In 2009 the IT budgets were cut as a reaction on the worldwide economic crisis. Not very surprisingly, »Reducing the IT costs« was ranked second on the CIO Top Priority List 2009 – after rank ten and twelve in 2008 and 2007 (Source: www.gartner.com).

In these days the budgets for 2010 are planned. After massive IT budget cuts and a (at best) constant IT service performance some CEO’s may come up with the idea to cut the budgets again. In this case, the IT department may have difficulties with being an innovation leader and with supporting changed business processes efficiently.

So, how to break the never-ending cycle of »Reduced IT Budget« and »Expected Service Improvements«? How to avoid the sqeezed »IT-Lemon«? The answer is: The IT value proposition must be visible in the organization.

To increase the IT value transparency, I want to present a four-stage approach:

1. Aggregate the critical success factors within a strategy map. Find out which strategic objectives you should focus on. Let me give an example. To increase stakeholder value, your organization wants to expand the revenue opportunities. What you may need is a new product! You need to add new functionality to your existing products or develop brand-new products. To enable the organization to reach this strategic objective, the information technology must support the innovation process.

2. Take stock of the existing asset portfolio. Analyze how the IT portfolio is assembled. What projects have you planned? What projects do you currently implement? What are you assets (e.g.: Systems, Infrastructure, …)?

3. Make a model-based value analysis. Use context specific approaches such as Value Chains, Performance Measurement Systems, the McFarlan Matrix or the Gartner Business Value model, to give just a few examples.

4. Identify alignment gaps. Are there any non-considered risk scenarios left? For example, does the organization culture clash with the governance? Do you want to offer a »pay-per-use« option to your customer but your IT does not support the SaaS concept?

Note: The presented approach is just a framework. To make the IT value proposition visible, this four-stage approach must be used individually. I tried to give some examples to make the approach more tangible. In the end you need to find and apply applicable tools to make the IT value visible in your unique organization.

Aligning the Enterprise Architecture (EA) with the business strategy is a critical goal of every EA initiative. Many Enterprise Architecture teams can’t demonstrate the business relevance of their EA programs. As a result, they are either irrelevant to the business success or they fail to deliver a business value. To ensure that the business value is delivered and demonstrated in the organization, Gartner has proposed a selection of best practices for enterprise architects. In the following post I want to present them to you. I hope this will help you to align your Enterprise Architecture with your business strategy.

1: Engage internal and external stakeholders

A truly aligned architecture effort requires significant input from pretty much everybody in the enterprise and its ecosystem. Getting the buy-in from internal stakeholders (e.g. line management, business operations, IT operations, support functions) and external stakeholders (e.g. service providers, outsourcers) is a critical success factor for every EA initiative. This buy-in requires engagement, so reaching out to each of these constituencies is necessary.

Engaging with a wide range of stakeholders can provide insights into the strategic drivers of the enterprise – a better-informed EA team and a “360-degree” view of the business strategy are the results.

2: Never go in with a blank sheet of paper

As every stakeholder group has a different view of the required detail level, open-ended questions are not the best idea when engaging any of the stakeholders. Because most of them are not familiar with EA deliverables, open-ended questions can make them defensive. To engage the stakeholders at the appropriate level of detail and to structure the discussion, it’s more productive to present a straw model as a basis for refinement and further development.

3: Validate, socialize, then validate again

So, what are the steps that need to be taken to align the Enterprise Architecture with the business strategy?

• Examine the business strategy and environmental trends: understand the direction of and drivers for the architecture
• Articulate the requirements, principles and models that describe the future state and the evolution of the enterprise toward that future state.
• Document the current state to identify gaps with the future state.
• Define the steps that need to be taken to achieve the future state vision.
• Guide the implementation of that road map by exercising appropriate governance over the strategic initiatives of the enterprise that are charged with improving the business’s ability to operate.

This process is highly iterative and requires collaboration with the stakeholders at every step along the way. To successfully execute this process the EA team needs strong interpersonal and communication skills.

