5. How to Create a Business Capability Model

What is a Business Capability?

A business capability is like a special power that helps a company do specific things or achieve certain goals. It's what the company is inherently good at, not how it does it. Think of it as the "DNA" of the company, kind of like how DNA makes each person unique. It's not exactly like biological DNA, but it still shapes the company's character and sets it apart from others.

At its heart, a company is a group of people working together to make and sell stuff or offer services. Each company is different because of what it does, how it does it, and who it does it for.

Here's how it works:

1. Who You Are and What You Do: Knowing what your company does gives it an identity and purpose. This includes what it sells or does, its mission, and how it helps its customers. This helps your company know where it's headed.
2. Your Values and How You Work: How the company does things shows its values, culture, and how it operates. This includes things like being honest, and how it treats its employees. These values shape how the company acts and how it treats people.
3. Who You Serve: Knowing who the company serves helps it focus on its target market. This means understanding the people who buy its products or use its services. It's important to know what these people need and want.

Over time, what, how, and who become part of how the company does things every day. This makes the company's actions consistent and helps build trust with customers and employees. As the company learns and grows, its DNA might change a bit. This happens as the company responds to changes in the world or learns new things. But the core parts of its DNA usually stay the same, helping the company stay true to itself as it grows.

The Foundation of Your Business Capability Model is Your Business Model

To lay the groundwork for developing a business capability model you should thoroughly understand what your business does. To do this, you need to gather various types of information across different areas of your organization.

Here are key pieces of information to consider:

1. Products or Services Offered‍
   • Clearly define the products or services your business provides.
   • Understand the features, functionalities, and specifications of each offering.
   • Identify any variations or customization options available.
2. Target Market
   • Define your target audience or customer segments.
   • Gather demographic, psychographic, and behavioral data about your customers.
   • Understand their needs, preferences, and pain points.
3. Value Proposition
   • Articulate the unique value proposition your business offers to customers.
   • Identify the benefits and advantages that set your offerings apart from competitors.
4. Business Processes
   • Map out your core business processes from start to finish.
   • Identify key activities, tasks, and workflows involved in delivering your products or services.
   • Understand dependencies, bottlenecks, and opportunities for optimization.
5. Revenue Model
   • Define how your business generates revenue.
   • Identify pricing strategies, revenue streams, and sales channels.
   • Understand customer acquisition and retention mechanisms.
6. Key Stakeholders
   • Identify internal and external stakeholders involved in your business.
   • Understand their roles, responsibilities, and interests.
   • Consider how technology solutions can facilitate collaboration and communication among stakeholders
7. Competitive Landscape
   • Analyze competitors operating in your industry or market segment.
   • Understand their strengths, weaknesses, and market positioning.
   • Identify areas of differentiation and competitive advantage.
8. Regulatory and Compliance Requirements
   • Identify any legal or regulatory obligations relevant to your business.
   • Understand industry-specific regulations, standards, and best practices.
   • Ensure compliance with data protection, security, and other regulatory frameworks.
9. Resource Allocation
   • Assess the allocation of resources such as finances, personnel, and infrastructure.
   • Understand budgetary constraints and resource limitations.
   • Identify opportunities for resource optimization and efficiency improvements.

By gathering and analyzing this information, you can develop a comprehensive understanding of what your business does, how it operates, and where opportunities for improvement or innovation exist. This knowledge serves as a foundation for both your business capability model and for aligning technology solutions with your business objectives,

Business Capabilities vs. Processes and Departments

Business capabilities are processes much like DNA is to the various parts of the human body.

Business Capabilities

• Just as our DNA determines our inherent traits and capabilities, business capabilities represent the organization's innate strengths and capacity to achieve specific goals. They're like the foundation of our body's functions, determining what we're naturally good at.
• Business capabilities tend to be more enduring and stable over time, similar to the genetic traits passed down through generations. They represent the fundamental competencies of the organization that doesn’t change frequently.

Processes and Departments

• Processes and departments are more like the specific actions and tasks we do every day. They're like the individual functions and systems within our body, such as digestion, circulation, or respiration. Each process has its own set of steps and activities, just like each bodily function has its own specific role.
• Processes and departments may change more frequently, just as our bodily functions can adapt and evolve in response to internal or external factors. They're more adaptable and flexible than capabilities.

What is a Business Capability Model

Unlike your people, processes and departments, which are more visible, capabilities are invisible and harder to get one's head around.

Models are a useful way to understand complexity as it simplifies the real world using diagrams and charts. It simplifies, visualizes, and organizes our thoughts. Models also aid in prediction, testing ideas, decision-making, communication, and learning. However, they have limitations - they may become oversimplified, rely on assumptions, generalize across situations, involve uncertainty, and may not capture all complexities accurately. Additionally, they can reflect biases and may be misinterpreted if used incorrectly.

