Outside-In Business Architecture with VDML

In a 2007 blog, “Unanswered Questions from Supernova 2007,” John Hagel observed that IT architectures evolved from the inside-out as the scope of automation and integration expanded over time, and he forecast that attention will shift to outside-in development that starts with an extended enterprise perspective.  Richard Veryard elaborated on the outside-in perspective in his blog post, “Outside-In Architecture,” later that year.  The topic was recently raised in the LinkedIn Business Architecture Community .  Although we have not described it as such, I believe the development of VDML (Value Delivery Modeling Language) at the OMG (Object Management Group) will provide the perspective and the modeling support for this shift in perspective.

Information technology has enabled new approaches to business architecture.  It has changed relationships with business partners and customers, enabled business operations to be globally distributed, and reduced the time and cost of business operations.  However, optimal business design can no longer be achieved by simply automating the existing business design—an inside-out approach.  An optimal architecture requires a design that takes advantage of the capabilities of modern information technology but is driven by an outside-in perspective.  The design of the business must be driven by the values and relationships of customers and other participants in the business ecosystem as well as optimization of business operations to achieve competitive cost, quality and timeliness objectives.  This change in perspective is reflected in my earlier blog, “Rethinking Business for a Changing World.”

VDML is designed as a business design language for business people.  While it will provide a business context for the application of information technology, the focus is on the operation of the business, not the application of IT.  It is based on a number of existing modeling techniques, identified in the diagram, below, and it brings these viewpoints together to provide an integrated business modeling capability.

The solid boxes represent viewpoints that are currently addressed in the draft specification, and the dashed boxes represent viewpoints that are still under consideration.  The different viewpoints are supported by a shared computational model.  This shared model represents a somewhat expanded approach from that described in my earlier VDML blog posts that were driven, primarily, by a value stream perspective.  It is expected that this more robust model will support a wide range of analysis and design so that an enterprise model can be developed, maintained and evolved as the enterprise continues to adapt to changing business requirements.

Core Concepts

In the following paragraphs I will outline the core concepts of VDML that support this integrated business modeling.

Values and value propositions

A value is a characteristic of a product or service that is desired by a recipient.  Values include cost, the utility of a product or service, producer goodwill, product reliability, prestige and timeliness of delivery.  In an exchange involving two or more business partners, each will provide and receive values and each must experience a net gain for the exchange to be viable.

Values of a product or service are contributed by various activities that participate in the delivery of the product or service as well as other enterprise activities such as product design and marketing.  VDML models the contributions of activities to the end product or service such that the end values can be traced back to contributing activities.  This provides insights on where improvements will have the greatest impact on the value of a product or service to the customer.

The value contribution metrics are aggregated in a value proposition.  The value proposition transforms the more objective contribution metrics to subjective measures of expected recipient satisfaction.  These can then be combined in a weighted average to provide an overall expected level of satisfaction.  Different value propositions may be defined for different market segments.  The same concept can be applied to value propositions for other stakeholders.

Collaborations, organizations, activities and roles

A collaboration is people and/or organizations working together for some shared purpose.  Participants in a collaboration fill roles that define their involvement in activities of the collaboration.  This is similar to activities in a BPMN business process that are performed by participants in roles.  In VDML, a role may also be performed by a collaboration—people and/or organizations working together to achieve the desired result of one or more activities.  This provides for complex collaborations to be composed of collaborations that are in turn composed of more specialized collaborations.

A traditional management hierarchy may be viewed as a hierarchy of collaborations—a company, its divisions, departments, groups, etc.  These are persistent collaborations involving specific persons and persistent organizational relationships.  In addition, persons in the same or different organizations may work together from time to time in task forces, project teams, committees, as well as business processes.  These are also collaborations—people working together to achieve some shared purpose. 

In collaborations, participants perform activities and exchange business items as deliverables.  The flow of deliverables between activities forms an activity network.  The capture of value contributions and aggregation of values in a value proposition provide the basis for value stream analysis.  A value stream identifies the flow of materials from and to activities that contribute value to the end product or service.   Value stream analysis can help expose and clarify the opportunities for improvement based on their impact on value proposition(s).

An abstraction of this activity network can be viewed simply as roles exchanging values.  This is a useful abstraction for understanding the interactions of business entities in an ecosystem as well as specific work being performed by people within a company or agency.  This is the perspective of Value Network Analysis (VNA).  VNA focuses on the exchange of values that may involve some of the same participants in roles of multiple, interacting collaborations.

Capabilities and resources

A capability is the ability of a person or organization to perform a particular type of work.  The capability may include skilled people, materials, tools, machines, intellectual property and facilities.  A group of people or organizations working together to deliver a capability is another form of collaboration that we are calling a capability method.  A capability method is a template for performing the work required by a capability.  Instances of a capability method describe the collaboration of specific persons and organizations performing the capability.  Instances would occur in the operation of the enterprise, but a VDML model does not get into the specific, day-to-day assignments of individuals to capability methods.

As described above, a capability method (collaboration) may engage other capability methods (collaborations) to deliver the desired capability.  This aligns with the concepts of a service oriented architecture where a capability method defines a service that may engage other services to achieve its purpose.  This relationship is described in my book, Building the Agile Enterprise with SOA,BPM and MBM.  A “high-level” capability method may specify the activities needed to deliver an end product or service using more specialized capability methods.  This supports the services analysis viewpoint.

