Business Architecture - Understanding Core Concepts and Their Relationships | Persönliches Blog zu Digitalisierung, EAM und mehr

Understanding the Five Pillars of Business Architecture

As a leader or employee, it is crucial to understand the fundamental building blocks of Business Architecture¹ and recognize their interactions. Five central concepts form the foundation of any structured business architecture: Business Processes², Business Capabilities³, Organizational Units⁴, Business Objects⁵, and Value Streams⁶.

These concepts should not be viewed in isolation but are closely related to each other and to the motivation⁷ of an organization. A deep understanding of these relationships enables targeted design of digital transformations⁸ and translation of strategic goals⁹ into operational reality.

The connection to motivation is essential: While motivation defines the Why - the drivers, goals, and desired outcomes - Business Architecture describes the What and How of implementation. Business capabilities show what a company must be able to do, business processes define how workflows function, organizational units clarify who is responsible, business objects create a common understanding of what we work with, and value streams connect these elements into the end-to-end flow of value creation.

Business Architecture Concepts

The Four Core Concepts in Detail

1. Business Capabilities

Business Capabilities³ describe what a company needs to achieve its goals - the resources, people, and assets required. They are stable over time and do not change with every reorganization or process optimization.

Characteristics of Business Capabilities:

Resource-oriented: Describe required people, technology, infrastructure, knowledge
Stable and long-term: Do not change with every restructuring
Technology-independent: Describe capabilities, not their technical implementation
Hierarchically structured: From strategic to operational levels
Measurable: Can be assessed in terms of maturity and performance

Restaurant Example:

Restaurant Service Execution: Venue, service staff, payment and ordering app, menu cards
Food Creation: Head chef, kitchen assistants, convection oven, kitchen equipment, kitchen

Additional Examples of Business Capabilities:

Customer Relationship Management: CRM system, customer advisors, customer database, communication channels
Product Development: Developers, development environment, prototyping tools, test labs
Risk Management: Risk managers, risk assessment software, compliance framework, audit processes
Financial Planning and Control: Controllers, ERP system, reporting tools, budgeting software

The Capability Map¹⁰ visualizes all business capabilities of a company and helps identify strategic gaps and set investment priorities.

Important: Business capabilities describe the WHAT (required resources), not the HOW (workflow). This distinction is controversially discussed in TOGAF and BIZBOK but is essential for clear architecture models.

2. Business Processes

Business Processes² define how value creation occurs. They describe the sequence of activities and workflows necessary to achieve a specific business outcome.

Characteristics of Business Processes:

Workflow-oriented: Describe steps, activities, and their sequence
Hierarchically structured: 3+ levels from WHAT (Process Landscape) to HOW (detailed activities)
Dynamic: Can and should be continuously optimized
End-to-end orientation: From customer requirement to service delivery
Measurable: Through KPIs such as cycle time, cost, quality
Automatable: Can be supported or automated by technology

Hierarchy Example Restaurant (3 Levels):

Level 1 (WHAT): "Execute Restaurant Service" (Process Landscape)
Level 2 (WHAT→HOW): "Welcome guests", "Take order", "Serve dishes", "Create bill"
Level 3 (HOW):
- Welcome guests: Greet → Assign table → Escort to cloakroom → Hand over menu
- Take order: Ask for drinks → Ask for food → Enter in system → Inform kitchen

Hierarchy Example Food Creation (3 Levels):

Level 1 (WHAT): "Create Food" (Process Landscape)
Level 2 (WHAT→HOW): "Check ingredients", "Prepare mise en place", "Cook dishes", "Plate"
Level 3 (HOW):
- Check ingredients: Retrieve order list → Check inventory → Control quality → Note shortages
- Cook dishes: Retrieve recipe → Portion ingredients → Cook → Season → Taste

The Process Landscape (Level 1) visualizes all business processes at the highest level. Value Streams⁶ connect business capabilities with business processes and show the end-to-end flow of value creation.

Important: Business processes can be detailed across 3+ levels, from WHAT (Process Landscape) to HOW (detailed activities). This hierarchy stands parallel to business capabilities. Both depend on each other and together enable products.

3. Organizational Units

Organizational Units⁴ clarify who is responsible for executing processes and providing capabilities. They represent the structural dimension of Business Architecture.

