WHITE PAPER

The
Manufacturer’s
Guide to Business
Capabilities
WHITE PAPER

The
Manufacturer’s
Guide to Business
Capabilities
CONTENT

P3 Introduction

P4 The Categories of Business Capabilities

P6 Business Capability Modeling

P7 Use Cases for Business Capability Mapping

P9 Create a Manufacturing Business Capability Model in 4 steps

P12 Business Capability Reports and Views for Manufacturing

P15 From Model to Value: Three Case Studies

P17 Summary
White Paper The Manufacturer’s Guide to Business Capabilities
Introduction
Business capabilities are the expression or the
articulation of the capacity, materials, and expertise an
organization needs to perform core functions. They are
the building blocks of what constitutes the enterprise
and necessary to operationalize the strategic intent
and achieve business results. Enterprise architects use
business capabilities to illustrate the overarching needs
of the business and the technology required to meet
those needs.
In today’s digital age, the role of information
technology (IT) has shifted from supporting business
processes to executing business strategy. IT makes it
possible for customers to receive their online orders the
next day, enables them to watch and read their news
on the go, and guarantees the smooth processing of
payment for such services. As a result, the challenge
of bridging the gap between strategy and execution
within IT has become more complex than ever. For
established industries such as manufacturing, digital
disruption means the need for innovative business
models to survive the changing market dynamics, and
new business capabilities to support those business
models. As new business capabilities are introduced, the
existing order and relationship of the capabilities create
a need for managing this shift by implementing a strong
enterprise architecture model.
The different units and functions of an enterprise tend
to use different nomenclature and methodologies to
manage their business capabilities and underlying
assets. This limits the scope of collaboration between
organizational units. They speak of missions, strategies,
goals, processes, and projects, without having a
pragmatic way to align them. A manufacturing CEO
may speak of “building a smart factory,” introducing
“additive manufacturing” and using “product-as-
a-service model“ to cater to the demands of a new
generation of B2B and B2C customers. However, all
these ambitions are likely to fail without a universal
language at enterprise scale for defining and managing
business capabilities. If defined and used properly,
business capabilities can help save money, decrease risk,
and accelerate growth. This white paper will help you
understand what business capabilities are and how to
implement them at your organization for optimal results.
Business capabilities are the
expression or the articulation of the
capacity, materials, and expertise
an organization needs to perform
core functions.
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White Paper The Manufacturer’s Guide to Business Capabilities

The Categories of Business Capabilities

No two companies’ capabilities are the same. The

sector, industry, geography, types of products/services,
Figure 1
customer segments, and competitive dynamics are
The 4 Ways of Categorizing Business
some of the factors that influence and shape the
Capabilities
capabilities a company needs. For example, today’s
automotive manufacturers are desperate to use the
“product-as-a-service model” to protect their market
share and revenue from recently born innovative
market aggregator enterprises like UBER. There are also
other concerns such as increasing the visibility of their
supply chain, managing internal and external logistics, Strategic Core

Strategy and Value Prop Impact

and building new channels to create demand and sell Capabilities Capabilities
products and services.

Based on the financial impact as well as the customer

impact, business capabilities can be categorized into
four different categories (see Figure 1).
Foundational
Context
or Commodity
Capabilities
Capabilities

