Business Capability Mapping for Investment Banks

Mastering Investment Banking Capabilities www.capstera.com 1

Map Your Way to Strategic Excellence: The Definitive Guide to Capability Mapping In today's competitive financial landscape, investment banks ▪ face unprecedented challenges—from digital disruption and regulatory pressures to evolving client expectations and fintech competition. Success demands a clear understanding of organizational capabilities that drive competitive advantage and enable strategic transformation. A Business Capability Map serves as the foundational ▪ blueprint for investment banking transformation, providing a powerful lens to visualize what your organization does— distinct from how it operates. By creating a structured inventory of capabilities, investment banks can align strategy with execution, prioritize investments, and drive coherent enterprise change that delivers measurable business outcomes. www.capstera.com 2 2

The Strategic Imperative for Capability Mapping 1 Investment banks operate in an increasingly complex environment where understanding organizational capabilities is no longer optional—it's a strategic necessity. A well-crafted capability map illuminates the path to competitive differentiation and operational excellence. • Strategic Alignment Challenge: Most investment banks struggle to connect high-level strategy with tactical execution, resulting in fragmented initiatives that fail to deliver cohesive transformation. • Transformation Complexity: The intricate web of front, middle, and back-office functions creates significant challenges when prioritizing and sequencing change in investment banking. • Technology Investment Dilemma: Without a capability perspective, technology investments often address symptoms rather than root causes, leading to suboptimal returns on investment. • Regulatory Navigation: Capabilities provide the organizational context needed to systematically implement regulatory requirements across business lines and functions. • Enterprise-Wide Visibility: A capability map creates a common language that bridges the communication gap between business and technology stakeholders across the investment bank www.capstera.com 3

Business Capability Fundamentals 2 Business capabilities represent what an investment bank does to deliver value, independent of how those activities are performed. This distinction enables strategic conversations focused on outcomes rather than implementation details. • Capability Definition: A business capability describes a unique, non-overlapping ability that the organization possesses to deliver value—providing a stable foundation for transformation planning. • Hierarchical Structure: Investment banking capabilities are typically organized in a three to four-level hierarchy from high- level domains to granular level 3 or 4 capabilities that enable detailed analysis. • Outcome Orientation: Well-defined capabilities focus on the what (outcomes) rather than the how (processes, systems, organization), enabling leadership to separate strategic intent from implementation. • Capability vs. Process: While processes describe how work flows, capabilities describe what the bank can do—creating complementary views that serve different transformation purposes. • Stability Over Time: Unlike organizational structures or technologies that frequently change, capabilities remain relatively stable, providing a consistent framework for transformation planning. www.capstera.com 4

The Investment Banking Capability Landscape 3 Investment banking requires a unique set of capabilities that span client relationship management, financial markets operations, risk management, and corporate functions—all of which must be reflected in a comprehensive capability map. • Front Office Capabilities: Client acquisition, relationship management, advisory services, research, and trading capabilities form the revenue-generating core of investment banking operations. • Middle Office Capabilities: Risk management, compliance, trade support, and performance analysis capabilities provide the control framework essential for regulatory compliance and risk mitigation. • Back Office Capabilities: Settlement, clearing, reconciliation, and custody capabilities ensure operational integrity and efficiency across the investment banking value chain. • Corporate Function Capabilities: Finance, human capital, legal, and technology capabilities provide the foundational support required for investment banking operations. • Market and Product Capabilities: Capabilities specific to asset classes, market segments, and product types reflect the specialized nature of investment banking activities. www.capstera.com 5