Characteristics of Organizational Units:

Responsibilities: Clear assignment of tasks and decision-making authority
Hierarchical or networked: Depending on organizational model
Resource allocation: Have budget and personnel
Governance: Define decision paths and escalation routes

Hierarchy Example Restaurant (3 Levels):

Level 1 (WHAT): "Restaurant Operations" (Overall organization)
Level 2 (WHAT→HOW): "Kitchen", "Service", "Management"
Level 3 (HOW):
- Kitchen: Head chef, Sous-chef, Kitchen assistants, Pastry chef
- Service: Restaurant manager, Head waiter, Waiters, Sommelier
- Management: CEO, Purchasing, Accounting, Marketing

Further Examples of Organizational Units:

Investment Strategy: Me in different roles (Portfolio Manager, Analyst, Trader, Data Manager)
Company: Business divisions (Sales, Production, IT), Departments, Teams, Project organizations, Cross-functional units

The relationship between organizational units and business capabilities is often complex: A capability can be provided jointly by multiple units, and a unit can be responsible for multiple capabilities.

Restaurant Example:

The capability "Food Creation" is provided by the organizational unit "Kitchen"
The capability "Restaurant Service Execution" is provided by the organizational unit "Service"
The organizational unit "Management" is responsible for multiple capabilities (Financial Planning, Marketing, Purchasing)

4. Business Objects

Business Objects⁵ are the central concepts and entities that a company works with. They form the common vocabulary and create a unified understanding across all stakeholders.

Characteristics of Business Objects:

Central entities: Represent important business concepts
Information carriers: Have attributes and relationships to other objects
Lifecycle: Go through different states
Glossary function: Define the common language of the company

Hierarchy Example Restaurant:

Guest:

Attributes: Name, phone number, email, preferences, allergies
States: Prospect, Reserved, Present, Regular customer
Relationships: Has reservation, Has order, Belongs to table

Reservation:

Attributes: Date, time, number of people, table number, status
States: Requested, Confirmed, Cancelled, Completed
Relationships: Belongs to guest, Assigned to table

Order:

Attributes: Order number, date, time, total amount, status
States: Taken, In preparation, Served, Paid
Relationships: Belongs to guest, Contains order items, Assigned to table

Order Item:

Attributes: Quantity, menu item, price, special requests
States: Ordered, In preparation, Ready, Served
Relationships: Part of order, References menu item

Menu Item:

Attributes: Name, description, price, category, allergens, availability
States: Available, Sold out, Seasonally unavailable
Relationships: Belongs to menu category, Requires ingredients

Table:

Attributes: Table number, number of seats, area (smoking/non-smoking), status
States: Free, Reserved, Occupied, Being cleaned
Relationships: Has reservations, Has orders

Further Examples of Business Objects:

Investment Strategy: Stock, Portfolio, Position, Transaction, Watchlist Score, Rating, Market Regime
Company: Customer, Product, Order, Contract, Invoice, Risk

A structured glossary¹¹ of business objects is essential for communication between business and IT and reduces misunderstandings in transformation projects.

5. Value Streams

Value Streams⁶ connect business capabilities with business processes and show the end-to-end flow of value creation. They make visible how value is created for customers.

Characteristics of Value Streams:

End-to-end perspective: From customer need to delivered value
Connecting element: Link capabilities, processes, and objects
Value-centric: Focus on value contribution, not just activities
Measurable: Enable measurement of lead time, quality, and value contribution

Hierarchy Example Restaurant:

Value Stream: "Serve Guest"

Customer need: Guest wants to enjoy a special dinner
Capabilities used: Restaurant service execution, food creation, beverage service
Processes executed: Welcome guests → Take order → Prepare dishes → Serve → Create bill
Objects involved: Guest, Reservation, Order, Menu item, Table
Value delivered: Satisfied guest with positive experience

Value Stream: "Develop Regular Customer"

Customer need: Guest seeks long-term relationship with restaurant
Capabilities used: Customer relationship management, quality assurance, personalization
Processes executed: Capture preferences → Personalized recommendations → Loyalty program → Collect feedback
Objects involved: Guest (regular customer), Preferences, Order history
Value delivered: Loyal regular customer with high satisfaction

