Architecting Value

Beware of Watermelons

Microsoft is a company that heavily leverages scorecards for managing performance. Our CIO's scorecard has nearly 100 separate metrics that are used to evaluate his performance - indicated by green, yellow, or red.  Recently, he cautioned us about scorecard "watermelons," that is, items that appear green on the scorecard but are actually significantly underperforming and should be red. This happens when the scorecard fails to capture the right measure.

 

I recently had a "watermelon" experience that should be a standard risk to look out for on business architecture engagements, especially if you suspect that the organization is not strategically mature. I had an executive sponsor insist that we conduct an engagement for his organization as they were undergoing a major strategic shift. He made available some of his managers who committed nearly 20% of their time to helping us create the strategy deliverables.

 

This engagement appeared green on our scorecard since we had executive sponsorship, commitment from the client, and were making progress on the deliverables. The only problem was that the people we were working with didn't really know what the strategy was. The executives had kept the strategy close to the vest and the managers we were working with were taking their best guess.

 

This internal disconnect with the client wasn't discovered until the end of the engagement when the SOAP was presented for validation. The executives were expecting something that articulated their transformational strategy and instead something that showed incremental improvements. We were green when it came to the engagement but bright red when it came to the actual content .

 

It was a terrific lesson - I had allowed the fact that I had engagement from the client obscure the fact that I didn't have the right level of engagement. In retrospect, I should have structured more frequent and earlier reviews with the sponsor to ensure that we were going in the right direction. The deliverables that I'm prescribing are primarily listening devices - they should be used often to validate whether you are on the right track to avoid watermelons.

Using SOAPs to Gauge Strategic Maturity

Many people who work in IT organizations labor under the assumption that their business clients have a clear understanding of their strategy - it is simply waiting on a shelf for someone to ask for it. The reality, of course, is that maturity varies from truly visionary organizations to the constant fire drill teams. I've found that the development of the SOAP can be a good indicator of my clients' strategic maturity which is why the process is just as important as the end deliverable.

 

For an organization that is mature in it's strategic discipline, the SOAP is a painless exercise. They can articulate their vision and mission; they have clear understanding of their priorities and the outcomes they're driving and the actions they need to take to get there. This is - at most - a 2-3 hour workshop with a week to tweak over email and perhaps a follow-on meeting for validation.

 

Immature organizations struggle with SOAPs. They may question the value of the activity, since the organization's strategy should already be obvious to everyone who's involved. Their strategic priorities will read like motherhood and apple pie -  "Beat the competition," "Grow Revenue" and "Satisfy Customers."  I had a client once that even articulated that their strategic priority was to "Win Everywhere."

 

(A priority should be more specific and actionable. A simple test I use is to ask myself - if I were a general (or a VP), could I use the priority  to answer credibly what my strategy is? Example: "General, what is your strategy to win the battle?" "My strategy is to 'Win Everywhere.'")

 

A key indicator of low strategic maturity can be gleaned from how the SOAPs are constructed. If the construction is generally top-down, the maturity is tends to be higher than when the activity is bottom-up. Low maturity organizations will begin with a focus on the imperatives which amounts to documenting their current and near-term initiatives. They will then articulate priorities by categorizing the imperatives.

An organization with a strong understanding of its strategy, however, does not need to categorize imperatives to identify priorities. It can easily define the priorities and organize imperatives which fit the priority.

 

Knowing the strategic maturity of the organization won't directly benefit the organization - it's really helpful for you to know how to handle the organization throughout the engagement. The value of the work will be obvious to the strategically mature organization; you will spend much more time explaining the value to organizations that are less mature. Managing those expectations will be critical to your success. 

 

The Strategy on a Page

 The purpose of a business strategy is  to set direction and priorities of an organization. It is the job of the business architect to understand, interpret, and articulate the strategy so that it can be operationalized. I've mentioned earlier that I do not think it is the role of the business architect to develop the business strategy.

I've had strong success with business executives using a tool to concisely describe the elements of their strategy in a single page (depicted below). This strategy-on-a-page (SOAP) serves as a useful listening device for interpreting the strategy and communicating it to other stakeholders.  Since I introduced the format to Microsoft a year ago, it has gained broad adoption across business and IT for articulating the business strategy. 

