Friday, July 8, 2011

Rethinking Business for a Changing World

The business world has changed dramatically over the last 20 years.  Much of this is a consequence of advances in information technology and the Internet, but it is also a consequence of global transportation that has made the world smaller. 
Some of the ways business has changed:
·         Automation has replaced routine work.  The workforce has shifted from routine work to knowledge work—dealing with exceptions, optimization and transformation.
·         An increasing number of employees work from home or other remote locations, performing in multiple roles and connected by the Internet and cell phones.
·         The marketplace is global with Internet marketing and sales as significant factors.
·         Non-core business operations can be outsourced for improved quality, reduced cost and scalability.
·         Customers expect values that complement the value of a good product such as product warranty, support after the sale, prestige and standards compliance.
·         The market and technology are constantly changing thus decreasing the lifetime of products and competitive advantages.
·         Barriers to entry of new competitors are lowered due to standards and business function outsourcing opportunities.
·         Customers are more sophisticated, expectations are high and competition is more intense.
·         Business risks are increased due to networks of business dependencies and international exposure.
·         The business must rapidly adapt to changes in demand and business disruptions.
All of this has forced executives to think about the business in new ways. What are some of the new fundamentals and what questions do they drive for business leaders?
·         Value creation.  The business exists to produce value for customers and other stakeholders.  Different market segments appreciate different values.  What are the expectations and are these expectations being met or exceeded?  What should change in order to achieve or maintain competitive advantage?  What are the deliverables and values needed by the enterprise from outside sources, including intangible assets?
·         Sharable capabilities.  As resources become more specialized and competition drives cost reductions, executives must seek ways to share capabilities among different lines of business. Existing capabilities must also be leveraged for new lines of business.  What are the core capabilities needed for the business? Are they managed to appropriately serve current and evolving lines of business? Are they delivering the desired results? Are they competitive?  Can they be consolidated or outsourced for economies of scale?
·         Collaborations.  The traditional management hierarchy is still part of the business for management of assets and resources, but there are many cross functional collaborations, both inside the business and with outside participants, that are necessary for successful operation and adaptation of the business. This includes task forces for business initiatives, project teams for development of new solutions, professional communities for sharing ideas, and teams for problem resolution. How can we better manage cross functional collaborations to be sure we are deploying resources effectively? How can we evolve our staffing functions to include collaborations as well as job positions?  How do we manage existing and new collaborations when adapting to changing business needs.
·         Enterprise optimization.  The enterprise is a complex system with many interdependent parts and concerns.  It can no longer be managed as a simple hierarchy but must be optimized across organizational boundaries through shared capabilities and appropriate allocation of resources to achieve value objectives. Optimization must be balanced against agility and the ability to adapt to rising or falling demand. How can we best manage these complex interdependencies and foster systemic decision making?  Who is responsible for enterprise-level optimization?  How do we determine what the optimum might be?
·         Risk abatement.  Executives must address potential single points of failure, vulnerabilities to attack and disruptive changes in technology and market conditions.  Optimization must be balanced with redundancy. Remote workers, globally distributed operations and outsourcing increase exposures.  Disruptions can have compounding effects that require rapid response. Have we expanded risk assessment to include these new vulnerabilities?  How do we define priorities for risk mitigation?  How do we hold business units accountable for risks?
·         Business ecosystem.  Executives must understand the role of the enterprise in a larger ecosystem of customers, business partners, other stakeholders and political entities.  Managing these relationships is essential to sustained success of the business. How well have we expanded our management focus to include ecosystem factors?  How can we assess the impact of business changes on these relationships and their consequential effects?
·         Innovation.  Innovation is a critical aspect of competition in a rapidly changing world.  Executives cannot be the primary source of innovation, but must leverage the talents of employees and other stakeholders.  Innovation should happen at all levels throughout the enterprise, and executives must ensure that when innovation happens it is cultivated. What are the structural and systemic barriers to innovation that slow down adoption of new ideas? How can we build in the kind of flexibility and culture that supports innovation?
·         Regulatory compliance.  Most businesses are now global either in their operations or in the delivery of their products or services.  This means the enterprise must comply with regulations of multiple political entities.  This can affect products, operating practices, employment, privacy controls, intellectual property rights and marketing. Compliance cannot be treated as something isolated from day to day operations or a special department. How widely do we educate our people in standards and legal requirements? How do we achieve timely implementation of regulatory compliance, particularly when it may affect multiple products and business units?
These are all enterprise-level concerns that require executive awareness and leadership.   Delegation of responsibility bears the risk of diminished priorities and sub-optimization of solutions.  Solutions cannot be fully evaluated from financial data and performance reports.  At the same time, the multiple and interacting dimensions of these factors cannot all be comprehended by the human mind. 
Executives need computer-based models to support the design and analysis of the business and consideration of potential changes.  The enterprise must be designed, evaluated and continually adapted using computer-based models. 
In the latter part of the last century, the US automobile industry underwent a fundamental transformation driven by foreign competition.  Instead of building and testing prototype components and assembled vehicles, computer-based models are now used to design and evaluate vehicles from multiple perspectives: safety, economy, emissions, weight, stress, crash worthiness, failure modes and so on.  The result is vehicles that are higher quality and lower cost, and new products can be delivered more quickly in response to innovation and changes in market demands.  A similar transformation will occur in business management.
This is a thesis of my book, Building the Agile Enterprise with SOA, BPM and MBM, that focuses on the design of the business to exploit information technology and it is the basis for current work on an Object Management Group (OMG)  Value Delivery Modeling Language (VDML) standard that I discussed in an earlier series of blogs. 

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