Financial Impact

Source: LeanIX GmbH

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White Paper The Manufacturer’s Guide to Business Capabilities
Strategic Capabilities
Strategic capabilities offer the company competitive
differentiation. These can be existing capabilities that
need to evolve or new capabilities a company needs to
build/acquire. For example, for businesses embarking on
inorganic growth, a robust “Corporate Development”
and “Merger Integration” capabilities are paramount.
On the other hand, for manufacturing companies,
“Supply Chain Networks” may be a critical factor.
Core Capabilities
Core capabilities are those that are inherent to the
existence of the company. For example, for multi-brand
manufacturers like Procter and Gamble or Unilever, a
capability such as “Product Management” is central to
their existence. Enterprises like Volkswagen (VW) and
Hitachi would say “Design and Industrial Engineering”
are core capabilities.
Context Capabilities
The context capabilities constitute the transactional
services that typically are under the radar but surface
when they do not work well. Finance and Accounting are
context capabilities for most companies. This capability
becomes an issue when there is a gap or compliance
issue. For example, when companies want to improve
and reduce the time it takes for the “Close Process”
or when a regulatory agency dings the reputation, it
becomes a candidate for transformation.
Foundational or Commodity Capabilities
All other capabilities which offer no significant value but
are necessary to the functioning of the company may
be deemed foundational or commodity capabilities.
The essential strategy for foundational or commodity
capabilities is to lower the cost of operation and hence
standardization and business process outsourcing
become levers for optimization.
There are occasions when a company may transform
a context capability into a core or strategic capability.
For example, in most companies “Design” is simply
one of its functions, but under the vision of Steve Jobs,
design became a strategic capability for Apple and a
cornerstone of its remarkable success.
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White Paper The Manufacturer’s Guide to Business Capabilities

Business Capability Modeling

Business capabilities reveal how a business currently
operates, and what it needs to do to meet present
and future challenges. They define “what” a business
does, rather than “how” it does it. For instance, most
companies have goals around attracting, engaging,
and retaining a competitive workforce. Employee
Management is one business capability necessary to
achieve this goal. It tells us what we need to do, but
leaves it open as to how we do it.
More abstractly, Gartner, Inc. defines, business
capability modeling as, “a technique for the
representation of an organization’s business anchor
model, independent of the organization’s structure,
processes, people, or domains.” Business capabilities
help to create a simplified view of an organization’s
disparate, fast-moving parts. We can imagine them
as the sum of people, processes, and technology
needed to achieve a certain goal. If we look at
the example of Factory Management, the people
(laborers, supervisors, floor managers), the processes
(scheduling production, assembling components,
tracking output), and the technologies (machines,
software systems, IoT devices) coalesce to form one
capability of the organization.
Well-defined business capabilities are fairly stable over
time. While the way we manufacture products has
changed a lot since the first industrial revolution, the
target outcomes have remained the same. In the age
of digital transformation, it is not uncommon for entire
business models to change. The ride-sharing technology
facilitated by universal smartphone penetration has
decimated the taxi industry. It also has longer-term
ramifications for the broader automotive industry.
The biggest threat seems to be the increased vehicle
homogenization, which has the potential to radically
alter the profitability of new vehicle manufacturing and
the viability of the used car industry in general.
Business capability modeling is essential for technology
leaders to shape their IT architecture. For enterprise
architects, it empowers rationalization activities
and visibility to improve strategic decision making.
And, for executives, it provides transparency into the
return on investment (ROI) they are receiving from the
technologies used by operational staff (see Figure 2).