The SOAP is tightly aligned to the elements of strategy that I described earlier. It begins with a statement of the organization's vision. This is usually an aspirational statement of ultimate end state for the organization. I've also used it to describe 3-5  year  visions, especially when the organization is about to engage in a major transformation.

 

The second component is a statement of the organization's mission. This is a description of what the organization does. Most organizations have one handy so it's fairly easy to cut-and-paste into the SOAP. One of the purposes of this deliverable is to help determine if there are alignment issues within the strategy. The description of the mission should align with the vision - if it doesn't that is a good opportunity to  have a discussion around that disconnect.

 

Priorities represent the 4-6 major things that the organization will focus on to achieve it's vision over the next 36-60 months. I explain to my clients that these are their strategy's "big rocks." I've heard these also referred to as "themes" or "pillars." Whatever you call it,  try to make them as specific as possible -  many businesses, especially those that are run bottom up, will use priorities as classification buckets for the imperatives underneath - this causes them to use simple words to describe the priorities rather than full statements.

 

Imperatives are the key set of actions that the organization will undertake in order to realize it's 3-year vision. These should be operational rather than aspirational. Generally, these things are well-understood but be sure to confirm that they are not short-term 12 month actions.

 

Outcomes and measures are a description of the desired outcomes and how they are measured. Although it is nice to be able to tie them to each priority, in some cases, the outcomes will cross multiple priorities. It should be noted that you are documenting specific business outcomes, not actions, i.e. the outcome might be described as the number of new customers acquired as opposed to the deployment of a particular system (which enables the customer acquisition).

 

I've had good traction with the SOAPs since I introduced them to Microsoft IT. This format is used by all MSIT business architects to describe their business strategies. Tony Scott, our CIO, has declared in meetings with our business clients that he "loves SOAPs" as they provide him with an easy way to talk about business strategy with his stakeholders. We've found that a number of our business clients are using the SOAPs as an easy tool to talk about their business strategy. On the IT side, our solution managers are using them to anchor discussions about priorities, i.e. "Should we do this? It doesn't map to the SOAP for the business." A VP for another business division seized on the format and mandated that each of his directs produce one. If you decide to use this format, I'd love to hear back about how well it works for your company.

Getting to Value

 

In my previous post, I mentioned that I see the business architecture as the primary bridge between strategy and operational execution. The primary function of the business architect is to translate the strategy into a plan for investments over time. This is not to suggest that there aren't other roles for the business architect to play in solution planning and design but this first function is where the business architect delivers the most value.

The figure above provides a high level view of the five phases of business architecture engagements. I use this graphic to explain the engagement to my clients . It is a simplistic depiction - the actual engagement is far from linear - but it does serve as a good communication tool for helping the clients understand the analytical approach.

 

The first phase is strategy articulation. I've said before that the role of the business architect is not to define the business strategy but to articulate it in a way that it can be easily consumed. Assuming the business is mature about their strategy, this is not a difficult exercise and can be done quickly.

 

The second phase is defining the capabilities that enable the strategy. It is helpful if you already have a map of capabilities for the business (more on this in a later post). If it exists, then it's a matter of reviewing existing capabilities to determine which are impacted. If not, it's a matter of defining what new capabilities are needed in order to enable the strategy.

 

Phase three is the assessment of the capability. This is sometimes confused with capability definition and the two activities are related but are distinct. The goal of this phase is to evaluate each existing capability to determine how well it can support the strategy. This is also where dependencies between capabilities are identified. There are multiple ways to assess the capability: heuristics, benchmarking, and more - much depends on the engagement  and I'll address this in several posts to come.

 

The fourth phase is analysis and prioritization of the capabilities. This is time spent understanding the data that has been accumulated and searching for insights or gaps that require further analysis. This is also where you align strategic-level priorities with operational-level priorities.

 

Finally, the sum of all the steps above lead to a prescriptive plan and ordering  of activities and investment - a roadmap - of how to deliver the capabilities to the desired level of performance in order to enable the strategy.

Get Out of the Process Optimization Prison

 

To architect for business value, we need to rescue business architecture from the process optimization prison that so many methodologies relegate business architecture. They divide the enterprise into slices - information, application, business, infrastructure, integration, etc. - treating each as equal branches of the architecture, often with their own architect. These business, information, application, and technology architects then develop the deliverables specific to their architectural domain, slap them together in a PowerPoint and voila! An architecture!