The purpose of each capability method is described by a capability definition. A capability definition also may be referenced by similar capabilities identified elsewhere in the enterprise.  Capability definitions are catalogued in a taxonomy.  Each capability definition describes the nature of the work and the business items as resources that are necessary to perform that type of work including people, machines, materials consumed, etc.  Note that the same business items are viewed as deliverables when they flow between activities (or VNA roles).

In the analysis of an existing enterprise, the production of a product or service requires specific capabilities to perform the activities.  Similar capabilities may be used in different lines of business.  The type of work and resources required, together, provide a basis for identification of capabilities that may be candidates for consolidation or outsourcing.  The capability taxonomy in conjunction with the analysis of value contributions can be viewed as a capability heat map used in capability analysis to identify those capabilities that require particular attention for improvement.

The more specialized capabilities are where the work of the enterprise gets done.  If properly defined, these capabilities can serve the needs of multiple lines of business and become the leveraged building-blocks for new lines of business.

Resources and stores

Capabilities require resources as inputs to activities.  Some resources such as facilities and intellectual property are static, but others are consumed or are used and reused.  The activity network of a collaboration defines the exchange of deliverables where activities produce deliverables that are used by other activities.  The business items needed to perform an activity are viewed as resources; these include business items received as deliverables. 

A resource that is consumed or reused is either received from another activity or provided by a store.  A store is a logical container of a type of business item that is accumulated in anticipation of its use.  A VDML model may represent the flow of deliverables into a store and the flow out of the store as the resource is required by an activity.

An abstraction of a VDML activity network supports an REA perspective.  In REA, activities are viewed as economic events that receive resources and produce resources with added economic value, and economic agents exchange resources for economic gain.  REA may represent a full cycle, for example, a resource is produced, stored, and consumed, the product is sold in exchange for money, some of the money, as a resource, enables production of more resource to produce more product.

Resources and stores provide the potential for VDML to support discrete event simulation or system dynamics modeling for analysis of the flow of resources and the creation and exchange of value over time.  These dynamic models are beyond the scope of the current specification, but are being considered in the current design as a future extension.

Outside-In Design

The above brief description of core VDML concepts should provide a general understanding of the focus and scope of VDML.  I believe VDML will be an important tool for achieving outside-in design.  I see this at two levels: (1) design of business operations as a basis for design and integration of supporting IT systems, and (2) design of the enterprise in the context of the extended enterprise to achieve value for customers and other stakeholders.

VDML is intended to provide a business perspective and support executive-level understanding of how the business works.  The model provides accountability for business operations in the context of value delivery.  This provides insight on the value delivery implications of potential opportunities both for development of improvements and for adaptation of the business as the marketplace and technology continue to evolve.

As with financial reporting, a VDML model supports a high-level perspective, but also supports a drill-down into particular aspects of the business operation to identify sources of concerns and support analysis of potential improvements.

The analysis of capabilities supports potential consolidation or outsourcing to improve operating efficiencies and value delivery.  Links to the organization structure provide accountability as well as better understanding of organizational dynamics, alignment of goals and incentives, and the impact of organizational changes on the operation of the business.

Finally, the structure and relationships of capabilities provides a framework for the design of business processes and services as well as automation that achieves business agility and efficiency.

Additional Work

Development of the VDML specification is still in process.  The NEFFICS project brought several industry experts to the VDML development effort.  This has provided deeper understanding of relevant, existing modeling techniques.  Additional work is required to refine the details of the VDML metamodel and to reconcile additional modeling techniques.

At the beginning of this article, I depicted VDML as a shared model supporting existing modeling techniques.  Most of these have been addressed, but further work is required to reconcile the three viewpoints in dashed boxes, discussed briefly, below.

Business models

A business model is an abstraction of the business that describes how the business is expected to be successful from the standpoint of an investor or other external stakeholder.   Examples of business models have been developed by Peter Lindgren and Alex Osterwalder.  The elements of a business model should align with an abstract view of aspects of a VDML model.

e3Value

e3Value supports analysis of Internet value constellations in which multiple parties participate in value exchanges.  To be viable, each party must realize a net gain.  This perspective should align with VDML collaborations of business entities. 

Risk analysis

Risk analysis, generally, involves consideration of the consequences of possible disruptions to the business.  Henk de Man of Cordys and I were involved several years ago in consideration of models to support risk analysis.  We believe the VDML network of activities and flow-dependencies between them provides a basis for considering the consequences of disruptions in capabilities or availability of resources—an important aspect of risk analysis.

Future Evolution

A VDML model will support a variety of design and analysis techniques.  An investment in development of a VDML model should provide a basis for on-going analysis and design of an enterprise, and the standard will enable an existing model to be imported to alternative tools that may support viewpoints and interactive features that are more suitable to particular initiatives.

We also expect the VDML standard to support the continued evolution of business modeling, design and analysis techniques.  The standard and the models developed using it will reduce barriers to entry of new approaches and associated modeling tools.

The Multi-Dimensional Organization - Part 2

In my preceding article, I discussed five primary dimensions of The Multi-Dimensional Organization (MDO).  In my July, 2011, article, “Rethinking Business in a Changing World,” I outlined new fundamentals that affect the way executives should think about their enterprise in this changing world. In the present article, I will discuss how an MDO perspective more effectively addresses these fundamentals. 

The five dimensions of the MDO:

·         Product capability services are the capabilities that are involved in the delivery of a product or service. 

·         Lines of business are responsible for management of products or services from concept through customer support. 

