If you’ve ever tackled a home renovation, you know that the most important projects are the foundational features. Patching the concrete, repairing electrical wiring, and replacing a roof may not be the most glamorous projects, but this preventive maintenance provides significant value by saving more expensive costs down the line. The same goes for business: Assessing and repairing the foundational business architecture of your organization drives productivity, saving time and money in the long run. Business architecture has become a popular topic among business executives over the last decade, particularly due to its ability to drive innovative thinking and tangible results by establishing a common language and understanding . In other words, business architecture describes which capabilities an organization has and needs, how to deliver value to clients and customers, and how an organization is structured to do so. Its role and value within an organization, however, can remain unclear unless it is designed and communicated properly. Capability hierarchies are foundational to establishing the right business architecture. They are a key asset in the business architecture toolkit that assists in capturing and delivering this value, primarily in the form of productivity improvements. This article will help explain what capabilities hierarchies are and how they lay the foundation to drive real value in an organization.
A capability describes what a business does. Capabilities are stable, ongoing, and mutually exclusive. For example, customer information management is a capability that used to be managed with rolodexes and files but now is digitized and automated. The ability to capture, store, save, and retrieve a customer’s information, however, has never changed. Even though managing a customer’s information can be completed several times in myriad ways (for marketing, finance, distribution, etc.), the capability only appears once. Grouping these into a capability hierarchy unlocks the true value to an organization, creating a blueprint to identify organizational improvements across the company, not just an individual department or function. A capability hierarchy is distinct and different from a process map or process hierarchy – processes are how a business completes its activities and can be mapped to capabilities, but capabilities are the core foundation of what the business does. After analyzing the foundation of what a house has and what future projects need to be completed (i.e., capabilities), homeowners can decide to hire a contractor or break out the sledgehammer themselves.
Creating a capability hierarchy can yield immense value in business and process transformation. It can be used as a baseline to drive productivity improvements using business process mapping, requirements gathering, and pain-point identification. This is where manual tasks, redundant processes, and unnecessary workarounds are identified and the home improvement work can begin, adding direct value into the business. The hierarchy can also start a conversation between departments about ownership of business processes. For example, West Monroe recently implemented a capability hierarchy for a retail and manufacturing company struggling with outdated technology and manual processes. This created new controls at the retail store that will save $750,000 for every 1% decline in manufacturing remakes due to retail error. Another finding pointed to a redundant cash reconciliation process that has since freed up finance resources for higher-value work. To jumpstart this work in your own organization, ask questions like:
“Why is the insurance team resubmitting claims when a patient exchanges products?” and
“Why do we have separate call centers and customer support capabilities for different parts of the business
Exploring these cross-functional topics can expose gaps within and between business units which lead to special projects with high-value business cases.
An objective capability hierarchy drives consistency, productivity, and bottom-line cost savings.
Establishing and defining what your company does – separate from the technologies, departments, people, and processes that enable it – creates a transparent view of your business ecosystem. This blueprint reveals a structured perspective of the business that helps identify opportunities for productivity and revenue-generating improvements. When linked with a value stream, existing processes, or departments, it provides the context needed to show the impact of decisions, relationships, and other ideas at a strategic level, increasing the accuracy and success of future projects.
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