Succeed in your organizational transformations using a business architecture based framework
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By Pierre Hadaya and Bernard Gagnon
December 2019
Abstract
To remain competitive in today’s marketplace, organizations have no choice but to transform themselves relentlessly, and at a faster and faster pace. However, leading organizational transformations and reaping the expected benefits is not easy. Indeed, recent surveys show that between 50% and 90% of executives are dissatisfied with their organization’s ability to transform themselves. This article proposes a holistic framework incorporating an ensemble of both proven (e.g., strategic planning) and leading-edge (e.g., business architecture approach) practices to address this important problem. This framework is designed to tackle the 12 most common root causes of the difficulties organizations face during their transformations.
In the face of increased competition, fueled by trends such as globalization, the digital shift, Industry 4.0, artificial intelligence and agility, organizations have no choice but to transform themselves relentlessly, and at a faster and faster pace. Organizations must therefore learn to excel at transforming themselves. Such transformations generally follow the formulation of a new or improved strategy and involve a series of changes to the functioning of the organization to allow full execution of its strategy.
However, organizational transformations are not easy. Indeed, recent surveys conducted by McKinsey (2015), The Standish Group (2015) and The Economist (2017) among thousands of senior executives around the world indicate that the vast majority of organizations—between 50 and 90%, depending on the surveys—remain dissatisfied with their ability to transform themselves, despite the best practices they have already adopted to help them. They still can’t make the right changes and carry them out correctly, in the right order and fast enough.
To break from this deadlock and ensure their long-term success, it is imperative that organizations change the way they transform themselves. The framework described below has been developed to this end. It is the result of many years of research to identify and understand the root causes of the difficulties commonly encountered by organizations while transforming themselves; and identify, develop, test, integrate and perfect the set of practices required to address these root causes. This framework integrates long-standing proven practices, such as strategic planning which enables organizations to improve their performance, even when they operate in rapidly changing industries (Miller and Cardinal, 1994). It also incorporates practices, such as the business architecture approach, used by leading organizations. In addition, it combines all of these practices to increase the agility, effectiveness and efficiency of organizational transformations. Finally, this framework integrates into a coherent whole and extends the various concepts and approaches put forward in our previous writings on this subject (Hadaya and Gagnon, 2017a, 2017b, 2018), and is the result of numerous interventions with various organizations and of an extensive literature review.
The Root Causes of the Difficulties
The difficulties organizations encounter while transforming themselves generally stem from 12 root causes (Hadaya and Gagnon, 2018). These root causes and their effects are as follows:
- The organization does not have a real strategy. As a result, it has great difficulties in clearly identifying the transformations it must undertake to differentiate itself from its competitors.
- When formulating a new or improved strategy, the feasibility analysis of the alternatives considered is not rigorous enough. As a result, the organizational transformation that follows often requires investments and efforts that are beyond the organization’s means.
- The strategy is communicated to employees but without adequately explaining the transformation that will ensue. Without a clear understanding of what they need to do, members of the organization make changes which, despite their good intentions, conflict with each other and contribute little to the desired organizational transformation, or worst go against it.
- The long-term financial plan and annual budgets do not adequately reflect the investments required to transform the organization and the benefits that will ensue. As a result, these investments are often underestimated while the improvement in the organization’s financial performance is overestimated.
- The changes made are designed primarily to solve departmental problems rather than implement the strategy. As a result, the organization never succeeds in fully executing its strategy.
- People focus too much on the short term. In doing so, they do not pay enough attention to the transformations that end up being constantly delayed or even compromised and, in the process, opportunities are missed.
- Priorities are not clearly defined. As a result, the organization tries unsuccessfully to do everything at the same time, which makes projects take much longer than they should.
- Changes are made in an order that does not account for the dependencies between them. This, at best, results in corrective work that increases the costs and time required to make the changes correctly. At worst, this corrective work never gets done and opportunities for synergies are missed.
- Business changes to be made in the medium and long term are not identified. Consequently, the IT team is continually in a reactive mode and is unable to design the short-term changes to IT systems in a manner that will facilitate the future evolution of these systems. In the mid- to long-term, this reduces the agility of the organization, often to an important degree.
- The budgeting process is not agile enough. As a result, some of the organization’s transformational capacity is wasted and making changes takes too long.
- Leadership is inadequate. This makes it difficult to engage people in the realization of the transformations and resistance to change is greater than it should be.
- The organization does not take sufficient account of internal and external events that occur. In doing so, it does not learn from them, does not correct the issues that arise during the transformations and miss opportunities.
Overview of the Framework
The framework described in this article has been developed to address the root causes of the difficulties outlined above. It is holistic and systemic as it considers the organization as a system that needs to be optimized globally for the execution of its strategy. This framework has three key elements (Figure 1), the first of which is the creation of a complete strategic plan which includes, in addition to the traditional components of such a plan, a concrete description of the changes that will have to be made to the functioning of the organization and an optimized roadmap for carrying out these changes (Pillar 1). Its second element is the establishment of a management system comprising all the activities and mechanisms necessary to formulate, execute and regularly update the strategic plan (Pillar 2). This management system and the creation of the strategic plan leverage the third element, the business architecture approach (Foundation). This approach makes it possible to design, integrate and optimize all aspects of the transformation. Together, and when well integrated with each other and with the other activities of the organization, these three elements enable organizations to transform themselves effectively, efficiently and with agility in order to grow and improve their performance.