4: Go to the business strategy, if the business strategy is not coming to you

A lot of companies don’t have an explicit business strategy. However, this doesn’t mean there is no business strategy! In many cases the enterprise is a collection of business units with different business models and therefore different strategies. A big effort is required to articulate the business strategy of an enterprise with highly autonomous units, because the specific strategies of the different units must be considered and consolidated. When formulating an integrated business strategy, common strategic objectives must be established and differences in priorities or conflicting objectives must be noted as well.

5: A less formal approach for the Common Requirements Vision (CRV) process

If your EA team encounters difficulties to persuade the company that a structured CRV process is needed, apply a less formal approach. Adopt the CRV constructs, but presents them in a less formal manner. Simply ask some questions:

• How must the business change?
• What new types of information will be required?
• What new technology capabilities must be provided?
• What programs will support our strategic objectives?

The CRV components are still the same, but the less formal structure increases the chances of acceptance. The following figure provides an example of how an informal CRV might look.

Figure found at gartner.com

6: Use the EA to inform other strategic and governance initiatives in the enterprise

Most enterprises are running different strategic initiatives at the same time. These initiatives were typically started in different parts of the organization with different objectives and different decision rights. The Enterprise Architecture should provide specific guidance to all the strategic and governance initiatives of the enterprise. Take the requirements identified in the figure above:

In this example, the strategies include attracting high-net-worth customers with excellent online capabilities and deepening the relationship with those customers to achieve greater customer profitability. These strategies will drive substantial changes in the bank’s business, including the creation of a personal banker function and the associated account management processes. There will be a need for profitability information by customer and channel, which will be provided by a customer analytics initiative supported by data warehousing and business analytics technologies.

These requirements give specific guidance to the business process competency center, which will need to design the new processes and drive the organizational changes as well as to the business intelligence competency center, which will need to focus on providing customer profitability data to business management. Such information also provides guidance to the EA team, which needs to incorporate data warehousing and business analytics technology into the bank’s enterprise architecture. There will likely be a number of projects in the bank’s portfolio that support the customer analytics program. It is the job of the program and portfolio management functions to ensure that these projects deliver the business value that is envisioned.

The Enterprise Architecture guidance principle supports the evolution of the enterprise to the desired future state.

What makes a firms resources »strategically valuable«? Which qualities does a resource need to have in order to ensure a sustainable competitive advantage? A conceptual framework dealing with this question is the one presented by J. B. Barney in an article for the Journal of Management in the early 90’s [1] and which some of you may already heard of by the VRIO acronym.

Before we have a look at what makes resources valuable let’s first define what is meant by a resource. The article defines a resource as:

[...] [including] all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness.

Evaluating the internal resources of a firm incorporates a very different view on strategy than the thought schools solely focussing on the external environment. While the latter treats the competing firms as black boxes with very similar content the former opens this boxes for further inspection and acknowledges the possibility for inner differentiation. Strengths and weaknesses as active weapons instead of reactive positioning between threats and opportunities.

What makes this approach especially valuable is the broadening of the availiable strategic options. The provision of additional internal knobs open to adjustment for gaining competitive advantage. The following drawing illustrates the different perspectives.

One of the articles main points is that not every resource creates sustainable advantage. In the authors words a firm is

[...] said to have a sustained competitive advantage when ist is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

Barney draws the conclusion that every resource resulting in sustainable advantage has to possess four attributes to qualify:

Value

Resources are said to be valuable if the improve the efficiency and effectiveness of a firm.

Rareness

In addition sustainable resources have to be rare. If resources can be easily obtained by competitors all gained advantages will be of short duration. Eventually the others will catch up restoring competitional equilibrium.

