The Composable Enterprise

iStock_000016759536LargeWe have wit­nessed a major shift over recent decades towards a dig­i­tal ser­vices based econ­omy[1]. Expo­nen­tial growth in the power of infor­ma­tion tech­nol­ogy enhanced by Inter­net dri­ven net­work effects mean that even the most mun­dane man­u­fac­tured prod­ucts are seen as just one com­po­nent of a broader dig­i­tal ser­vices based value chain.

The shift to dig­i­tal ser­vices has trans­formed the global com­pet­i­tive land­scape. Main­tain­ing com­pet­i­tive dif­fer­en­ti­a­tion requires con­tin­u­ous inno­va­tion – and life­cy­cles are con­tract­ing. In other words change is a constant.

The dynam­ics of a hyper-competitive global mar­ket mean that sta­tic and long-lived mod­els of com­pany struc­ture, oper­a­tions and infor­ma­tion tech­nol­ogy ser­vices are no longer fit for pur­pose. We need a new oper­at­ing model for the enterprise.

It is a real­ity of busi­ness today that sup­plier rela­tion­ships, logis­tics net­works, prod­uct and ser­vice design and cus­tomer ser­vice all sur­vives in a state of per­ma­nent flux. Any path to sus­tain­able com­pet­i­tive advan­tage will require a high degree of oper­a­tional adaptability.

Busi­ness func­tions, processes, orga­ni­za­tions, sup­plier rela­tion­ships and tech­nol­ogy need to be seen as build­ing blocks that can be re–configured as needed to address chang­ing com­pet­i­tive landscape.

This new Com­po­nent Oper­at­ing Model (COM) requires a ‘Lego Brick’ approach to design­ing and imple­ment­ing processes and the orga­ni­za­tions that sup­port them. Imple­ment­ing a COM based approach will have pro­found impacts on the struc­ture of orga­ni­za­tions, the nature of work.

Busi­ness designs based on COM will cre­ate sig­nif­i­cant stress for tra­di­tional IT infra­struc­tures and orga­ni­za­tions. Our cur­rent IT ser­vices were built to serve a sta­tic – and often func­tion­ally silo’d – oper­at­ing model. IT needs to become much more dynam­i­cally adapt­able to keep pace with the speed of busi­ness today.

A new Com­po­nent Archi­tec­ture Model (CAM) approach to IT infra­struc­ture, appli­ca­tions and ser­vices will be required to ensure that IT can deliver what the busi­ness needs. The time between iden­ti­fy­ing a busi­ness need and deliv­er­ing the required IT solu­tion needs to becomes hours and days rather than months and years.

The ‘Ying and Yang’ of COM and CAM is a rad­i­cal depar­ture from the dis­con­ti­nu­ities of the past. We are about to enter an era where — for the first time — busi­ness and tech­nol­ogy oper­at­ing mod­els can be seam­lessly aligned to enable fast, flex­i­ble response to a rapidly chang­ing com­pet­i­tive landscapes.

Com­bin­ing the approaches of both COM and CAM will enable us to view the entire port­fo­lio of busi­ness func­tions, processes, orga­ni­za­tions, rela­tion­ships and tech­nol­ogy as a set of re-usable com­po­nents that can be con­fig­ured as demanded.

Wel­come to the Com­pos­able Enter­prise.

Rad­i­cal Change

Most com­pa­nies would con­sider the Com­pos­able Enter­prise Model (CEM) rad­i­cal today. And yet its dif­fi­cult to imag­ine how more sta­tic approaches to busi­ness oper­a­tions will sur­vive in an increas­ingly dynamic and com­pet­i­tive global economy.

A ‘chasm’ already exists between those com­pa­nies that grew-up-digital and those more tra­di­tional com­pa­nies attempt­ing to adapt to new dig­i­tal markets.