Figure 2
Composition of a Business Capability: Factory Management

FACTORY MANAGEMENT

PEOPLE
Floor Managers | Technicians

PROCESS
Assembling Components | Tracking Production

TECHNOLOGY
Software systems and IoT devices

Every business capability is comprised of people, processes, and technology

Source: LeanIX GmbH

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White Paper The Manufacturer’s Guide to Business Capabilities
Use Cases for Business Capability Mapping
It is impossible to realize the benefits of business
capabilities without taking the time to map them out
across the entire organization. However, once the work
is done, enterprises will have set the foundation for
promoting better, strategic decision making, and faster
innovation.
See Table 1 for 10 key outcomes that can be achieved
through business capability mapping.
Table 1
10 Key Outcomes of Business Capability Mapping
• Understand how a business currently operates,
and what needs to be done to meet present
and future challenges.
• Define “what” a business does, as well as
“how” it does it.
• Provide a common language for discussion
and planning across functions.
• Gain alignment from strategy to execution.
• Involve the right stakeholders for all projects.
• Streamline complexities inherent with mergers
& acquisitions.
• Delineate roles across the enterprise with
precision.
• Identify and mitigate technology risks.
• Reduce costs by eliminating redundancies.
• Accelerate growth through innovation.
Source: LeanIX GmbH
With enterprise architects mapping the business
capabilities, there are example uses cases on how this
effort will enable a company to realize its benefits.
Post-merger harmonization
Since business capabilities structure a company based
on its core activities, capability maps are a central
tool in setting the stage for successful mergers and
acquisitions (M&As). Business capability maps provide
organizations the playbook to architect a best-fit
technical structure for the newly combined enterprise.
These maps assign applications to user groups and
business capabilities. This holistic view of applications
and their business value makes it possible to assess
redundancies and gaps in IT.
NORMA Group, a recognized German manufacturer
with more than 60 years of product development
experience has cut down on significant redundancies in
its IT landscape by using business capability modeling.
Over years of sustained growth, NORMA Group has
acquired many companies. Until 2014, they did so with
no standard IT integration plan.
After realizing the IT landscape was becoming
unmanageable, the management board of NORMA
Group decided to harmonize business and technology
on a global scale and arm the organization for further
growth initiatives. By mapping out the capabilities
of the combined company, stakeholders could
easily determine the most suitable course of action
for investing or divesting in applications across
the IT landscape. Once the initial transparency
was established, the EA team agreed on standard
applications for certain business capabilities with the
respective global process owners. The business case
calculated that moving to a standardized global
portfolio has uncovered a saving potential of millions
of euros. One of the big levers to drive the savings is
expected to come from reduced level one and level two
support by consolidating ERP solutions.
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White Paper The Manufacturer’s Guide to Business Capabilities
Technology risk management
By linking business capabilities to applications, and
linking those applications to technology components,
information security leaders can look at a business
capability map and perform a quick strategic risk
assessment. Having a clear view of technology
component dependencies lets stakeholders identify
Figure 3
Risk Dependency Map by IT Component,
Application, and Business Capability
Application rationalization
In this digital age, companies need to innovate fast
to remain competitive. Business capabilities are a
great help in structuring thoughts on how to transform
business and IT to meet the evolving demands of
customers. Managing digital transformation efforts with
the aid of a business capabilities map enables more
rapid innovation and better prioritization of efforts.
outdated or at risk elements, and act before a security
incident occurs. It also enables people to visualize
any unintended consequences that could result from
a change to the technology landscape. This helps to
validate or delegitimize business initiatives before they
go into effect (see Figure 3).
Source: LeanIX GmbH
Once organized by capability, IT assets can be
leveraged across functions to save cost, eliminate
redundancies, and streamline procurement. With
every stakeholder having visibility into who does what
within the organization, business capability maps break
down information silos and accelerate times to market
similar to how this occurs from a DevOps and strategic
perspective.
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White Paper The Manufacturer’s Guide to Business Capabilities

Create Your Business Capability Model in 4 Steps

Regardless of a company’s specific goals, and as overwhelming as modeling its capabilities may seem, the most
important part of aligning IT and business goals is getting started. When working with our clients, LeanIX breaks the
process down into four, easy-to-follow steps.

1. Understand the company’s goals 2. Define your business capabilities

IT needs to know the goals and directions of their Think about the major capabilities your business needs
business. Otherwise, it’s impossible to make decisions to operate. On the first level there should be only a
that align technology required for promoting its growth. handful of critical ones, which are typically defined by
Start by reviewing your company’s goals for the future department. You can build them by thinking both from
and involve people that define the strategy. Get their top-down (what does the company want to achieve)
buy-in by explaining the value of creating a business and from bottom-up (what organization, processes,
capability model. and people are in place). Download our free template,
Best Practices to Define Business Capability Maps for
Manufacturing Industry, to get an idea of how yours
might look (see Figure 4).

