Business Capability Model
​Success is not just about what a business does, but what it is capable of becoming.
​
In this article:
1. What Is the Business Capability Model?
​2. Why Is It Important to Develop the Business Capability Model?
3. How To Develop the Business Capability Model​
3.1 How To Define and Structure the Business Capability Model​
3.2 How To Maintain the Business Capability Model​
3.3 How Are Business Capabilities Different from Business Processes
3.4 How to Assess and Heatmap Business Capabilities to Facilitate Strategic Decision-Making
3.5 How to Integrate Business Capability Model with Execution Model for Agile delivery
1. What Is the Business Capability Model:
​Business Capability is a fundamental building block of an organization, representing the organization’s capacity to successfully perform a unique business activity to achieve a specific purpose or outcome.
The Business Capability Model is a structured framework that defines the critical current and future capabilities required to execute an enterprise’s business model, fulfill its mission, and drive transformation.
Role in the AlignedX Model:
Within the AlignedX Model, the Business Capability Model acts as the bridge between strategy and execution. It provides a stable, non-duplicative view of what the organization must be able to do in order to deliver value as defined in the Value Stream Model and experienced through the Customer Journey Experience Model. Capabilities serve as anchors for aligning processes, information, systems, talent, and investments. By mapping capabilities to value stages and transformation priorities, the model helps identify gaps, guide modernization, and ensure strategic focus across business and technology initiatives.
​
Types of Business Capability Models:
​
Enterprise Business Capability Model (Inside-Out View)
The Enterprise Business Capability Model provides an inside-out perspective of the organization, representing the complete set of capabilities required to operate, compete, and deliver on the business model. It defines the internal functions, processes, and competencies — such as Marketing, Brand Management, Financial Management, and Customer Relationship Management — that are essential for sustaining and growing the enterprise.
​
Use this type of Business Capability Model when developing the AlignedX Model for a business value transformation primarily focused on increasing value to the enterprise.
Customer-Facing Capability Model (Outside-In View)
The Customer-Facing Capability Model provides an outside-in perspective, identifying the capabilities directly experienced by or offered to customers. It focuses on the capabilities that enable customer value creation and engagement — such as Account Management, Order Tracking, and Loyalty Enrollment — and closely aligns with the customer journey and experience design.
​
Use this type of Business Capability Model when developing the AlignedX Model for a business value transformation primarily focused on increasing value to the customer, or to both the customer and the enterprise.
​
Relationship Between the Two Models:
The capabilities identified in the Customer-Facing Capability Model represent a relevant subset of the broader Enterprise Business Capability Model. While these customer-facing capabilities may be worded with a stronger emphasis on customer experience and outcomes, they directly correlate to corresponding internal capabilities defined in the enterprise model. This alignment ensures a seamless connection between internal operations and external value delivery, maintaining consistency across both the inside-out and outside-in perspectives.
​
Figure 5a. Enterprise Business Capability Model Illustration for AlignAir
Figure 5b. Customer-Facing Capability Model Illustration for AlignAir
2. Why Is It Important to Develop the Business Capability Model?
​
Establishing a Common Language & Structure
Creates a standardized framework across the organization, ensuring consistent communication and strategic alignment.
Enhances Strategic Focus
Helps the organization prioritize "doing the right things" before "doing things right," ensuring alignment with business goals.
Supports Informed Decision-Making & Heat-Mapping - Facilitates analysis to:
-
Identify strong and weakest capabilities.
-
Highlight capabilities that provide strategic differentiation and competitive advantage.
-
Determine essential capabilities needed to execute the business strategy, their desired impact, and implementation approach.
Align Investments with Core Capabilities
Ensure financial and resource investments directly support strategic initiatives for maximum impact.
Optimize Costs & Increases Reusability
Rationalizes capabilities across the enterprise to minimize redundancy, reduce costs, and enhance reusability.
Facilitates Business-Centric Technology Planning
-
Aligns technology initiatives with business needs, ensuring IT investments support enterprise objectives.
-
Enables application rationalization for a more efficient IT ecosystem.
Streamline Mergers & Acquisitions (M&A) Activities
Provides a structured approach to assessing and integrating capabilities during M&A processes, reducing risks and improving synergies.
