How Good is Your Business Architecture?
By: Scott Whitmire
One of the roles a business architect can fill once they tire of the IT rat race is to assess businesses for overall architecture soundness. Assessment tools are a key part of a troubleshooter’s toolbox and help create the diagnoses that lead to new strategies. The connection between a diagnosis and strategy borrows from Richard Rumelt’s excellent book Good Strategy/Bad Strategy: The Difference and why it Matters. A good diagnosis of what is and isn’t working is the very foundation of good strategy, and along with execution, makes or breaks a company in the long run. Business architects are uniquely placed in the business and are equipped with the right tools and models to excel at troubleshooting and diagnostics.
The following key areas collectively give a pretty good idea about the soundness of the overall business architecture:
Competitive landscape – whether they have identified their quadrant and operate accordingly.
The clarity of the business model.
How the business sets strategic direction.
The ability to execute and the strength of the connection between strategic intent and execution.
The infrastructure architecture (both business and technical) and its ability to support both strategy and execution.
The focus of the capital budgeting process.
The attitudes of the people, almost a feel for the culture.
The operating model – the type and whether they recognize it and operate from it.
The extent to which the business understands and uses capability and process models.
We will take a brief look at each of these. Each topic has been the subject of extensive research in business schools, and some have been the buzzword of the year. Separately, they are important to understand. Together, they are powerful.
The September, 2012, issue of The Harvard Business Review included an article titled “Your Strategy Needs a Strategy” by Martin Reeves, Claire Love, and Philipp Tillmanns. The article describes four competitive landscape “quadrants” based on the degree of predictability in the market and how much influence the company has over that market. Barriers to entry for new competitors and long product development lead times were taken as surrogates for predictability on the idea that if it requires a lot to enter the market or develop a new product, a business can see potential competitors coming while they still have time to react.
Has the company identified its quadrant and does it know whether it is in the midst of an integrating or disintegrating cycle in their part of the value chain? Are there potential disruptors on the horizon or do conditions seem to favor disruption? If the company is a disruptor, do they recognize it and are they structured accordingly? (Here, “structure” includes their entire business model, not just the organizational structure).
The Clarity of the Business Model
How clear is the business model? Do they know who their primary customers are? Can everyone clearly describe the value proposition the company offers to those customers? Are the activities, resources, and partners aligned to actually deliver the value proposition? If the business model is not clearly spelled out, the business has no guidance. People don’t know who the important customers are, and they don’t understand what those customers value. In these circumstances, different departments will focus inward, locally optimizing their small piece of the puzzle, to the detriment of the company as a whole.
Closely related is how clearly people understand what is and isn’t important for this specific company from a competitive standpoint. All of the players in a given industry have pretty much the same set of processes dictated by the industry. For any given business, it is important to understand which capabilities and processes are important to distinguish it from its competitors. This understanding needs to permeate the entire organization as these key processes constrain the universe of possible strategies and guide execution.
How They Set Strategic Direction
Is the process used to set strategic direction coherent or does it seem haphazard? If a company isn’t able to clearly spell out its strategy, how can it hope that employees execute it successfully? Lately, I’ve found that few executives seem to know where they want to take the company, let alone how they plan to get there. Without a clear direction, those responsible for execution will continue down their current path, and those responsible for investing in change will follow random roadmaps. After all, if you don’t know where you’re going, any map will do.
The Ability to Execute
Execution describes the basic operations of a company. The ability to execute, that is, to turn strategy into action, says a lot about the long term viability of a company. Highly effective CEOs such as Larry Bossidy and Jack Welch focus on execution with extraordinary intensity. The ability of an organization to develop an operating plan, including a budget, and then manage to it, is a key indicator of the organization’s ability to execute. Of course, things change, and the organization’s ability to deal with those changes and work them into the plan are even more indicative of their ability to execute.
How well do execution/operations align with the stated direction of the company? Failure to execute is actually the leading cause of the failure of a strategy. There a lots of ways to fail at execution, from ignoring the strategy (far more common than you would think), to just not being very good at getting things done. In between are causes such as not having the necessary capabilities or scale, and not being able to acquire the necessary people or financial resources. On the other hand, a company that can formulate a strategy and then execute on it is as formidable as it is rare.
When execution is aligned with strategy, the strategy starts to show in the detailed operating plans and the investment portfolios of the various business units. It also shows in the individual performance plans and how they align with the strategy as people tend to work on those things that reward them. Are the business units investing in the necessary changes to implement the strategy? Are key leaders at all levels being held accountable for the achievement of the strategy? The clarity and directness of these links is another key indicator of the organization’s ability to execute.
