Transforming enterprise performance

What drives transformation and change in enterprises?  Why do they need to change?

In a dynamic environment:

  • customer needs change, prompting changes to the products and services offered
  • competitors introduce new offerings which change the perceived value of products and services offered
  • new opportunities emerge for offering different products and services

Each of these require changes to products and services offered and, in all likelihood, require changes to the enterprise capabilities which produce and deliver these products and services.

Each will require changes in operation and changes in performance.

Enterprise performance

Is the performance of your enterprise satisfactory?  Could it perform better? Does it need to perform better?

How do you measure the performance of your enterprise?  How do you know whether the current levels of performance are adequate?  How do you know these performance levels can be sustained?

Exploring enterprise performance will require exploration of outputs and outcomes, both at the enterprise level and at the capability level.

This is a starting point for grounding what might be a much needed or much valued transformation of your enterprise.  The question of performance can be approached in numerous ways – this particular topic is about two models to explore which will enable you to:

  • evaluate your enterprise
  • develop a transformation strategy (if necessary)
  • execute your transformation program
  • realise measurable and sustainable improvements in enterprise performance

Exploring business models

Business models provide a means of exploring external demands for change.

To understand the essential elements of business models, you may wish to explore the following articles:

From these, I hope that it is evident that business models provide a means of developing a shared view of:

  • the products and services an enterprise intends to offer
  • the value proposition of these products and services to prospective customers

Exploration of these issues can lead to identifying changes in enterprise performance to offer:

  • different products or services
  • enhanced customer experience in using the products and services
  • lower cost (and price) products and services

This can be the beginning of identifying critical changes which an enterprise needs to effect.

Exploring operating models

Operating models provide a means of exploring internal demands for change.

To understand the essential elements of operating models, you may wish to explore the following articles:

From these, I hope that it is evident that operating models provide a means of developing a shared view of:

  • the capabilities required by the enterprise to pursue its intended business models
  • the capability gaps which need to be addressed and which may be evident through issues in capability performance

Summary

Given the fractal nature of enterprises and of these two models, they provide a highly effective means of exploring internal and external demands for change and transformation which can lead to realising improved enterprise performance.

Enterprise integration and wholeness

As outlined in my article about enterprise challenges, enterprises experience and effect change. In so doing, they compromise their integration with the environment in which they operate and their internal integration. Ichak Adizes refers to this as dis-integration which then requires re-integration.

Architecture is fundamentally about the design and realisation of integration and wholeness within enterprises. Just as with individuals, the more that a person or an enterprise is “at one with their environment, with others and with themselves”, the richer the life that the person or enterprise leads.

Experiencing dis-integration

If you have been part of a small enterprise, you may well have had the experience of and the need to deal with transitioning from:

  • knowing everything about the enterprise to only knowing some things about the enterprise
  • doing things yourself to trusting and delegating others to do things
  • feeling like a family to feeling less connected and perhaps even lost or ignored

This requires attention to the essential elements necessary for consistent practice to occur in a more distributed fashion across a larger number of teams and staff.

Even in small enterprises, challenges emerge in ensuring that the organisation operates in a manner which is sufficiently consistent to achieve its goals and aspirations. These arise in relation to individual thinking patterns, individual behaviours and individual exercising of key processes – whether they be core value adding, client facing processes or support processes which need to provide internal services consistently.

The issues that arise can be quite simple and include ensuring:

  • consistency in the fulfilling of a role or function by two different people that was previously performed by one person or the person to whom a role or function has been delegated
  • flexibility to respond to differing circumstances without being overly constrained by structures created to provide the consistency described above

These situations lead to dis-integration as others involved are unable to readily deal with the different behaviour or need to expend greater effort in responding to varying behaviours.

Potential responses

Enterprises have a variety of mechanisms by which they achieve consistency, integration and wholeness within teams, including:

  • articulation of a common vision and supporting values
  • establishing clear policies, standards and guidelines
  • establishing supporting systems

These and other mechanisms need to integrate in a coherent manner across the entire enterprise, such that, in the words of Tom Graves, they describe the architecture of the enterprise, enabling the enterprise to

“work together better”

This entails the enterprise in establishing and sustaining a foundational capability in describing the principles, models, structures and guidance that enables all participants in the enterprise to act in an integrated and coherent manner to realise the enterprise goals and aspirations.

These capabilities are needed in small enterprises and will serve the enterprise well through all facets of growth and development, providing the enterprise with greater flexibilty, agility and scalability.