Hierarchy Example Investment Strategy:

Value Stream: "Make Investment Decision"

Need: Optimize returns and beat MSCI World
Capabilities used: Fundamental analysis, growth analysis, valuation analysis, earnings momentum analysis
Processes executed: Screening → Company value rating → Watchlist scoring → Market context integration → Risk assessment → Purchase decision
Objects involved: Stock, Rating, Watchlist score, Market regime, Position, Transaction
Value delivered: Informed investment decision with high probability of success

Value streams make the value chain transparent and help to:

Identify bottlenecks (where does it take too long?)
Recognize waste (which steps create no value?)
Find optimization potential (where can we become more efficient?)
Prioritize (which value streams are most important?)

The Relationships Between Concepts

The true strength of Business Architecture lies in understanding the relationships between these five concepts:

Business Capabilities ↔ Business Processes

Processes use capabilities: A business process uses one or more business capabilities to achieve a result
Capabilities are realized through processes: The maturity of a capability is reflected in the quality of associated processes
Value streams as connection: Show how capabilities work together in processes to create value

Organizational Units ↔ Business Capabilities

Responsibility: Organizational units are responsible for providing and developing capabilities
Resource allocation: Investment decisions are made based on capabilities and assigned to organizational units
Governance: Organizational units define how capabilities are managed and measured

Organizational Units ↔ Business Processes

Execution: Organizational units execute business processes
Process ownership: Process owners are typically anchored in organizational units
Interfaces: Processes that span multiple organizational units require clear interface definitions

Business Objects ↔ All Other Concepts

Processes transform objects: Business processes create, modify, or delete business objects
Capabilities work with objects: Each capability focuses on specific business objects
Organizations manage objects: Organizational units are responsible for the quality and governance of business objects

Connection to Motivation

Business Architecture is not an end in itself but serves to implement an organization's motivation⁷:

From Drivers to Capabilities

Drivers¹² (e.g., digitalization, customer orientation, efficiency improvement) require specific business capabilities. The Capability Map helps identify gaps between current and needed capabilities.

From Goals to Processes

Goals¹³ (e.g., reducing cycle time by 30%) are achieved through optimization of business processes. Process KPIs measure progress toward goal achievement.

From Outcomes to Objects

Desired outcomes¹⁴ (e.g., improved customer satisfaction) manifest in the quality of business objects (e.g., complete and current customer data).

From Stakeholders to Organizational Units

Stakeholders¹⁵ have expectations of the company that must be fulfilled by organizational units. The organizational structure should reflect stakeholder needs.

Practical Example: My Investment Strategy with the Stock Manager

To make the concepts tangible, I consider my personal investment strategy as a mini-enterprise. The motivation⁷, as described in the motivation article, is financial independence in retirement through continuous return optimization.

1. Business Capabilities of My Investment Strategy

My investment strategy requires the following business capabilities³:

Strategic Level:

Portfolio Management: Ability to design and manage a diversified portfolio (5-7.5% per position)
Risk Management: Ability to identify, assess, and manage risks (Stop Loss at 5%, Stop Limit at 10%)
Performance Analysis: Ability to measure returns and compare with MSCI World (CAGR calculations)
Market Context Analysis: Ability to recognize market regimes and adapt strategy (Bull/Bear/Volatile/Neutral)

Operational Level:

Fundamental Analysis: Ability to assess company value through rating logic (debt, profitability, valuation, momentum)
Growth Analysis: Ability to identify sustainable growth (min. 5% CAGR)
Valuation Analysis: Ability to determine fair prices (P/E or P/CF ≤ 50)
Earnings Momentum Analysis: Ability to recognize earnings report patterns (≥75% success rate, ≥2% price increase)
Sector-Relative Analysis: Ability to compare stocks against sector benchmarks
Technical Analysis: Ability to interpret RSI, MACD, and VIX
Transaction Processing: Ability to execute purchases and sales efficiently
Data Management: Ability to collect and maintain relevant financial data

These capabilities are stable - even if I change my processes or tools, these core capabilities remain.

