Archive - Edition 7: Composite Applications

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Introduction

Leading and General Articles

Theoretical Foundations

Designing xApps, Examples of SAP xApps

 

The Agile Dance of Architectures – Reframing IT Enabled Business Opportunities1

By John Hagel, III and John Seely Brown – 10/20/2003

Note: For the convenience of the readers, we split the original article into several papers. Here you will find the introduction and conclusion, whereas you will find papers on new strategic IT architectures and service-oriented architectures on separate pages.

 

Introduction

Looking at the trajectory of IT architectures and approaches to business strategy, we see something remarkable on the horizon: the potential for companies to generate increasing strategic advantage from IT investment. We admit to a great deal of hesitation in even voicing such a perspective in today's environment. We run the risk of being viewed either as mad or as brainwashed flacks of the technology industry.

This view certainly stands in stark contrast to the backlash spreading through executive suites around the world regarding the economic and strategic potential of information technology. Disappointed by poor returns from an IT spending binge in the late 1990's, executives are increasingly skeptical about the business value of technology. Of course, they will all acknowledge that IT is essential for business operations, but they are tempted to view it as just one more factor of production, to be managed aggressively in terms of cost and performance. Conventional wisdom today suggests that information technology yields diminishing, if any, potential for strategic advantage.

On the other side, technology vendors continue to wax eloquent with grand visions about the transformational potential of technology. It almost seems as if the scale of the visions expands in direct proportion to the decline in technology revenues. The more skeptical users of technology become, the more evangelistic senior executives of technology companies become. We see a vicious cycle propagating – skepticism begets more evangelism and more evangelism begets even more skepticism. The only way to break this cycle is to peel away the rhetoric and emotion and focus tightly on the evolving role of information technology in helping to build and sustain strategic advantage. In the process, we need to reframe the discussion, bringing a new set of lenses to view both IT architectures and strategic architectures.

In reframing this discussion, we focus on two requirements for strategic advantage on a business landscape characterized by rapid change and uncertainty. First, companies must adopt a strategic architecture that strikes a new balance between definition of long-term direction and aggressive focus on near-term business execution. This strategic architecture, which we call a FAST strategy, demands a high degree of operational flexibility. It is therefore very difficult to implement within the constraints of current IT architectures that require significant investments and lead-times to support changes to business practices.

For this reason, building effective strategic advantage requires a new generation of IT architecture offering far more potential for flexibility and innovation. We believe that emerging service-oriented architectures (SOA) will offer this capability.

Mention "IT architecture" to most senior executives and they grow increasingly uncomfortable, looking for a way to quickly change the subject. This discomfort is understandable. "IT architecture" is a mysterious subject for most executives, one fraught with negative images. IT architectures are rigid. They often become obstacles to getting things done. Changing them is expensive and complicated. Changes inevitably demand long lead-times and offer considerable uncertainty regarding any tangible business benefits.

We understand the reluctance to engage on this topic. Nevertheless, we are going to discuss current developments in IT architecture because fundamental changes are occurring in this area. Increasingly, decisions made about IT architecture will determine business success. A new generation of IT architecture is on the horizon that will go a long way to reducing, if not removing, the obstacles that previous generations of architecture put in the way of near-term operational initiatives. More positively, this architecture will significantly augment the capability for business innovation. Even more encouraging, the new generation of IT architecture can be implemented in a much more pragmatic way – with incremental deployments, leveraging existing IT platforms and more clearly tied to tangible business benefits.

These new IT architectures and strategic architectures are beginning an agile dance in which each partner enables and shapes the other. It is precisely this dance that provides the power required to build significant new strategic advantage. One architecture without the other is not sufficient to overcome organizational inertia. The two together, however, can create an engine to propel the organization forward.

Building Momentum: Implementing New Strategic Architectures

Implementing new strategic IT structures can help in building a momentum. A new strategic architecture should focus on two very different time horizons — a long-term horizon of five to ten years, creating a background for executive decision-making, and a much shorter-term horizon of six to twelve months, providing the foreground where operational and organizational initiatives play out.

It has become a tired platitude to say that change is accelerating and uncertainty is increasing in business. Perhaps it has become so tired because it is so patently obvious. Two primary forces – technology innovation and long-term public policy shifts – are destabilizing the business landscape and reshaping the world we live in. Information technology has systematically reduced interaction costs and made it easier for businesses to extend their reach on a global scale. Long-term public policy shifts around the world have tended to reduce (but certainly not eliminate) regulatory barriers to entry and competition.

Read more on new strategic IT structures...

Creating More Capability: The Emergence of Service-Oriented Architectures

It is very difficult to implement in companies operating with traditional hard-wired IT architectures. Service-oriented architectures can help in implementing new strategic IT architectures.

This new strategic architecture is very difficult to implement in companies operating with traditional hard-wired IT architectures. The emphasis on aggressive waves of near-term operational and organizational initiatives places enormous strain on IT architectures that assume a more stable business context. It is not impossible to adopt this kind of strategic architecture – witness the examples of WalMart, Dell and Schwab – but it is certainly not easy. Given the constraints of these architectures, it is remarkable that even a few companies were able to overcome these obstacles and pursue more dynamic approaches to business innovation. Yet, it is revealing that the same few companies are always cited when looking for examples of continuous business innovation. Most companies have simply had too much organizational inertia to overcome, and hard-wired IT architectures have been a major impediment to rapid movement.