·         Primary support services provide capabilities that are not specific to the particular business or industry, but instead support business activities throughout the enterprise. 

·         Coalitions are collaborations that cross organizational boundaries and may engage participants from other parts of the enterprise or outside the organization. 

·         Enterprise leadership includes the executives and their supporting staff activities.

The new fundamentals:

·         Value creation

·         Sharable capabilities

·         Collaborations

·         Enterprise optimization

·         Risk abatement

·         Innovation

·         Regulatory compliance.

The impact of MDO on each of the fundamentals is discussed in the following sections.

Value creation.

The enterprise exists to produce value for customers and other stakeholders.  It’s no longer simply about profit.  Values include company reputation, product aesthetics and prestige, timeliness of delivery, quality of service after the sale and various product features.  And there are values that affect relationships with investors, suppliers and employees. 

Lines of business (LOB) should focus on values delivered in their products and services along with the capabilities they need to contribute those values.  Product capability organizations should focus on providing value to the lines of business they support with optimal utilization of resources. 

Support services should consider values for other stakeholders such as finance for investors, human resources for employees and procurement for suppliers.

Enterprise leaders must consider the values developed and acquired by the enterprise as a whole, considering relationships with customers, suppliers, other business partners, industry coalitions, and stockholders.  They must (1) provide an enterprise perspective on the creation of value to avoid sub-optimization, (2) evaluate the value contributions of LOBs and capability units in their respective roles and (3) determine the best way to invest limited resources to improve value delivery. 

In addition, enterprise leaders should understand the value of insights and market influence realized through participation in industry coalitions involving customers, competitors and others to gain insights and to influence the market.

Sharable capabilities.

The separation of product capability services from lines of business minimizes capability bias toward a particular line of business and enables more objective analysis and implementation of capability requirements, performance, and interfaces. 

Capabilities may be consolidated, or affiliated under a broader capability management to achieve economies of scale in technology or workload balancing.  Some capabilities may be outsourced to take advantage of greater economies of scale and enable the enterprise to focus on the core business.  Potential product implications of capability modifications can be evaluated in appropriate contexts, with an understanding of the impact on the enterprise as a whole, resulting in more objective investment and transformation priorities.  Consolidated capabilities improve agility by enabling existing capabilities to be engaged in new lines of business and by expediting changes that might otherwise require multiple, varied implementations.

Primary support services (e.g., finance and procurement) typically are implemented as shared capability services although they may operate through antiquated interfaces.  In some cases there are opportunities for consolidation or outsourcing to realize additional economies of scale. Recognition of these as a separate organizational dimension provides a better focus on their contributions and implementation of relevant policies and regulations.

Collaborations

A collaboration is any association of people and organizations work together to achieve a shared purpose.  Collaborations already exist as a recursive element in the traditional, management hierarchy. What is important is recognition that the operation of the enterprise occurs in a complex, collaborative network where many collaborations are cross-organizational coalitions that bring together people from different traditional organizations.  Many of these coalitions may not be formally identified, fostered and supported by enterprise management.    

For example, coalitions between representatives of LOBs, IT services and capability units are essential for developing and improving each capability to best meet the needs of its multiple users.  Coalitions are also essential for developing and implementing changes, such as product technology upgrades, affecting multiple capabilities.  These coalitions must be supported and the products of their efforts must become part of the enterprise business planning and transformation activities.

An MDO model legitimizes the roles of coalitions.  It highlights the need to know how people contribute to various coalitions and how they are contributing value to the enterprise. Formal recognition of the purpose, roles, responsibilities and participants in each coalition is the first step in providing leadership and managing the funding and motivation of such efforts.

Enterprise optimization                                                      

Enterprise optimization requires participation from all levels of an organization.  The different dimensions of an MDO bring different perspectives and empower individual organizations to optimize operations while broader optimizations are achieved through coalitions at the middle-management and enterprise levels. 

Each line of business has a responsibility for optimization of the delivery of their products or services. Each product capability provider has a responsibility to optimize the performance of their services, particularly the timeliness, cost and quality of their contributions to the internal customers they serve. Coalitions are essential to resolve cross-organizational problems and reconcile dependencies between organizations where there may be competing objectives. 

Enterprise leaders must achieve overall enterprise optimization considering different lines of business and business values.  Much of this may be accomplished through coalitions organized by corporate staffs for development of optimal strategies and business design, and for implementation of business transformations.  The contributions and cost of participants from outside the executive staff should be formalized and funded.

Enterprise optimization also may depend on synergy between different products or services or delivery of different products or services to the same customer.  For example, the use of the same windshield washer pump in multiple vehicle lines reduces design costs and part inventories, and customers who purchase a printer eventually will purchase many ink cartridges for that printer.  Individual lines of business must be motivated to realize these synergies.  Enterprise leaders must provide the mechanism by which this synergy is recognized and each line of business experiences reciprocity in some form for their contribution.

Risk abatement

Risk abatement must address potential single points of failure, vulnerabilities to attack, natural disasters and disruptive changes in technology and market conditions.  Redundancy must be balanced against efficiency and agility.

One of the major challenges of risk abatement is identification of risks.  The 5 dimensions of an MDO provide a framework for this analysis.  Each of the capability service units can identify risks to the quality, cost and timeliness of their operations.  This is input to an impact analysis of the internal organizations they support. Each line of business can identify the impact of disruptions of the suppliers and capabilities they use and the potential consequences to their lines of business.

