What is Capability Based Planning?
Capability based planning is a fundamental shift in how organizations consider, plan, and deliver on their strategies. It starts with the process of defining and understanding existing business capabilities and how they operate as an integrated organization – establishing critical business functionality as the heart of how the business operates. Then it allows for the analyzing of those capabilities and the modeling of proposed future capabilities. This provides a complete 360-degree view of the way that different elements of the business interact and integrate through the lens of the business capabilities that the business delivers – both in the current state, and in a desired future state.
Why is Business Capability Planning Important?
Business capabilities are the things that an organization does or wants to do. Put simply, capability-based planning creates a more direct connection between strategy and outcomes. They’re the way that value is delivered to customers (internal and external) and the way that value is earned by the organization. By aligning plans, investments, work, and benefits directly with those business capabilities, organizations create better visibility into what they are trying to achieve.
This helps ensure that all areas of the organization are aligned, that there is improved understanding of how work translates into value, and that all decision making is geared around optimizing outcomes. It also helps to streamline the operations of the business by eliminating redundant, outdated, or misaligned functions and assets, reducing costs and risks and driving returns.
The 8 steps of Capability Based Planning
Because capability-based planning is an approach that impacts all elements of strategic planning and delivery, it is important that organizations embrace all aspects of it.
1. Define & Communicate Business Capabilities
To begin planning around business capabilities, an organization must first understand those capabilities. That means accurately defining the capabilities, effectively and efficiently communicating with all areas of the business around those capabilities, and ensuring that capabilities are being maintained, matured, and otherwise developed. This is most effectively achieved by leveraging a business architecture approach, including visually mapping current business capabilities.
It’s also important to note that business capability mapping cannot be a one-time exercise, capabilities are constantly evolving to meet the needs of the operating environment and customers, to reflect the growing abilities of the enterprise, and to leverage evolving technologies and approaches. Capabilities and associated maps must therefore be maintained, socializing evolving capabilities with all stakeholders, and understanding dependencies and relationships across those capabilities.
2. Integrate Business Capabilities
Business capabilities don’t exist in isolation – the ability to deliver capabilities is based on strategy, organizational value streams, technology, information, people, processes, supply chains, etc. These form both upstream and downstream dependencies for business capabilities and constitute the way that those capabilities are structured and converted to value. Only when all of these aspects and entities are integrated, can the organization fully understand what it does and how it operates, and only then can it successfully evolve through concepts like digital transformation.
The ability to transform a business is critical to sustainable success in today’s world. Organizations must be capable of managing their end-to-end strategic capabilities from enterprise architecture models to validating investment performance, and everything in between. That requires skilled enterprise architects developing and maintaining those capabilities and the ability to integrate capability maps and modeling with the entire strategic portfolio management approach of the enterprise. When that is achieved, organizations create a powerful springboard for successful transformation.
3. Analyze & Model Business Capabilities
Business capability modeling builds on an organization’s existing capabilities by mapping potential future state capabilities. That allows for discussion around the need to invest in the development of existing capabilities, to expand into new business functions, or to move away from an element of the current state.
Organizations must be able to combine the capability inventory with user surveys to understand and score capability maturity. This then allows for analysis of current state vs. target state and fuels the development of appropriate strategic objectives and measures that become inputs to strategic planning and investments decisions. In turn, this ensures that the organization’s strategic priorities are aligned with the need to enhance and grow business capabilities.
A well-formed and valuable business capability model is so much more than simply the hierarchical capability map. To be of real value, the business capabilities in that map must be cross-related to other elements of the business and enterprise architecture in a consistent manner that allows those cross-relationships to be the “secret sauce” for dynamic, meaningful models, dashboards, and further analysis such as maturity modeling.
4. Develop Strategic & Technical Roadmaps
Roadmaps provide a powerful way to visualize, collaborate on, and communicate the strategies that will develop and refine business capabilities. Using the right integrated tools, the outputs of the previous analysis work can be developed into roadmaps and rendered as investments – value streams, programs, products, projects, etc.
Demand will also come from many other areas of the business, but effective capability-based planning, in conjunction with roadmaps, allows that demand to be assessed in one location, ensuring that all proposed work aligns with the development of business capabilities and the current strategic priorities. This eliminates redundancy and misalignment, while improving return on organizational investments.
5. Create Detailed Investment Plans
Proposed roadmap investments then require a more comprehensive analysis. Business cases must be developed to allow for effective evaluation of the costs and expected benefits, as well as the way those benefits will be defined and measured. This analysis must consider both financial, and non-financial metrics to ensure the full and accurate picture of expected outcomes is understood. Based on these business cases, decisions can be made to confirm or reconsider investments, and on the scheduling of work.
The development and evaluation of these business cases must use the appropriate approach for the type of work being undertaken – formal business cases for more traditional work, or stripped down, lighter analyses for lean portfolio management driven epics. In all cases, capital management software is needed to capture common necessary data points – costs, benefits, milestones, dependencies, resourcing, scoring, etc. to allow for the best possible decision making against the strategic roadmap.