 

Okay, perhaps I'm oversimplifying a bit. More mature architecture practices understand that collaboration is a critical to successful architecture. In less mature practices, this leads to a comical situation in which architects are prevented from seeing the information that sits outside of their piece of the world. This is perhaps the logical conclusion of methodologies that overemphasize frameworks to categorize architecture information.

 

Getting value from architecture means not simply answering what information we need but also when. Many definitions of architecture define it as a bridge between business strategy and IT. A methodology that doesn't talk about how that gap is bridged - what information and when - will have difficulties succeeding. Similarly a business architect who is narrowly focused on business process, organizations , and roles may have something interesting to tell the business sponsor but risks not being able to tell a complete story.

 

The business architecture isn't about a narrow slice of business-relevant information, it's a complete view of the architecture at an abstraction that is appropriate for the business stakeholder. I have yet to meet a business leader who wasn't materially interested in the technology that supported their organization. They might not care that the interface that connects their reporting system to your enterprise data warehouse uses SQL queries but they do care that they are connected.

I believe that the business architect is the frontline for the architecture team in working with the business to connect the strategy to the operational execution of that strategy. The business architect - working with other domain architects - provides a perspective to the business stakeholder to make decisions about what investments to make.

 

At this level, the level of technical detail required is just enough to inform the investment decision. It does not require in-depth analysis of application interactions or even process decomposition.  

When we move from investment planning to solution planning, design, and delivery, that's where greater detail  around the processes, information, applications, and technology becomes more important and more traditional architecture methods take more relevance.

 

It's a level of abstraction, not scope of information. In other words, the business architecture is the business's perspective of the architecture.

Succeeding in the "New Normal"

The McKinsey Quarterly published an article (registration may be required) last month about the need for CIOs to adapt to the “new normal.” The term, coined by McKinsey worldwide managing director Ian Davis, refers to their prognosis that recovery from the recent economic downturn will not follow a traditional pattern. The economy will fundamentally restructure – a “new normal,’ marked by persistent uncertainty, tighter credit, lower consumer spending, and greater government involvement in business.”

The implications for CIOs, argue the authors, is that IT must play a much larger role in delivering on broader company goals and providing competitive advantage in the marketplace.  The authors specify three key imperatives for IT:

1.    IT must be more closely aligned with business, ideally through organization models that promote joint decision-making. Having stronger business understanding and skills will be a critical success factor for IT.

2.    IT will have to deliver more than marginal improvements in productivity and cost cutting. The goal for IT is to deliver transformational technology that radically improves the cost structure or operating model of the business.

3.    Business and IT both need to look for technology innovations that drive competitive advantage in order to adapt to the new normal.

The article does a better job of articulating the point I was making in an earlier post about IT delivering greater business value instead of focusing on marginal gains in labor productivity. I see business architecture and the role of business architects as a key accelerator of the IT-Business alignment.

There are not many functions within IT whose job is to understand the business. Business analysts, to some extent, have to understand the business processes and the business users of IT systems in order to translate business requirements into IT requirements but the altitude at which they operate not to mention their function may preclude them from having visibility into the larger business direction.

IT account mangers – to the extent that they exist – should have better visibility of business strategy and priorities, however, they may lack specific insights into the business processes and information flows that might inform their recommendations. The IT account managers I’ve worked with tend to be very senior people since they are relationship owners with the business. Typically, they aren’t going to conduct the in-depth analysis to inform  business priorities and their teams – generally made up of IT solution owners and business analysts – may not be able to fill that gap due to their functional focus.

Enter the business architect – a role whose purpose is to understand the business strategy, priorities, and operations and develop high level plans to orchestrate business and IT investment in order to enable the strategy. While this may sound like the role of account managers, the business architect is focused on how to execute the strategy while account management is focused on building and maintaining the business-IT relationship. Another way to think of it is that while the account manager is accountable for the work that the business architect is responsible for developing.

A well-developed business architecture function can bridge the gap between business and IT, providing IT with a comprehensible perspective into the business goals, priorities, and operations to inform IT investments. Moreover, this perspective can enable the opportunity to discuss how information technology can create transformational opportunities and competitive advantage for the business.