Figure 1: Overview of the Proposed Framework to
Support Organizational Transformations
The following three sections each describe one of the elements of the framework starting with the business architecture approach which underpins the complete strategic plan as well as the management system enabling its sound design and execution.
The Foundation: The Business Architecture Approach
The business architecture approach has three main purposes. The first is to make “on paper” the high-level design of the ensemble of changes that will need to be made during an organizational transformation. This exercise makes it possible to identify the various changes that could be made, to sort through them and to retain those that will really contribute to aligning the functioning of the organization with its strategy. In addition, it ensures that the selected changes are more coherent and have greater synergies with each other than when they are designed independently. Finally, it helps to identify and address issues with the changes and their integration more quickly and at a lower cost than when these issues are discovered while the changes are being carried out or, worse, after they come into effect. The second purpose of this approach is to schedule the realization of the changes to optimize their costs, timing and benefits. As a result, the business architecture approach accelerates organizational transformations and increases the relevancy and quality of the changes made. The third purpose is to support the realization of the changes so the organization reaps their full expected benefits.
Achieving these three purposes requires the preparation of two key deliverables: the target business architecture and the transformation plan. Before describing the content of these deliverables, it is important to mention that these deliverables must be created incrementally (i.e., in an agile manner). That is, one must first create a skeleton version of both of them covering the entire organization. In Agile parlance, these skeletons correspond to the minimum viable product (MVP) version of these two deliverables. These MVPs are subsequently expanded and adjusted iteratively. This is done one “slice” of the organization at a time. A slice can be defined in different ways. For example, it can be a business unit, a business capability or a set of interrelated processes. The order in which the different slices are designed depends on their respective strategic importance. This agile method ensures that the transformation work begins soon after the strategy is formulated, that the expected changes are achievable within an acceptable time frame, and that the target business architecture and transformation plan can be updated, over time, to take into account events and lessons learned.
The target business architecture concretely describes how the organization will have to function in the future to fully execute its strategy. The changes to be made are identified by comparing this target architecture to the current functioning of the organization. This architecture is not intended to describe the future functioning of the organization in all of its details—this will be done while carrying out each of the changes—but rather to describe it just enough so stakeholders can adequately understand the changes to be carried out. This plan is necessary because a strategy, even when formulated in an exemplary manner, cannot by itself adequately guide a transformation.
With this in mind, the target business architecture identifies the business capabilities, functions, processes, organizational units, knowledge assets, information, and brands that the organization must have once transformed, as well as the key characteristics of these resources. In addition, the target business architecture identifies, but does not describe, certain assets (e.g., IT, factories, natural resource deposits) that the organization will need to have. The target business architecture also describes how the identified resources will have to be used in combination to produce the desired functioning (e.g., process X will use computer system Y). See Table 1 for a description of the nine types of resources involved. Finally, the choice of the types of resources to include in the target business architecture will depend on the particularities of the organization and the transformation. For example, an SME in a traditional manufacturing sector may only need to include its capabilities, processes, IT assets, and production machinery.
he transformation plan, for its part, is a roadmap that sequences the order in which the changes will be realized to align the functioning of the organization to its target business architecture. Eleven factors must be taken into account during its elaboration (Figure 2). Four are essential inputs: the strategy, the target business architecture, the current business architecture and applicable regulations. The other seven factors are analyzed during the elaboration of the transformation plan. Indeed, this plan sequences the realization of the changes according to their strategic importance, their benefits, their dependencies to each other, their risks, the resources required (e.g., budgets and expertise) for their realization as well as the organization’s readiness and capacity to perform them. In addition, the transformation plan must facilitate change management by including small projects that will generate quick gains and create a positive feeling among the members of the organization towards the organizational transformation and their ability to carry it out.
For the business architecture approach to achieve its primary goals, a business architecture team must be put in place. These business architects must work closely with executives, managers and various experts to gather change proposals to the functioning of the organization, to retain and integrate the best ones, and properly schedule their realization. The experts involved should include business experts, project portfolio managers, financial analysts, risk managers, IT experts, engineers, and others.
Business architects must also support activities they are not directly responsible for. As an example, they must support strategists in the formulation of a new or improved strategy by helping them identify the strengths and weaknesses of the organization and by participating in the feasibility analysis of each of the alternatives considered. In addition, business architects must help executives and managers engage stakeholders and govern the organizational transformation that follows.