Figure 4
Best Practices to Define Business Capability Maps in Manufacturing

Business Capability Map

for the Manufacturing Industry

STRATEGIC CUSTOMER PRODUCT & SERVICE ENTERPRISE FINANCE & MARKETING PRODUCT PRODUCTION SUPPLY PROCUREMENT
MANAGEMENT RELATIONSHIPS DEVELOPMENT SUPPORT CONTROLLING & SALES MANAGEMENT CHAIN

Purchase
Strategy Customer Portfolio Strategy Component Supply Chain
Development Management
Engineering IT Management Controlling Sales
& Planning Management Strategy & Planning
Requirements
Management
Source: LeanIX GmbH

Operation Contract Quality Workforce Demand & Offer Product Production Rules Supplier Purchase Category
Payroll
Development Management Management Management Management Monitoring & Policy Management Relationship Planning Management

Manage Core Customer Information Customer Success Product Production Logistics Purchase Catalog
R&D Treasury
Business Scoring Management Management Design Monitoring Management Management

Innovations & Knowledge &

Order Requirements Settlements & Marketing & Sales Quality Operations Inventory Purchase
Technology Research
Management Definition Payments Development Integration Management Management Requisition
Management Management

Externals Complaints Method Enterprise Risk Tax Governance Rules & Maintenance Schedule Maintenance Purchase Procedure
Management Management Development Management Management Policy Management Management Management Management

Enterprise Supply Chain

Strategic SLA Product & Service Asset Master Production Tender
Effectiveness & Performance
Business Initiatives Management Delivery Management Planning Management
Project Mgmt Monitoring

Business Market
Product & Service Human Resource Production Warehouse
Accounting
Concept Testing
Delivery Management Scheduling Management

Quality Control Transportation

Legal
Management Management

Internal Logistics Sourcing

Management Management

Unique for Manufacturing Industry

BEST PRACTICES
Business capability modeling
is a technique for the representation
of an organization’s business
anchor model independent of the
organization’s structure, processes,
people or domains.
Don’t overlap
Good capabilities do not overlap;
they are mutually exclusive. A good
test is to check whether you can
assign Level 2 capabilities without
ambiguity.
Define “What”; not “How”
Business capabilities encapsulate
what a business is doing right now
and what it must be doing to meet
current and future challenges.
Long-term stability
Properly defined business
capabilities are fairly stable over
time, persisting throughout any
organizational changes. Only major
business model updates should
affect them.
Cross-organizational
Don’t focus too much on business
units. Capabilities should remain the
same and be independent of the
current structure of the organization.
Breadth rather than depth
The highest-level capabilities
should be a complete description
of your business. Aim to make these
categories reflect key aspects of
what the business actually does.
Accepted by all stakeholders
The goal of business capabilities is
that they become a common basis
for discussion and planning. Take
every opportunity to anchor your
organization’s processes to the model.
Linking strategy & execution
Involve those who define the
strategies when creating your map.
Consider strategy as one input when
defining your business capabilities
on the highest level.

www.leanix.net

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White Paper The Manufacturer’s Guide to Business Capabilities

While business capabilities vary across regions and

industries, there are some of the common best practices
that apply to all industries. These best practices for
business capability modeling are listed below:

Table 2
Best Practices for Business Capability Modeling

Don’t overlap
Good capabilities do not overlap; they are mutually exclusive. A good test
is to check whether you can assign Level 2 capabilities without ambiguity.

Define “What”; not “How”

Business capabilities encapsulate what a business is doing right now and
what it must do to meet current and future challenges.

Long-term stability
Properly defined business capabilities are fairly stable over time,
persisting throughout any organizational changes. Only major business
model updates should affect them.

Cross-organizational
Do not focus too much on business units. Capabilities should remain the
same and be independent of the current structure of the organization.

Breadth rather than depth

The highest-level capabilities should be a complete description of your
business. Aim to make these categories reflect key aspects of what the
business does.