Com­pa­nies such as Ama­zon have always had to deal with hyper-competition and con­stant, fast-cycle change. Amazon’s approach to build­ing out its retail busi­ness is dri­ven by a deep under­stand­ing of dig­i­tal busi­ness dynam­ics. Ama­zon is per­haps the clos­est proxy for a Com­pos­able Enter­prise today and that makes it a for­mi­da­ble com­peti­tor for tra­di­tional ‘Bricks and Mor­tar’ retailers.

Build­ing a Com­pos­able Enter­prise oper­at­ing model — where func­tions and processes can be con­tin­u­ally re-configured with low cost and oper­a­tional impact — raises sig­nif­i­cant chal­lenges. The two great­est of these will undoubt­edly be orga­ni­za­tion and tech­nol­ogy. This is change man­age­ment in extremis.

Change of this mag­ni­tude requires vision­ary and force­ful top-down lead­er­ship. Imple­ment­ing the Com­pos­able Enter­prise approach is not going to hap­pen from the bottom-up. The level of dis­rup­tion in most orga­ni­za­tions will require a vision to which staff can aspire. The greater the change the more com­pelling that vision will need to be.

Com­pa­nies are unlikely to find that they have a large pro­por­tion of staff with the skills and capa­bil­ity to build, oper­ate and thrive in the Com­pos­able Enter­prise model. Sig­nif­i­cant re-skilling will be required.

Many already-digital busi­nesses are likely to find that the demands placed on IT by the Com­pos­able Enter­prise Model far exceed the capa­bil­i­ties of exist­ing sys­tems and appli­ca­tion land­scapes. This will be ampli­fied for company’s attempt­ing to trans­form from more tra­di­tional ‘ana­log’ busi­ness models.

The vast major­ity of IT sys­tems in exis­tence were designed for sta­tic busi­ness mod­els and not for fast re-configuration of busi­ness processes, data flows and inter­con­nec­tion between dis­parate func­tions. As I will describe below the rad­i­cal CEM based approach will require a rad­i­cal tech­nol­ogy fab­ric to match.

The Com­po­nent Orga­ni­za­tion Model

Suc­cess­ful re-configuration of a company’s orga­ni­za­tion and processes to sup­port the Com­pos­able Enter­prise approach will require a rad­i­cal depar­ture from his­toric mod­els of orga­ni­za­tion and process design.

The new Com­po­nent Oper­at­ing Model approach requires us to break processes and the orga­ni­za­tions that man­age them into their most fun­da­men­tal build­ing blocks. COM is based on the fol­low­ing key design prin­ci­ples that aim to max­i­mize adapt­abil­ity and the speed with which new processes can be con­fig­ured and enhanced.

The Min­i­mal Func­tion – Com­pound busi­ness processes are bro­ken down into the min­i­mized set of ‘atomic’ func­tions. Each func­tion can accom­plish some aspect of the process inde­pen­dently of other func­tions and con­sists of the small­est orga­ni­za­tion pos­si­ble to accom­plish the func­tion. The pur­pose of this prin­ci­ple is to ensure that indi­vid­ual func­tions can be improved or replaced while min­i­miz­ing impact to the wider orga­ni­za­tion and busi­ness process.

Least Depen­dency – Indi­vid­ual busi­ness func­tions should be designed to min­i­mize depen­dency on any other func­tion. This prin­ci­ple ensures that fail­ures in a sin­gle func­tion do not bring the entire process to a halt. Process steps such as autho­riza­tions should be asyn­chro­nous to avoid cre­at­ing ser­ial dependencies.

Shared Knowl­edge – Knowl­edge (Data, infor­ma­tion and con­text) is a resource shared across all func­tions. Data gov­er­nance and secu­rity poli­cies should be designed to max­i­mize safe access to data to the broad­est audi­ence. Func­tions are pro­hib­ited from main­tain­ing ‘Pri­vate’ data sets.  The hold­ing and pro­tec­tion of ‘pri­vate’ knowl­edge is one of the key bar­ri­ers to orga­ni­za­tional agility. When knowl­edge is not openly shared then indi­vid­ual func­tions can cre­ate depen­den­cies on their exis­tence even when that is not opti­mal for the over­all business.