Similarly, support services, such as financial and information services, should identify risks such as investment risks and information security risks.

Coalitions should be part of the risk analysis.  Members of the coalitions should identify potential risks associated with disruptions of collaborative relationships or the interests they represent, both internal to the enterprise and with external stakeholders.

Corporate leadership and the executive staff, through coalitions, must drive risk identification and bring together the details of distributed risk analyses to identify common causes of risk and summarize potential consequences.  They must also analyze risks associated with the role of the enterprise in the ecosystem of customers, business partners, political entities and other stakeholders.  Managing these relationships is essential to sustained success of the business.  They must determine their level of risk tolerance and make appropriate investments in abatement measures considering costs and impact on different lines of business.

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.  An MDO clarifies roles and responsibilities so that people throughout the organization can contribute innovation to the aspects of the business they know best.

Coalitions can bring together diverse expertise and points of view to think outside the box.  The scope of many solutions will be contained within organization units that can take initiative to identify and implement them.  Broader-scope effects or innovation from outside the affected organization must be recognized and escalated to the attention of leaders who can act on them for planning and investment activities where they can be given appropriate priority.  Contributions of individuals must be recognized and rewarded to sustain motivation.

Regulatory compliance.

Most businesses are now global either in their operations or in the delivery of their products or services.  This means an enterprise must comply with regulations of multiple political entities.  As with risk abatement, an MDO provides a framework for identification of regulated activities and implementation of compliance mechanisms. 

A corporate staff activity must track regulation changes around the world.  Relevant regulatory requirements must be identified, interpreted in the context of the business, and brought to the attention the organization units that may be affected.

Capability units must consider the regulations affecting their resources, materials and methods.  Lines of business must consider the regulations affecting their products and services—the design, the material content, and the risks to users where their products or services are delivered. Support services such as financial services, human resource management and information services must consider regulations such as financial accountability, employment practices and information security.

The implications of these regulation assessments should be reported to corporate leaders and their staff to determine the specific implications to the enterprise.  Some regulations may be subject to further interpretation, some may affect where operations are performed, and others may affect the choice of markets.  An MDO provides a framework for determining where and how compliance should be achieved.  Corporate leaders should periodically review the relevant regulations, and assess the mechanisms and accountability for compliance. 

Conclusion

While the new fundamentals are not entirely new concerns, attention to them has become increasingly important to the survival of today’s enterprise.  Most of the workforce is now knowledge workers who each have expertise and insights into their segment of the business.   While enterprise leaders have a critical role in reconciling and motivating different perspectives, they must utilize the abilities of people more directly engaged in the operation of the enterprise in order to be both efficient and agile.  An MDO provides a structure in which the fundamentals can be addressed by appropriate members the enterprise, and their expertise and insights can be fully utilized to address the challenges and opportunities.

The Multi-Dimensional Organization

Organization structures are changing.  Repetitive manual processes have been automated, so organizations are increasingly dominated by knowledge workers who resolve exceptions, and create, maintain and adapt business operations.  Global competition, increasingly rapid change, and pervasive computing and communications technology have made new ways of doing business a competitive necessity.   In particular, a virtual enterprise—multiple companies contributing to an end product or service—can successfully compete against the traditional, large, integrated company through exploiting greater economies of scale.

The successful enterprise, whether integrated or virtual, must develop a multi-dimensional organization (MDO) structure.  The conventional, two-dimensional, matrix organization divides the management of functional capabilities from the management of products or projects.  The new MDO is much more than people having two bosses with different perspectives.  An MDO has different groups of people dealing with different dimensions of the enterprise.

Two core concepts for organizing an MDO have been developed through work at the Object Management Group and are being incorporated in the VDML (Value Delivery Modeling Language) specification.  We call these core concepts collaboration and capability.

A collaboration is a group of participants, including people, organizations or machines, that participate in roles that contribute to a shared objective.  This core concept is the basis for modeling the structure of any organized human endeavor.  The virtual enterprise, referenced above, is a collaboration among participating companies.  A work group is a collaboration among people, a business process is a collaboration of participants in formally defined roles and relationships, and a management hierarchy is a recursive collaboration of people and organizations participating in their formal business roles.  Furthermore, a role in one collaboration, for example, a department manager role may be specified as a participant in another collaboration, for example, a member of a quality improvement task force.

A collaboration may be identified as having a capability.  A capability is the ability to perform a type of work by applying resources including, for example, people, materials, equipment, techniques and processes that work together to deliver the capability.  An organization of any size may be described as providing a capability.  A supplier may be viewed as having a capability to provide a particular type of component such as electric motors.  A department may be defined as having a general capability such as product engineering or manufacturing.  A work group that actually performs work may be defined as a capability unit having a specific capability such as damage assessment.  A capability may be offered as a service, so the collaboration that offers that service will be described here as a shared capability service unit.  See Value Chain Modeling, Part 1: Capability Analysis for more on capability services.

In this article, I will discuss the dimensions of an MDO.  In Part 2, I will discuss how these dimensions complement the new fundamentals discussed in my July, 2011, blog, “Rethinking Business in a Changing World.”   

I define 5 primary dimensions of an MDO: (1) product capability services, (2) lines of business, (3) primary support services, (4) coalitions, and (5) enterprise leadership.  These dimensions are not new, but their roles and relationships have not been formally distinguished, understood and managed appropriately.  I will discuss each of these in the paragraphs that follow.

