The Kaplan and Norton Balanced Scorecard(BSC) and Strategy Map (SM) are well-known, abstract models for structuring
business transformation objectives. The
analysis of objectives helps refine a strategic plan, and the resulting
objectives provide a basis for continuing assessment of progress. This article describes how VDML can provide
more robust analysis for setting BSC objectives and defining SM relationships. VDML (Value Delivery Modeling Language) is a specification in the final stages of adoption by the OMG (Object Management Group).
BSC/SM objectives represent desired changes to the
state of the business—key measurements of the operation of the business will
drive improvements. Thus the changes represented by BSC/SM objectives represent
key differences between VDML As-Is and To-Be models.
The diagram, below, characterizes the objectives of a BSC
and SM. For the BSC, Kaplan and Norton
define four perspectives that
classify objectives: (1) Learning and Growth, (2) Internal Processes, (3)
Customer Value, and (4) Financial. This
classification drives a broader analysis starting with the development of
capabilities (Learning and Growth), through development of internal methods and
processes (Internal Processes), to delivery of customer value (Customer Value),
and finally to enterprise success and sustainability (Financial).
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The Strategy Map identifies causal relationships—some
objectives depend on achievement of other objectives. For example, an internal process will not be
successful without the capabilities that support it (e.g., people, machines,
knowhow). The diagram illustrates the general
flow of causal relationships—an actual strategy map would link specific
objectives.
A VDML model can represent the current or future state
of the business and associated operating measurements. A model could
involve multiple lines of business and multiple value streams. VDML models can extend the BSC/SM analysis to
support more robust transformation planning and assessment. The diagram, below, depicts this.
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So a VDML To-Be model can represent the improvements
in performance and value creation if the strategy is successful. As the basis for objectives, these To-Be
measurements must be compared to corresponding measurements in an As-Is (current
state) model. The current As-Is model will be updated to reflect changes
as the transformation progresses. If the
transformation goes as planned, the As-Is model will become the same as the To-Be
model (transformation complete).
Development of these models is discussed in greater detail in Strategic
Planning with VDML.
VDML can represent many of the measurements of
interest for the BSC/SM objectives, so a BSC/SM objective may obtain its target
measurement from the To-Be model and its current measurement from the As-Is
model. VDML does not directly identify objectives for Learning and
Growth, but can represent the requirements for resources that must be developed
to achieve capability requirements.
VDML can represent objectives of the BSC Financial
Perspective as As-Is and To-Be value proposition measurements and market
segment forecasts. However, VDML does
not provide support for the development of these market forecasts. For example, profit is essentially price
minus cost. VDML supports cost detail, but price is a management decision
based on market analysis. Market share is a forecast based on price and
other factors including future competition.
VDML can capture those measurements, but does not provide support for
market analysis.
Operational measurements support more extensive
analysis and mapping. For example, if a
new capability is needed, the need is represented by the absence of the
capability in the As-Is model. The
objective measurement is essentially binary.
If the capability requires skilled people, we might represent the need for
growth with a VDML store of people required for the capability in the As-Is and
To-Be models. The To-Be model may also
represent new supplier relationships.
From a VDML perspective, causal relationships (i.e.,
dependencies) are of six different types: (1) changes to enterprise
capabilities (i.e., “capital” in Learning and Growth) that are necessary for
implementation of Internal Perspective value stream changes, (2) changes to
capabilities that increase customer value (Customer Perspective), (3) changes
to capabilities that improve investor value (Financial Perspective), (4) changes to a value stream that affect activity
value contributions to customer value (Customer Perspective) that may involve
complex changes reflecting multiple dependencies between activities, (5)
changes to the value stream that improve investor value (Financial Perspective),
and (6) changes in customer satisfaction levels that drive market changes
reflected in investor value (Financial Perspective). These can be seen in the causal relationships
depicted in the first diagram, above.
While these are all supported by VDML, they require
two VDML models—the As-Is and a To-Be models.
Type (1) can be observed by a change in capabilities (new or modified)
between the As-Is and To-Be models. Type (2) can be observed as value
stream changes that improve desired customer value proposition
measurements. Type (3) requires human recognition of the value investors
will place on improved enterprise capabilities.
Type (4) can be observed by tracing the sources of changes to the
customer values in the To-Be model to the relevant customer value contributions
that are improved from the As-Is model.
Type 5 can be observed from changes in value contributions (such as cost
reductions) that have a direct impact on investor value. Type 6 is based on changes in the customer
value propositions but it requires market insight and feedback regarding trends
and competition to determine the impact on investor value. In most cases, these causal relationships do
not correspond directly to VDML deliverable flows, but rather they represent the
consequential effects of changes to As-Is measurements that will directly or
indirectly result in changes to To-Be measurements.
In a substantial transformation, there must be phases
of implementation. Without objectives (or intermediate target objectives)
for phases, management would have difficulty assessing progress on a
long-duration project with multiple components.
