Business Culture: Part 2, Examples of Cultural Challenges

This is the second part in a series of six blog posts on Business Culture.  My perspectives on culture are shaped by many years of experience in a variety of situations.  In the following paragraphs, I will use some of these experiences to illustrate some cultural challenges.

EDS Outsourcing and Application Delivery

In my many years with EDS, I observed the consequences of many reorganizations, mergers and acquisitions.  EDS (and now HP Enterprise Services) is in the business of outsourcing information systems activities—the information systems activities of a client are acquired by HPES.  Every new account involves challenges of reconciliation of cultures.  Data processing operations and application maintenance activities tend to be prescribed tasks with much of the knowledge work performed within the scope of individual tasks.  Application development work, however, is non-repetitive and requires much more collaboration and knowledge sharing.  Thus it is more affected by culture. 

As an EDS Fellow, I had an ongoing interest and participated in a study of the EDS application delivery business model to identify opportunities to improve quality and productivity and thus become more competitive.  Project over-runs, under-utilization of individual capabilities, non-competitive pricing, slow response to advances in technology, and employee dissatisfaction were commonplace.  Each new application development account or major project would be staffed with people drawn from other accounts or pools of developers along with transitioned client employees.  The challenge from my perspective was to develop an umbrella culture and individual team cultures that inspire excellence of timeliness, quality, productivity and personal satisfaction.  Teams for substantial projects were assembled for each new project so each team required formation of new, informal roles and relationships.  This was often addressed with some “team building exercises.”

A key observation was that incentives did not align with goals.  Individuals were at risk of termination when completing an assignment if they didn’t find another assignment on another account; consequently, long assignments were preferred, regardless of the ability or interest of the individual to perform the various tasks involved.  Commitments to solutions and costs were developed by sales teams without involvement of those responsible for delivery of the results.  Responsiveness to customer requests was more rewarding to individuals than change control and timely delivery.  Standard practices were implemented to reduce variability and improve accountability, but these practices failed to utilize the full potential of people.  There was little appreciation of the importance of culture.

Volunteer organization

For many years, I have been president of a volunteer, support, education and advocacy group.  Active members contribute their time to activities for which they are capable and that they believe contribute value to the overall shared, social purpose of the organization.  Except for the necessary, formal roles of a non-profit corporation, the operation of the organization is primarily based on culture.  People become engaged because they want to contribute, and they take responsibility for activities that they believe are important.  They collaborate with others on particular initiatives of shared interest. 

One of my challenges is to engage new participants to sustain and expand our efforts.  In working to engage a new participant, I try to understand their interests and capabilities, and emphasize the potential synergy and personal satisfaction of working together toward the goals of the group.

Another challenge is to maintain a non-partisan political standing.  Advocacy can involve influencing government action.  However, status as a charitable organization and, particularly, the diversity of our membership require that we not take partisan positions.  We must avoid initiatives or approaches that may be in conflict with the political interests of some of our members.

Personnel motivation model

In 2004 I submitted a patent application for a Personnel Motivation Model.  This patent application describes a computer-based model for considering the effects of incentives, personal relationships and personal interests on motivation of individuals to contribute to goals.  This grew out of my analysis of the lack of competitiveness of the EDS application development business, discussed above. 

There are many interests, relationships, and incentives that vary among individuals and teams.  The motivation model is intended to help manage the complexity of the many elements and relationships in order to define appropriate incentives and motivate individuals to strive for shared goals.  The patent is still pending.

Book

In my last book, Building the Agile Enterprise with SOA, BPM and MBM, I focused on business modeling, highlighting the modeling of extended value chains to define shared capabilities and integrate them as shared business services.  The emphasis was on design of the enterprise for agility, accountability and economy of operations.  Enterprise agility is enhanced by empowerment and individual initiatives supported by informal roles and relationships.  I did not identify this as culture in the book, but culture is key to achieving excellence of agility, accountability and productivity.  The book  led to the initiation of current work on the Value Delivery Modeling Language (VDML) as an Object Management Group (OMG) industry standard. 

Value Network Analysis

Verna Allee, another contributor to VDML, brought in Value Network Analysis (VNA).  VNA focuses on the exchange of values between participants at all levels from exchanges between business partners to technicians solving product or service problems.  Verna emphasizes the exchange of “intangibles,” those deliverables that are not part of the formal business processes but are essential to effective business operations.  I see many of these as cultural elements—extended roles and responsibilities that have emerged to solve ad hoc and less predictable problems, improve performance and achieve better results.

