Orange County Convention Center
Orlando, Florida | June 3-5, 2014
A Business Capabilities Model for Retail &
Wholesale and Its Benefits
Pat Sarkar, Head of Architecture & Strategy, Levi Strauss
Steve Rothman, Managing Partner, IT Renaissance
LEARNING POINTS
 Learn a practical Business Capabilities Framework to
define and document business capabilities for
retail/wholesale/e‐Commerce
 Establish an Enterprise Architecture & Strategy
Function that Aligns Business & IT Completely
 Reap Benefits From the Business Capabilities Model:
Perform Application Portfolio Rationalization, Develop
IT Roadmaps, Standardize Processes Globally,
Transform SAP Landscape, etc.
RETURN ON INVESTMENT
 Some examples are presented from real‐life
implementations that yielded significant ROI
 High‐Velocity Supply Chain
 Application Portfolio Rationalization
 SAP Landscape Transformation
BEST PRACTICES
 As a best practice, there must be a pre‐defined
“common language” that both the business leaders
and IT leaders speak when discussing business and
IT strategies and roadmaps. The Business
Capabilities Model provides that common
understanding which may be unique to an
enterprise’s business models, culture, history,
products, customers and markets.
Helping organizations succeed with Information Technology
A Business Capability Model
for
Wholesalers and Retailers
Pat Sarkar. VP, Architecture & Strategy, Levi Strauss & Company
and Steve Rothman, Managing Partner, IT Renaissance
Copyright © 2014 IT Renaissance
Table of Contents
 What is a ‘Business Capability”?
 An Apparel Company Business Capability
Model
 A Firearms Distribution Company Business
Capability Model
 Benefits and Uses of a Business Capability
Model
 Conclusion
 Questions
6
What is a
Business Capability?
7
Enterprise Architecture
An organization’s Enterprise Architecture includes it’s Business and IT Architectures.
Mission
• Products
• Services
• Information
Suppliers
Business Architecture
Business Capabilities
Inputs
Outputs
Channels
• Products
• Services
• Information
Outputs
Customers
• Products
• Services
• Information
IT Architecture
“IT Savvy” companies* have figured out how to align
their Business and IT Architectures.
IT can be a powerful enabler of an organization’s future
Business Architecture.
* “IT Savvy - What Top Executives Must Know to Go From
Pain to Gain”,
8
Peter Weill & Jeanne W. Ross
Business Architecture Perspectives
An organization’s Business Architecture needs to be viewed from two different perspectives
The “Outside – In” Extended Enterprise Perspective
Company Operations
Outputs
Core Capabilities
Suppliers
Consumers
Inputs
• Products
• Services
• Information
Outputs
Supporting
Capabilities
Channels
• Products
• Services
• Information
Outputs
• Products
• Services
• Information
The “Inside – Out” Business Capability Perspective
Business Capability Framework
Business Capabilities
Core Capabilities
Described
By
Supporting
Capabilities
9
Business Capability Framework
At the core of a company’s Business Architecture is its Business Capability Model. We define a
Business Capability as the People, Processes, Technology, Assets and Suppliers (Business Partners )
that provide outputs of value to customers. Customers and Suppliers can be external, internal or
other capabilities.
Mission
People
Inputs
People
Processes
Technology
Technology
• External Suppliers
• Internal Suppliers
• Other Capabilities
Outputs
AssetsAssets
Metrics
10
• External Customers
• Internal Customers
• Other Capabilities
Business Capability Dimensions
Each Business Capability has four internal Dimensions. The contents of each Dimension are identified
below:
Leadership
Organization Structure
Governance
Competencies, Skills,
Experience
• Compensation
• Measurements and Rewards
• Culture and Morale
•
•
•
•
People
• Physical Processes
• Information Processes
• Policies
Processes
Technology
• Information Technology
- Applications
- Information
- Infrastructure
• Process Technology
− e.g. Automatic Storage &
Retrieval Systems
Assets
•
•
•
•
•
•
11
Cash!