Optimal path

Doug McDavid introduced me to the book “Managing Corporate Lifecycles” by Ichak Adizes. This explores the different stages of development in the “corporate lifecycle” and outlines four management roles which are critical to this development.

Adizes identifies an optimal path for the growth and development of enterprises which requires that the integration role is given greater attention, earlier in the life of enterprises – as it is often the last of the four roles that is given attention.

In essence, Adizes recommends establishing the integration capability at the outset of establishing an enterprise, ensuring that as each change and development occurs, appropriate capabilities exist and are exercised to address any consequential disintegration and necessary re-integration.

How does an enterprise give attention to integration? This can be done by:

  • establishing and sustaining an architecture which provides the guidance for achieving sustained integration
  • ensuring that the architecture and integration capabilities are based around a holistic approach to change and a focus on realising enterprise wholeness
  • establishing sufficient self-awareness within the enterprise that sounder decisions are made, avoiding the costs associated with rework that would arise once poorer decisions are found to be wanting

Summary

Developing and sustaining an architecture of an enterprise enables the members of the enterprise to operate in a more integrated and coherent manner and to realise greater wholeness across the enterprise – a challenge that all enterprises face.

 

 

Enterprise challenges

All enterprises face challenges (of varying magnitude and complexity). These challenges are either problems to be solved or opportunities to be pursued. One way of considering these challenges is through the following three lenses – those arising due to:

  • external change
  • internal change
  • growth and development

External change

It hardly needs saying these days – change is constant, change is accelerating, living with change is the “new normal”.

For any enterprise, there is a vigilance required in understanding the environment in which they operate. A high performing enterprise can suddenly find that its performance is dipping – not because it is doing anything different, but because it is not doing anything different. The market now expects and values something different to what the enterprise has become excellent at offering and providing, and the enterprise must respond accordingly.

Customers needs may change, competitors may introduce new services which place our own services in a different context, new entrants may shake up the market. Disruption to the market or environment in which enterprises operate require enterprises, whether small or large, to monitor the changes and respond to the changes.

Internal changes

Even if there were no external changes, there is still the challenges that arise from internal changes. Such changes may or may not be initiated by the enterprise.

It only takes one person to leave and be replaced for “things to be different”, requiring the enterprise to take action to ensure that its products and services are offered and delivered in an acceptable manner. Even if there are no personnel changes, there are internal disruptions that can occur, whether that be:

  • someone being away sick or on holiday
  • someone learning or discovering a different way to complete a task or fulfill their responsibilities
  • some change in workplace dynamics, arising from changes in behaviour or interactions between staff

As with external changes, these internal changes demand appropriate attention and response from managers and leaders, whether this is for small or larger enterprises.

Growth and development

As enterprises develop and grow, they face a range of challenges. If you have been part of a small enterprise, you may well have had the experience of and the need to deal with transitioning from:

  • knowing everything about the enterprise to only knowing some things about the enterprise
  • doing things yourself to trusting and delegating others to do things
  • feeling like a family to feeling less connected and perhaps even lost or ignored

Think about the changes that occur in progressively transitioning through the following stages:

  • A founding CEO and his / her team of five to seven staff
  • An independent CEO with four direct reports being managers, each leading a team of five to seven staff
  • A third generation CEO with six direct reports being executives, each leading a team of five managers, each leading a team of eight to ten staff

Think about the changing dynamics across this transition:

  • A vision, potentially developed in collaboration with the initial team, being a shared vision through to a vision which may be rarely referenced, which may have tenuous connection with the individual aspirations of each staff member
  • A structure which was a simple one line reporting structure and evolved through numerous changes, taking varying account of particular staff strengths and weaknesses, changing market demands and geographical presence
  • A consistent set of practices because each were performed by a single individual, but now are undertaken to varying degrees of consistency, potentially extending across multiple teams, with varying touch-points with external entities, whether they be customers, suppliers, partners, regulators, etc
  • The challenges of communication within a single team as compared to an enterprise of 250 staff, with four levels in its organisational structure, operating in varying locations and with varying work arrangements

Change and integration

I have found the thinking expressed by Ichak Adizes in his book “Managing Corporate Lifecycles” to be helpful and use it here to draw together a number of different elements.

Adizes speaks of change causing disintegration and requiring re-integration of our enterprises. Each of the elements that I have described entail questions about the degree of internal and external integration of an enterprise.

External integration reflects the degree to which the enterprise understands and operates in harmony with the markets / environments in which it operates. This does not exclude the possibility of being a disruptive force. Such disruption will only be successful where the products and services offer value to prospective customers, consumers and associated stakeholders.