Imperfect Imitability

This attribute prevents competing firms to imitate the resources under question. The article mentions three reasons preventing easy imitation:

1. History dependent: E. g. First mover advantages, brand names developed over a long timeframe, unique non recurring situations etc.
2. Causal ambiguity: If nobody really knows why a firm achieves superior results it’s special traits can’t be recreated. Interesting aspect of this is that even the firm itself mustn’t know how it does the trick because if some managers knew how they did the trick competitors could lure them away and pay them to copy the resources.
3. Social complexity: If superiority stems from special cultural aspects of a firm this quality is too complex to be recreated in a different company setting. Because social interactions in a firm can’t be directly managed this attribute is effectively preventing any duplication efforts.

Parting thoughts

One thing that came immediately into my mind when reading the article was the question if IT does qualify by these attributes. At first glance there is no chance: If something is easily replicatable it doesn’t qualify.  Carr wins, case closed. But on further inspection there is still hope for us IT folks: Is it really so easy to just do SOA or install an ESB to catch up with other firms which did so successfully? Let’s give this a th… NO IT ISN’T. But why is this so? In my opinion it’s the factor of social complexity coming into play. If you can’t bring people together to effectively use a technology (or to use it at all) it will fail. And so it does. Again and again and again. What follows is that IT can be a competitive advantage as well as a sustainable one but only if you master the soft sides of it, too.

The second thing  I had to think of was Lean Management. Once accepted as sort of Best Practice from the East, western management set out to copy the lean tools and procedures to gain back lost territory. Did it work? If they did so with the help of their eastern colleagues: sometimes. Just by observing and doing seemingly the exactly same things: almost never. Again social complexity is one of the factors at play here: Lean is more a holistic perspective on doing business than merely a set of tools which can be analyzed and used in isolation. This brings into play the second aspect: causal ambiguity. Because the frame of mind is totally different from the classical view on strategy we sometimes simply don’t have a clue why it works.

To me the whole framework is important because it counter-balances the very deliberate/deterministic positioning school of thought. Strategy is more than choosing a generic strategy based on analyis of external factors. It’s also about building inner strengths, core competencies if you will, to achieve sustainable results. With this perspective strategy gains back it’s creative sides which is all to easy lost in combat.

[1] Barney, J. B., Firm Resources and Sustained Competitive Advantage, Journal of Management Vol. 17 NQ 1, 1991

In our series on strategy today we’ll have a look at »Ten Big Ideas of Strategic Thinking«. The collection originates from an article of Robert J. Allio [1] and comprises some of the more influential ideas in strategy. The following will be a mashup of a summary for the single points and tidbits of my own opinions and views. It’s another contribution in gathering the numerous facets of view on the strategy beast.

1. Long Range Planning

Becoming fashionable not until the 1920s, Long Range Planning forces management to look beyond the immediate quarter or year. Although almost indispensable for gaining insights into the bigger context the own company exists in theres always the danger of »overplanning« resulting in big volumes of wasted paper.

2. Strategic Analysis

Allio further divides this important part in Strategic Thinking into four modules:

• Market segmentation: Provide different products or services for different customer (needs).
• Lifecycle: Align your strategy to the lifecycle stage of the industry. For industries in the embryonic or growth stage entrepreneurial strategies are needed while mature and aging industries demand for cost control and cash- flow focus.
• SWOT analysis: Combines internal analysis (strengths, weaknesses) with the observation of external forces (threats, opportunities). Most criticized point of the SWOT: The own strength and weaknesses can be difficult to assess objectively from an subjective standpoint. Furthermore they depend heavily on the actual context like market needs, trends, competitor stregths etc. which would mean that one would need to know the strategy before knowing the relevant strengths and weaknesses.
• Industry structure: Essentially summarized by Porters Five Forces (buyers, suppliers, entry barriers, substitutes and competition)

3. Quality

W. Edwards Deming is the name to mention here. While not enthusiasticly embraced in the US at first his ideas found a big audience in Japan and prepared the base for Lean Production. Demings teachings can be summarized into 14 points and form the roots for hypes that followed like Total Quality Management (TQM), Business Process Reengineering (BPR) and Six Sigma.