​​​3. How To Develop the Business Capability Model
Developing the Business Capability Model involves a structured approach to defining, organizing, and refining an organization’s capabilities.
3.1 How to Define and Structure the Business Capability Model
Define Capabilities Clearly
-
Express capabilities preferably using a noun or alternately a verb-noun format to ensure clarity.
-
The noun should represent the outcome, while the verb should describe the activity that achieves it (e.g., Strategy Planning).
-
Keep capability names concise (1–3 words) for simplicity and readability.
Identify Existing & Future Capabilities
-
Analyze the organization’s business model to identify core capabilities driving operations.
-
Understand the organization’s vision and strategic objectives to define future-state capabilities.
Structure the Capability Model Hierarchically
Organize capabilities into at least three levels:
-
Level 1: High-level capabilities, typically aligned with key business functions or value streams.
-
Level 2: Sub-capabilities that provide more granular detail.
-
Level 3: Features serve as the connection between strategy and execution and are managed within Agile or Waterfall delivery processes in the Execution Model.
Additional levels may be required for detailed analysis.
As a guideline, each level should contain between 8 and 16 capabilities to maintain clarity and usability.
Align Level 1 Capabilities with the Value Stream
-
Arrange high-level (Level 1) capabilities in a left-to-right sequence, reflecting stages in the value stream.
-
Decompose each Level 1 capability into Level 2 sub-capabilities for further detail.
Ensure Capabilities Have These Key Characteristics
Capabilities must be:
-
Abstract – Define what the business does, not how it does it.
-
Stable – Should remain relevant even as processes and technologies evolve.
-
Unique – Each capability should have a distinct function.
-
Mutually Exclusive – Avoid overlaps to ensure clarity.
-
Individually Whole – Each capability should stand on its own as a complete function.
-
Collectively Exhaustive – The model should comprehensively cover all business areas.
​
Defining Business Capability Attributes
To maintain consistency and usability, each Business Capability should have:
-
Unique Identifier – Assign a structured identifier to each capability (e.g., C2.4 represents the second Level 2 sub-capability under the parent Level 1 capability C1).
-
Clear Description – Provide a concise, business-unit-agnostic definition to ensure broad applicability across the organization.
-
Business Owner – Designate a responsible owner accountable for the maintenance, development, and maturity of the capability.
By integrating Business Capabilities as the planning layer and Features as the execution layer, organizations ensure that Agile delivery remains strategically aligned, customer-focused, and value-driven.
​
3.2 How to Maintain the Business Capability Model
​
Establishing a Business Capability Repository
-
To ensure accessibility and version control, organizations should maintain Business Capabilities in a centralized repository:
-
Basic Repository – A structured spreadsheet file is sufficient for basic use.
-
Advanced Repository – A software-based repository with a relational database is recommended for scalability, collaboration, and integration with other enterprise systems.
Ongoing Governance and Maintenance
-
Regular Updates – Periodically review and update capabilities to reflect changes in business strategy, technology, and market conditions.
-
Stakeholder Collaboration – Engage business leaders, IT, and process owners to validate and refine capabilities.
-
Version Control – Track changes systematically to maintain historical records and ensure alignment with evolving business needs.
By following these best practices, organizations can maintain an effective and structured Business Capability Model that serves as a valuable tool for strategic planning, investment decisions, and business transformation.​
​
​​​
3.3 How are Business Capabilities different from Business Processes
When engaging in Business Capability Modeling, it is essential to distinguish between Business Capabilities and Business Processes, as they serve different strategic purposes.
Business Capabilities define the “WHAT” – focusing on “doing the right things.”
-
They represent the core functions an organization must perform to achieve its strategic goals.
-
Capabilities are stable over time, independent of organizational structure, processes, or technology.
Business Processes define the “HOW” – focusing on “doing things right.”
-
They describe the workflow, steps, and actions taken to execute a capability.
-
Processes are dynamic and evolve with operational improvements, regulatory changes, or technological advancements.​​​​​​
​​
​​​​​​​3.4 How to Assess and Heatmap Business Capabilities to Facilitate Strategic Decision-Making
Business Capability Heatmaps offer a structured, data-driven approach to strategic decision-making, enabling organizations to prioritize capability enhancements effectively. Begin with classifying Business Capabilities.