Pillar 1: The Complete Strategic Plan
A complete strategic plan must obviously include the strategy of the organization. The term “strategy” is defined in many ways in the literature. Our definition of the term stems from the concept of strategic positioning proposed by Michael Porter (1996), as well as the work of several other leading authors such as Kaplan and Norton (2004) and Collis and Rukstad (2008). We define strategy as:
The behavioral guidelines an organization adopts to create a unique mix of value for its owners, end customers, partners and employees while differentiating itself in a positive way from its competitors.
This unique mix of value is defined using seven complementary components: a set of values, mission, vision and value propositions to the owners, end customers, employees and partners of the organization (Table 2). Each component defines a group of attributes that together describe how the organization wants to behave in the future towards its stakeholders.
A complete strategic plan should also include four long-term plans necessary for the implementation and execution of the strategy (Figure 3). These plans are the long-term R&D plan, the target business architecture, the transformation plan, and the long-term financial plan. The long-term R&D plan identifies and schedules in a summary manner the fundamental research and product/service development the organization intends to do in the coming years. It also includes an estimate of the investments necessary for its execution. The long-term financial plan, for its part, forecasts the evolution of the organization’s financial situation over the next few years (3 to 5). It determines the financial objectives the organization wants to achieve over time and the investments that will be required to achieve them.
Because each component of the strategic plan must flow from the components above it (see Figure 3), the strategic plan must be defined top down. A skeleton version (i.e., MVP) of the research and development plan, target business architecture, transformation plan and long-term financial plan must be created during strategy formulation. Later on, these skeletons must be incrementally fleshed out and refined.
Pillar 2: The Strategic Plan Management System
A strategic plan management system is an integrated set of processes, organizational units, expertise, objectives, information, incentives and IT tools specifically designed to facilitate the formulation and execution of the strategic plan (Hadaya and Gagnon, 2018). The importance of such a system has been demonstrated by several authors, including Robert S. Kaplan and David P. Norton in The Execution Premium–Linking Strategy to Operations for Competitive Advantage published in 2008. This system must be based on an integrated set of practices whose use is unfortunately not yet widespread. The most important ones are:
- A Chief Strategy Officer must be appointed to lead the strategic plan formulation activities in collaboration with other leaders as well as support and oversee its execution. In a small or medium-sized organization, the CEO will play this role while in a larger one it may be played by another executive.
- A set of coherent and highly integrated processes must be put in place to support the organizational transformations. It must go from the formulation of the strategy to the monitoring of its execution and include all transformation activities (See Hadaya and Gagnon, 2017a for the detail of the 14 processes in question).
- The business architecture approach must be integrated to the strategic activities and mechanisms of the strategic plan management system.
- The target business architecture must be accompanied by an IT target enterprise architecture and, when applicable, a business technology target enterprise architecture (e.g., technologies used by the organization to manufacture its products).
- Changes must be carried out in an agile manner by subdividing projects carrying them out them into short steps that all contribute to the implementation of the target business architecture, and by inserting checkpoints between them to ensure they are made as they should.
- Executives and other leaders must ensure that all relevant stakeholders buy into and are actively engaged in the formulation and execution of the strategic plan. To do so, these leaders require the support of a team of change management experts reporting to the person carrying the role of Chief Strategy Officer.
- The long-term financial plan must be consistent with the other components of the strategic plan by incorporating realistic cost and benefit projections of its execution. In addition, this plan must be updated annually.
- The short-term planning activities should be consistent with the strategic planning activities (Figure 4).
Figure 4: Coherence Between the Organization’s
Short-Term and Long-Term Planning Activities
- The funds allocated to the organizational transformation must be managed centrally and in an agile manner in order to be able to allocate them appropriately to the various projects on the basis of the long-term financial plan, events and short-term financial forecasts. This makes it possible to manage the pace of the execution of the strategic plan with greater agility than traditional annual budgets broken down by departments.
- Objectives must be managed in an agile manner by updating them immediately when internal and external events render them obsolete so members of the organization can focus their efforts on the right things without fear of losing their bonus.
- Regular governance meetings are required to keep abreast of internal and external events, and to promptly make the necessary adjustments to the strategic plan and its execution.
- A dashboard, such as the capability-based strategy map (Hadaya and Gagnon, 2017a), must be put in place to enable the organization to continuously and objectively monitor the success of its strategic plan and its execution.
- Clear decision-making roles must be assigned to the stakeholders of the organizational transformations.
- Incentives must be put in place to motivate employees to carry out the organizational transformations. These incentives may be monetary or take other forms, but must be defined, and updated as necessary, to encourage the execution of the strategic plan and interdepartmental collaboration (The Boston Consulting Group, 2006).
Conclusion
This article proposes a holistic and systemic framework to increase the success of organizational transformations. It increases the strategic and transformational agility of organizations (Gagnon and Hadaya, 2018). This framework includes the creation of a complete strategic plan and the establishment of all management activities and mechanisms necessary for its formulation and rigorous and agile execution, including the business architecture approach. To succeed, this approach must be implemented in stages and requires a lot of effort and discipline. However, this investment is well worth the effort as it allows organizations to strike the right balance between the urgency to act and the prudence necessary for the success of their organizational transformations.
References
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