Tag Archives: strategy

Business Architecture & Design Thinking

I often take on the role of Business Architect for my clients to design for them front-to-back enterprises that embody future state visions, innovation, and sustainable competitive advantage. Business architecting is a blend of science and art with the role of the Business Architect requiring the integration of multiple perspectives and multiple disciplines to create a tight package for the client. Some call this “Design Thinking”.

Tim Brown, CEO of IDEO, and Roger Martin, Dean at the Rotman School of Management, currently evangelize the application of Design Thinking in the context of entire businesses, going well beyond traditional product development role of designers. Brown and Martin have both developed powerful frameworks that drive mindset change for interdisciplinary teams as those teams develop creative solutions to business and social problems. Brown and Martin have authored books on Design Thinking (among them, “Change By Design” by Brown and “The Design of Business” by Martin) which I highly recommend.

Multi-Layer Business Architecture

Here is a Multi-layer Business Architecture framework that I have used successfully on consulting engagements with numerous senior executives over the years. Layers and “plumbing” comprise the architecture model, which provides an executive a means to envision the transformed business. The framework also gives interdisciplinary, cross-functional teams a hard deliverable to create as they formulate the right, insightful problem statement and develop innovative solutions to tackle the complexities of transformation.

By design, the framework sets up detailed planning, management of business impact, mitigation of risks, establishment of implementation teams, integrated execution, and comprehensive transformation management. Business architecting applies Design Thinking to an entire enterprise. The Multi-layer Business Architecture helps business design teams organize work, provides structured play areas for creativity, and serves as an integrated rendering of a senior executive team’s vision.

Substructures of the Architecture Serve to Both Inform and to Define the Outputs of the Business Architecture Process

The Layers and Example Substructures

  • Macro-economic environment
    • Trends and forecasts
    • Growth or decline
    • Globalization
    • Deep and prolonged recession
    • Slow recovery to the new normal
  • Context of the industry or industries
    • Industry constructs and constraints
    • Eco-systems and sub-systems
    • Influencer maps
    • Porter’s 5 forces
    • Disruptive innovations and chasms
  • Business strategy
    • Chosen markets
    • Unique, attractive, and defensible value propositions
    • Portfolio of companies and products
    • Growth scenarios
    • Long term vision and short term objectives
  • Financial model
    • Revenue generation processes
    • Internal strategic costs
    • Capital structure
  • Interactions with the Enterprise
    • Interaction design
    • Empathy and insight
    • Customers’ experiences with the enterprise’s products and services
    • Ease of doing business with the enterprise: channel partners, suppliers, service providers, financial capital providers
  • Organization and process
    • Organizing principles
    • Facilitation of strategy execution
    • Core processes along the value chain
    • Inter-organization coordination
    • Support processes
    • Key performance measures
  • Information technology
    • Information strategy
    • Technology and systems architecture
    • Competencies
    • Right-sourcing
  • Business integration
    • Frameworks
    • Connections
    • Dependencies
    • Communities
    • Performance measures and performance management

The  Plumbing and Example Substructures

  • Leadership
    • Decision process
    • Leadership style
    • Management changes
  • People
    • Human capital strategy
    • Staffing levels
    • Skills and development
    • Organization knowledge and learning
    • Rewarded behaviors and cultural alignment

Change Spectrum

Change is not an absolute. Degrees of change reside along a spectrum ranging from incremental change to larger scale, strategic change to up-heaving, fundamental change. As a Business Architect, I map the change occurring or required along each layer of the Multi-layer Business Architecture. The end goal is to aid an executive to achieve or sustain competitive advantage and other measures of business improvement for the executive’s firm. The leadership of a firm might choose to lead change in certain layers, follow a leader in others, and do nothing for the rest. Senior executives pick their spots. Map it out. Select a change strategy. Manage it. Beat the competition.

Reverse Architecting and Forward Implementation

For implementation, an executive team cannot simply jump in and start transforming an enterprise into the vision captured by a Business Architecture. The team must know enough about the current state to know where to begin the transformation. Here, a process of Reverse Architecting lays out the current state of an enterprise in the same framework as the future-state vision. With this construct, leadership and implementation teams have detailed blueprints and plans for transformation. Consider the remodeling of a kitchen. It is best to know where the plumbing and wiring are behind the walls before beginning to tear down, re-plumb, re-wire, and re-build.

