likely buy it!

If you can identify such capabilities which are under-served, or not niched enough for a particular part of the market this could be a business opportunity waiting to be exploited. Go and investigate!