2. Business Processes of My Investment Strategy

The business processes² translate capabilities into concrete workflows following a structured Investment Decision Flow:

Main Processes:

A) Screening and Evaluation Process (4 Strategic Dimensions):

Company Value Rating (uses capability: Fundamental Analysis)
- Perform debt analysis (Dynamic Debt Payback Period)
- Assess profitability (ROE, Operating Margin)
- Check valuation metrics (P/E, P/CF, P/B)
- Analyze momentum (price performance)
- Calculate rating (threshold: ≥10 points)
Company Growth (uses capability: Growth Analysis)
- Determine revenue growth (min. 5% CAGR)
- Analyze cash flow growth
- Assess earnings growth
- Identify long-term growth trends
Share Price Valuation (uses capability: Valuation Analysis)
- Calculate P/E or P/CF
- Check valuation threshold (0 < Ratio ≤ 50)
- Identify negative ratios (100-point penalty)
- Confirm fair valuation
Market Momentum (Earnings) (uses capability: Earnings Momentum Analysis)
- Determine earnings success rate (≥75%)
- Calculate average price increase (≥2%)
- Analyze earnings timing
- Assess momentum quality

B) Watchlist Scoring Process:

All 4 criteria met → Score 10 (Strong Buy)
Rating + Growth + Earnings → Score 7 (Buy)
Growth + Earnings → Score 5 (Growth Momentum)
Earnings only → Score 3 (Earnings Only)
Minimal interest → Score 1 (Default)

C) Market Context Integration:

Identify current market regime (uses capability: Market Context Analysis)
- Bull Market: Focus on growth stocks, higher risk tolerance
- Bear Market: Defensive positioning, lower risk tolerance
- High Volatility: Reduced position sizes, shorter holding periods
- Neutral: Balanced diversification
Adjust RSI thresholds (uses capability: Technical Analysis)
Align MACD signals with market trend
Apply VIX-based risk adjustments

D) Sector-Relative Analysis:

Determine sector benchmarks (uses capability: Sector-Relative Analysis)
Compare stock against sector median (ROE, revenue, debt)
Assess relative performance
Identify sector rotation opportunities

E) Risk Assessment and Positioning:

Calculate position size (5-7.5% of portfolio)
Set stop-loss level (5% below entry price)
Define stop-limit (10% below entry)
Set profit targets (10% breakeven, 20% main target)

F) Purchase Decision and Execution:

Make final purchase decision (uses capability: Portfolio Management)
Place order (uses capability: Transaction Processing)
Record position in portfolio
Activate monitoring

G) Portfolio Monitoring Process:

Collect performance data (uses capability: Data Management)
Calculate returns and compare with MSCI World (uses capability: Performance Analysis)
Analyze risk metrics (volatility, Sharpe Ratio)
Monitor stop-loss triggers
Check profit targets
Identify rebalancing needs

H) Performance Tracking Process:

Analyze success rate by watchlist score
Measure capital efficiency (maximum simultaneous capital usage)
Calculate risk-adjusted returns (CAGR, volatility)
Derive strategy adjustments

I) Data Update Process:

Automated data retrieval from financial service providers
Data validation and cleansing
Database update
Generate reports and dashboards

These processes are dynamic and continuously optimized - e.g., through stronger automation, refinement of screening criteria, or adaptation to new market conditions. The focus is on data-driven decisions instead of emotional reactions.

3. Organizational Units of My Investment Strategy

In my case, as an individual, I am the only organizational unit⁴, but I can distinguish different roles:

Roles and Responsibilities:

Portfolio Manager: Responsible for strategic allocation and overall performance
Analyst: Responsible for market analysis and stock selection
Trader: Responsible for transaction processing
Data Manager: Responsible for data quality and currency

Even though I fill all roles myself, the separation is important for clear responsibilities. In a larger context (e.g., an investment fund), these would be separate organizational units with their own teams.