Become a Draftsman

Consider adopting the role of Business Architect when your enterprise is challenged with the need to transform. Use the mindset, techniques, and tools of design thinking to create a vision for the transformed business. Develop a Multi-layer Business Architecture to provide detailed blueprints and plans to implement the vision. Do not neglect the Reverse Architecture to know what you are changing, where to start, and how to direct implementation teams.

A Strategic Change Diagnostic: Critical Success Factors of Transformation

fall-berlin-wallSuccessful business transformations are few and far between. A business transformation is a major shift in a firm’s strategy and the subsequent execution of that strategy. Transformations necessarily involve an entire organization and can include extensive work in strategy formulation, mergers & acquisitions, core business process redesign, organizational change management, performance metrics development, and management information systems alignment.

Symptoms of corporations in need of transformation initiatives include:

  • Obsolete business models
  • Stalled growth
  • Eroding marketshare
  • Ineffective innovation engine
  • Uncompetitive cost of goods and costs to serve
  • Organization misaligned for profitable growth
  • Excessive, ineffective high cost processes
  • Unmanaged customer defections
  • Threats to industry structures and norms
  • Underperformance to financial stakeholder expectations
  • And others.

Success of a business transformation is measured by the degree of relief to the original symptoms and improvement in a firm’s business performance. That performance can be measured by top-line growth, market share gains, improved long-term customer relations, sustainable cost reductions, bottom-line increases, speed of transformation, minimized business disruption, and other tangible factors.

But what are those things that must be in place and happen well in order to achieve a successful business transformation? I see twelve critical success factors (CSFs). All CSFs are equally important so there is no priority associated with the order in which they are listed. These CSFS are:

  • Business urgency
  • Clear value add to shareholders
  • Unswerving focus on business case and value metrics
  • Shared vision of the transformed state including new cultural norms
  • Visible top executive leadership
  • Management alignment
  • Multifaceted, integrated approach
  • Disciplined governance and program management
  • External and internal stakeholder involvement
  • Sustained organizational momentum
  • Relentless embrace of change
  • Continuous learning and tolerance of minor missteps

The Diagnostic

Applying these critical success factors, a diagnostic can be used to assess which CSFs are in place and which ones need shoring up. A series of management interviews and organizational surveys can be used to gain the internal perspective. External perspectives can be obtained through interviews of customers, supply chain partners, channel partners, strategic allies, and service providers including outsourcers.  However, the risk of “opening the kimono” must be weighed against the benefits of capturing the outside viewpoint.

Slide1Responses can be summarized using “Harvey balls” for a quick visual report on where a firm is doing well and where the firm needs improvement in its transformation efforts. In the example above, one sees a business with a high degree of urgency for transformation yet clear gaps exist in other critical success factors such as management alignment and stakeholder involvement. This diagnostic provides leadership of a transforming firm guidance on execution and management of a significant undertaking.

Key Questions of the Diagnostic to Probe Each Critical Success Factor

Business Urgency

There must be a compelling reason to undertake a transformation. What are the competitive pressures? What are the pressures laid on by investors? What are the internal cost pressures? Is there a strong sense that major change should have happened “yesterday”? Is the sense of urgency ubiquitous throughout the organization or minimally, throughout the management ranks?

Clear Value Add to Shareholders

Will shareholders realize gains as a result of the transformation? What are the tangible targets? Which ones are quantifiable in both financial and non-financial terms? Do the board of directors and influential investors agree with the objectives of the transformation efforts?

Unswerving Focus on Business Case and Value Milestones

Has a comprehensive business case been developed? Does the business case incorporate competitive, customer, strategic, operational, financial, organizational, and intangible benefits? Is the business case sufficiently quantified with linkages to the top-line, costs, and bottom line impacts? What mechanisms have been implemented to ensure focus on the business benefits? Have transformation metrics been articulated so that the organization understands why transformation is necessary? Is there a process for benefits tracking, communications, and management?