6. Analyze Funding & Portfolios
Shifting an organization to a business capability-based planning model requires several adjustments. Many organizations already struggle to develop effective strategic planning, running into difficulties with silo-based, bottom-up planning that only nominally aligns with strategic priorities. Effective capability-based planning, and in particular the ability to leverage capability models to enable strategy, requires a commitment to the previously mentioned strategic portfolio management.
Strategic Portfolio Management is increasingly recognized as a more effective approach to strategic planning and delivery. It requires priorities, goals, and objectives to be set by executives – in the case of business capability modeling that will be the business capabilities that are considered the highest priority, and the performance goals that each capability has to deliver. Executives then approve and fund one or more investments for each of those investments, appoint an accountable owner and define success metrics (more on that later).
This top-down approach helps eliminate silos, improve alignment between strategy, work and outcomes, and increase return on investments. Investments must be capable of being prioritized directly from roadmap items, allowing for seamless integration between business capabilities and investments, and providing transparency to all stakeholders on how funded work aligns with strategic priorities.
This approach must evolve to support the organization as it matures. Support for different funding models is important – project level for less mature enterprises, or bulk funding at the investment level for those that are further along their maturity journey. Ultimately, effective capability-based planning requires the ability to derive investments directly from strategy, helping an organization mature to a more comprehensive and effective Strategic Portfolio Management approach to strategy. Detailed analyses of prioritization, optimization, resource capacity planning, fiscal planning, etc. are necessary to help an organization ensure it always makes the right decision based on the best information available.
7. Deliver Effectively & Perform What-if Analysis
To deliver on your business capabilities you ultimately need to structure and deliver work. That work will be done using any number of different structures and each element of the tri-modal reality.
The software solution you use to support your business capability planning must integrate with whatever work management tools teams prefer, consolidating data from multiple sources into a single, value-based, automated status reporting approach. That allows for optimized work delivery while retaining actionable insight across all capabilities and investments.
Additionally, there must be the ability to plan continuously and adaptively, so that investment owners can ensure that the work in support of their business capabilities is always optimally aligned with the organization’s needs. This also requires dynamic portfolio what-if analysis tools, allowing for easy and rapid analysis of options and impacts should the need to adjust course arise. Only then can decisions be optimized in less time and with less disruption, improving the ability of the organization to maximize ROI even in highly fluid operating environments.
8. Manage & Realize Benefits
Capability based planning ultimately only benefits the organization if it results in improved capabilities. Benefits realization is an area that organizations have historically struggled with, especially when it comes to non-financial performance metrics.
It is essential that organizations can reliably measure performance against strategy aligned metrics easily, and in a timely manner. This allows organizations to understand the improvements being made to the business capabilities that the work supports. Benefits realization software tools must be capable of providing early indicators of areas where performance is deviating from the expected capabilities, driving adjustments more quickly and accurately. Actual performance must feed the capability portfolio, updating current capabilities, and resulting in adjustments to the capability roadmap that then fuel the next cycle of prioritization, investment, and delivery.
Pitfalls to Avoid
Capability based planning isn’t a methodology or a set of processes, it’s more of a mindset – a way of thinking about the business. As a result, most of the pitfalls around the concept are around a lack of understanding and misinterpreting what business capabilities really are.
Organizations shouldn’t view business capability maps, or even capability-based planning in isolation. It requires an understanding of enterprise architecture and the related discipline of business architecture. Without this, there are likely to be problems in defining and mapping capabilities, often resulting in a focus on functions and processes rather than capabilities.
Similarly, to optimize capability-based planning, organizations must be willing to embrace a value stream management approach. Value streams represent a series of activities that combine to deliver customer value, enabling business capabilities in the process. Combining business capabilities with value streams helps organizations optimize performance.
Modeling vs Planning
But simply understanding capabilities and modeling possible futures isn’t enough. Organizations must also execute to create those capabilities. Capability based planning helps ensure that all resources – people and financial – are used optimally to support those capabilities. This happens through approval and delivery of the right investments and the right work, delivered through effective strategy execution management.
Capability based planning then becomes an enabler of further business transformation, supporting an organization’s ability to evolve and grow by ensuring that the focus is always on optimizing the ability to deliver what matters to organizations and their customers. At the same time, it helps prevent the dilution of strategic plans through the approval of tactical, bottom-up initiatives that don’t align with those capabilities, and don’t move the organization forward.
Capability Based Planning Software
While there are processes and business approaches involved in capability-based planning, success or failure begins with a mindset – a commitment to a better way of planning and delivering on strategy. Only you can make that commitment, but when you do, North Highland’s Business Capability Planning Solution is there to help. The combination of our highly experienced consultants and our proven framework can help you connect all of the different aspects of your business, working with you to eliminate silos, drive maturity, and improve strategic performance.
Our NH360 Strategic Portfolio Manager platform can assist you with everything from business capability mapping to benefits realization, and our integrations allow you to connect your technology infrastructure providing comprehensive insight and decision support with total transparency. That allows you to focus on driving business capability modeling, letting us manage the details that will help you make it a reality.