Accepted by all stakeholders

The goal of business capabilities is that they become a common basis
for discussion and planning. Take every opportunity to anchor your
organization’s processes to the model.

Linking strategy & execution

Involve those who define the strategies when creating your map. Consider
strategy as one input when defining your business capabilities on the
highest level.

Source: LeanIX GmbH

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White Paper The Manufacturer’s Guide to Business Capabilities
Figure 5
4 Steps to Create a Business Capability Model
UNDERSTAND DEFINE
GOALS CAPABILITIES
Source: LeanIX GmbH
3. Assess your capabilities
Not all business capabilities are equal in terms of
value for the customer and financial impact. After
you understand your company’s strategy and goals,
assess capabilities based on criteria that will lay the
groundwork for future analysis and planning.
4. Link capabilities to applications in LeanIX
The link between business capabilities and applications
creates a bond between business and IT. In the final step,
use the LeanIX Enterprise Architecture Suite (EAS) to link
ASSESS LINK TO
CAPABILITIES APPLICATIONS
your business capabilities to your software applications.
Unlike IT components, applications are always linkable to
a specific business purpose. Applications are the perfect
intermediary for business architecture and technology
architecture because everyone, in every department
uses them to create value for the business. With the
LeanIX EA Suite, you can get a complete, customizable
overview of the relationship between business
capabilities and the applications that support them
(see Figure 5).
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White Paper The Manufacturer’s Guide to Business Capabilities

Business Capabilities Reports and Views

for Manufacturing

Figure 6
Technology Risk of an
Application Landscape

Source: LeanIX GmbH

After defining your business capabilities and linking them to your applications within LeanIX,
it’s time to perform a wide range of analysis. LeanIX’s out-of-the-box reports quickly helps you
visualize your business’ technology landscape.

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White Paper The Manufacturer’s Guide to Business Capabilities

Figure 7
View of Data Object Classification

In this view, IT and business

leaders can see the data object
classification for all supporting
IT components. With data
compliance and consumer privacy
rights more regulated than ever,
it is imperative to know what
data lives where across your IT
landscape (see Figure 7).

Source: LeanIX GmbH

Figure 8
Application Lifecycle by Business Capability

View the lifecycle of each

application supporting a business
capability to identify areas that
demand attention. This will enable
you to build an application lifecycle
roadmap to improve the forecast
of technology needs (see Figure 8).

Source: LeanIX GmbH

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White Paper The Manufacturer’s Guide to Business Capabilities

Figure 9
Rating the Technical Fit for
an Application by Business
Capability

Source: LeanIX GmbH

This view lets you analyze the technical fit of all applications supporting your business
capabilities. As part of your application rationalization activities, reviewing the technical and
functional fit of technology is made easy with LeanIX.