Pre­dictable Con­tracts – Each func­tion defines the infor­ma­tion and autho­riza­tions it requires, what work prod­uct will be out­put and pro­vides quan­ti­fied per­for­mance guar­an­tees.  This approach aims to min­i­mize the gov­er­nance and super­vi­sory over­head that are often lay­ered into orga­ni­za­tions to over­come a lack of pre­dictabil­ity and per­for­mance between busi­ness functions.

Max­i­mized Human Value – Human resource should be applied only to those tasks that can­not be auto­mated: Front-line customer/partner engage­ment and ser­vice and where insight, analy­sis and qual­i­ta­tive deci­sion mak­ing is required etc. This approach has two pay­offs. It min­i­mizes over­all human resource expense and max­i­mizes the value of roles in the busi­ness lead­ing to higher job sat­is­fac­tion and lower attrition.

We do not yet delve into appro­pri­ate gov­er­nance approaches for COM but it is clear that ‘Kan­ban’ would be the most effec­tive approach to over­all process con­trol in the Com­posed Enter­prise oper­at­ing model. A ‘Pull-through’ demand-forecasting approach should max­i­mize the effi­ciency of the over­all pro­duc­tion process.

What is truly rad­i­cal about CEM is – finally – for there to be an inti­mate and fully aligned rela­tion­ship between busi­ness and IT. This has never existed in the his­tory of enter­prise com­put­ing. From the days of IT staff in white lab coats man­ag­ing huge main­frame com­put­ers to the present highly dis­trib­uted and vir­tu­al­ized appli­ca­tion envi­ron­ments – IT has never been able to keep pace with the demands of the business.

The Com­po­nent Archi­tec­ture Model

Tech­nol­ogy pro­vides the ‘fab­ric’ – infra­struc­ture, appli­ca­tions and ser­vices — that under­pin CEM. Infor­ma­tion is the lifeblood of any value chain in today’s global econ­omy and that ‘blood sup­ply’ should con­nect the far­thest reaches of company’s global busi­ness processes.

The dynamic and con­fig­urable nature of the Com­pos­able Enter­prise oper­at­ing model places sig­nif­i­cant demands on the under­ly­ing tech­nol­ogy fab­ric. This is likely to mean a rad­i­cal depar­ture from the legacy IT infra­struc­tures and appli­ca­tions port­fo­lios found inside most orga­ni­za­tions today.

The major­ity of legacy IT envi­ron­ments were built to sup­port a much more sta­tic busi­ness model. It was assumed that busi­ness processes would remain unchanged for long peri­ods or at least be sub­ject to only minor mod­i­fi­ca­tions. Appli­ca­tions were gen­er­ally designed to sup­port the needs of func­tional silos within the busi­ness: Man­u­fac­tur­ing, Finance, Sales, Supply-chain, Mar­ket­ing, and Human-Resources etc. The grow­ing need to build hor­i­zon­tally inte­grated processes between these func­tions has sig­nif­i­cantly chal­lenged IT orga­ni­za­tions and bud­gets over the last decade.

The Com­pos­able Enter­prise busi­ness model takes hor­i­zon­tal process inte­gra­tion to an entirely new level by assum­ing that oper­at­ing func­tions; processes, prod­ucts and ser­vices will be sub­ject to con­tin­u­ous change and re-configuration.

Enabling the Com­pos­able Oper­at­ing Model will require a rad­i­cally new approach to enter­prise IT. In effect the COM will require a match­ing Com­pos­able IT Archi­tec­ture. The key attrib­utes and capa­bil­i­ties for such Com­pos­able Archi­tec­ture Model (CAM) would be:

Elas­tic Infra­struc­ture – The abil­ity to scale up and down IT infra­struc­ture resources based on chang­ing demand patterns.

