Gartner defines Enterprise Solutions as solutions designed to integrate multiple facets of a company’s business through the interchange of information from various business process areas and related databases. These solutions enable companies to retrieve and disseminate mission-critical data throughout the organization, providing managers with real-time operating information.
Enterprise solution implementation projects require designing a sound business architecture. The business architecture is the structure of the enterprise, its governance structure, business processes and business information.
The goals of a Business Architecture are to define a common language, to operationalize business strategy and to provide the context for technology.
Business architecture value in digital transformation, carve-out, M&A, Enterprise solution deployment projects is not challenged anymore, but when to use bus. capabilities versus bus. processes, the depth of the description and the mapping with IT assets are still under debates.
In this post, we propose to describe how to make the best use of business capabilities to accelerate enterprise solution projects.
Business architecture defined
The main objective of a business architecture is to define and structure strategic business objectives and how they translate into operations.
Business Architecture advantages are the following ones:
- A common and shared language, with a unique glossary of business terms.
- A better operational alignment with business goals and control and prioritization of project investments.
- Greater opportunities for reuse.
To describe a business architecture, five key assets [1] are used:
- Operating model is the desired level of organization-wide process standardization and data integration. Usual archetypes of operating model are the diversification, coordination, replication and unification models.
- Business capability is a general capacity of an organization to perform a specific business activity (the WHAT). It represents a conceptual service that a group of processes and people, supported by the relevant applications, information and underlying technology, will perform (aka. the basic building blocks, or DNA, of a business). Having demonstrated the ability to perform activities, the company has then the capability to do them again.
- Specific business need is a general idea to address a particular business problem using IT to achieve some business improvements (e.g. “enable order tracking for customers”, or “accelerate the mortgage lending process”).
- Business Process is the concrete sequence of functional activities and decisions (the HOW). A business process gets executed in the business operating model and may be performed many times per day.
- Business requirements are detailed functional and non-functional specifications for concrete IT systems.
Use Business Capability for strategic thinking
A business capability is an abstract view of the system and defines what the business does (outcomes and service levels) or what it can do, not how it does that or who is doing to create value for customers (for example, pay employee or ship product). It usually pertains to a business domain (e.g. HR, sales, …).
A business capability is owned by the business (one or multiple stakeholders per domain), defined in terms easy to understand for all and named using nouns (e.g. ‘Product innovation’ or ‘Account payable’).
Business capabilities provide a major link between business and IT architectures. The capability view of the business provides the high-level foundation for alignment between them. This is possible since capabilities are unique and stable. They are defined only once for the whole enterprise and they rarely change, unless, for example, the enterprise undertakes a completely new line of business or divests part of its current business.
You can use Business Capabilities to identify customer needs for improvement, increase maturity, and report on project activities and progress.
Business capabilities can be used as the central structure for heat mapping (see Figure 1) highlighting then multiple concerns (for ex: Commodity vs. Differentiating Capabilities, Strategic importance, costs, maturity, pain points, etc.).
To build a capability map, the following best practices could be used:
- Start by articulating your business strategy and target business outcome, independently from organization.
- Focus on future-state business capabilities first and foremost.
- Build your business capability model based on your business strategy.
Label each capability with a “verb-noun” combination to emphasize action. - Limit business capabilities to eight to 10 capabilities at each level and try to restrain to no more than 3 levels of hierarchy.
- Use capability labels to convey the value delivered to external stakeholders.
- Engage and influence stakeholders from business and IT.
Use Business Process for operational excellence
Business process describes the sequence within which functional activities and decision points are conducted (the HOW). It brings clarity around tasks and activities being performed in a predetermined order to achieve a goal.
Business processes are named using verb-followed-by-noun (e.g. “Make Payments” or “Purchase materials”) and are described at several levels of granularity (see Figure 2) and, can go down to tasks or application services. excellence
Over time, business processes were defined by industry and started to be “standardized”. APQC, is one of the most known organizations having created such a Process Classification Framework (PCF). Enterprise solutions vendors are also pushing their own, like for example SAP with the SAP Model Company. It provides both a reference implementation solution with preconfigured processes and data and a set of best practices, accelerators, and business and implementation guides.
Sometimes, Business Process inefficiencies drive business requirements, but very often projects use capability-driven discussions at the beginning. Processes gain more importance when components to be implemented have been identified, and the questions of interaction/integration are more focused on.
Takeaways
Bus. capabilities and bus. processes are two important and complimentary viewpoints of an organization.
Business capabilities are great for earlier phases in the transformation cycle in particular when strategic planning is required. The abstraction supports decision making with a perspective of the big picture. In later phases of a transformation like design and implementation, processes are better suited than capabilities.
Business Capabilities are an essential tool to look at the Business agnostically, speak a common language and understand strengths and weaknesses in relation to strategy. They are strategic re-think of “What” vs. business processes that are executable knowing “How”. Bus. Capabilities being an attribute of a system, they are largely used as an abstraction of a system (abstract and conceptual), while Bus. Processes are more concrete (real and realizable).
If your project is covering multiple business domains within the same industry, then start with business capabilities. Then, to fix problems and maximize efficiencies, bus. capabilities are broken down into more manageable chunks such as bus. process definitions and maps.
If your project is centered on a domain, with the intention to implement an enterprise solution (e.g. Finance project with SAP S4/Hana) you might want to benefit from preconfigured bus. processes and ready-made accelerators available from the solution vendor first. Starting with standard bus. process in that case is a good step in moving toward process maturity and delivering differentiating capabilities.
Glossary of terms
- A value stream defines how the processes of the company create the customer value
- A Business Capability represents what the organization can do in order to generate customer value
- A business Function represents what the organization is doing with that capability
- A Business Process identifies how the organization is performing the function (how a capability is executed)
- An Organization Unit identifies the department responsible for performing the process
- Applications are computer programs that support value streams and business capabilities and store business objects in the form of data
Resources
[1] The Practice of Enterprise Architecture, S. Kotusev (ed. SK Publishing)
I want to thank Andreas Poth and Christopher Naab (working at SAP) for their comments of this post before it was published.