Internal integration reflects the degree to which the enterprise holds a coherent view of its aspirations and their realisation, and the associated structures and practices it develops and sustains to support their realisation.

The challenge that all enterprises face is that of sustaining internal and external enterprise integration. Lest this be treated as technical statement, an alternate expression is that the challenge for enterprises, as living systems, is to develop and sustain themselves as healthy, holistic beings.

 

 

Exploring business models

This article extends on my first article about business models, where I outlined the key elements of such models and the value in developing such models.  This article explores:

  • the use of business model thinking for any system within an organisation
  • the relationship of the business model to other familiar techniques
  • the different considerations that arise in different enterprise contexts, with some specific examples

Systems within the enterprise

Traditionally, the concept of developing a business model has been applied at the enterprise level, inviting exploration of customers, products/services, value propositions, channels (on the output side of the business) and suppliers, partners, activities / capabilities (on the input and production side of the business) and developing a financial model that reflects an appropriate outcome (break-even or profit, depending on the type of enterprise).

These concepts can just as legitimately be considered for any system within the enterprise, whether that is an enterprise capability or an organisational unit.  It might be a particular “line of business”, a “shared service”, or a support function.  Taking people (or human resource) management as an example, it is feasible to consider:

  • the HR Branch (or organisational unit) providing products and services to the enterprise as customers with appropriate consideration of value propositions and channels, etc
  • the people management capability as a whole across the entire enterprise providing products and services to employees and to managers as customers with appropriate consideration of value propositions and channels, etc

Care needs to be taken in such treatments.  For the HR Branch, there is the risk of assuming its continued existence, whereas the people management capability model allows consideration of alternate sources for products and services. A genuine exploration of services and value propositions should test these against competitors (or other options) in either scenario.

This is not novel.  The application of customer service thinking to corporate services occurred several decades ago now.  For those with experience in such initiatives, it should be easy to recognise the focus as having been the “enterprise” or “system of interest”, to which the business model can be applied. This demonstrates the value of applying this “business model concept” in a fractal manner to any designated system-of-interest.  As such, it can be applied to any identified system-of-interest or organisational unit.

Relationship to other techniques

Whilst I was familiar with business-model-as-financial-model, I had not encountered the Ostwerwalder analysis and structure until about two years ago. Prior to that, along with many other architects, I had applied a range of traditional modeling techniques to the enterprise.

The simplest technique involved the use of a Context Diagram, placing the enterprise as the system-of-interest, and showing the external relationships to suppliers, partners and customers, each of which are considered in the business model .

As I started to explore value chains and value streams, it became evident that I could apply models used in Six Sigma and Lean thinking, in particular SIPOC, by considering the enterprise as a single process (P), and showing the suppliers (S), inputs (I), outputs (O) and customers (C).  This was (and is) a useful tool in making explicit these elements of the enterprise, as is the case when developing an expression of the business model.  Then, the core value stream could be expressed as a series of inter-connected SIPOC models as the next level of decomposition.

Another model which I have used is IDEFo, providing a different perspective by treating the enterprise as a function, and reflecting the inputs, outputs, controls (governance) and mechanisms (processes) which underpin the function.  Again, this model reflects some elements in common with the business model concept.

Each of these techniques demonstrates how the applicability of a system-related model to the enterprise, many of them paralleling elements that are included in the business model concept.  Analysts familiar with these techniques will be readily able to apply them to enterprises.

Application in different settings

There are different and distinctive differences in business models applied to different sectors.  Some assume that business models are not applicable to government and community sector organisations.  The following outlines some of the differences and demonstrates that the business model concept offers utility and value in all enterprise settings.

Public sector enterprises

These enterprises operate in more complex environments, where additional considerations are necessary.  Yet, the same concept and general principles can be applied, and potentially deliver additional value by establishing greater clarity and understanding of the way in which these enterprises can address the goals and objectives which communities set and expect of them.

The most obvious differences are that often public sector enterprises:

  • are not required to make a profit or realise a return on assets or investment
  • do not derive their income (revenue) from their customers
  • do not have choice as to their client / customer base
  • are measured on outcomes rather than outputs

(I may write a separate article to elaborate on these differences, as they are fundamental to better understanding the differing management challenges facing public and private sector managers.)

