IT experts, such as developers, are used to thinking in categories of applications, services, data, and user interfaces. In contrast, business-oriented persons typically think in terms of value streams, business capabilities, business motivations, business strategy, business goals, organizational structure, business policies and rules, business processes, business activities, business documents, etc.

As a consequence, Dynamic Enterprise Lifecycle Management Software (DELMS) must rely on a defined business architecture, which puts the above mentioned business-related elements into context and forms part of the enterprise architecture. This also means that the days of the monolithic applications are definitely gone, and a mentality change is happening.

Taking the viewpoint of persons involved in managing the business architecture, business capabilities play a key role. In simple terms, business capabilities provide an organization's capacity to achieve a desired outcome that creates value. For example, a health insurance company has a wealth of different business capabilities, such as claims processing, application processing and payroll. However, there is no commonly accepted definition of what exactly constitutes a business capability.

Ulrich Homann provides the following definition, which aptly describes the basic concept: "A business capability is a particular ability or capacity that a business may possess or exchange to achieve a specific purpose or outcome. A capability describes what the business does (outcomes and service levels) that creates value for customers; for example, pay employee or ship product. A business capability abstracts and encapsulates the people, process/procedures, technology, and information into the essential building blocks needed to facilitate performance improvement and redesign analysis." ("A Business-Oriented Foundation for Service Orientation," February 2006)

Viewed from a slightly different angle, business capabilities are a combination of people (organization, organizational culture, skills and knowledge), business processes, information, assets (facilities, funds, equipment, etc), and technology solutions. As such, a business capability is a concept that encapsulates other entities. It may be regarded as a unit of strategic business change. Business capabilities are aligned in value streams by strategic performance objectives.

In the first instance, a business capability describes what an enterprise does, not how it does it. On closer inspection, however, since a business capability must have the ability to execute a specified course of action in order to achieve defined business goals and objectives, it encapsulates a business process. A business process describes how the business performs the given business capability. In addition, a business capability has quality characteristics and it should have at least one metric or service level agreement (SLA) to allow for assessment of its performance, efficacy and efficiency.

In a more technical view, we can think of a business capability as a hierarchy and network of elements of different types (e.g. roles, business information items, SLAs, etc.), that can be the result of composition. Each capability represents a unit of design. In terms of coupling, related elements are tightly coupled, meaning high cohesion within an individual business capability. Within a value stream, business capabilities represent a structured network of capabilities supported by loose coupling.

Coarse-grained business capabilities, such as claims processing, can be decomposed into component business capabilities across multiple levels, thus creating a business capability hierarchy. Each decomposition level provides a more granular view of what the company does. In a bottom-up view, a higher-level business capability represents a composition of two or more lower-level capabilities. Thus, business capabilities can rightfully be considered the building blocks of the business architecture, and business analysts would expect business capabilities to be defined in business terms.

Business capabilities support and create the link to business strategy in that business capabilities enable business strategy. As such, business capabilities are the source of strategic differentiation. The composition approach facilitates change in the future.

While business capabilities, such as accept customer orders, generate invoices, ship products, accept payments, etc., are relatively stable, processes tend to change. Organizations implement business capabilities differently with regard to roles, processes, etc.

There are obvious parallels between capabilities and service-orientation. Business capabilities could also be thought of as business services. For example, the human resources payroll may be viewed as a business service provided by the human resources department for all other organization units. In case the decision is made to outsource the payroll service to an external service provider company, the payroll business capability still remains a building block of the business architecture. However, the business process, that is the implementation, changes.

We have deliberately not mentioned applications, since business persons do not think in terms of applications. Conceptually, an application may be thought of as the equivalent of a value stream stage or a single business capability.