Describing Business Capabilities is Hard

Describing what a company does and is inherently good at is hard for several reasons:

1. Lots of Different Things: Companies do many different tasks involving lots of people and departments. This makes it tough to explain everything, especially for bigger companies.
2. Different Parts Do Different Stuff: Even within one company, different parts might do different jobs or sell different products. Describing all this variety is tricky.
3. Things Change Fast: The business world changes quickly with new technology, rules, and trends. Describing what a company does has to keep up with these changes.
4. Everything's Connected: What one part of the company does can affect other parts. Describing what the company does means understanding how everything fits together.
5. Different Opinions: Different people might see the company's work in different ways. This makes it hard to agree on one description.
6. Finding the Right Words: Describing the company's work needs to be clear but not too detailed. Finding the right balance can be tough, especially for complex companies.
7. Companies Change: Companies grow and change over time. Describing what they do has to show what they're like now, not just in the past.
8. Communication Problems: Describing the company's work needs to be easy to understand for everyone. But sometimes, words can be confusing or unclear.

To tackle these challenges, we need to understand the company, use clear language, get everyone involved, and keep up with changes. Even though it's hard, describing what a company does is important for making sure everyone knows what the company is all about.

Using Industry Reference Models as a Starting Point

Using industry reference models as a starting point is helpful for companies in building their business capability model. Here's how they can help:

1. Foundation: These models offer a standardized framework that companies can use to start developing their capability model. They outline common capabilities and processes within the industry, which companies can then customize.
2. Identifying Key Capabilities: By studying these models, companies can figure out which capabilities are most important for success in their industry. This helps them decide where to focus their efforts when building their capability model.
3. Benchmarking: Companies can compare their existing capabilities with industry standards from these models. This shows them where they need to improve and guides them in building their capability model.
4. Tailoring to Needs: While industry models give a general overview, companies can adjust them to fit their specific goals, strategies, and context. This ensures that their capability model meets their unique needs.
5. Alignment: By aligning their capability model with industry standards, companies can make sure they're following best practices. This helps them stay competitive and meet industry expectations.
6. Informed Decisions: Industry models provide insights into trends and future directions. Companies can use this information to make smart decisions when developing their capability model, keeping it relevant and adaptable.

Example of an Industry Reference Model: Oil & Gas Refinery

Developing a business capability model for the oil and gas sector, particularly focusing on petroleum refining, is about defining the fundamental functions and processes crucial for supporting the business. It considers the intricacies of refining operations, distribution and marketing activities. It is designed to include capabilities vital for refining efficiency, ensuring regulatory compliance, adapting to market dynamics, and driving value.  Such models also offer insight into what the organization needs to excel in, to be competitive and sustainable in the evolving energy landscape.

Strategic Direction and Governance

Strategic Planning

• Market Intelligence: Gathering and analyzing data on market trends, competitor performance, and regulatory changes.
• Strategic Alignment: Ensuring all business units and operations are aligned with the company’s strategic goals.

Compliance and Risk Management

• Regulatory Compliance: Adhering to environmental, safety, and industry regulations.
• Risk Assessment: Identifying and evaluating operational, financial, and strategic risks.

Investment and Financial Management

• Capital Allocation: Determining investment priorities, including new projects and technology upgrades.
• Cost Management: Monitoring and optimizing operational and capital expenditures.

Core Operations

Crude Oil Procurement

• Supplier Evaluation: Assessing and selecting suppliers based on cost, quality, and reliability.
• Contract Management: Negotiating and managing contracts with crude oil suppliers.

Refining Operations

• Process Optimization: Enhancing refining processes for efficiency and output quality.
• Capacity Management: Balancing refining capacity with supply and demand dynamics.

Product Quality Management

• Quality Control: Implementing standards and tests to ensure product specifications are met.
• Certification Management: Obtaining and maintaining product and operational certifications.

Maintenance & Safety

• Equipment Maintenance: Scheduling and performing preventative and corrective maintenance.
• Safety Programs: Implementing safety protocols and training to prevent accidents and injuries.

Supply Chain and Logistics

Inventory Management

• Demand Forecasting: Predicting product demand to optimize inventory levels.
• Stock Management: Managing stock levels, storage conditions, and turnover rates.

Transportation and Distribution

• Logistics Planning: Planning and optimizing the transportation of crude oil and finished products.
• Carrier Management: Selecting and managing third-party carriers and logistics providers.

Vendor and Partner Management

• Performance Monitoring: Evaluating vendor and partner performance to ensure compliance and quality standards.
• Relationship Building: Developing and maintaining strong relationships with key vendors and partners.

Market Adaptation and Value Creation

Market Analysis and Forecasting

• Trend Analysis: Analyzing market trends to inform strategic decisions.
• Pricing Strategy: Developing pricing strategies based on market analysis and cost considerations.

Customer Relationship Management

• Account Management: Managing key customer accounts to ensure satisfaction and loyalty.
• Market Development: Identifying and developing new markets and customer segments.

Innovation and Technology Management

• R&D Management: Managing research and development activities to innovate and improve products.
• Technology Adoption: Identifying and integrating new technologies to enhance operational efficiency.

Support Functions

Human Resources Management

• Talent Acquisition: Recruiting skilled personnel to meet the organization’s needs.
• Training and Development: Providing training programs and opportunities for professional development.

Information Technology

• Systems Development: Developing and implementing IT systems to support business operations.
• Cybersecurity Management: Ensuring the security of IT systems and data.

Environmental Management

• Sustainability Initiatives: Implementing initiatives to reduce the environmental impact.
• Compliance Monitoring: Monitoring compliance with environmental regulations and standards.

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