Facilities
Equipment
Inventory
Brands
Intellectual Capital
Metrics
We have adopted the Norton and Kaplan “Balanced Scorecard” to define our approach to Metrics
• Revenue
• Margin
• ROCC
Customer
•
•
•
•
Customer Satisfaction
Customer Retention
Product Penetration
Market Share
•
•
•
•
Financial
Process
Innovation
12
•
•
•
•
New
New
New
New
Products
Services
Processes
Systems
Throughput
Efficiency
Speed
Quality
Business Capability Framework
The IT Renaissance approach to defining a Business Capability Framework started with the concept
of a “Value Chain” introduced by Michael Porter
Supplier Facing
Processes
Internal Operational
Processes
Customer Facing
Processes
Supporting Processes
 Although there are common patterns of Business Capability Frameworks within an industry, there
are often substantive differences between companies in the same industry due to different
Business Strategies, Geographies, Channels and Sourcing Strategies
 We start to define an organization’s Business Capability Framework from the Outside In and Top
Down

It is important to keep in mind that a Business Capability Framework is not just an Organization or Process Model of a company
 There is a little “engineering” and a little “art” to defining an organization’s Business Capabilities – the key is understanding
what is the same and what is different
 Capabilities are typically different if they have different customers, different inputs, different outputs or completely different
types of automation support
 e.g. “Picking” is a process done as part of “ Warehouse Operations “. If the picking is done manually, that would be a
different process and a different capability than if it was done by Automated Material Handling technology
13
Business Capability – Process Decompositions
Business Capabilities are the “Container” for all of the other dimensions
Business Capabilities are decomposed along the Process dimension
 The Business Capabilities use the name of the Process that they contain
Additional dimensions (e.g. People and Technology) are defined and tied to the Business Capability at
the appropriate level
Level 1
Business Capability “A”
Organization
Process “A”
Level 2
Application “X”
Department
Information
Process “A.1”
Infrastructure
People
Business Capability “A.1”
14
Technology
Defining Business Capabilities
Defining an organization’s Business Capability Model is an Iterative Process






The first step is to define the Extended Enterprise Supply Chain within which the company operates.
Next define the organization’s Supporting Capabilities. Most organizations have the following four
Supporting Capabilities
 Leadership/ Management
 Information Technology
 Human Resource, or Talent, Management
 Financial Management
Create a first cut at identifying the organization’s Core Capabilities by identifying the Customer
Facing, Supplier Facing, and Internal Operations Capabilities
Create a definition for each Capability and then decompose each Capability along the Process
dimension to Level 2 or 3
 The processes that support the capability/sub capabilities provide a clear definition of what is
included in the capability
Iterate on the Level 1 Capability Model as you learn more about the details of each of the individual
Capabilities
 SIPOC charts that define the Suppliers > Inputs > Process > Outputs > Customers can be helpful
in further defining a Business Capability
Additional dimensions (People, Technology and Assets) are defined and tied to the Processes
15
Sample Business Capability Process Decomposition
The Processes in each Business Capability are decomposed to level 2, 3 or 4 depending on the complexity
of the Business Capability and what the organization plans to do with the information
PBS
1.0
Process Name
Brand Management & Merchandising
1.1
Market Insights
1.1.1 Long Term Trends
1.1.2 Competitor Intelligence
1.1.3 Understand Brand Awareness and Positioning
1.2
Brand Planning
1.2.1 Merchandise Financial Plan
1.2.2 Assortment Strategy
1.2.3 Global and Regional Assortment Plan
1.3
Merchandising
1.3.1
Long Term Trends
1.3.2
Sub‐Category Strategy
1.3.4
Core Merchandising
1.3.5
Seasonal Merchandising
1.3.6
Assortment Planning
1.3.6.1 Box Line Plan
1.3.6.2 Initial Line Assortment
1.3.6.3 Detailed Segment Assortments
1.3.6.4 Seasonal Assortment Planning
Description
Understand and increase the awareness and value of Levi's brands in all of our
markets. Includes Brand Market Research, Brand Planning and Merchandising
Provide outside 3rd Party insights into Brand Planning
m
a
S
16
e
l
p
Comments/Questions
Sample SIPOC Diagram – Retail Store Operations
SIPOC (Supplier, Input, Process, Output, Customer) diagrams are created at Level 3 or 4 as a precursor to
completing analyzes of current processes
other capability underscored
Suppliers
•Brand Mgmt
Inputs
• Merchandise Plan*
• Assortment Plan*
•In-Store Sales
•Distribution Center
•Distrib/Warehouse Mgmt
•Sales Transactions
•Shipped Product s
•Receiving Docs
•Enterprise Retail Mgmt
•In-Store Sales
•Merchandise Mgmt
•Store Goals
•Sales History
•Space Plan
•Local Market
•In-Store Sales
•Store Operating Plan
•Candidate Employees
•Sales History
•Seasonal Adjustments
•Inventory Mgmt
•Consumer
•Consumer
•On-Hand Product
•Returned Product
•Consumer Data
•Consumer
•Consumer Request
Sub-Process
Merchandise
Management
Inventory
Management
Store Management
Workforce Management
In Store Sales
Consumer Relationship
Mgmt (in store)
17
Outputs
Customers
• Store Merchandise Plan*
• Store Assortment Plan*
•Store Management
•Brand Mgmt
•Brand Mgmt
•Sales Forecast
•Inventory Adjustments
• Replenishment Order
•Inventory Analysis
•Supply Chain Mgmt
• Financial Mgmt
•Distrib/Warehouse Mgmt
•Distrib/Warehouse Mgmt
•Organized, Appealing Store
•Store Operating Plan
•Store Perform. Reports
•Consumer
•Enterprise Retail Mgmt
•Enterprise Retail Mgmt
•Trained Store Employees
•Shift Schedules
•Employee Performance
•Store Mgmt
•Store Mgmt
•Store Mgmt
•Sold Product
•Sale Transactions/History
•Returned Transaction
•Captured Consumer Data
•Consumer
•Inventory Mgt, Brand Mgt.
