Business Model to Capability Building
Use the Business Model Canvas to identify the key capabilities that drive your business, and align capability building efforts with how your business creates and captures value.
220 word summary, to offset some TL;DR
Key Concepts
- A business capability is an expression of a thing the business is capable of doing, or might choose to do in the future.
- Capability building is the practice of promoting organizational health through the exercises and routines required to optimize business capabilities.
- The Business Model Canvas is a strategy tool used to describe how your company makes money. It uses a structure of 9 related boxes which cover the key elements of a business: customer, valprop, infrastructure and finances.
- A capability model is a business strategy tool used to summarize business capabilities. The model represents these in related, logical groupings. We overlay criteria (maturity, scope, locality, etc.) on the model to create a capability map.
Key Takeaways
The Business Model Canvas can help capability building efforts focus on the key elements of the business model.
Shortlist the capabilities required for value exchange, i.e. those which help the business create, deliver and capture value. For example, translate the Canvas Key Activities to key capabilities; identify the capabilities required to maintain Customer Relationships; plot Channel capabilities, etc.
Finally, assess the shortlist of capabilities. Allocate resources to invest in those capabilities. In this way, the capability building effort prioritizes the things the business must do well to eliminate friction, drive value exchange and optimize the business model.
interested? follow along...
Invest in Better Business Capability
The best path toward transformation is achieved through capability building. This McKinsey article makes a great case, and focus on capability is key. Capabilities describe “what” not “how” something is done. Investing in better capabilities, instead of systems, aligns intent in business terms, and targets business metrics and business outcomes. It also helps organizations avoid (some of) the traps of system sprawl, technical debt and systems investment that fails to meet the needs of the business.
Better Together
This article bridges two prior topics to offer a defensible way to scope and attack capability building efforts. Last year, I wrote an article about using the Business Model Canvas (or, for short, the Canvas) in enterprise architecture. Canvas concepts are key to this point of view, and if the canvas is new to your practice, consider that article as a useful primer. More recently, I shared a simple 9-Box tool that helps with Capability Investment Planning and build vs. buy decisions.
Individuals applying both the Canvas and the 9-Box can easily describe how the business goes to market, creates and captures value — and also, pinpoint which capabilities are table stakes, and which represent significant strategic value for the business.
Bridging the two can greatly distinguish the transformational leader. Use knowledge about the business model to shortlist the capabilities closely aligned to value creation, and then assess those capabilities for investment. The ability — to say what to build and why, what to buy (and why), and how those investments improve the key elements of the business model — is powerful stuff in any company.
The Tools of Capability Building
The capability model is a business strategy tool. Typically, there is a single, holistic capability model for an organization. It summarizes the things the business is capable of doing. The model is then used to build any number of related capability maps. A capability map is the result of applying some type of interesting logic or criteria to the model.
Capability Map, Persona and Use
- Leader, “I want an at-a-glance look of the business”
- Procurement, “I want to track vendor impact on the business”
- Product, “We’ll align solutions to these areas of the business”
- Architecture, “We’ll map business function to datacenter dependency“
- ..and more
Mochi Corp., our hypothetical organization, might establish a capability model of 67 business capabilities. This offers a view of what Mochi Corp. is capable of doing.
What follows next is tremendous reuse.
Valuable maps are created atop the model. One team creates a capability maturity map. Mochi Corp.’s Project Management Office creates a map which highlights capabilities touched by this year’s project portfolio. Finally, a third map shows where Mochi Corp. needs to manage risk.
Each map may use different criteria as an overlay, but each map benefits from the shared language and context established by the original capability model. This shared, base language drives alignment across the business.
Every organization should use a capability model because it is a valuable tool that offers tremendous utility. That said, flexibility in that assertion is often required.
The Problem with the Capability Model
As hinted at above, the capability model can support thousands of conversations with maps about what the business does, how well it does it, and so on.
This can be overwhelming. The offer of thousands of conversations, is often viewed as undesirable — a non-starter. Mochi Corp.’s creation of a model with 67 capabilities, can sound really hard. When stakeholders just want to act fast, the value propositions of reuse and utility can be hard sells where no capability model already exists.
The CxO pushes:
“I’m all in on this capability building thing, but do I need this holistic model to start? Can’t we just stub out something loose and maybe come back to it later, or just do something in parallel? I want to get things moving.”
The give and get here, is very real. The hard stuff — the leadership and mindset required for capability building — is already in place. The question is not if we can get moving, but rather how do we move in a manner that quickly adds value and offers assurances for success?
Focus on Value Exchange
The purpose of any business comes down to driving some type of value exchange. If that value exchange can be made frictionless, the business is more efficient. More efficiency in goods or services received, experiences delivered, missions completed, profits earned or the intangible items cascading in the ripples of the socioeconomic pond... Whatever the case, that CxO cares about efficient value exchange.
Start here to support this CxO in her capability building efforts. A shortlist of capabilities aligned to value exchange gets us moving faster than a fully vetted capability model. A focus on value exchange is valuable. The plan forward offers assurances. Let’s go.
Show What Matters with the Business Model Canvas
All leaders recognize the importance of value exchange, yet fewer can articulate that full story for the company that employs them. This is no slight. It can be difficult to convey the sometimes nuanced ways an organization creates, delivers and captures value. Solve for this with the Business Model Canvas.
The Business Model Canvas offers a structure of 9 related boxes which cover the key elements of a business: customer, valprop, infrastructure and finances. It is fast, visual and easy to pick up.
- Build out the Canvas for your business
- Ensure you can speak to the Canvas you’ve built; create a narrative
Get Help
If building your Business Model Canvas or establishing a narrative is difficult, consider using one of the popular generative pre-trained transformer (GPT) AIs for some help.
For the DIY practitioner, the authoritative resource on the Business Model Canvas can be found at Strategyzer.com. Better yet, pickup the Business Model Generation book. An alternate primer can be found here, or you can easily find more with a few clicks and your favorite search engine.
Whatever the path, ensure your Canvas shows the key elements of how your business creates, delivers and captures value. This is critical for the next step.
Business Model Canvas to Business Model Capability
Inspect the Canvas you created. It is a fairly straightforward step to go from Canvas to capabilities list.
- Start with the Canvas box labeled, Key Activities. Remember, these were identified as the things the business must-do. Marketing is too high-level, but for your business, maybe Segmentation & Activation shows up as a Key Activity and a key capability.
- Next look to the other boxes and the elements you captured. Identify the most significant capabilities related to them. For example, if a developer community is a Key Partner for your business model, a key capability may be developer recruitment & onboarding.
- Build your list. Aim for a manageable number of key capabilities. It should not be an exhaustive list or full capability model. List capabilities that underpin the lion’s share of value exchange for the business.
This shortlist offers leaders a starting place for capability building efforts. Your favorite search engine will uncover a number of frameworks that can help with next steps (capability decomposition, assessment, other). For capabilities that warrant investment, use the 9-Box to plot strategic value vs. availability in market, and inform your build vs. buy recommendations.
Summary and Close
Capability building is the best path to transformation, and a holistic capability model is a powerful tool to help achieve it. To overlay scope on the model (or jumpstart efforts where no model exists), use the Business Model Canvas to shortlist capabilities that drive the success of your business model.
The ability to defensibly say what to build and why, what to buy (and why), and articulate how those investments improve the key elements of the business model — is a differentiator for any leader.
Thank you
Thank you for reading. As always, much gratitude to those along the way that influenced me and helped nurture my craft.