If McKinsey’s recommendation that adapting to the “new normal” requires a stronger linkages between business and IT, then business architecture is a vital enabler to make it happen.

Clarifying the Business Architect’s Role in Business Strategic Planning

It occurs to me that as I describe elements of a good strategy that some readers may be tempted into thinking that I am prescribing a method for developing strategies. To be clear, I am not. Strategy development is an essential task for the business to accomplish. A robust and rigorous business strategy will include internal and external analysis. Some of these insights – particularly external analysis – are likely to be beyond the capabilities of the business architect, even if they are positioned in the business organization instead of IT.

There are may be some individuals whose titles are business architects but positions require them to develop business strategies for their organization. In those cases, I would suggest that they are playing a different role – the role of business strategist. The role of the business architect is to translate the strategy into plans for execution.

The key activity for the business architect with regards to strategy, irrespective of how and whom develops it, is to ensure that it is clearly articulated and comprehensible to the business’s key stakeholders. It may seem illogical that a business strategy is developed that isn’t comprehensible or clearly articulated but this often does occur because the strategies are often initially developed for a very limited audience. They are entrenched in contextual understandings that may be obvious to those working within the organization but completely alien for those on the outside.

I find that to be the case with my sales organizations. From my limited experience, it seems that sales organizations have a common way that their strategy is communicated internally that I have difficulty interpreting. There are a number of deliverable formats that can be used but the end goal should be to clearly communicate the future state vision, the key priorities and actions that get there, and the outcomes that enable measurement of success.

Elements of Strategy

I begin planning with a basic assumption that it is impossible to do everything – there simply isn’t enough money, resources, or time to fulfill everything that is needed or desired. In the face of these constraints, we have to determine what it is that we should focus on. That’s  where I turn to strategy.

My former boss and mentor at Merck, Bev Rosella, developed this graphic with clients to help them understand the core components of a strategy. (Bev is now a private consultant – I highly recommend her if you need assistance with articulating your strategy).

A strategy consists of some basic elements:

Vision describes where we want to be in the future. This can be either long-term aspirational vision or a description of the short-term ideal future state, i.e. your three-year vision.

Mission describes the organization – what is the organization, what is its purpose, a high level description of how the organization creates business value.

Business outcomes describe the tangible and measurable results that the organization is driving to achieve its vision over time. This is the tangible description of the business value that is being sought.

Strategic Priorities/Actions are the key initiatives over time that describe how the outcomes are achieved in order to realize the vision.

To me, a strategy is very much like planning a trip. The vision is your final destination, the mission is your mode of travel (i.e. car, foot, a plane, etc.), the outcomes are the results you want from your trip (i.e. I want to arrive in 4 hours or I want to see these monuments on my journey), and the priorities and actions are the route that you take to get there.

A Framework for Planning

My team is somewhat unique within Microsoft IT in that we are a fairly senior team whose work spans all of the lines of business we support. We are accountable for helping our organization navigate the investment planning process and actively manage the IT portfolio. To this task, we bring a diverse range of expertise including Six Sigma, business architecture, portfolio management, and project management, among others.

We’ve developed a planning framework that we use to understand how business value is defined and how we subsequently realize it. This framework allows us to thread our planning expertise together in an end-to-end view and provide a vehicle for educating our clients about planning.

 

Business Value Definition
The first phases of planning are used to define what provides business value. These activities are represented in the semi-circle on the right starting with Strategy Development, Architecture Planning, and Demand Management.

Strategy Development is the activity of defining where the business would like to be in a 3-5 year time frame, what are the key outcomes that it is trying to achieve in that timeframe, the major change initiatives that will get them there, and the relative priority of those initiatives.

Architecture Planning is an activity of translating the strategy into business capabilities that will enable the strategy. These capabilities then must be understood in terms of their future state and compared to their current state implementation. The deltas between the current and future state and the prioritization of capabilities form the foundation of a strategic roadmap for realizing the strategy.