Shared Vision of the Transformed Business

How will you know it when you see it? How will others know it when they see it? Has the vision been clearly articulated? Does the vision include both external and internal elements? How will the culture of the organization change if at all? What specifically will be different in competitive actions, business model, business processes, and how the firm is managed? Who does not share the vision?

Visible Top Executive Leadership

Do all members of the firm’s top executive leadership team publicly champion and support the transformation objectives and intent? How visible is the level of support? Do major decisions and actions of each executive reflect and support the transformation goals? Does the organization believe that executive support is genuine and goes deeper than simple lip service?

Management Alignment

Do all levels of management from senior executives to the front-line supervisors agree with the need for transformative change? Where are the sources of dissent? Why does the dissent exist? What remedial actions are necessary to ensure 100% alignment?

Multifaceted, Integrated Approach

Are there direct and explicit linkages between the new strategy of the firm, operational changes, new expected behaviors of individuals, new organization structures, and new supporting technologies? Are there any gaps in the transformation teams? Which initiatives have the most risk of diverging from the objectives of the transformation? Does the portfolio of transformation and change initiatives capture all the possible synergies across the initiatives?  Is there a holistic perspective? Is the timing of all milestones synchronized to maximize benefits? Do the initiatives incorporate both macro and micro orientations?

Disciplined Governance and Program Management

Who is running the transformation and ensuring integration of all the efforts? How strong is the executive sponsorship and how committed is management? Do actions reflect words and intent? Is there a transformation infrastructure that ensures rapid, fact-based decision-making? How empowered are transformation initiatives teams to make tactical decisions so they are not waiting for weeks on end for executive level sponsors to meet? Is there a program management function and structure in place to manage the tactical integration, coordination, prioritization, and synchronization of all transformation initiatives? Who looks across the portfolio of initiatives to ensure the optimal use of resources? Is there a clearly developed transformation roadmap that shows critical workstreams and milestones? Is there a mechanism for tactical communications? If there is a program management office, is it clearly understood what its role is (decision making versus administration)?

External and Internal Stakeholder Involvement

Externally, what has been the involvement of customers, supply chain partners, distribution partners, and strategic allies? Has their input been sought? Do these external stakeholders support the changes you are making during the transformation? What is the pay-off to them? Internally, are you undertaking the transformation with horizontal, cross-functional teams?  Vertically, are you involving people from the front-line as well as management? Are there people or pockets of people who potentially feel left out of developing new business models, processes, and direction? How are you ensuring high degrees of buy-in from those who will execute the transformation and be accountable for operating the business in its transformed state?

Sustained Organizational Momentum

Is the organization capable of sustaining change during the course of the transformation which will last anywhere from two to five years? What interventions, such as communications, are in place to capture and keep the hearts and minds of the general population? What are the barriers to sustaining the organization’s momentum and what are the specific actions required to remove or overcome the barriers?

Relentless Embrace of Change

Does your firm embrace change? How flexible are your teams and other working groups? Are individuals adaptable to change and capable of working differently? Are people open to trying new things with uncertainty? Do managers promote and support change? How much endurance does your organization have? Are there naysayers who are infecting the organization with resistance? If so, what is leadership prepared to do with them?

Continuous Learning and Tolerance of Minor Missteps

By its nature, businesses that transform are delving into terra incognita with many unknowns and risks. Does your organization’s environment reward discovery and learning? With every transformation decision and subsequent actions, does a process exist for review and correction? Are “mistakes” viewed as learning opportunities without going overboard to a zero-consequence environment? Is management tolerant of missteps and can managers supervise groups that include individual risk takers?

Closing Questions: How is Your Firm Performing in Its Transformation?

Is your firm undergoing transformation on a grand scale? If so, how would you assess the effort against the critical factors for successful transformation? Is there true business urgency to warrant the investment in time and money required for the necessary changes? Which CSFs are the strongest on which to build a foundation for change? Which CSFs have been neglected and now require remediation? Over time, is the situation getting better or getting worse?