4. Portfolio Theory

Boston Consulting Groups Growth/Share Matrix entered the business world in the 1960s and was the first of the portfolio theories claiming that the classification of products, services and markets enables a firm to make guided decisions on resource allocation decisions. Later proponents were the 4×5 matrix of Arthur D. Little (industry maturity/competitive position) and McKinseys 3×3 (business strength/market attractiveness).

Although one of the most known tools together with the already mentioned SWOT the BCG Matriy has come under heavy fire recently. All in all it seems that the claims it makes can’t be confirmed by studies. Though being a very interesting topic  I will elaborate on the shortfalls of these models in another blog post and not go into detail this time.

5. Scenario Planing

Other than single-point forecasts, scenarios accept the reality that forecasting the future is impossible in the long term. Its proponents deal with this dilemma by planning not just for one outcome of reality but for a whole set of parallel business universes called scenarios. Scenario planning was made popular by Piere Wack and Arie de Geus who used this approach at Shell with acclaimed huge success. De Geus also wrote the article which started the broad interest in this special discipline (Planning as Learning, Harvard Business Review (1988)).

6. Resource Allocation Models

Credence of this strategic perspective falls into two camps: Protag0nists of the industrial organization (IO) camp claim that resources should be applied to the opportunities dictated by the industrial structure the company participates in. Again Michael Porter is the name to mention here who reduced the set of availiable strategies into three generic ones: niche, differentiation or cost leadership.

On the other side the the resource-based view is located. Prahalad and Hamel brought into play the core competencies of a company. They  view the generic model as much too limited and and demand that strategies should be based on core competencies alone.

7. Corporate Culture

The implementation of strategy means changing the way you do business. Since the culture of a company determines if this change comes easy or not it is an important factor to consider. Initiatives to align culture with new strategys are difficult endeavors and this brings Change Management into play. John Kotter is the name mostly associated with strategies to apply in the process of change. His studies focus on the reasons why these processes have failed in the past and lead to a change model with eigh phases.

8. Leadership

No doubt: Leadership is vital for making strategy happen. What remains doubtful is if it can be learned and thus be consciously applied in the strategy process.

9. Metrics that matter

For making strategy happen, managers must have means to monitor the implementation effort. Starting with the DuPont formula which decomposed the Return-on-Investement of initiatives in it’s parts later metrics concerning the soft factors followed culminating in form of the Balanced Scorecard.

10. Strategic Organization Design

As the saying goes: »Structure must follow strategy.« Starting at multidivisional designs the next steps in organization fashion were the conglomerate and actually the strategic business unit (SBU). In breaking the corporate barrier strategic alliances and virtual corporations constitute the actual focus of this perspective on strategy.

Parting words

This shall be it for today. In follow-up posts I’ll pick up some of the issues raised and offer some of my own views to the topics mentioned. As you already have seen in the earlier posts: Strategy is a beast with more than one face.

[1] Robert J. Allio, Strategic thinking: the ten big ideas, STRATEGY & LEADERSHIP VOL. 34 NO. 4, 2006, Emerald Group Publishing

In his article, Stephen Swoyer opens a new perspective on Cloud Computing to me. Quoting Stephen Elliot, vice-president of strategy with CA Inc.’s infrastructure management and automation practice, he figures out the importance of the cloud concept for enterprises.

For Elliot, Cloud Computing is basically a conceptual refinement of pervasive virtualization. He argues that the Enterprise Cloud model is an inevitable consequence of pervasive virtualization, a virtualization with a business-centric mindset.

Cloud Computing is is about making the IT accountable for the CIO and CEO, not about virtualizing the IT. Customers will not pay the IT to only host their applications or services. Customers purchase a clearly defined service. Therefore, the Enterprise Cloud should be seen as business-process-as-a-service, not so much as software-as-a-service.

