Capability Mapping for Retail Firms

1. Business Capability Mapping for Retail Enterprises www.capstera.com 1

2. Navigate Your Transformation Journey with Precision and Purpose The modern retail landscape is undergoing seismic shifts— ▪ from omnichannel expectations to supply chain volatility and emerging technologies. To navigate this complexity, retailers need a clear understanding of their organizational capabilities and how they create competitive advantage. Without this foundational knowledge, transformation initiatives become unfocused, investments misaligned, and strategic objectives unreachable. A Business Capability Map is the essential architectural ▪ blueprint that illuminates what your retail organization does—independent of how, who, or where. By providing a stable reference model of business functions, it enables more strategic decision-making, clearer communication across silos, and more focused transformation efforts. For retailers seeking to thrive amid disruption, a well-crafted capability map isn't just useful—it’s indispensable. www.capstera.com 2 2

3. The Strategic Value of Capability Mapping 1 Capability mapping transforms abstract strategic goals into concrete organizational abilities, creating a shared language for business transformation. This foundational architecture tool serves as the cornerstone for strategic planning and execution. • Strategic Alignment: A capability map provides a clear line of sight between strategic objectives and the specific business functions that deliver them. • Investment Prioritization: By identifying capability gaps against strategic needs, retailers can direct resources to areas with the highest transformation impact. • Cross-Functional Visibility: The map transcends organizational silos, revealing interdependencies that affect customer experience and operational efficiency. • Complexity Management: A well-structured capability view simplifies communication about complex transformation initiatives across diverse stakeholder groups. • Change Navigation: The capability perspective provides stability amid organizational changes, offering a constant reference point as structures and processes evolve. www.capstera.com 3

4. Anatomy of a Retail Capability Map 2 A properly structured retail capability map organizes the business into a logical hierarchy of what the organization does, independent of how it's done or who does it. • Hierarchical Structure: Effective maps typically use a three-level hierarchy: capability domains (L1), capabilities (L2), and sub-capabilities (L3) to balance comprehensiveness with usability. • Capability Definition: Each capability represents a discrete "what" the business does—not processes, functions, or technologies—with clear, consistent naming conventions. •Industry Specificity: Retail-specific capabilities like merchandising, store operations, and omnichannel fulfillment reflect the unique nature of the retail business model. • Enterprise Coverage: Comprehensive maps include both retail-specific capabilities and enterprise capabilities such as finance, HR, and technology management. • Capability Attributes: Each capability can be enriched with attributes such as strategic importance, current performance, target maturity, and responsible stakeholders. www.capstera.com 4

5. Core Retail Capability Domains 3 The foundation of a retail capability map consists of several primary domains that encompass the essential functions of a consumer retail business. • Customer Engagement: Capabilities that enable identifying, acquiring, serving, and retaining customers across physical and digital touchpoints form the front end of retail value creation. • Merchandising & Category Management: The capabilities that drive product selection, assortment planning, pricing, and promotion represent the core of retail differentiation. • Supply Chain & Fulfillment: Capabilities spanning inventory management, logistics, supplier management, and fulfillment options are increasingly critical in an omnichannel world. • Store Operations: Physical retail capabilities including in- store customer service, visual merchandising, and facility management remain vital despite digital acceleration. • Enterprise Management: Supporting capabilities in finance, human resources, technology, and corporate functions provide the foundation for retail-specific operations. www.capstera.com 5

6. Methodology for Building Your Capability Map 4 Creating an effective retail capability map requires a structured approach that balances thoroughness with practicality and drives toward actionable outcomes. • Discovery Process: Begin with stakeholder workshops, documentation review, and industry research to gather comprehensive inputs about retail business functions. • Iterative Development: Start with a high-level (L1-L2) map and progressively refine to deeper levels (L3-L4) based on prioritization and specific use cases. • Cross-Functional Validation: Engage leaders across merchandising, store operations, supply chain, marketing, and support functions to ensure comprehensiveness and accuracy. • Industry Reference Models: Leverage retail industry reference models from standards bodies and industry associations as acceleration tools rather than starting from scratch. • Future State Consideration: Incorporate emerging capabilities that may not be fully developed today but will be essential for future competitive advantage. • Validation Through Use Cases: Test the map's effectiveness by applying it to specific business scenarios such as acquisition integration or technology rationalization. www.capstera.com 6