An Improvement Story: When “RIF” Does Not Mean “Reduction in Force”

DuPont NylonOur small, twin-engine turbo-prop had flown over Lookout Mountain just prior to descending into the Tennessee River Valley. As we landed at Chattanooga Municipal Airport, it rained a summer rain which tries but fails to provide relief to the heat and humidity of the Deep South. I collected my luggage, descended the 20 steps onto the tarmac, and thought about this new assignment.

In the early 1990s, we were asked by Ed Woolard, then CEO of DuPont de Nemours, to undertake a massive improvement program aimed at transforming the 190-year old chemical giant into a progressive, modern enterprise as measured by (1) nimbleness in the competitive marketplace, (2) responsiveness to customer needs, (3) agility in manufacturing operations, (4) advancement of its people, (5) profitable, global growth, and (6) attractive financial returns to shareholders.

The business unit of this assignment was the DuPont Nylon division. A DuPont scientist had invented nylon in 1935. Initial products such as nylon-bristled toothbrushes and nylon stockings drove the first wave of growth for the business. The Second World War drove the next wave with high demand for nylon to be used in vehicle tires, flak jackets, and parachutes. The third wave of growth emerged post-WWII with the booming U.S. population and domestic economy.

This third wave of growth spurred DuPont executives to decide to build a chemical plant in Chattanooga and begin nylon manufacturing operations in July of 1948. Exactly 44 years later, our team stepped onto the 500-acre site to launch the transformation of the facility. The still air sweltered and the smell of burnt plastic stung our nostrils.

The reception was mixed. Some people truly welcomed outside help, others accepted us as it was the politically correct thing to do, and a fairly large contingent viewed us as doing “the devil’s work”. Those that truly welcomed outside help formed the nucleus of what was to become an ever-growing portion of the workforce focused on making improvements around the plant.

As we uncovered opportunities for improvement, we discovered there was an enormous amount of pent up demand among the employees for positively changing the business. The employees, however, needed ways to channel their energy to make change happen. They lacked the necessary tools to start initiatives and then, see their ideas through implementation. Our main thrust in the early stages of the transformation was to provide the tools and the training required to ultimately realize results.

At the time, improvement tools included team building, problem solving, statistical analyses, root-cause diagrams, work elimination, and many other traditional methods. But we were surprised to learn not all employees had one critical and fundamental tool. And that fundamental tool was the ability to read and write!

Approximately 10% of the 2,000 employees were functionally illiterate. Each person functioned in his job, understood his responsibilities, and knew how to operate his machine as this knowledge was passed to him on the job “by the last guy”. Even more startling was that nearly 30% of those who volunteered to participate early in the transformation program fell into the functionally illiterate group. This would not work for the transformation.

We quickly teamed with plant management to launch an adult literacy program to improve the reading and writing skills of those employees in need. This served not only as a critical step towards engaging employees in the transformation effort, but also as an opportunity to fill a gap in people’s life skills. The benefits included increasing management’s ability to engage a higher portion of the workforce in the transformation program, an enhanced stature for DuPont in the community, and the new readers were enabled to further grow and develop individually.

As a result of the transformation efforts, the Chattanooga facility realized significant improvements. Machine uptime increased total effective capacity as a result of improved preventive maintenance, accelerated product changeovers, and synchronized material moves. Fixed costs decreased from interventions targeted at eliminating unnecessary spending. Manufacturing material costs stepped down through reductions in scrap, rework, and other sources of waste. Cash flow from operations increased enough to mostly self-fund a $250 million plant renovation project completed in 1997.

RIF does not mean “reduction in force”. RIF means “reading is fundamental”.

Are you experiencing pent up demand and energy among your employees to make improvements to your business? Are you leading major change in your enterprise today as Ed Woolard was at DuPont in the 1990s?

Do your people have the fundamental and necessary improvement tools given the global nature and complexity of the today’s business environment? What modern improvement methods are you implementing which give your organization a sustainable competitive advantage? What are your competitors implementing?

The 6th Dimension of Competitive Advantage

high jump photoThe previous blog entry is incomplete.