In this context, execution does not mean operating the current model to maintain the status quo. It is a rare company that can thrive for long periods of time without having to make changes somewhere. Most often, such companies tend to just disappear. That said, most companies are pretty good at keeping the status quo going, but that’s never been good enough.
The Infrastructure Architecture and Its Ability to Support Both Strategy and Execution
The infrastructure of a company consists of all of the “backend” business processes and capabilities that enable the core business, and the technology on which everything runs. IT isn’t the only part of the infrastructure that matters. In fact, more growth strategies have been derailed by HR or supply chain functions that couldn’t scale to meet the new demands than by IT architectures. When a company is gearing for rapid growth, they usually include some investments in technology, but usually forget the business processes that supply resources, namely HR, the supply chain, and the sources of available financing.
How flexible is the infrastructure and the functionality that runs on it? It is an unfortunate fact that a bad business or technical infrastructure architecture can negatively affect a company’s prospects. This usually manifests itself as an inability to execute. If the architecture is flexible to allow the business to operate within its industry without a lot of modification, including the ability to scale up and down as needed, the company is in pretty good shape. When a company is in good shape, it is usually not because the architecture is flexible. Rather, the company had the foresight and ability to make it that way, and the willingness to invest, with the result of having its act together in other areas.
The Focus of the Capital Budgeting
Does the process focus on all business change or is it aligned functionally or organizationally? What drives priorities? Who drives priorities? Is the goal primarily to set out strategic and operational priorities or to fund project teams? Does the funding plan cover only IT work or does it also include investments in other areas of the business? A comprehensive investment plan makes more clear the big picture of where the company plans to spend its money. An IT-only plan tells you what business unit leaders want IT to do for them.
The Attitudes of the People, Almost a Feel of the Culture
Most often, this is a feel of the degree of dysfunction in the culture – the real active culture, not the one they say they have or want. You can get a pretty good feel for the actual culture by watching and listening to people, especially the senior people who don’t manage others. Are they largely positive or cynical? Dysfunction breeds cynicism and discontent.
Dysfunction is caused by a variety of actions on the part of management and employees. Hidden, inconsistent goals, lack of transparency, and the tendency to be too cute with employee motivation efforts all lead to dysfunction. Inconsistency can lead to a lack of credibility on the part of management and can kill a culture.
On the other hand, management that is open, honest, and consistent will get the trust and loyalty of the team, and that leads to high performing teams. I have found, through personal experience, that loyalty results from these qualities even if team members disagree with the direction being taken.
The type of operating model, as described by Ross, Weill, and Robertson in Enterprise Architecture as Strategy, defines one of the more important high-level patterns that have a significant influence on the structure of the company, the way it operates, and the architecture of the IT services and infrastructure. Which operating model type fits the organization’s business? Do they recognize it and actually operate from it? Mismatches between the patterns found in the problem being solved and the basic patterns in the solution are the primary cause of large scale failures of both systems and businesses. These mismatches are hard to fix once they are in place.
The operating model itself is far more than its pattern, however. The full operating model consists of business services, the business processes that deliver them, and the business capabilities that enable those processes. Strategic investment is all about investing in the changes to the operating model in order to execute the strategic vision. If you don’t change your operating model, you cannot do anything different.
Business Capability and Process Models
Having business capability and process models isn’t as important as what you do with them. What matters is that the company understands its capabilities and processes well enough to know where to invest money to execute required changes in the most effective and efficient way. Strategy requires changing the business outcomes that result from executing an operating model. Changing the expectations for the business, expressed in terms of outcomes, requires changing the current operating model. To do that well, you have to understand the cause and effect relationships inherent in the model. Any given component of the model has some direct effect on one or more outcomes. Some components have a greater effect on a particular outcome than other components. Understanding your capability and process models allows you to focus your investments where they will have the most impact. This is what I mean by investing efficiently.
Taken together, these topics give a good idea of how the company deals with both regular operations and more importantly, adversity. Past performance is not an indicator of future performance, but their ability to keep it together in a crisis is a good predictor. The degree to which they understand their competitive landscape and their role in that landscape help determine how well they might deal with competition and new business opportunities.
In order to be truly useful in an assessment, we need to add methods and techniques for gathering data, analyzing the data, and making determinations about the results. Part of determining the results requires the development of measures for each of these dimensions, something like a maturity model, but slightly different. Development of these details are beyond the scope of any blog post, but may get mentioned from time to time.