7. Did You Know According to Gartner research, retailers with formalized ▪ business capability maps are 2.7 times more likely to successfully achieve their transformation objectives compared to those without such architectural foundations. www.capstera.com 7

8. Accelerating Time-to-Value with Pre-Built Maps 5 While building a capability map from scratch is possible, leading retailers are recognizing the advantages of starting with pre- built, customizable models to accelerate their architecture journey. • Time Efficiency: Pre-built maps reduce development time from months to weeks by providing a comprehensive starting point based on industry best practices. • Cost Optimization: Leveraging existing reference models significantly reduces the consulting and internal resources required compared to developing maps from scratch. • Completeness Assurance: Industry-validated maps ensure comprehensive coverage, minimizing the risk of overlooking critical capabilities in your retail organization. • Cross-Industry Insights: Many pre-built maps incorporate capabilities from adjacent industries that can inspire innovation and competitive differentiation. • Standardized Approach: Pre-built maps typically include consistent naming conventions, definitions, and structures that improve usability and adoption. • Customization Balance: The best pre-built maps provide 80% of what you need out-of-the-box while allowing for the 20% customization that reflects your unique business model. www.capstera.com 8

9. Essential Retail-Specific Capabilities 6 A comprehensive retail capability map must include several specialized capability areas that are unique to or particularly important in consumer retail. • Omnichannel Commerce: Capabilities that enable seamless customer experiences across physical stores, e-commerce, mobile, and emerging channels are foundational to modern retail. • Merchandise Planning & Allocation: The specialized capabilities for forecasting demand, planning assortments, and allocating product across locations drive inventory efficiency and sales performance. • Price & Promotion Management: Sophisticated capabilities for pricing strategy, markdown management, and promotion planning directly impact margins and competitive positioning. • Store Operations Excellence: Capabilities supporting in-store execution, labor scheduling, loss prevention, and customer service excellence remain critical differentiators. • Last-Mile Fulfillment: Capabilities for diverse fulfillment options—from traditional shipping to buy-online-pickup-in-store (BOPIS) and home delivery—have become essential competitive requirements. www.capstera.com 9

10. Technology Capabilities for Digital Retail 7 As retail becomes increasingly technology-enabled, the capability map must reflect the growing importance of digital and technology capabilities. • Digital Experience Management: Capabilities for creating, managing, and optimizing customer-facing digital touchpoints across web, mobile, and emerging platforms. • Retail Analytics & Insights: Data management, analysis, and insight generation capabilities that drive more informed decision-making across merchandising, marketing, and operations. • Unified Commerce Platforms: Capabilities for managing consistent commerce functions across channels, including product information, pricing, promotions, and transactions. • Supply Chain Visibility: Technical capabilities that provide real-time transparency into inventory positions, order status, and logistics across the extended supply network. • Operational Automation: Capabilities leveraging robotics, AI, and machine learning to automate routine tasks in distribution centers, stores, and back-office functions. www.capstera.com 10

11. Assessing Capability Maturity 8 A static capability map provides value, but assessing the maturity of each capability transforms it into a powerful tool for gap analysis and transformation planning. • Maturity Framework: Establish a consistent 1-5 scale for evaluating capability maturity from initial/ad hoc (1) to optimized/innovative (5) across all retail capabilities. • Current State Assessment: Conduct structured evaluation of current capability maturity through facilitated workshops, surveys, and performance data analysis. • Target State Definition: Define desired future maturity levels based on strategic priorities, competitive benchmarks, and value potential. • Gap Analysis: Identify the most significant capability gaps between current and target states to focus transformation efforts. • Investment Mapping: Connect capability gaps to specific initiatives and investments to ensure transformation resources align with strategic priorities. www.capstera.com 11

12. Did You Know A McKinsey study found that retailers using capability- ▪ based planning reduced their technology spend by 15-20% while improving business outcomes through better-aligned investments. www.capstera.com 12

13. Connecting Capabilities to Value Streams 9 To maximize the business impact of capability mapping, leading retailers connect capabilities to customer and operational value streams that deliver measurable outcomes. • Value Stream Identification: Define the end-to-end flows that deliver value to customers and stakeholders, such as "Browse to Purchase" or "Order to Fulfill." • Capability Contribution: Map how specific capabilities contribute to each value stream, highlighting their role in value creation. • Process Linkage: Connect capabilities to the business processes that execute them, creating a clear relationship between what the business does and how it operates. • Value Measurement: Establish metrics that quantify how capability performance contributes to value stream outcomes and business results. • Cross-Functional Orchestration: Use the capability-to- value-stream mapping to improve coordination across organizational boundaries that impact customer experience. 13 www.capstera.com 13