Methodology for Building an Investment Banking Capability Map 4 Creating a comprehensive capability map requires a structured approach that balances thoroughness with pragmatism to ensure the result delivers immediate business value while remaining strategically relevant. • Discovery Approach: Begin with a combination of top-down analysis (industry reference models) and bottom-up discovery (stakeholder interviews) to ensure comprehensive coverage. • Naming Conventions: Establish clear guidelines for capability naming using noun-verb constructs (e.g., "Client Onboarding," "Trade Execution") to maintain consistency across the map. • Granularity Balance: Determine appropriate levels of detail for different capability domains based on strategic importance and transformation priorities. • Validation Process: Conduct structured reviews with both business and technology stakeholders to ensure the capability map accurately reflects the investment bank's reality. • Governance Framework: Establish clear ownership and maintenance processes to ensure the capability map remains current and relevant as the organization evolves. www.capstera.com 6

Did You Know According to a 2023 study by financial services consultancy ▪ Capco, investment banks with mature capability modeling practices complete mergers and acquisitions integration 35% faster than industry averages, with 28% lower integration costs. www.capstera.com 7

Accelerating Value with Pre-Built Capability Maps 5 Developing a capability map from scratch requires significant time and expertise. Pre-built industry reference models dramatically accelerate time-to-value while ensuring comprehensiveness and alignment with industry best practices. • Time-to-Value Acceleration: Pre-built maps reduce development time from months to weeks by providing a comprehensive starting point that incorporates industry best practices and regulatory requirements. • Completeness Assurance: Industry-specific reference models ensure critical capabilities aren't overlooked, preventing gaps that might compromise transformation planning. • Standardized Taxonomy: Pre-built maps establish consistent terminology aligned with industry standards, facilitating benchmarking and ecosystem integration. • Customization Efficiency: Modern reference models offer configurable frameworks that balance standardization with the flexibility to reflect unique organizational characteristics. • Implementation Acceleration: Pre-built maps often include implementation accelerators such as capability assessment templates, RACI matrices, and technology mapping tools that further compress time-to-value. www.capstera.com 8

Capability Assessment and Prioritization 6 A capability map becomes truly valuable when combined with assessment techniques that identify improvement priorities based on strategic importance, performance gaps, and transformation potential. • Maturity Assessment: Evaluating capabilities across dimensions such as process maturity, technology support, information quality, and skills reveals critical improvement opportunities. • Strategic Importance Analysis: Mapping capabilities to strategic objectives creates clarity about which capabilities deserve priority attention and investment. • Competitive Positioning: Benchmarking capability performance against competitors identifies areas where investment can create sustainable competitive advantage. • Pain Point Correlation: Connecting known organizational pain points to specific capabilities helps prioritize improvements with immediate operational impact. • Heat Mapping Technique: Visual representation of assessment results through heat maps creates powerful communication tools for executive alignment and investment prioritization. www.capstera.com 9

Capability Mapping for Technology Transformation 7 Investment banking technology landscapes are notoriously complex. Capability mapping provides the business context essential for meaningful technology rationalization and modernization. • Application Portfolio Alignment: Mapping applications to business capabilities reveals redundancies, gaps, and rationalization opportunities across the technology landscape. • Technical Debt Prioritization: Capability mapping helps prioritize technical debt reduction based on business impact rather than purely technical considerations. • Cloud Migration Planning: Capability assessment informs cloud migration strategies by identifying which capabilities would benefit most from cloud-based delivery models. • Buy vs. Build Decisions: Capability-driven analysis of market solutions against custom development options yields more strategic technology investment decisions. • Technology Roadmap Development: Capability priorities provide the foundation for technology roadmaps that align with business objectives and deliver measurable value. www.capstera.com 10

Regulatory Compliance Through Capability Mapping 8 Investment banking faces intense regulatory scrutiny. Capability mapping provides a systematic approach to implementing regulatory requirements across complex organizational structures. • Regulatory Impact Analysis: Mapping regulations to affected capabilities creates clarity about implementation scope and cross-functional dependencies. • Control Framework Integration: Capability maps provide the organizational context for embedding regulatory controls consistently across business functions. • Compliance Gap Identification: Systematic capability assessment reveals compliance gaps and vulnerabilities before they become regulatory findings. • Regulatory Change Management: Capability-based approaches to regulatory change reduce implementation risk by ensuring comprehensive coverage across affected functions. • Evidence-Based Compliance: Capability documentation provides auditable evidence of regulatory compliance design and implementation across the enterprise. www.capstera.com 11