Product Capability Services

Product capability services manage the capabilities that are needed to deliver the products or services of the enterprise.  Traditionally, these capabilities were included within each line of business organization.  In an MDO, product capability services will be managed separately from line of business organizations so that they can be shared by multiple lines of business.  This is similar to the traditional matrix organization concept of separating management of a product or project from the management of teams used to do the work.  In an MDO, capabilities are offered by capability service units as sharable services that can be used by multiple lines of business.

Product capability services have a management hierarchy that is responsible for the operations of the service units and management of the resources they use.  The structure of the hierarchy may bring together capability service units that have similar skills, resources and methods to achieve economies of scale and consistency in management practices.  Other factors such as geographic locations of operations may also be a factor.  Product capabilities may include product development, as well as production operations, distribution and sales.

A product capability service unit contributes value directly to products or services.  Examples of broad product capabilities include product development, manufacturing operations, claims processing, patient care, network operations and product distribution.  These general capabilities are broken down to more specific capability service units with specific personnel, skills, tools and methods.  A product capability service unit will be engaged by one or more lines of business to contribute to the delivery of the associated product or service.  These capabilities will include core competencies and mission-critical operations. 

The use of shared services achieves economies of scale in the sharing of methods and resources, and greater agility to adapt to changes of requirements, technology and workload. The same capabilities may be engaged to form new lines of business. A capability services organization also may form secondary support services to consolidate support for multiple capability service units.  For example, a manufacturing capability organization may have support services for machine maintenance, materials handling and tool crib management.  These capabilities are not directly involved in the delivery of the enterprise product or service.

The workers in a capability service unit work for a capability manager; they do not work directly for the users of the capability.  The manager of a capability is responsible to his or her manager for the efficient and effective operation of the capability and utilization of resources, and he or she is responsible to the users of the capability for the cost, quality and timeliness with which the capability is applied for each user.

Lines of Business

A line of business (LOB) organization has responsibility for defining and managing a segment of the business that delivers a set of products or services based on product type, market segment, or both.  It is responsible for management of the products or services from concept through delivery. The LOB is concerned with market demand, product requirements, its position in the marketplace, its competitive advantages or disadvantages, and value delivery for its customer segment(s) as well as realization of value for the enterprise.

The LOB uses the services of product capability service units to perform the activities for development and production of its products or services.  The flow of deliverables and contributions of value can be described as a value stream—a collaboration of capabilities.  Interactions with the capability units are designed to minimize the coupling between each capability unit and the LOB so that each capability unit can be used by multiple LOBs.  The LOB represents an internal customer of product capability services, and it is concerned with the performance of the services it uses as they impact its customer and enterprise values.  A LOB may have a management hierarchy based on product or service groups for the product lifecycle. 

Primary Support Services

Primary support services provide capabilities that, generally, are not specific to the particular business or industry, but instead support business activities throughout the enterprise.  I distinguish these from the secondary support services (discussed earlier) that achieve economies of scale within broader capability organizations. The primary support services are (1) Finance and Accounting, (2) Procurement, (3) Human Resources, (4) Information Systems, and (5) Facilities Management.  All support services serve internal customers.  Primary support services may interact with enterprise activities at many different levels and in any branch of the organization.

As with a product capability service, a support service provides economies of scale, consistency and control for its aspect of the enterprise.  For example, finance and accounting ensures consistent application of accounting practices and reporting, and it controls the collection and disbursement of funds.  Information technology manages technical resources and ensures the integrity and security of information systems.  A primary support service also provides separation of responsibility for its aspect of the enterprise. 

The primary support service capabilities are not specific to the particular industry or enterprise but nevertheless serve the needs of the particular enterprise.  So a chart of accounts may be enterprise-specific, purchasing agents may specialize in particular categories of vendor products and services, and information systems application developers will translate enterprise-specific application requirements to computer programs. However, because they represent generic capabilities, many primary support services can be considered for outsourcing.

As with product capability services, the primary support services are concerned with the value they deliver to their internal customers and enterprise stakeholders along with the efficiency of their operations. Their management hierarchy will typically correspond to a taxonomy of their capabilities.

Coalitions

As discussed earlier, any organization can be viewed as a collaboration to achieve some shared purpose. Product capabilities, lines of business and primary support services generally have persistent management structures along with direct and persistent control over their employees and associated resources.  But operation of the business requires collaborations that cross organizational boundaries.  I call these coalitions. 

Coalitions bring together participants from different persistent organizations.  Coalitions may be temporary or long-term, but they focus on particular issues that require development of consensus or interdisciplinary insights and influence.  A participant in a coalition often represents the interests of their primary organization.    

Coalitions include committees, task forces, project teams, transformation initiatives, informal problem-solving and information exchange activities, interactions with customers and business partners, and professional communities.  As organizations have evolved and knowledge workers become an increasingly large segment of the work force, coalitions are consuming an increasingly significant portion of human resources.

Some coalitions already may be formally defined such as an executive committee or a project team, but many are formed informally based on business improvements, personal growth, sharing of expertise, ad hoc problem-solving or innovation.  Generally, participation in a coalition is not considered the primary responsibility of a participant.  

Many coalitions are viewed as exceptions to the normal operation of the business.  People divert some of their time or effort to such activities, often without any accounting for the diversion of resources.  Participation in some coalitions may be supported by participants’ managers because they recognize the importance of the initiative to their areas of responsibility. However, there can be many coalitions that are informal and collectively can divert considerable effort from the function of the primary organizations.  This may cause some managers to discourage participation in coalitions as having a detrimental effect on the performance of their operations consequently resulting in sub-optimization.