How to Classify Business Capabilities
Classify business capabilities by assigning High/Medium/Low scores based on:
-
Customer Value – The value delivered to customers.
-
Business Impact – The contribution to business performance.
Classification of Capabilities - Generate a heatmap categorizing capabilities into:
-
Strategic Capabilities – High value and financial impact; key differentiators.
-
Advantage Capabilities – Provide a competitive edge but are not unique.
-
Necessity Capabilities – Essential for operations but not a competitive advantage.
-
Essential Capabilities – Foundational capabilities required for basic functionality.
How to Heatmap Business Capabilities for Maturity and Criticality Assessment
Evaluate business capabilities based on Maturity and Criticality to identify strengths and gaps:
Maturity Assessment
Assign High/Medium/Low maturity scores based on organizational performance
Capabilities are assessed across five enablers:
-
People
-
Process
-
Information
-
Technology
-
Artificial Intelligence
The Maturity Index is a composite score reflecting the performance of these enablers.
Criticality Assessment
Assign High/Medium/Low criticality scores based on business impact.
Criticality is determined by:
-
Customer Value – Direct contribution to customer experience.
-
Business Impact – Influence on revenue, cost efficiency, and profitability.
Generating Capability Assessment Heatmaps
Based on maturity and criticality assessments, categorize capabilities into:
-
Strong Capabilities – High maturity and criticality; competitive strengths.
-
Stable Capabilities – Sufficiently developed but not a differentiator.
-
Weak Capabilities – Underdeveloped, requiring improvement.
-
Problematic Capabilities – Critical but lacking maturity, posing risks.
-
Desired Capabilities – Missing capabilities that should be developed.
How to Heatmap Business Capabilities for Strategic Planning
Customize assessment criteria to align with specific business objectives. Generate tailored heatmaps to guide strategic initiatives, investment decisions, and capability development.
By leveraging this structured approach, organizations gain a data-driven foundation for decision-making, ensuring optimal resource allocation and capability enhancement.
​
​
​
​
3.5 How to Integrate Business Capability Model with Execution Model for Agile delivery
Agile project delivery systems focus on implementing and delivering features. To align Agile execution with strategic priorities, organizations should decompose Business Capabilities into Features and use them as complementary constructs:
-
Backlog Structuring: Organize Agile or Waterfall backlogs using Value Stages as Themes, Level 1 Business Capabilities as Epics, Level 2 Business Capabilities as Capabilities and Level 3 Business Capabilities as Features.
-
Business Capabilities serve as the planning construct, defining what an organization must be able to do to achieve strategic goals.
-
Features serve as the execution construct, defining how capabilities are realized through Agile or Waterfall development and delivery.
-
Develop user stories for each feature and incorporate them into the Agile or Waterfall requirements management process.
Decomposing Business Capabilities into Features
Step 1: Identify Business Capabilities
-
Define high-level Business Capabilities aligned with organizational strategy.
-
le: Customer Relationship Management (CRM) Examp
Step 2: Break Capabilities into Sub-Capabilities
-
Decompose capabilities into specific functional areas.
-
Example: Customer Onboarding, Customer Support, Customer Retention
Step 3: Define Features Aligned to Sub-Capabilities
Translate sub-capabilities into Agile Features that provide tangible business value.
Example:
-
Customer Onboarding Feature: Automated account creation
-
Customer Support Feature: AI-powered chatbot for inquiries
-
Customer Retention Feature: Personalized loyalty program recommendations
​​
Implementing the Approach in Agile Frameworks
-
Backlog Structuring: Organize Agile backlogs using Value Stages as Themes, Level 1 Business Capabilities as Epics, Level 2 Business Capabilities as Capabilities and Level 3 Business Capabilities as Features.
-
Roadmap Alignment: Ensure Agile roadmaps align feature development with strategic capability needs.
-
Cross-functional Collaboration: Bridge the gap between business stakeholders (capabilities) and development teams (features).
-
Measure Outcomes: Track capability-driven success metrics rather than just feature delivery.
By integrating Business Capabilities as the planning layer and Features as the execution layer, organizations ensure that Agile delivery remains strategically aligned, customer-focused, and value-driven.