Did You Know Research by the Business Architecture Guild found that ▪ organizations using pre-built reference models for capability mapping reduced time-to-value by an average of 65% compared to those building maps from scratch, while achieving higher quality and completeness ratings. www.capstera.com 12

Organizational Design and Capability Mapping 9 Investment banking organizational structures frequently change in response to market conditions and strategic shifts. Capability mapping provides stability through these transitions and informs more effective organizational design. • Organizational Alignment Analysis: Mapping capabilities to organizational units reveals fragmentation, duplication, and coordination challenges that impact operational effectiveness. • Role Definition Enhancement: Capability-based role definitions create greater clarity about responsibilities and required skills across the investment banking organization. • Post-Merger Integration: Capability mapping accelerates post-merger integration by creating a common framework for analyzing organizational overlaps and synergies. • Shared Service Optimization: Capability analysis identifies opportunities for shared service consolidation across business lines and geographic locations. • Accountability Framework: Establishing clear capability ownership creates the accountability necessary for continuous capability improvement and evolution. 13 www.capstera.com 13

Data Architecture and Capability Mapping 10 Data is the lifeblood of investment banking. Capability mapping provides essential context for data architecture by connecting information needs to business purposes and value creation. • Information Requirements Definition: Capability analysis reveals the critical information needed to execute each capability effectively across the investment bank. • Data Ownership Clarification: Mapping data domains to capabilities establishes clear ownership and governance responsibilities for critical information assets. • Master Data Management: Capability-driven approaches to master data management ensure that enterprise information models align with business needs and usage patterns. • Analytics Prioritization: Understanding which capabilities most depend on analytical insights helps prioritize data science and analytics investments for maximum business impact. • Data Quality Improvement: Capability context helps prioritize data quality initiatives based on business criticality rather than technical considerations alone. www.capstera.com 14

Process Architecture and Capability Mapping 11 While capabilities describe what the investment bank does, processes describe how work flows across the organization. Integrating these perspectives creates a powerful foundation for operational excellence. • Capability-Process Alignment: Mapping processes to capabilities ensures that process improvement initiatives advance strategic capabilities rather than optimizing in isolation. • End-to-End Process Visualization: Capability context helps connect fragmented processes into coherent end-to-end value streams that cross organizational boundaries. • Process Standardization: Capability mapping reveals opportunities to standardize similar processes that support the same underlying capabilities across business lines. • Automation Opportunity Identification: Capability assessment helps prioritize process automation investments based on business impact and strategic importance. • Process Governance: Establishing clear linkage between process and capability ownership creates the governance framework needed for sustainable process excellence. www.capstera.com 15

Implementation Approach and Best Practices 12 Implementing a capability map requires more than methodology—it demands a pragmatic approach focused on delivering business value while building organizational adoption and momentum. • Business-Driven Approach: Successful capability mapping initiatives remain firmly anchored in business outcomes rather than becoming academic architecture exercises. • Iterative Development: Begin with high-level capability domains and progressively decompose based on specific business needs rather than pursuing theoretical completeness. • Executive Sponsorship: Secure C-suite commitment by demonstrating how capability mapping addresses concrete business challenges and strategic imperatives. • Quick-Win Identification: Identify opportunities to apply the capability map to immediate business problems, creating tangible value that builds organizational support. • Change Management: Develop a deliberate approach for embedding capability thinking into strategic planning, portfolio management, and project execution processes. www.capstera.com 16

Did You Know A recent survey of global investment banks revealed that ▪ 72% of those with mature capability mapping practices identified over $50 million in technology rationalization opportunities within their first year, with an average ROI of 4.3x on their capability mapping investment. www.capstera.com 17

