By Marc Lankhorst, Managing Consultant and Chief Technology Evangelist at Bizzdesign
Architects in the office of the CIO are often tasked to support senior management with decision-making to get transparency on business and IT transformation. Capability-based planning is a discipline that ensures the alignment of (IT) transformation to business strategy and provides a shared communication instrument aligning strategy, goals and business priorities to investments.
Putting capabilities at the center of planning and executing business transformation helps the organization to focus on improving ‘what we do’ rather than jumping directly into the ‘how’ and specific solutions. In this way, capability-based planning helps to ensure we are not just doing things correctly but also focusing on ensuring that we are ‘doing the right things.’
Enterprise architecture practices are important in several stages of implementing capability-based planning. If you’re starting your journey or want to mature your practice, gain more knowledge from our eBook [Lankhorst et al., 2023]. As described in this eBook, our overall process for capability-based planning consists of 10 steps. In this article, we do not go into the details of capability definition or creating capability maps; we only focus on the main analysis and decision-making steps that drive strategic change.
5-Step Process for Delivering Change with Capability-Based Planning
Planning process for capability-based change
1. Gap Analysis
Executing your organization’s strategy requires a wide set of processes and systems to work sufficiently to deliver strategic outcomes. Where those processes or systems are insufficient, there is a gap – i.e., something needs to be done to raise performance. Business capabilities are a great language for describing gaps since they are stable over time, have clear definitions, and are enterprise-wide. Most importantly, they can map upwards to strategy and map downwards to people, process, technology and data, and their maturity can be evaluated by assessing these dimensions using standardized questionnaires.
(Source) Low business value as an indicator of capability gaps
2. Gap Prioritization
Having obtained a list of underperforming capabilities, the challenge is to decide which capabilities most need improvement. An objective approach is needed to quantify each capability so they can be ranked. We recommend the following:
- You need to consider both the current and the future state, with the desired future state being derived from your enterprise’s strategic goals.
- Strategic Importance and Maturity are common dimensions stakeholders use to decide which capabilities to invest in: prioritize strategically important capabilities with a maturity lower than needed for your strategy.
(Source) Capability maturity and strategic importance: A capability landscape that has been heatmapped against as-is maturity, with a label showing its strategic importance
3. Investment Allocation
With a set of capability gaps prioritized based on your strategy, you can now decide where to allocate budget and people. Break this complicated decision into two stages:
- Filter your capabilities to consider only the ones worth investing in – which you can do by only considering ‘strategically important’ capabilities that have a maturity below a certain threshold. However, don’t ignore that you will need enabling capabilities that are not strategic but are nonetheless critical for supporting your strategic capabilities.
- Generate a metric for ranking the capabilities. The dashboard below shows how you can create a score based on multiplying individual scores for the complexity, cost and impact of the capability improvement.
(Source) Capability investment ranking based on maturity gaps, implementation complexity, investment value, and business impact
The Investment Allocation step results in a list of the capabilities that will receive investment. The aim is to decide what changes will be made to improve these capabilities. This means that two aspects need to be considered:
- Mapping the capabilities to their people, process, technology and data components to show the tangible impacts.
- Creating different scenarios of these changes; e.g. one option could see people changing work practices significantly but keeping the technology the same, whereas another option would invest heavily in new technology.
Decision makers can then review these to-be options and decide which is best for the organization. The significant advantage of using capabilities is that changes to related parts of the enterprise can be considered together and are not viewed in isolation.
The figure below depicts a target operating model where a capability is broken down into processes, applications and data. In this case, the people dimension is left out because it is quite simple: a single team performs all the payment processes. This may be more complicated in other cases, involving different roles and the requisite skills.
(Source) A Target Operating Model where a capability is broken down into process, applications and data
4. Initiative Formulation
Once the future-state architectures have been decided, defining change initiatives (projects, epics, etc.) to implement each to-be architecture is easy. However, the risk is that a complicated network of dependencies is created and that many overlapping initiatives compete for the same resources (e.g., subject matter experts and IT operations staff). This increases the complexity and risk of your deliveries and raises costs and time-to-market.
To mitigate this, you can re-structure your work packages to align with one or more business capabilities – allowing you to focus on changing only specific parts of the organization and minimizing the impacts on key resources. It also doesn’t matter if you are using agile or waterfall methodologies because alignment to business capabilities improves the efficiency and effectiveness of your transformation. Ideally, your business capabilities are relatively independent ‘business modules’ that can be improved and changed independently, supporting business modularity [Ross, Weill & Robertson, Chap. 4] and facilitating what Gartner calls ‘composable business’ [Natis, 2021].
5. Roadmap Generation
The initiatives provide the means for delivering the capability improvements, and these two dimensions can be laid out against time on a roadmap. The roadmap below shows how the capabilities identified in the Gap Analysis and selected in Investment Allocation are improved over time by work packages implementing capability increments.
(Source) Capability-based planning timeline
Implementing capability-based planning in your organization is not necessarily easy. Key challenges include:
- Ensuring management sponsorship and stakeholder engagement: A main goal of capability-based planning is to improve decision-making on investments, which is perhaps the most important responsibility of senior management. Hence, their involvement and active promotion of this approach are essential.
- Overcoming resistance to changes in control: Using a capability-based approach to budget allocation may reduce the autonomy of middle management, who used to get their own budgets as part of the yearly budget cycle. They may not always like that.
- Making decisions at the right level in the organization. The above may sound very top-down, but it does not need to be that way. Especially in larger organizations, you will want to have some manner of federated, distributed decision making and your capability structure may help in this federation. Moreover, those closer to the action are often better able to judge what is needed in the short term and for local improvements.
Using capabilities to do strategic planning may seem daunting at first, but it gives you a common language across your organization – a language that remains the same year after year. You can use this language with all your stakeholders, from executives to implementers, and describe the end-to-end process from strategy to execution.
This analysis is already happening to some degree in every enterprise. So it is a case of introducing capabilities to simplify the process and make it more effective. Moreover, reasoning about your enterprise in terms of its capabilities offers clear strategic advantages by supporting a modular and flexible approach to change, fostering true business agility.
- Lankhorst, B. Ihnen, J. Rekhi, S. van Dijk & H. Jonkers, Business Capabilities as the Cornerstone of Your Digital Transformation Strategy. Bizzdesign, 2023.
- Ross, P. Weill & D. Robertson, Enterprise Architecture as Strategy: Creating a Foundation for Business Execution. Harvard Business School Press, 2006.
- Natis, Becoming Composable: A Gartner Trend Insight Report, Gartner, 2021.
Lankhorst, Managing Consultant and Chief Technology Evangelist at Bizzdesign, is responsible for Bizzdesign’s vision, market development, and consulting and coaching on digital business design and enterprise architecture. He also spreads the word on the Open Group’s ArchiMate® standard for enterprise architecture modeling, of which he has been managing the development. His expertise and interests range from enterprise and IT architecture to business process management and agile methods.