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White Paper The Manufacturer’s Guide to Business Capabilities
From Model to Value: Three Case Studies
The three cases studies in this section illustrate how
customers used the LeanIX Enterprise Architecture Suite
to model their environment. Each of these organizations
came from different industries and had to conquer
unique challenges to reach their desired outcomes. Read
on to understand the benefits they saw through business
capability mapping with LeanIX.
Aligning IT investment to business strategy
The logistics industry is one of intense competition.
Differentiation is based mainly on price, making costs
a particular point of focus. IT always becomes a
welcome target for potential savings. Slash-and-burn
policies have put logistics companies’ IT in a position
where innovation is next to impossible. Using business
capabilities to drive analyses can support a smarter way
of deciding on IT investments.
Figure 10
IT Costs by Business
Capability
Source: LeanIX GmbH
A LeanIX customer in the logistics industry decided to
reconcile its IT investments with the strategic priorities of
the business. They used the LeanIX Enterprise Architecture
Suite to help define and assess business capabilities
based on their financial impact and value they provide
for customers. The team created a heat map that filtered
capabilities by business criticality and cost.
In the resulting report, it became apparent that some of
the capabilities absorbed much of the IT budget. As a next
step, the project team further investigated the related
applications and their underlying infrastructure. They
came up with a list of potential activities like reconciling
SLAs, switching to SaaS solutions, decommissioning
redundancies, and more. The business capability analysis
helped them to properly focus their energy on what would
make the biggest impact on the organization’s bottom
line. Figure 10 lists business capabilities of a manufacturing
enterprises according to their costs. It helps stakeholder to
decide where to focus their cost optimization efforts.
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White Paper The Manufacturer’s Guide to Business Capabilities
Technology risk management
RUAG, a Swiss company specializing in aerospace
engineering and the defense industry, has made great
strides in containing the technology risk arising out
of its ever-expanding IT landscape by establishing a
business capabilities-oriented enterprise architecture.
Over a 20-year history, RUAG has developed rapidly
through mergers and acquisitions and the globalization
of its business. As a consequence of the investments in
various technology, space and defense companies, the
RUAG IT landscape has grown more and more complex.
In 2014, RUAG operated over 150 Enterprise Resource
Planning-like systems and 17 SAP instances. The lack of
transparency, especially on related risks, had become a
major concern of the management.
With the basic structure and understanding of the IT
landscape in place, RUAG established Project Magellan
to define its target architecture and transform the
company-wide ERP landscape. Thanks to the new
transparency based on heat maps and roadmap views,
the team was able to visualize technology risks and plan
the roadmap for the desired business transformation.
Based on out-of-the box LeanIX visualizations, the
team identified a set of harmonization activities around
consistent master data creation and the deactivation of
redundant systems and interfaces.
RUAG also improved the ERP landscape in small
iterations. At the end of each iteration stood a solution
with clear business benefits. To ensure this, the domain
business architects engaged with related decision-
making boards (e.g. HR, Finance or PR) regularly to
work out the next iteration of the harmonized target
architecture. Each one of the divisional CEOs became
responsible for realizing and measuring the business
benefits
Application rationalization
A multinational player in the automotive supply industry
acquired a leading manufacturing robotics company.
The integration of IT systems had been postponed during
the hectic acquisition phase. In the months following, it
was discovered that many redundant processes and IT
systems were in existence. For the merger to succeed,
teams needed to leverage synergies by rationalizing
their application portfolio.
The project team used LeanIX to start mapping the
capabilities of the acquired company to its existing
model. It quickly became apparent that some new
capabilities needed to be added, however, especially for
support functions, capabilities were very similar across
the board. In particular, the Human Resources capability
promised a lot of potential for consolidation.
The team mapped its application usage by country
and the HR capability to create a single, matrixed view.
This information allowed them to understand well these
applications supported the business, then come up with
a shortlist of which applications to keep and which to
phase out.
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White Paper The Manufacturer’s Guide to Business Capabilities

Summary

In any industry including manufacturing, business
capabilities have the potential to serve as a common
language between business and technology
leadership. If properly defined, they can be used to
save money, reduce risk, and accelerate growth. Digital
transformation essentially can be broken down into
the transformation of the existing business capabilities
structure. Consideration should be paid, however, when
carving out a business capabilities model as it represents
the key to the digital transformation. Best practices
show that business capability models of companies with
a lean philosophy have approximately 7 to 10 top-level
capabilities and no more than three levels of depth. The
resulting model can be used to support analyses that
align IT investments with strategy, manage technology
risks, and rationalize application portfolios. LeanIX
supports fast and thorough creation of these analyses
with out-of-the-box, best-practice reports.

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LeanIX offers a Software-as-a-Service (SaaS) application for driving Enterprise Architecture and Cloud Governance, enabling companies to accelerate their
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whenever needed. Use cases include Cloud Governance, Application Portfolio Management, and Technology Risk Management. LeanIX was founded in 2012 by
Jörg Beyer and André Christ. The company is headquartered in Bonn, Germany, with U.S. headquarters in Boston, Massachusetts, and an office in Hyderabad, India.

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