Leveraging Reference Models for Capability Mapping 13 Industry reference models provide valuable starting points for investment banking capability mapping, offering structures that incorporate regulatory requirements and industry best practices. • BIAN Framework Integration: The Banking Industry Architecture Network (BIAN) model provides standardized service domains that can accelerate capability modeling for investment banking operations. • FIBO Alignment: The Financial Industry Business Ontology (FIBO) offers semantic standards that ensure capability definitions align with industry terminology and concepts. • eTOM Adaptation: While originally developed for telecommunications, the enhanced Telecom Operations Map (eTOM) offers valuable patterns for operational capabilities that can be adapted to financial services. • APQC Process Classification: The American Productivity & Quality Center (APQC) Process Classification Framework provides cross-industry benchmarks that complement financial services- specific models. • Vendor Reference Models: Leading technology and consulting firms offer investment banking capability models that incorporate implementation experience and technology alignment. www.capstera.com 18

Tools and Technology for Capability Mapping 14 The right tooling can dramatically enhance the value and usability of capability maps, transforming them from static documents into dynamic assets that drive transformation planning and execution. • Repository Selection: Enterprise architecture tools with strong capability modeling features provide the foundation for maintaining capability maps as living assets rather than point-in- time deliverables. • Visualization Capabilities: Tools that offer flexible visualization options enhance stakeholder engagement by presenting capability information in formats tailored to different audience needs. • Integration Features: Connection with other architectural domains (process, application, data) multiplies the value of capability mapping by enabling cross-domain analysis and planning. • Assessment Support: Built-in assessment features streamline the evaluation of capability maturity, performance, and strategic importance across the organization. • Collaboration Functionality: Tools that support collaborative development and review processes enhance stakeholder engagement and accelerate capability map development and maintenance. www.capstera.com 19

Measuring Success and Driving Adoption 15 Demonstrating the value of capability mapping is essential for sustained organizational support and investment. A thoughtful approach to measurement and adoption ensures the capability map becomes a living asset rather than a one-time deliverable. • Value Demonstration: Establish clear metrics that demonstrate how capability mapping contributes to improved strategic alignment, investment prioritization, and transformation outcomes. • Adoption Strategy: Develop a deliberate approach for embedding capability thinking into key organizational processes including strategic planning, portfolio management, and project execution. • Training and Enablement: Invest in capability modeling skills across the organization to ensure the framework can be effectively applied to diverse business challenges. • Continuous Improvement: Establish regular review cycles to refine and enhance the capability map based on stakeholder feedback and changing business needs. • Success Story Documentation: Capture and communicate specific examples where capability mapping has delivered tangible business benefits to build momentum and organizational support. www.capstera.com 20

Takeaway Business capability mapping provides investment banks with a powerful tool for navigating complex transformation journeys with greater clarity and confidence. By creating a structured inventory of what the organization does—distinct from how it operates—capability maps enable strategic conversations, prioritization decisions, and transformation planning that deliver measurable business outcomes. The investment in capability mapping pays dividends across multiple dimensions: strategic alignment, technology optimization, organizational design, and regulatory implementation. Investment banks that accelerate this journey by leveraging pre-built reference models gain these benefits faster while reducing implementation risk and ensuring alignment with industry best practices. 21 www.capstera.com 21

Next Steps 1. Assess your current state of capability modeling to identify gaps and improvement opportunities in your existing architectural approach. 2. Evaluate industry reference models to determine which frameworks provide the most relevant starting point for your investment banking capability map. 3. Select a priority business domain to pilot your capability mapping approach, focusing on areas with active transformation initiatives or strategic importance. 4. Establish capability governance with clear ownership, maintenance processes, and integration with other architectural and planning disciplines. 5. Create a capability assessment framework to evaluate current performance, strategic importance, and improvement potential across your capability landscape. 22 www.capstera.com 22

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.) 23 www.capstera.com 23

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Business Capability Mapping for Investment Banks