External Partners (Ecosystem):

Broker: Executes transactions
Data Providers: Deliver market data and financial reports
Custodian Bank: Safeguards securities

4. Business Objects of My Investment Strategy

The central business objects⁵ of my investment strategy form my business vocabulary:

Core Business Objects:

Stock:

Attributes: ISIN, Name, Sector, Market Capitalization, P/E Ratio, Dividend Yield
States: On Watchlist, In Portfolio, Sold
Relationships: Belongs to Sector, Part of Portfolio

Portfolio:

Attributes: Total Value, YTD Return, Volatility, Sharpe Ratio
States: Building Phase, Optimization Phase, Maintenance Phase
Relationships: Contains Positions, Has Performance History

Position:

Attributes: Number of Shares, Entry Price, Current Value, Profit/Loss
States: Open, Closed
Relationships: Refers to Stock, Part of Portfolio

Transaction:

Attributes: Date, Type (Buy/Sell), Quantity, Price, Fees
States: Planned, Executed, Cancelled
Relationships: Affects Stock, Changes Position

Watchlist Score:

Attributes: Score Value (1-10), Category (Strong Buy, Buy, Growth Momentum, etc.)
States: Active, Archived
Relationships: Assigned to Stock, Based on Screening Criteria

Screening Criterion:

Attributes: Name, Type, Threshold, Weighting, Dimension (Value/Growth/Valuation/Momentum)
States: Active, Inactive, In Test Phase
Relationships: Applied to Stocks, Part of Watchlist Score

Rating:

Attributes: Total Points, Debt Score, Profitability Score, Valuation Score, Momentum Score
States: Qualified (≥10), Not Qualified (<10)
Relationships: Assigned to Stock, Influences Watchlist Score

Market Regime:

Attributes: Type (Bull/Bear/Volatile/Neutral), VIX Level, Trend Direction
States: Active, Historical
Relationships: Influences Risk Tolerance, Controls Position Sizes

Market Indicator:

Attributes: Name (RSI/MACD/VIX), Value, Date, Source, Threshold
States: Current, Historical
Relationships: Influences Market Regime, Controls Investment Decisions

Sector:

Attributes: Name, Median ROE, Median Revenue, Median Debt
States: Attractive, Neutral, Unattractive
Relationships: Contains Stocks, Has Benchmarks

Risk Parameters:

Attributes: Stop-Loss Level, Stop-Limit Level, Position Size, Profit Target
States: Active, Triggered, Reached
Relationships: Assigned to Position, Based on Market Regime

These business objects form my glossary¹¹ and create a clear understanding of central concepts. They are the foundation for my data modeling and IT systems.

The Relationships in My Example

How Capabilities, Processes, Organization, and Objects Work Together

Example: Purchase Decision for a New Stock with Score 10 (Strong Buy)

Driver (Motivation): Market volatility offers buying opportunities → Goal: Expand portfolio by 5%, beat MSCI World
Business Capabilities are activated:
- Fundamental Analysis (Company Value Rating)
- Growth Analysis (Company Growth)
- Valuation Analysis (Share Price Valuation)
- Earnings Momentum Analysis (Market Momentum)
- Market Context Analysis (current regime: Neutral)
- Sector-Relative Analysis
Business Process: Investment Decision Flow is executed
Phase 1: Screening (4 Strategic Dimensions)
- Company Value Rating: Stock XYZ receives 12 points (✓ ≥10)
  - Debt: 3 years payback period → 3 points
  - ROE: 18% → 4 points
  - Operating Margin: 15% → 3 points
  - Momentum: +25% YTD → 2 points
- Company Growth: 7% CAGR (✓ ≥5%)
- Share Price Valuation: P/E 22 (✓ 0 < 22 ≤ 50)
- Market Momentum: 80% success rate, 3% avg price increase (✓ ≥75%, ≥2%)
Phase 2: Watchlist Scoring
- All 4 criteria met → Score 10 (Strong Buy)
Phase 3: Market Context Integration
- Market Regime: Neutral → Standard risk tolerance
- RSI: 45 (neutral) → No overbought signal
- MACD: Positive crossover → Confirmation
- VIX: 18 (moderate) → Normal position size
Phase 4: Sector-Relative Analysis
- Sector: Technology
- ROE vs. Sector Median: 18% vs. 14% → Above average
- Debt vs. Sector: Below average → Positive
- Relative Performance: Top 25% of sector
Phase 5: Risk Assessment
- Portfolio value: €100,000
- Position size: 6% = €6,000
- Current price: €50/share → 120 shares
- Stop-Loss: €47.50 (-5%)
- Stop-Limit: €45 (-10%)
- Profit targets: €55 (+10% breakeven), €60 (+20% main target)
Phase 6: Purchase Decision
- Final check: All criteria met
- Decision: Buy 120 shares at €50
Business Objects are used and modified:
- Stock XYZ is analyzed:
  - Rating: 12 points (read)
  - Growth: 7% CAGR (read)
  - P/E: 22 (read)
  - Sector: Technology (read)
- Watchlist Score: Score 10 assigned (created)
- Screening Criteria: 4 dimensions applied (read)
- Market Regime: Neutral identified (read)
- Market Indicators: RSI, MACD, VIX considered (read)
- Sector: Technology benchmarks compared (read)
- Risk Parameters: Stop-loss, profit targets calculated (created)
- Position: 120 shares XYZ at €50 created (created)
- Transaction: Purchase of 120 shares at €50 recorded (created)
- Portfolio:
  - Total value: €100,000 → €100,000 (unchanged, reallocation)
  - Number of positions: +1
  - Technology sector allocation: +6%
Organizational Unit: I in different roles
- Analyst: Performs screening and analysis
- Risk Manager: Calculates risk parameters
- Portfolio Manager: Makes final purchase decision
- Trader: Places order with broker
Outcome:
- Portfolio expanded with high-quality position (Score 10)
- Diversification improved (new position in technology sector)
- Return expectation increased (all 4 strategic dimensions met)
- Risk controlled (stop-loss and position size defined)
- Monitoring activated (automatic tracking of stop-loss and profit targets)