There is a sixth dimension for ever-increasing competitive advantage. This sixth dimension is a firm’s capabilities to improve. Along this dimension, there is an infinite supply of possibilities, thus firms do not compete in a state of scarcity. However, a firm must provide the environment and the tools conducive to sustainable improvement.

A firm’s culture (accepted behavioral norms) must support all employees in their pursuit of the implementation of improvement ideas. And improvement methods must be ingrained in daily habits at all levels of the firm from the frontline to the executive suite. All employees should be “on alert” to continually seek out, find, and implement improvements with positive financial benefits. A firm has the accountability to establish channels for the thousands of improvement ideas to be vetted, integrated, and executed with a high degree of coordination.

The truly advantaged firm develops or adopts innovative ways to improve at least one step ahead of its competitors. The concept of first to market applies here. The first among industry competitors to successfully implement an effective improvement method will gain significant advantage. The first to find the holy grail, a truly sustainable improvement method, will achieve long term sustainable advantage.

So, 6 dimensions exist for ever improving competitive advantage not just 5. The sixth being the capability to improve in advance of all others.

Ever-Improving Competitive Advantage: Hitting the 5 Dimensions

Mario Andretti Watkins Glen 1974A firm exists in competitive environments along several key dimensions. Each dimension (or metaphorically, a competitive marketplace) has its own set of competitors acting in their own self-interests. In each dimension, the players compete for scarce resources (customers, marketshare, industry profit share, people, investments, etc.). A firm improves by increasing its competitive advantage along each dimension. These 5 key dimensions are:

  1. Customers
  2. Financial capital
  3. Talent
  4. Extended value chain or value network
  5. Community

A modern approach to improvement:

  • Covers all dimensions simultaneously.
  • Is integrated, holistic, sustainable, high impact, and a whole slurry of other buzzwords
  • Allows improvement ideas from everyone within a firm to fit somewhere, which draws in full participation (“Full Force Improvement”)
  • Has a goal to enable a firm to constantly ever increase its competitive advantage (as in any Olympic athlete who continually strives for better performance)

To gain ever-increasing advantages, a firm must be, or must be perceived to be, more attractive than the competition.

  • Customers
    • This is what people usually think of when they hear competitive market.
    • A firm competes with other firms in the same industries.
    • More attractive offerings (products, services, innovation)
    • More attractive value proposition (benefits versus cost)
    • More attractive long term relationship
  • Financial capital
    • Here the firm competes for limited investment dollars from investors and creditors
    • Competitors include those seeking any number of investment alternatives for investors: stocks, bonds, commercial paper, cash, etc.
    • Gain advantage by providing more attractive financial returns than alternative investment vehicles available
    • Being more attractive in the stock market drives up stock price
    • Being more attractive in the credit market increases access to capital and lowers the cost of capital
  • Talent
    • The competitors are other employers that require the same skills, experience, and knowledge that a firm requires.
    • The other employers can be from similar, adjacent, or different industries.
    • Competitive advantage includes providing a more attractive work environment, richer total compensation (salary, benefits, wealth creation), and other elements that make a firm a “great place to work”
    • For example, firms like NetApp (Fortune’s 2009 “Best Place to Work”) have an advantage in attracting the best talent.
  • Extended value chain or value network
    • The extended value network includes business partners on both the supply side and the demand side: suppliers, service providers, channel partners, and so on.
    • Good partners are in short supply and a firm gains advantage by being a more attractive partner than other players in the market.
    • Example, Dell is one of the leading channel partners for hard disk drives. Drive manufacturers constantly compete to have their drives picked for the next PC that Dell assembles.
  • Community
    • A firm can gain competitive advantage over others by demonstrating stellar corporate social responsibility.
    • Communities desire firms with a strong sense of CSR.
    • Firms can realize significant tax benefits from state and local governments.
    • CSR also impacts other dimensions such as talent (the feel good factor).

An effective and sustainable improvement approach must be directed towards continually gaining competitive advantage along the 5 key dimensions. A firm can never rest nor ignore others in its ecosystem. The firm must marshall its employees and those in its extended value network to execute strategies for Full Force Improvement.