Business models are able to be accommodate these differences, as long as appropriate consideration is given to distinguishing between:

  • customers and consumers – customers being those who pay for products / services and consumers being those who use the products / services
  • treatment of income versus revenue, and profit/loss versus surplus/deficit
  • outputs and outcomes – the latter arising as an effect of the existence or use of an output

In order to treat these elements appropriately, greater attention must be given to:

  • the use of language and terminology
  • the varying stakeholders who may have interests and be beneficiaries of the enterprise beyond simply considering customers
  • the varying value propositions and benefits which may be afforded to the differing stakeholder groups

For example, I find it helpful to consider the following dimensions:

  • Financial dividends (afforded to owners and shareholders)
  • Economic, social and environmental dividends (afforded to other stakeholders)
  • Balancing of value propositions for owners, customers and employees (at a minimum)

Each of these can be explored and expressed in an enhanced business model representation.

People management as an enterprise

This provides an example of applying business model analysis to part of an organisation as opposed to an entire organisation. Whilst it is feasible to consider the HR organisation unit, it is often wiser to consider the entire people management capability or system, as there are elements of this system within the role of every manager and executive, in addition to any specialist services which the HR organisation unit may provide.

In considering this capability or system, the business model concept prompts consideration of:

  • customers – Executives, managers, employees
  • services – from workforce planning and industrial relations to payroll
  • channels – face to face, phone and online / self-service
  • suppliers and partners – providing specialist services
  • capabilities required to deliver the various services

An important element in this process is applying a combination of the business model concept and systems thinking concepts.  It is common in support functions to seek to optimise a particular function, when it is only part of the whole, and optimising a part may result in sub-optimal outcomes from a broader enterprise perspective.

Enterprise performance, productivity & competitiveness

I have lost count of the number of times that I have heard people complain about how IT is undervalued, how the CIO deserves a place at the Executive table or at the Board table.  All too often this is because the proponents are unable to clearly and succinctly articulate the value proposition for the CIO function or for the more effective use of IT by an enterprise.

Combined with this, I also have lost count of the number of times that I have seen Board members eyes glaze over as soon as someone mentions that awful word “IT” or any of the associated technobabble.  Yet, these same people are often worried about the future of their enterprise and the impact of significant changes in the markets in which they operate, sometimes due to the capacity of their competitors to make more effective use of IT than they are able to!!

So, I have taken an interest in exploring and discussing these problems from a different angle, such as whether an organisation needs to be more innovative, and if so, how this might be achieved.

And in doing so, I have found that this brings me back to understanding enterprise performance, staff productivity and enterprise competitiveness.  Often times this then leads to thinking about the capabilities required by the enterprise, their adequacy for current and future demands, and ways in which the performance of particular capabilities can be improved.

Enter process innovation!

That is, here is where enterprise modeling comes and adds some value, by enabling an enterprise view of current and future capabilities and identifying the gaps, whether missing entirely or simply not performing adequately, identifying where the performance gap is and determining innovative ways of addressing this gap, sometimes involving process innovation.

And so, it has become increasingly evident to me that process innovation has a place in contributing to improved enterprise performance, improved productivity and increased competitiveness, and enterprise modeling offers tools, techniques, thinking models which enable an enterprise to tackle these sort of questions, these sorts of demands, these sorts of business change and transformation, most often combined with some commensurate systems transformation!

What’s important about these values?

  • Integrity – models are used to aid understanding and decisions – fundamentally flawed models do not help improve understanding or the quality of decisions!
  • Clarity – we all have models : mental models, there are currently over 6 billion mental models roaming the planet.   In order to work together more successfully, we seek to achieve alignment of our mental models – that involves making them explicit so that they can be communicated – and that requires clarity of communication!
  • Respect – as we engage in aligning our models, we need to do it respectfully – no model is perfect, there is no correct model.  Multiple perspectives help us better understand the entity we are modelling.  Appropriate respect should be offered for other models, and in return respect for our own will be granted!
  • Openness – models need to be shared, not locked up and hidden – opening them up to test and challenge offers the opportunity for refinement and improvement, as well as shared understanding!
  • Reciprocity – the sharing of a model is a gift, the best we can do is to offer a gift in return.  Engagement in a reciprocal manner builds trust and capacity to explore more deeply!
  • Empowerment – providing a model and enabling enhanced understanding empowers others.  It allows them to use it to our mutual advantage.  Command and control should be avoided.  Empowering is encouraged!
  • Learning – a commitment to learning is a commitment to growth and development – of oneself and of others.  It also constitutes an acceptance of failure and a recognition of the opportunity to learn from failure.  It requires forgiveness of self and others.
  • Creativity – improving the way we do things, creating models of new ways of doing things, requires creativity and imagination!
  • Courage – the courage to live out these values, to model them, to make them our behaviours, to be a leader, and to admit when we are wrong or have failed to live up to them!