The enterprise must recognize the importance of coalitions.  In the past, organization structures were published when necessary to communicate changes to the persistent organizational roles and reporting relationships. Coalitions  can come and go quickly, but such changes now can be recorded and communicated quickly with Internet and mobile technology, and these relationships have become increasingly important to recognize and understand.  In addition, incentives along with tracking of funding and value contributions are required to align these efforts with enterprise objectives. 

Participants in coalitions can bring together expertise and insights that are not otherwise available for management planning and decision-making. Coalitions must be recognized and managed as sources of important insights, solutions and innovations that must be escalated for appropriate attention by higher levels of management.  

Corporate leadership

Corporate executives and their staffs have responsibility for the overall direction and operation of the enterprise.  They have responsibility for governance, leadership, allocation of resources, and setting of policies and priorities from an overall enterprise perspective.  Further, they are responsible for changes to the business including adaptation to market changes, technology advances and new product/line-of-business opportunities.  They must maintain a business model that defines how the enterprise can be successful in bringing value to customers, suppliers and other stakeholders.  See Value Chain Modeling, Part 3: Value Propositions for more about value delivery.  They have a responsibility to ensure that the corporation is more than the sum of its parts through economies of scale, synergy between lines of business and corporate values and reputation.

Executives cannot do it all on their own, and they cannot simply track the financial numbers and delegate responsibility.  Too much delegation yields sub-optimization. Much of the work of executives involves resolving competing interests of different parts of the organization. Corporate leaders must be supported by staff activities for such things as research and development, strategic planning, market analysis, legal counsel, analytics, performance optimization, business design, regulatory compliance, security, risk management, and standards.  In addition, they must rely on participation of specialists from across the enterprise in coalitions with staff members for innovating, optimizing, problem-solving, governing and transforming the business.

The business strategy involves plans to influence or disrupt the market, and plans for changing the enterprise to gain market advantage and optimize enterprise value.  Plans must balance risk, agility and efficiency, while ensuring the integrity, regulatory compliance and security of the business.  Coalitions can provide the depth of knowledge of the business that is essential for timely and appropriate planning and decision-making by corporate leadership.

Executives must establish coalitions with other ecosystem participants to achieve mutual benefits.  The ecosystem involves customers, suppliers, economic and social factors, governments, various forms of disruptive events, and market trends as well as competitors.  See Value Chain Modeling, Part 4: Value Exchange for more about exchanges of value.  Vendor coalitions are important for timely receipt of quality products or services.  Government coalitions can improve the quality of regulations and the cost of compliance.  Customer coalitions can provide guidance for improving customer value of products and services. Coalitions that include competitors can develop standards and best practices that improve market opportunities as well as business operations.

Conclusion

Modern technology enables an MDO by eliminating time and distance barriers to communication between people and organizations.  The need to recognize multiple dimensions is heightened by the increased importance of knowledge workers in the optimal operation and continuous adaptation of the enterprise.

At the same time, the technology that has enabled MDO, also has enabled virtual enterprises.  A virtual enterprise is a collaboration of multiple, independent but participating companies.  Many of these companies operate as shared services to multiple enterprises.  These shared services can achieve economies of scale not available from traditional, internal capabilities of large corporations.  The services of these independent companies enable the rapid, low-risk, low-capitalization formation of a virtual enterprise thus eliminating barriers to entry into businesses otherwise dominated by large corporations.  New virtual enterprises can enter new markets very quickly, be highly efficient and scale easily as the business grows or declines.

A formalized, MDO and visible organization structure is essential for effective enterprise management and competition in the rapidly changing, global and highly competitive business environment.  The multiple dimensions clarify roles and responsibilities and legitimize coalitions to enable implementation of appropriate incentives and funding, and exploitation of employee talents and accomplishments.  Modern technology supports continuous update of the organization model, including coalitions, and the ability for employees to access this model for an understanding of active efforts, their own roles and relationships and opportunities for collaboration. 

The organization model of an enterprise should go beyond the immediate roles and relationships in order to provide a history of employee roles and relationships for accountability, recognition of achievements, and records of experience.  These are important for consideration in forming coalitions as well as developing and retaining people.

Full implementation of an MDO requires new processes to set priorities, manage organizational change and investments, coordinate related activities, provide incentives and exploit accomplishments and human potential.

Modernization of Patient Care Management

The current United States healthcare system is in transition from an era driven by paper records, human paper-handling and telephone calls, to an of era of electronic health records, people connected through mobile devices and the Internet, with moment-to-moment collaboration, communication and coordination.

In this article, I discuss a potential patient care system that exploits current computing and communications technology to transform healthcare delivery to a more integrated, responsive and efficient system.  I begin with related observations on the current state of the healthcare system, followed by a list of principles for an improved system, and finally I discuss modernization based on current information technology.  I conclude with references to current standards work that enables this transformation.

The Current System

Below, I focus on four fundamental problems with the current healthcare system: (1) care management is fragmented and inefficient, and (2) there is a failure of competition, (3) adoption of new medical technology is too slow, and (4) automation is preserving legacy systems.