Knowledge Age Economics

Knowledge Economics

What are the new laws of economics in the knowledge age?  In the manufacturing age, the quantity of goods or services demanded and subsequently supplied determine the price of goods or services.  The laws of supply and demand dictate at what price and quantity the economy operates most efficiently – the point of equilibrium.

Manufacturing Age Economics – Physical Assets

Slide1

In the information age, the laws of supply and demand still apply.  In a true knowledge economy, knowledge and information are demanded and supplied. The economic system finds equilibrium. However, there exists a fundamental difference between economies based on physical assets and those based on knowledge assets.

Knowledge Age Economics – Knowledge Assets

Slide2

The shape of the knowledge demand curve follows the same path as the manufacturing demand curve. The more one piece of information is demanded, the more value the market will place on that knowledge asset (directly proportional).

The shape of the knowledge supply curve, on the other hand, does not follow the same principles as the manufacturing supply curve.  For a manufacturing supply curve, the price of a physical asset decreases as its supply increases (inversely proportional).  For a knowledge supply curve, the price, or value, of a knowledge asset increases as its supply increases (directly proportional).

The knowledge supply function in this economic model is based on three principles.

  1. The more information on a subject that exists, the more it is valued.
  2. Knowledge follows a law of conservation. As knowledge is consumed, it does not disappear as a physical asset does. Rather, knowledge has infinite duration. (Side note: In physics, this law is known as the conservation of information. There also exists the information paradox which some physicists have argued exists at the singularity of a black hole. As matter collapses in a field of infinite gravity, does the information stored in atoms disappear?)
  3. As knowledge is utilized, more knowledge is generated.  Two pieces of knowledge come together to form new knowledge. The production of knowledge is an infinite, self-perpetuating process.

Equilibrium in the knowledge economy is achieved when the supply curve perfectly overlays the demand curve. As a result, an infinite number of equilibrium points occur.

What are the shapes of the supply and demand curves for the output of your industry?  What are the shapes of the supply and demand curves for the output of your business? Do you or your organization develop and distribute knowledge that follows the knowledge supply curve? Have you fully leveraged the new paradigm of supply in the knowledge age?

The 5 I’s of Change

Much has been written about major change and transformation efforts in organizations. But what roles within organizations are actually critical to successfully achieve transformational goals?  The simplistic answer is “change agents”.

But in order to provide a more tangible definition of change agents, here is a taxonomy for the various types of knowledge workers that can be applied when considering the formation of transformation teams.  This taxonomy goes beyond examples of profession and vague, global descriptions of knowledge activities.  The classification of knowledge worker types takes a process view – what knowledge workers do.  Five classifications of knowledge worker comprise the taxonomy: (1) initiators, (2) innovators, (3) integrators, (4) implementers, and (5) instigators.

5 I's PictureAll five roles must be filled by an organization undergoing major transformation and change. A balance must be struck dependent on which stage in a transformation lifecycle the organization moves. Importance must be placed on the “personality profile” of a transformation effort and all its contributors.

Initiators create knowledge through “original thinking” and trigger step-change breakthroughs in new paradigms and new business models for the transformed business.

Innovators modify, refine, and build upon ideas to generate new knowledge that go beyond the initiator’s work.

Integrators aggregate, consolidate, synthesize, and broker existing knowledge to develop holistic, systems views.  These holistic views provide new perspectives and insights.

Implementers apply, utilize, and execute the “know how” within an intrinsic knowledge base.  Implementers unleash the tangible, extrinsic value inherent in knowledge – value that is unreleased until applications are realized.

Instigators challenge ideas, old and new, throughout the knowledge process.  They drive out-of-the-box thinking as well as ground new ideas, innovation, integration, and implementation in the harsh realities of feasibility and viable economic returns.  Instigators say “Yea” and say “Nay.”

So what?  Determine the team personality required for each stage of the business transformation lifecycle.  “Profile” potential members based on individual personalities as demonstrated by past behaviors.  Develop and manage a fine balance of personalities through the change process.  Introduce new members/personalities as required.  Visibly recognize and reward specific team members for playing varying roles.