Com­po­nent Ser­vice based Appli­ca­tionsImple­men­ta­tion of busi­ness appli­ca­tions as a ‘Com­po­si­tion’ of finer grained ‘atomic’ ser­vices to enable rapid re-configuration and enhance­ment. This capa­bil­ity when com­bined with Elas­tic Infra­struc­ture enables busi­ness appli­ca­tions and ser­vices to be scaled rapidly to meet the chang­ing con­sumer or busi­ness demands.

Auto Every­thing – The tech­nol­ogy fab­ric should be archi­tected to require the min­i­mum of human inter­ven­tion. Dynamic re-configuration of ser­vices, elas­tic resource pro­vi­sion­ing and oper­a­tions should be fully automated.

Uni­fied Mas­ter Data Model – Imple­men­ta­tion of a busi­ness defined and gov­erned mas­ter data model pro­vid­ing a single-source-of data truth across the business.

Inte­grated Ana­lyt­ics – All data to be used by the busi­ness for decision-making, con­sumer and mar­ket insights, process and oper­a­tional ana­lyt­ics should be aggre­gated in one inte­grated repos­i­tory. This ensures a single-source-of-truth for all data based busi­ness decisions.

Peo­ple Ser­vicesThe fab­ric should expose core ser­vices that enable role-based user authen­ti­ca­tion and user pro­file man­age­ment to facil­i­tate exper­tise dis­cov­ery and rapid orga­ni­za­tional re-configuration.

Process Ser­vicesThe fab­ric should expose core ser­vices that facil­i­tate process mon­i­tor­ing and work­flow inte­gra­tion to facil­i­tate rapid process re-configuration.

Data Ser­vicesAll mas­ter and ana­lyt­ics data should be acces­si­ble through stan­dards based data access ser­vices and should be con­sum­able in both human and machine acces­si­ble form.

Any Time, Any­where, Any Device AccessOper­a­tional appli­ca­tions should be made avail­able using a web based ‘Soft­ware as a Ser­vice’ (SaaS) deliv­ery model acces­si­ble from any device capa­ble of run­ning a mod­ern web browser.

The pur­pose of these require­ments is to ensure that IT appli­ca­tions and ser­vices can be man­aged and deliv­ered with the same level of gran­u­lar­ity as the busi­ness func­tions that use them.

The Enter­prise as a Service

The CEM approach is based on the need to ensure seam­less align­ment between busi­ness oper­a­tions and IT ser­vices because no mat­ter how mun­dane – all busi­ness is dig­i­tal today.

His­toric dis­con­nects between IT and the busi­ness — from a func­tion and rate of change per­spec­tive — are addressed under the CEM approach by cre­at­ing struc­tural align­ment between busi­ness oper­a­tions and the tech­nol­ogy architecture.

The design prin­ci­ples behind COM and CAM are iden­ti­cal: Decom­pose every­thing to the most ‘atomic’ level, enable inde­pen­dent exe­cu­tion, inter­op­er­ate through clearly defined inter­faces and share infor­ma­tion openly. It does not mat­ter whether you are design­ing a busi­ness func­tion or soft­ware com­po­nent the same prin­ci­ples apply.

The pur­pose behind these high level prin­ci­ples is straight for­ward – even if imple­men­ta­tion may not be: To facil­i­tate, rapid adapt­abil­ity, response to chang­ing demand pat­terns and flex­i­ble and robust operations.

Imple­men­ta­tion of CEM requires the imple­men­ta­tion of both COM and CAM. Com­bin­ing COM and CAM enables us to view the Enter­prise as a Ser­vice: A matched port­fo­lio of func­tional, orga­ni­za­tional and tech­nol­ogy com­po­nents that enable rapid re-configuration in response to future demands of a mod­ern dig­i­tal ser­vices economy.

 


[1] John Zys­man, Stu­art Feld­man, Jonathan Mur­ray, Niels Chris­t­ian Nielsen, Kenji E. Kushida “Ser­vices with Every­thing: The ICT-Enabled Dig­i­tal Trans­for­ma­tion of Ser­vices”, BRIE Work­ing Paper 187a, April 6, 2010

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