1.      Fragmentation.  Healthcare providers tend to operate in silos, delivering their special capabilities.  An individual’s healthcare records are scattered among different providers.  The patient becomes the inefficient courier of records and medical information.  There is minimal coordination of care among specialists.  Tests are often duplicated, and risks of interactions may be overlooked.  Providers do not have incentives to share records with other providers.

2.      Competition.  Providers do not compete for patients based on service quality and price. Under capitation-based, managed care, patients choose providers from the payer’s network.  Providers are paid a fee for each covered patient, so they have incentives to minimize services and avoid patients with high service needs.  Under fee-for-service, providers are paid for performing services; more services generate higher income.  They receive the negotiated rates regardless of the quality of care.  Patients only see their deductibles, co-pays and denials of coverage, and they are not informed purchasers of healthcare services.  Unlike other markets, cost and quality have minimal impact on a patient’s treatment decisions or choice of provider.

3.      Technology transfer.  Transfer of new medical technology, including new services and procedures, from research to practice is hampered by many factors including FDA approval, denial of insurance coverage, provider business risk, resistance to change, and malpractice lawsuits.  The market does not reward rapid adoption of advanced medical technology. 

4.      Legacy systems.  Information technology has had a significant impact on medical testing and diagnosis, but, for the most part, it has not changed the way care is managed.  Automation of legacy systems solidifies conventional methods and may make the overall healthcare system more difficult to change.  While paper has been converted to electronic data and data is entered and viewed using electronic devices.  Patient records are more vulnerable to electronic intrusion, and the management of patient care remains unnecessarily fragmented, unresponsive, inconsistent and inefficient.

These problems require transformation of the healthcare system.  In this article I focus on one aspect—transformation of the way patient care is managed.

Key principles

Of course there are many principles for good healthcare.  The following principles are particularly relevant to patient care management. 

Market-Driven Improvements

For effective competition, provider pricing and quality improvements should be driven by market demand as expressed by patients.  Treatment decisions by patients should reflect consideration of cost as well as performance of providers.  Providers should be free to charge what they believe their services are worth, and consumers should be able to select a more expensive service that exceeds their coverage if they believe the value of the service to them merits the additional cost.  Demand from patients who are willing to accept the increased cost and potential risks of new technology should drive adoption of new technology as a competitive necessity.

Informed Consumers

Patients (consumers) should make informed decisions in their selection of care providers and treatment options.  Physicians are responsible for educating a patient about their treatment needs and options.  Costs and outcomes of procedures and medical conditions, including availability of advanced technology, should be published using standard categories and designations so they can be compared across providers.  A consumer should be able to consider providers and treatment alternatives along with the net out-of-pocket cost reflecting their insurance coverage.

Physician Leadership

Coordination of care requires medical expertise.  A primary care physician and his/her team should have responsibility for the overall health of a patient and coordination of care.  Primary care physicians must know when a patient should be referred to a specialist, must have an incentive to refer rather than treat, and must track and coordinate care.

Collaboration

The patient, the primary care physician and specialists, along with their respective teams, must collaborate to provide appropriate planning and treatment for the whole person.  Collaborative planning and follow-up should be life-long (at a level of intrusion determined by the patient) addressing not only acute and chronic care, but also health monitoring and preventive care.

Development of Best Practices

Generally, physicians develop their own best practices.  Professional groups must collaborate to define, share and continuously improve industry best practices.  This includes adoption of advanced technology and improvements to performance measures.  Acceptance of best practices should be supported by empirical data on performance and outcomes from controlled trials.  Performance measures and associated reimbursements must provide appropriate incentives for utilization and improvement of best practices.

Risk Management

Outcomes must be analyzed and rules must be formulated to define and manage risks.  Risk should be assessed based on patient circumstances and alternative technologies, while considering regulations, medication interactions, contraindications and conditions requiring immediate attention.  Risk data should be available for professionals and patients considering treatment options.

Medical Records

Patients and personnel of their authorized medical teams, as appropriate to their individual roles, must have timely access to the patient’s current medical records from all sources.  Even though individual providers go out of business, lifetime patient records must be available to support diagnosis and treatment as well as research. Reliable security methods must ensure privacy of patient medical records and enable the patient to restrict access by professionals based on need to know.  Providers must accept that patient records belong to the patient, and records must be available to support diagnosis and treatment by other providers.

You Get What You Pay For

Quality care requires extra effort to educate patients, collaborate with treatment teams, develop best practices and share medical records.  These efforts must be paid for or they won’t happen.

Application of Information Technology

Information technology is changing the way the world works.  The cost of computers, communications and data storage have become negligible.  Individuals can be always connected through mobile devices.   Computers can help improve timeliness, consistency, validation, guidance and retrieval of information, and they can alert professionals to emergent conditions and the availability of relevant information.  Computers can also relieve professionals of tedious, repetitive tasks, ensuring that they are performed in a timely and accurate manner. 

My previous article describes a vision of “The Knowledge Worker Cockpit.”  Healthcare professionals are knowledge workers.  That technology is a basis for the following characteristics of a future care management system.

Engagement of Services

Consistent data on provider rates and outcome statistics as well as availability of new technology should be publicly accessible, particularly in support of patient selection of a provider.  Web services should support comparison of out-of-pocket costs of different providers based on the coverage schedule of a patient’s payer.  As a result, providers will compete for patient business.  The patient should be able to proceed to schedule a doctor’s appointment and obtain preliminary tests based on symptoms, medical records and potentially a teleconference with a medical professional (see telehealth, below). 