•Inventory Mgt
•Consumer Relation Mgt
•Consumer Service
•Consumer
•Space Plan
* seasonally adjusted
An Apparel Company
Business Capability Model
18
Levi Strauss – Extended Enterprise Perspective
Levi Strauss deals with end consumers directly as well as through tens of thousands of independent
and franchised Retail Outlets. 95% of Levi’s finished products are produced by Contract
Manufacturers, but Levi’s also deals with suppliers directly to support in house manufacturing
operations.
• Marketing/CRM
• E-Commerce
• Levi Retail Stores
• Shop-in-Shops
Suppliers
Raw Materials
Raw Materials
Consumers
Finished
Goods
Retailers
Contract
Manufacturers
Distributors
Licensees
19
• Chains
• Department
Stores
• Specialty
• Franchisees
• Levi’s VMI
Levi’s Business Capability Model
1. Brand Management
2. Merchandise Management
4. Marketing
3. Product Development
9. Contract
Manufacturer Management
8. Distribution
Center
Management
10. Company Manufacturing
5. Omni-Channel
Retail Operations
6. Franchise Management
11. Logistics
7. Wholesale Operations
12. Supply Chain Management
13. Financial Management
14. Talent Management
15. Information Technology
16. Leadership/Management
20
An Firearms Distributor
Business Capability Model
21
Firearms Industry Supply Chain
The Firearms Industry Supply Chain is complex and
RETAIL
convoluted DISTRIBUTION
CHANNELS
BIG
BOX
STORES
INDEPENDENT RETAILERS
OTHER
DISTRIBUTORS
TIER 1
SUPPLIERS
MANUFACTURERS
Not
Brick &
Mortar
New
ABC
Firearms
Distributor
Brick &
Mortar
Used
BUYING
GROUPS
Internet
Sites
22
A Firearms Distributor Business Capability Framework
Merchandise Management
Core Capabilities
Procurement
Product Data
Management
Order Management
Solution Management
Manufacturer
Relationship
Management
Distribution Center
Operations
Service Management
Logistics
Supply Chain Management
Supporting Capabilities
Regulatory Compliance
Financial Management
Talent Management
Information Technology
Leadership & Management
23
Marketing
Retailer
Relationship
Management
Benefits and Uses
of a
Business Capability Model
24
The Benefits of Defining a Business Capability Model
 The initial, and probably the most important, benefit of defining a Business
Capability Model is establishing a “common language” within a business that
defines and describes everything that the business does
 This is especially important for organizations that are undergoing a lot of
change, have added a lot of outside people or are trying to standardize
operations that had not previously been standardized
 At one of our clients, there were three different terms used to define a
“Warehouse” in different parts of the world
 A Warehouse, A Distribution Center or A “Customer Service Center”
 A Business Capability Model is the heart of an organization’s Business
Architecture which can be used to drive and align the organization’s IT
Architecture and Strategy
 A well defined Business Capability Model is an excellent starting point for
future Business Transformation and Solution Delivery projects
25
Uses of a Business Capability Framework
In addition to the benefits defined on the prior slide, there are also a lot of practical uses for a
Business Capability Framework, some of which are identified below:
 Define and Prioritize Business Transformation Efforts
 Create a High Velocity Supply Chain
 Support the Establishment of an Enterprise
Architecture & Strategy function
 Develop an Application Decommissioning Plan
26
Business Transformation Prioritization
This framework was used to prioritize the Business Transformation efforts for the Firearms
Distributor on page 20
High
Service Management
Logistics
Procurement
Supply Chain Management
Order Management
Distribution Center Management
Human Resources
Low
Strategic Importance
Product Data Management
Retailer Relationship
Management
Information Technology
Manufacturer Relationship
Management
Solution Management
Merchandise Management
Finance
Marketing
Competitive Disadvantage
Average
Relative Performance
Competitive Advantage
t
e
n
d
e
d
This schematic depicts ABC’s Extended Enterprise
Model – from the original suppliers in the Supply Chain
to the end consumer that purchases products and
services from their Retailers
INDEPENDENT
RETAILERS
TIER 1
SUPPLIERS
E
n
t
e
r
p
r
i
RM
MANUFACTURERS
RM
FG
Brick &
Mortar
Retail
Stores
ABC
Firearms
Distributor
FG
FG
28
Creating a Lean, High Velocity Supply Chain
Product Data
Management
Procurement
Order
Management
Distribution Center
Operations
Manufacturer
Relationship
Management
INDEPENDENT
RETAILERS
<7
day
s
?