14. Capability-Based Portfolio Management 10 A mature capability map becomes the foundation for more strategic management of the project and technology portfolio, optimizing investments for business impact. • Initiative Alignment: Map all transformation initiatives to the capabilities they enhance, revealing gaps, overlaps, and opportunities for consolidation. • Technology Rationalization: Connect applications and technologies to the capabilities they support, identifying redundancies and opportunities for simplification. • Investment Balancing: Analyze investment allocation across capabilities to ensure balanced support for strategic priorities rather than over-investment in certain areas. • Dependency Management: Identify capability dependencies that affect initiative sequencing, preventing investments in capabilities that rely on underdeveloped prerequisites. • Business Case Enhancement: Strengthen transformation business cases by explicitly connecting initiatives to capability improvements and their downstream business impacts. www.capstera.com 14

15. Capability Governance and Evolution 11 To maintain its value over time, the capability map requires thoughtful governance and a plan for evolution as the retail business changes. • Ownership Definition: Establish clear ownership for the overall capability map and individual capabilities, typically through a federated model of domain owners. •Change Management Process: Implement a structured process for proposing, evaluating, and approving changes to the capability map as business needs evolve. • Regular Refresh Cycles: Schedule periodic reviews (annually at minimum) to ensure the map reflects emerging retail capabilities and retiring legacy functions. • Integration with Architecture Governance: Embed capability map usage in broader enterprise and solution architecture governance processes. • Adoption Monitoring: Track usage of the capability map across various business contexts to ensure it remains relevant and valuable for stakeholders. www.capstera.com 15

16. Practical Applications for Retail Transformation 12 A well-developed capability map delivers value through multiple practical applications that advance retail transformation objectives. • M&A Integration: Use capability mapping to identify overlaps, gaps, and integration priorities when combining retail organizations. • Technology Modernization: Guide legacy system replacement by clearly defining the capabilities that new solutions must support. • Operating Model Design: Inform organizational restructuring by clarifying which capabilities should be centralized, federated, or decentralized. • Strategic Planning: Enhance strategic planning by connecting business objectives to specific capability investments and development. •Vendor Selection: Improve technology procurement by evaluating how vendor solutions address priority capability gaps. www.capstera.com 16

17. Did You Know Leading retail organizations typically identify between 80- ▪ 120 distinct business capabilities (L2) across all domains, with approximately 40% being retail-specific and 60% being common enterprise capabilities. www.capstera.com 17

18. Takeaway A well-crafted business capability map provides the essential foundation for retail transformation by creating a stable, comprehensive view of what your organization does— independent of how it operates today. By connecting capabilities to strategy, value streams, and transformation initiatives, retailers gain a powerful tool for navigating complex change, prioritizing investments, and ensuring initiatives deliver meaningful business impact. Whether developed from scratch or accelerated with pre-built models, capability mapping represents one of the highest-ROI activities in the enterprise architecture toolkit. 18 www.capstera.com 18

19. Next Steps 1. Assess Your Current State: Determine whether your organization has a capability map, its completeness, and how effectively it's being used to guide transformation decisions. 2. Define Your Approach: Decide whether to build a capability map from scratch, leverage pre-built retail reference models, or enhance an existing map to improve its usefulness. 3. Engage Key Stakeholders: Identify and involve leaders from merchandising, store operations, supply chain, marketing, technology, and corporate functions to ensure comprehensive input. 4. Start with High-Value Use Cases: Apply your capability map to specific business challenges such as technology rationalization or operating model design to demonstrate immediate value. 5. Establish Governance: Define clear ownership, maintenance processes, and integration points to ensure your capability map remains relevant and influential as your retail business evolves. 19 www.capstera.com 19

20. Capstera is a treasure trove for Business and Enterprise Architects. ▪ Capability Maps for Various Functions and Sectors. ▪ Value Streams ▪ Business Data Models ▪ Insights ▪ Tools, Templates, and Tutorials Stay in touch with Capstera. www.Capstera.com https://www.linkedin.com/company/capstera https://www.X.com/Capstera https://www.facebook.com/capstera Note: Capstera’s products and their contents may differ from the general information offered in these guides.) 20 www.capstera.com 20

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