Collaboration

Collaboration is an important and often overlooked element of good patient care management.  A primary care physician should collaborate with specialists, and each physician should collaborate with his or her team.  Some collaborations may engage international experts in teleconferences.  Information technology can support collaboration through communication of messages as well as scheduling and support of meetings and teleconferencing.  This may be obvious in a hospital setting, but it should continue in community care and through transitions between community and hospital care.

Telehealth

Telehealth supports some aspects of healthcare remotely, using electronic devices and communications.  This includes devices for monitoring vital signs and other symptoms as well as support for collaboration between patient and professionals.  Patients, particularly in remote areas, may resolve some health problems without the necessity of travelling to an office, clinic or hospital.  For others with chronic conditions, it provides monitoring of symptoms that might otherwise require hospitalization.  The data collected by electronic sensors or patient inputs can be sent directly to a care management system for monitoring and initiation of alerts to professionals if important changes occur in the condition of the patient.

Treatment Planning and Coordination

The care management system will be highly interactive and support collaboration on treatment planning and decision-making.  Pre-defined planning elements will include guidance and constraints, links to defined services (e.g., lab tests) and frequently occurring patterns of activities applicable to particular situations or medical conditions, including best practices.  Individuals doing treatment planning may capture frequently used tasks and patterns of activities in their personal libraries to expedite their planning efforts.  Treatment plans can be developed and changed as the patient’s circumstances evolve.

Timely Response

Automated plan management will provide personal schedules along with follow-up actions on events such as alerts on over-due activities, reports of relevant information, and completion of pre-requisite activities. Critical changes in the condition of a patient can trigger alerts or corrective action to ensure that appropriate action is taken in a timely fashion.  Appropriate professionals or their alternates can be notified immediately regarding key events via mobile devices.

Electronic Health Record

There has been much attention to the development of electronic health records (EHR).  The primary care physician, the specialists and their teams must all have access to a consistent, shared EHR (not necessarily stored in one location).  A patient HER should provide access to all current medical information and should be retained, under patient control, for a lifetime medical history. The system will apply standards for the form of various types of records or transformation of records from different sources to a consistent form.  It also will support timely communication of updates.  Records must be accessible to authorized personnel only to the extent authorized by the patient.  Authorization and withdrawal of authorization must extend to all sites where a patient’s records may be accessed or replicated.

Audit Trail

The care management system will generate an electronic audit trail of activities performed, events that occurred, decisions made, and the associated circumstances as defined by the EHR.  The system should provide the ability to reconstruct a case snapshot that reflects the state of the case at a particular point in time as the context for events, activities and decisions.  An audit trail will also track individual accesses to medical records for privacy assurance.  Records on services to individual patients will provide the basis for reimbursement for services, including services delivered through remote monitoring, teleconferences or other means that do not require a physical meeting of the physician and patient.   

Analysis                                                                                                       

Computer-based analysis of treatment histories will provide insights on treatments, health trends, causes of medical conditions, and best practices.  The care management system will provide data on actual practices and outcomes to support identification and improvement of best practices and analysis of risks.  Applications will support analysis of outcomes, costs and timeliness of procedures as well as identification of factors related to variances in treatment, outcomes and total costs of treatment for specific medical conditions. 

Guidance

Interactive guidance can provide support for use of best practices and can both encourage and support consideration of new technology.  Guidance can be provided in terms of task requirements, planning and decision-making alternatives, risk and cost factors and contingency plans for emergent conditions.   Guidance may be triggered by the initiation of certain activities, or it may be determined by automated reasoning triggered by events and based on the patient’s EHR.  A more sophisticated system may “learn” case circumstances when certain activities or patterns are often initiated and suggest them to physicians. The system may also inform the physician of current trends or epidemics that may be relevant to the patient’s condition.

Constraints

Constraints can be specified for the planning or initiation of tasks, task completion criteria, authorizations as well as actions that may be affected by regulations, interactions or contraindications.  Constraints can help prevent mistakes or oversights and enforce policies and procedures.

Conclusion

The automation of patient care management is typically envisioned within a hospital setting where solutions can be implemented and governed by a single administration.  However, patients don’t spend their lives in a hospital; for most people a hospital stay is a brief episode in their lives.  Advances in information technology will support automation that integrates hospital care, community care, remote care, continued health monitoring and preventive measures.

The facilities discussed above are based on technology described in my previous blog post on “The Knowledge Worker Cockpit.”  The goal is to provide access to “power tools” for knowledge workers, such as doctors, nurses, medical technicians and others, including patients, who must participate in health care and make decisions about services based on their personal insights, experience and expertise in order to do the job right.

Development of standards is a key challenge.  The healthcare system consists of many independent providers and payers with scattered patient records and diverse computer systems.  The activities of multiple providers must be integrated and coordinated through shared supporting technology, and the records (or interfaces to them) must be consistent for sharing and electronic processing through compliance with an Electronic Healthcare Record (EHR) standard.

The Object Management Group (OMG) is developing a specification for case management modeling (Case Management Model and Notation) that supports the modeling of specific types of cases (including patient care management).  A case-type model will provide case record specifications and planning elements that make it easy and flexible  to plan and manage individual patient care in collaboration with others, to streamline care management and to improve the quality and timeliness of outcomes.  

The OMG Healthcare task force is working on additional standards in cooperation with the HL7 standards organization.  Public recognition of the value of these standards, along with demand for their implementation, is a key factor in transforming the US healthcare system.