We have witnessed a major shift over recent decades towards a digital services based economy. 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.
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 Applications – Implementation 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 Services – The 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 Services – The fabric should expose core services that facilitate process monitoring and workflow integration to facilitate rapid process re-configuration.
Data Services — All 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 Access – Operational 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.