In the business-process-as-a-service model, the value of the Enterprise Cloud can be measured with business metrics. If vendors spotlight the accountability as advantage of this model, the customers would be able to provide a proper calculation of the ROI of adapting Cloud Computing. On that condition Enterprise Clouds would become reality in organizations. As computational costs continue to move downward, the financial ROI of adapting Cloud Computing will become even better in future. It’s just a matter of time before it becomes a norm for organizations to take advantage of the Enterprise Cloud.

It seems there is a good chance that NUMMI the famous joint venture between GM and Toyota is going out of business. For the lean insiders among you this news has to be at least a little suprising.

Why? And why is this news for a blog like this? To get the full picture of this news we have to look at the history of NUMMI.

When it opened for production in 1984, NUMMI was the first joint venture automotive plant in the United States. For Toyota it was a chance to expand its manufacturing to North America. GM on the other side saw this joint venture as an opportunity to learn about the ideas of lean manufacturing from the inventer of lean itself.

Since its beginning the plant, its management values, methods and techniques  served as the shining example and proof that lean and the resulting benefits could be implemented anywhere. Classic lean books like The Toyota Way praise NUMMI for following all 14 principles of lean. The most important and basic being:

Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

The book cites a few situations in which Toyota indeed decided against closing the plant. For example instead of following the trend of the times and moving all of production to places like mexico management only moved a part of the work and found other things for the plant to do. The rationale of all this being that the workers themselves at the end »couldn’t be blamed for having done anything wrong«. The ultimate goal of humanity before profit seemed reachable.

Times seem to be really different this time. To all »believers« in lean values it will be very interesting to watch Toyotas next actions.

Will it stay loyal to its own principles? Or is a paradigm shift near, crushing down the »old «values? Will management give in to the crisis and the omnipresent subliminal call for »drastic actions«?

We’ll stay tuned.

One concept which goes with almost all discussions of PaaS (Platform-as-a-Service) is the  application marketplace or app store.

The Promise…

The argument hype goes something like this: If you specify an platform standard, get more than one hoster to host it and finally convince people to develop little applications (or widgets) for it, everyone wins:

• the hoster can leverage its existing customer base including the possibility of cross-sells
• the application developer can sell his app leveraging the combined numbers of customers of all participating hosters
• the customer having access to a huge selection of apps able to be integrated into his homepage

etc.

Reality sets in

Besides technical and cooperational problems the equation bases on the assumption that you get a lot of small or medium sized ISVs (Independent Software Vendors) to program against your platform specification. If you are aiming for business developers this means there has to be enough money in there for them to lock into the platform constraints. The promise now is that electronic marketplaces lower the barrier of entry for these developers enough to ensure profit for all.

Promise? Maybe you’ll say »Hey, I know this works! What about Apples app store?« Exactly my first thoughts but let’s look at the numbers provided in a recent blog post of an developer who has to know:

According to the developer of Zen Jar which ranked around position #30 when the article was written he earns as much as……20$ a day with his app. Considering that there are currently over 36.000 applications to choose from I personally had expected much more profit from entering the Top 50 in a popular category.

What are the reasons for this? For one it’s the standard pricing of .99$. To become really rich at this price you have to sell a lot. Looking at the numbers in the article at position #34 you can expect 30-35 downloads a day. If this is not enough for you you have to do marketing which cuts your profit even further.

As also is mentioned in the article this doesn’t mean the business model is wrong. It just shows that app stores aren’t the 1, 2, 3, PROFIT guarantee as some people suggest. There are still some problems to make the model work as »advertised«.

So what?

Just providing a platform to develop and run applications on is not enough. Providing a place to list this apps and provide services for licensing and billing is not enough, either. What is often missing in the discussion of the »application marketplace« is how to aid developers in marketing their product. If you leave the myriads of »little« business oriented developers alone with this task they won’t have enough resources to do it on their own and still be profitable enough.

One more challenge to overcome in the PaaS opportunity…