Each phase should be represented by a VDML model for the expected state
of the business at the end of the phase. The development of a
transformation plan and associated VDML models for transformation phases is
discussed in greater detail in Strategic
Planning with VDML. As the
transformation progresses, a series of As-Is models would be created to
represent the incremental, current state of the business. The As-Is model
evolves toward the To-Be model so that measurements in the current state depict
progress toward To-Be targets.
The BSC/SM model then becomes a series of phase models
with As-Is and To-Be supporting models to define intermediate targets—see the
diagram, below. The To-Be VDML model of a phase is the expected As-Is
model of the next phase for planning purposes, but the actual As-Is model for a
“next” phase will likely vary some from the planned To-Be model. A BSC/SM short-term, current-phase model
represents the objectives of the current phase. The full BSC/SM model can
be derived from the initial As-Is model and the final To-Be model.
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While the full BSC/SM model can be stable (unless the
end state of the business evolves), the current-phase BSC/SM model will be
incrementally based on new versions of the As-Is model as the transformation
progresses, and it will be based on new To-Be models as new phases are started.
In summary, VDML can provide significant value in
validating the strategy, developing the transformation plan, and setting and
evaluating objectives and causal relationships appropriate to each phase of
transformation. However, the
relationships between the BSC/SM objectives and the VDML models require human
input to select appropriate key objectives and identify the causal
relationships. Modeling mechanisms for a
BSC/SM extension are not defined in the current VDML specification, but are
left for VDML implementers to develop if they determine that there is
sufficient market demand.
Fred,
ReplyDeleteI have learnt a lot from the thoughts presented in your series of posts related to VDML and how it could be a better way to align strategy with execution and desired business results for organizational transformation. The scope of your ideas is all-encompassing for an Enterprise. Because it covers so much ground, in my opinion, it might be a bit unnerving for anyone to wrap their heads around the concept of so many ideas, strategies, their corresponding model representations, storage and their dependencies.
I would like to get a clearer idea of whom this framework is aimed at in the Organization structure and for what types of organizations. Granted, all kinds of organizations desirous of better results in existing markets and / or innovating for new markets would be served better by applying these concepts. But who is the “practitioner” who would use VDML and associated tools for the transformation? Would it be the Business team of Planners and Analysts, the IT team of Architects / Designers or a combination of skills assembled from both the domains led by a very senior Executive (or Executive team) / Enterprise Architect / Business Designer? What kind of prior “business modeling” skills do you assume that such people should have to be able to quickly learn and use VDML tools? Maybe, Business Model Canvas, ArchiMate etc? Should they have already designed multiple business models, business motivation models, Architecture blueprints, balanced scorecards, Value stream maps, business process models etc, before they can use VDML properly? How would VDML tools complement and go beyond these existing products?
In light of my queries above, I do not see how small and medium-sized businesses would be able to apply these concepts successfully, without incurring too much cost of consulting support. How can these ideas be seeded and implemented in small companies? Does this also mean that only large companies can “afford” to first try out these VDML approaches? Do you have any examples or case studies to share while answering my doubts? I know this is quite an early phase for VDML work and hence references might not be available – if so, how do we take these ideas further into organizations? Who would be the right candidates for “beta testing” these ideas?
Thanks again for sharing your knowledge
Shiva
Shiva, You raise many good questions. I think that first, we need to consider that modeling a business from a VDML business perspective is a paradigm shift for business people and for IT people. Some people doing BPM are functioning at this level, but many are focused on defining details for automation. VDML, while more abstract, goes well beyond aspects of the business addressed in business process models.
DeleteSo I think we need to consider what skills, knowledge and authority should be involved in business modeling with VDML. As you suggest, this will also be influenced by the size of the enterprise and its ability to invest in this staff work. In addition, this will likely be influenced both by the industry of the enterprise and the type of problem being addressed.
This is probably a good topic for another blog post or a series. But I will try to give you a short answer.
I think we need a modeling expert role that knows how to use VDML and has enough business knowledge to be able to understand what is needed and represent it in VDML. Then we need what will probably be called a business architect who understands the particular business and the problems to be addressed. We will also need a person, probably from IT, who can capture the operational data to be entered into the model for performance/value measurements. There may also be a person that analyzes and captures the current state of the business. These efforts will need to be driven by top management for funding, access to information, and organizational response to modeling insights and business design. Again, depending on the nature and scope of the problem, one or more persons may be required in each of these roles .
The business architect and VDML expert should not be ad hoc assignments. Experience will be important, so if the problem is a one-time effort, or they cannot be employed full time (e.g., small company), then they should be consultants, otherwise, they should be employees with permanent assignments. They should not be in IT, but may have that experience, particularly since IT is now where much of the needed analytical skills are likely to be found. After initial models have been developed and people in the enterprise accept the discipline and understand the models, there may be less need full-time specialists.
I expect that the skill requirements and roles will be refined and specialized as more and more people become involved in VDML business modeling. Most likely there will be professional organizations where they refine their disciplines and develop shared libraries.
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