A challenge for users of VDML is to understand beyond the operational need for these intangibles: how are these informal relationships formed and how are people motivated to establish and participant in these exchanges.  VDML users must also recognize the difference between intangible exchanges that are well established and persistent, and those that are ad hoc, flexible, cultural practices.

Business Culture: Part 1, Why Is Culture Important

This is the first in a Six-Part series of posts about business culture:

·         Part 1, Why Is Culture Important

·         Part 2, Examples of Cultural Challenges

·         Part 3, Evolution of Culture

·         Part 4, The Corporate Cultural Network

·         Part 5, Cultural Inertia

·         Part 6, An Abstract Model of Culture

Introduction

I define culture as a collection of intangible, informal forces and ideas that influence how and why people collaborate for a shared purpose.  It includes the interests, beliefs, experiences and patterns of work that extend beyond any formally defined roles and responsibilities of the participants.  A culture tends to resist change, but at the same time it can continually evolve to address changes of membership and environment.  Culture can make the difference between success or failure of a collaboration, and thus can make the difference between success and failure of an enterprise.

The LinkedIn Business Architecture Community recently had a lengthy discussion under the topic “Architecture of Business Culture.”  Much of the focus was about how to align culture with corporate goals. Of particular interest is how to resolve culture conflicts such as those that may occur in business reorganizations, consolidations, alliances, mergers and acquisitions.  Differences in business practices in these cases are potential sources of culture conflict. As the Business Architecture Community discussion evolved to a focus on modeling business culture, I was inspired to explore modeling culture in more depth, leveraging some of my past work (discussed in Part 2).

Business Impact of Culture

Culture extends a formal business model with informal relationships and contributions.  The effects of culture are significant, but understanding of culture tends to be intuitive.  When describing culture, the focus is usually on the visible behaviors and artifacts rather than the underlying forces that drive the behavior of individuals and the group.

Culture has become increasingly important to business success.  The traditional business organization has been driven, top-down, with employees expected to focus on their prescribed tasks.  Over time, rote tasks have become automated and the  workforce has become a workforce of knowledge workers who can deal more effectively with non-routine challenges.  Knowledge work deals with the unpredictable, and knowledge workers must be relied upon to recognize and solve problems based on their own skills and insights rather than formally defined roles and processes.  The personal interests of knowledge workers influence their initiative and creativity in their work.  In addition, most knowledge workers rely on informal relationships and support from other knowledge workers, both inside and outside their formal group, to be most effective.  These interests and informal relationships are key elements of culture.

Not only has the nature of work changed, but reorganizations, consolidations, outsourcing, alliances, mergers and acquisitions have become frequent business events.  These require reconciliations of cultures that can ripple through an organization.  In addition to disrupting the way affected groups do things, these changes may result in conflicts between individual interests and the interests of others, as well as the goals of their organization, the incentive system or the broader corporate culture.  Compatibility of organizations is much more than the similarities of the businesses; it includes compatibility of the interests of individuals with organizational goals and the interests of co-workers as well as the willingness of individuals or their cultures to adapt to new business patterns and technologies.

Globalization of business is another factor driving concerns about culture.  In addition to obvious differences between people in different countries, people have different attitudes, interpersonal relationships and expectations regarding the way work gets done.  If done poorly, mixing people of different cultures may cause confusion and conflict along with degraded productivity and quality of work.  If done well, diversity can be an advantage.

Finally, businesses must be prepared to adapt to changes in technology and market opportunities.  An effective business culture can streamline the work of transformation if existing relationships and expectations are properly engaged.  There is less need to develop detailed plans if everybody knows what is expected of them and what they can expect from others.  However, business changes may be difficult or impossible if they challenge culture.

Purpose of this series

The purpose of this series is to explore various aspects of culture, the conceptual elements of culture and their relationships.  These discussions are intended to develop a shared understanding of business culture as a basis for a proposed reference model discussed in Part 6.  Such a model will enable us to better work with the mechanisms that develop and evolve culture and potentially shape or inspire a culture to achieve exceptional goals.  This model represents a potential extension of VDML (Value Delivery Modeling Language), a business modeling language under development at OMG (Object Management Group).  See Outside-In Business Architecture with VDML and earlier posts about VDML on this blog.

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.