Continuous Monitoring: After purchase, the position is continuously monitored:

Daily check: Stop-loss trigger (€47.50)
Weekly check: Profit targets (€55, €60)
Monthly check: Rating update, growth trends, sector performance
Quarterly: Earnings analysis, portfolio rebalancing

This detailed example shows how all four concepts work together to move from motivation (Why: financial independence) through strategy (What: 4 dimensions) to structured implementation (How: Investment Decision Flow). Data-driven decision-making replaces emotional reactions with systematic analysis.

Practical Application: From Theory to Practice

Step 1: Identify Business Capabilities

Start by creating a Capability Map¹⁰:

What capabilities does your company need to achieve its goals?
How mature are these capabilities today?
Which capabilities are critical for competitiveness?

Step 2: Model Business Processes

Document the most important end-to-end processes²:

Which processes realize which capabilities?
Where are inefficiencies or breaks?
Which processes have the greatest impact on customer satisfaction?

Step 3: Clarify Organizational Responsibility

Assign responsibilities⁴:

Which organizational unit is responsible for which capability?
Who is the process owner?
Where are there overlaps or gaps?

Step 4: Define Business Objects

Create a glossary¹¹ of central business objects:

Which entities are central to your business?
How are they defined and what attributes do they have?
What relationships exist between them?

Step 5: Visualize Relationships

Use architecture models¹⁶ to make connections visible:

Which processes use which capabilities?
Which organizational units are involved in which processes?
Which business objects are processed in which processes?

Benefits for Digital Transformation

Understanding these four concepts and their relationships is essential for successful digital transformations⁸:

1. Strategic Alignment

Investment decisions are based on capabilities, not projects
Prioritization occurs based on value contribution to overall strategy
Roadmaps show the development of capabilities over time

2. Process Optimization

Digitization focuses on the most valuable processes
Automation is deployed where the greatest benefit arises
Measurability through clear process KPIs

3. Organizational Development

Roles and responsibilities are clearly defined
Governance structures support capability development
Change management addresses affected organizational units in a targeted manner

4. Data Management

Data models are based on business objects
Data governance is linked to object responsibility
Data quality is ensured through clear object definitions

Conclusion: The Power of Integrated Thinking

The four core concepts of Business Architecture - Business Capabilities, Business Processes, Organizational Units, and Business Objects - are not isolated elements but form an integrated system. Their interplay, connected with the organization's motivation, enables:

Reducing complexity through structured thinking
Creating transparency about dependencies and interactions
Making informed decisions based on a holistic picture
Successfully implementing transformations through clear responsibilities

As my Stock Manager example shows, these concepts are relevant not only for large enterprises but for any structured activity - from personal investment portfolios to enterprise-wide digital transformation.

The investment in a solid understanding of these concepts pays off long-term through better decisions, more efficient processes, and sustainable business results.

Business Architecture Integration