TIER 1
SUPPLIERS
RM
MANUFACTURERS
RM
2
days
ABC
Firearms
Distributor
FG
Brick &
Mortar
Retail
Stores
FG
FG
Logistics
Supply Chain Management
29
Retailer
Relationship
Management
Establishment of an Enterprise Architecture & Strategy Function
The Business Capability Model, and a robust Information Technology Architecture Framework,
were used as the foundation for establishing an Enterprise Architecture & Strategy function at
Levi’s
Enterprise Architecture & Strategy Functions
Business Capability Model
Business/IT Strategy
Alignment
IT Strategy
& Roadmap
IT Architecture Framework
30
 Standardization of Non‐
Differentiating Business Processes
 Rationalization of Application
Portfolio
 Master Data Architecture &
Governance
 Integration & Interoperability
Standards
 Emerging, Core & Declining
Standards
 Architecture Review Board
 IT Vendor Review & Selection
 Solution Review & Selection
 Project Architecture & Design
Reviews
 IT Procurement Sign‐off
Application
Infrastructure Architecture
Architecture
Information Architecture
Business Architecture
LS&Co Enterprise Architecture Major and Minor Layers (DRAFT May 2013)
Business Organization
Business Model
(Global v Regional)
Back-office Processes
Go To Market PLM
Brand Management
Supply Chain
Finance
HR & Legal
Manufacturing
(Global v Regional)
Customer Processes
Commercial Wholesale
Commercial Retail
ECommerce
Multi-Channel/Omni-Channel
Vendor Managed Inventory
Sales & Customer Operations
Information Model
Enterprise Model
Business Owner Views
Enterprise Data Model
Conceptual Data Model
Enterprise Process Model
Business Process Model
Information Boundaries
Integration Model
Logical Data Models
Product Master Data
Vendor Master Data
Customer Master Data (B2B)
Customer Master Data (Consumer)
Presentation
Portal
Terminal Emulation
Personalization / Customization View Transformation
Web Browser /Viewers
Globalization
Handheld Web Caching
Content Management
Personal Productivity
Email
Conferencing/IM
Collaboration
Project Management
Security
Authentication
Virus Protection
Authorization
Signing
Rights Management Intrusion Detection
Access Control
Directory Services
Encryption
Log Integrity
Firewalls
Audit/Compliance Tools
Storage / Backup
Network Attached
Virtualization
Storage
Tape Backup Units
Direct Attached
Backup SW
Storage
Storage Area Network
Mobility, BYOD and Social Media
Corporate
Americas
EU
APD
Shared Services
Strategic Partner Organizations
Key Business Partners
Outsourced Processes
SWOT Analysis Results
Information Management
Database Servers
Document Management
Data Warehouse
BI Tools
Relational Engine
Information / Knowledge Retrieval
Extract Transform & Load
Metadata Management
Reporting
Data Access Services
Data Mining Tools
Data Visualization
Information Security
Application Functionality
ERP SCM Retail POS CRM HR SRM PLM
P2P MES FP&A O2C GRC
Interoperability & Integration
Business Process Orchestration
Business rules Engine
Managed Asynch. Messaging
Service Interface Registry
Connector Toolkit
Web Services/SOA/ESA
Software As A Service (SaaS)
Systems Management
Change Management
Remote Control
Performance Mgmt
Configuration Mgmt
Capacity Planning
Host Management
Storage Management
DB Management
Monitoring
Application Mgmt
Software Distribution
Automation
Asset Management
Network Management
Help Desk
Service Level
Computer Platforms
Handheld Hardware/SW
Unix Client and Servers
Mainframe Hardware
Unix Server Hardware
Mainframe Systems Software Unix Server Systems Software
Manufacturing Devices
x86 Clients and Servers
Information Capabilities
Data Science
Big Data
Predictive
Analytics
Dashboards
Data Visualization Machine
Data
Cloud BI
Mobility, BYOD and Social Media
Application Platforms