Demand Management is the activity of receiving and managing demand for an investment portfolio. This demand will constitute both strategic demand coming from the architecture planning work as well as tactical demands that serve near-term business interests. Managing this demands also involves performing some level of triage so as to focus only on those items that have some realistic expectation of delivering business value and normalizing the demands so that they can be easily compared. This is likely the activity in which business cases are created with ROI and other types of investment calculations to assist with portfolio optimization.

Business Value Realization
The last phases of planning are used to help realize the business value that has been defined and are represented by the activities that appear in the semi-circle on the left.

Portfolio Optimization is the activity of applying constraints – minimally funding but also other defined investment criteria – in order to determine the best portfolio of investments.

Portfolio Management is the activity of actively managing the portfolio to ensure that investment programs are on track to deliver the value that has been committed. Changes in priorities, funding, program delivery schedules , and other factors can disrupt the investment plan and may necessitate making changes to the investment plan.

The existing portfolio and its execution against business value, in turn, inform strategy development in a continuous cycle. I should note, however, that strategy is also informed by demand and other factors so the representation in the framework is a simplified understanding of planning and not meant to represent a linear process.

I will spend most of my time on this blog addressing the first two activities, partially because they represent my primary function at Microsoft, but also because I think this is the area that is most immature from a discipline perspective and less well-understood. There are other sources that are better informed than me on the downstream activities of demand management, portfolio optimization, and portfolio management so I will likely only address them in terms of their integration with strategy development and architecture planning.

Rethinking Business Value

In my first post, I asked the question – “what constitutes business value?” I argued that it’s not simply delivering what the client asks because sometimes the client doesn’t have the right perspective. Most of my clients begin their conversation with me by talking about their IT problems. These conversations are typically characterized by the focus on IT systems and the immediacy of the need - they need better functionality from their CRM solution to remove some manual step or they need a specific report. In an order-taking IT organization, we might promptly write down the requirement and try to figure out when we will slot it into a release calendar. The customer’s requirement is heard, understood, and a plan is presented for meeting the requirement. This provides the customer with the value they’re looking for, right?

What’s missing from this conversation, in my mind, is context. Why do they need this particular report or functionality? What is the business goal that they are ultimately driving towards? If we have a good relationship with our clients, we may already know the answer to this question. There are others, though, that we need to have good answers for such as what are the other goals that the business is driving? Over what time horizon? How does this goal or requirement stack up against the others?

Absent a strong understanding of the business goals, strategies, and priorities, information technology organizations risk limiting the value they bring to their business clients.  Deloitte’s Center for the Edge recently published results from their “Shift Index” which found that while labor productivity has more than doubled in the past forty years, return-on-assets have declined by 75%. The researchers point out that much of the capital investment made by companies in the past forty years has been in information technology leading them to the conclusion that IT has failed to deliver significant value. Deloitte hypothesizes that "technology investment... has been overly focused on an industrial-era model. 'It’s been all about standardization and automation of business processes... Until and unless companies learn how to harness knowledge flows, the impact of the technology will mainly be continuing competitive pressure.”

Anecdotally, I have found this to be true. Many IT planning meetings with business clients amount to identifying manual processes and targeting them for automation, irrespective of the value that such automation might bring. The key success measure for one of Microsoft IT’s major strategic programs is being measured in labor productivity. While this isn’t inherently wrong, the question remains, can IT deliver greater value to its customers?

Most non-IT senior executives believe so. A McKinsey & Company survey (registration required) found that while most were satisfied with the ability of their IT divisions to provide basic IT services such as email, workstations, office productivity software, etc., what they found lacking was IT’s ability to provide transformative new business capabilities and innovation. These executives believed that IT was overly focused on creating greater efficiency – a view echoed by many IT executives who were also surveyed by McKinsey.

I am suggesting that IT leaders set a high bar for delivering business value – not just incremental improvements in productivity, cost reduction, and efficiency but significant, transformative changes that leverage the full potential of IT as an engine of the business to achieve its goals and objectives. IT organizations that can accomplish this are ones that have strong understanding of how the business functions and visibility into their clients’ strategy and goals.

This is no short-term journey for most IT organizations. This can involve a major paradigm shift in how we think about the relationship between IT and our business clients; it means changing how we think about the process by which we engage the business in strategic and investment planning; it involves skill sets that are not traditionally found in IT organizations.  In my next post, I will describe a planning framework that can be used to translate business strategies into investment plans.