Application Servers
Web Servers
Integration Servers
Programming
Languages
Development IDE
Source Control, Build,
Deploy
Testing Tools
Modeling Tools
Platform As A Service (PaaS)
Mobility, BYOD and Social Media
Network
WAN
Extranet
LAN
Load Balancing
Wireless Data
Routing Switches
Wireless Voice
Caching
Voice
Structured Cabling
Remote Access
IP Services & Protocols
Internet
Infrastructure As A Service
Amazon Web Services
An initial Application
evaluation of Levi’s 500+
applications by Business Capability
Levi’s
Decommissioning
Plan
Capability Name
#
1.0
Brand Management
2.0
Merchandise Management
3.0
Product Development
4.0
Marketing
5.0
Omni-Channel Retail Ops
6.0
Franchise Management
7.0
Commercial Operations
8.0
Distribution Center Mgmt
12.0
Supply Chain Management
13.0
Financial Management
14.0
Human Resource Management
15.0
Information Technology
16.0
Leadership/Management
Use
Decom
o
Each of these 16 Business
Capabilities were analyzed in
additional detail to:
– Identify the potential to standardize
the Business Capability across
regions and channels, and
– To develop a target application
migration strategy
o
o
33
For example, Demand Planning is
a Level 2 Sub-Capability within
Supply Chain Management
The Capability Standardization
and Potential Application
Migration Strategy for Demand
Planning is illustrated on the next
page
12.2 Demand Planning – Decommissioning Strategy
Business Capability Standardization Potential
LSA
LSE
LSA
LSE
APD
M
M
L
H
L
H
Retail
Comm
Stores
Ops
Retail
APD
M
eComm
H
M
M
Ops
eComm
POP-Prelim Order Processing
(Global) (CommOps)
ForecastX PI (LSA) (GSC)
Linx ERP (Brazil) (CommOps)
1C ERP (Russia) (CommOps)
1C ERP (Russia) (CommOps)
SAP APO DP(LSE) (GSC)
SAP APO DP(LSE) (GSC)
MarketMax (Global) (CommOps)
MarketMax (Global) (CommOps)
Just Enough DP (APD) (GSC)
eFCST(Global) (GSC)
Boardwalk SP/DP (Global)
(GSC)
PAR-Product Availability
Report (LSA,LSE,APD)
Navision (LSE) (CommOps)
XP-Erience (LSE) (LFA)
LDS (Can) (CommOps)
H
M
Target Applications
POP-Prelim Order Processing
(Global) (CommOps)
ForecastX PI (LSA) (GSC)
Linx ERP (Brazil) (CommOps)
JDA Manugistics
(LSA,LSE,APD)
Stores
Comm
Current Applications
SAP Business One (LSE) (LFA)
SAP APO DP(Global)
(GSC, CommOps, Retail)
Conclusion
 A Business Capability Model can be a powerful tool to help an organization:
 Establish a Common Language for describing its operations;
 Develop and execute a Business Transformation Strategy and Plan;
 Define an effective , efficient and agile Enterprise Architecture;
 Business Architecture and IT Architecture
 Develop a value creating Information Technology Strategy;
 Rationalize their application portfolio; and many others
 However, it is time consuming and;
 doing it right requires the right amount of time from the right people
 For these reasons we recommend that:
 Companies do not treat this as a “boil the ocean” paper generation exercise
 The right people are assigned to work on it
 You treat this as a collaborative, iterative process; and finally
 You only do this if doing it directly supports something that will create value for the
organization
 Creating a Business Transformation or IT Strategy
 Supporting a Business Transformation Project
35
Questions?
What questions do you have?
36
KEY LEARNINGS
 Learn a practical Business Capabilities Framework to
define and document business capabilities for
retail/wholesale/e‐Commerce
 Establish an Enterprise Architecture & Strategy
Function that Aligns Business & IT Completely
 Reap Benefits From the Business Capabilities Model:
Perform Application Portfolio Rationalization, Develop
IT Roadmaps, Standardize Processes Globally, etc.
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