Read more on service-oriented architectures...

 

Overcoming Organizational Inertia Through Radical Incrementalism

Overall, the new generation of IT architecture and strategic architecture will help to overcome organizational inertia by creating a platform for radical incrementalism. SOA's make it easier to implement radical changes to business practices at the local level, leading over time to radical changes in overall business practices and business structures. These SOA's, however, can only create the capacity for change. The new strategic architecture is necessary to harness that capacity by driving executives to design rapid waves of well-focused incremental business initiatives. Like DNA, these new IT architectures and strategic architectures will interweave to help companies overcome organizational inertia.

In particular, the implementation of these new architectures will help to address two traditional sources of organizational resistance – mindset and culture – thereby transforming organizational DNA at an even more fundamental level. Mindsets – the assumptions, often implicit, that executives bring to their decision-making – often become a significant barrier to rapid change. Most executives view uncertainty as a disruptive force, something to be avoided wherever possible. This is especially the case when the organization falls into a reactive mode, without any clear view of longer-term direction and hampered by hard-wired IT architectures. In this environment, uncertainty creates additional demands on scarce resources and represents a threat to today's approach to creating value. On the other hand, if the management team has a shared view of long-term direction, clearly identifying new opportunities created by uncertainty and change, executives begin to embrace uncertainty as a source of value creation.

These changing views of uncertainty also foster more openness to exploring the periphery as the most promising area for value creation. If uncertainty is something to be feared, then executives tend to focus on internal operations of the business because this is where they can manage uncertainty most effectively. If uncertainty creates opportunity for additional value creation, executives are more inclined to venture out beyond the boundaries of their enterprise or their industry, exploring opportunities to create new kinds of relationships with business partners or customers. They will also begin to think more broadly about relevant markets and industries, seeking out opportunities beyond the horizon of well-established (and well-understood) market niches.

The emphasis on near-term initiatives and results helps executives to resist a mindset favoring "big bang" transformational initiatives. Instead, they focus on finding high value, relatively easy to implement operational initiatives that can yield tangible, near-term business impact. By making these near-term initiatives easier to implement, SOA's contribute to the success of executives who focus on near-term results.

Radical incrementalism helps to refashion organizational culture as well. By rewarding those who move most aggressively to seek near-term impact, this approach fosters a more risk taking and performance driven culture. It also encourages more willingness to leverage third party resources to add value to customers in the near-term. Executives are rewarded for performance delivered, rather than size of headcount or assets managed. Greater clarity around long-term direction also makes it easier for executives to determine what resources need to be owned to realize long-term value and what resources can be provided by third parties to enhance core value delivery.

 

Anticipating the Future

With service-oriented architectures, what you own will matter less than developing the insight and skill required to access and mobilize the resources of others to deliver more value for your customers. Customers will use these architectures to become more involved in the value creation and delivery process. Over time, these architectures will play a significant role in restructuring markets and industries. Companies that understand the capabilities of these new architectures and use these capabilities to re-define their business and their industries will be in a position to create significant economic value. Ironically, just at the time when everyone is dismissing the strategic value of information technology, it may be on the verge of offering us more opportunities for strategic advantage than we have ever witnessed.

 

New Roles for Next IT Practice

Four senior executives – the CEO, Chief Process Owners (CPO's), the CIO and Chief Strategy Officer (CSO) – will play a pivotal role in building the institutional capability required to exploit the convergence of new IT architectures and strategic architectures. These four executives will need to redefine their roles in key ways.

See also Impact of Change in xApps – A New Practice for Next Practice by Karen Holtzblatt and Jörg Beringer in this edition.

CEO's must dive into the details of the business in order to make the long-term direction come alive

CEO's of large companies tend to withdraw from the details of the business and focus on high-level policy and strategy questions. The new strategy architecture outlined in the article requires that CEO's more actively navigate between the two time horizons and become much more directly involved in near-term operational and organizational initiatives. To effectively communicate the long-term direction to the organization, the CEO must work actively with line executives to prioritize near-term initiatives. The high impact, near-term operating initiatives discussed above typically cut across the domains of multiple senior executives, so the involvement of the CEO often becomes critical to ensure that these initiatives are appropriately scoped. By helping to make key choices in the near-term, CEO's clearly demonstrate the implications of the long-term direction of the company. At the same time, by wrestling with difficult near-term choices, CEO's develop a richer understanding of the long-term direction of the company. CEO's need to become more adept at the capability of "zooming in and zooming out", often within the course of a single meeting. Zooming in involves exploring the very tactical implications of long-term direction. Zooming out involves understanding the longer-term implications of new experiences and information generated through near-term business initiatives. This capability is especially necessary for near-term operating initiatives that represent a significant departure from the current trajectory of the business.

Chief Process Owners (CPO's) need to shift their management approach to exploit the potential of loosely coupled business processes

CPO's are accustomed to managing hard-wired business processes where process manuals specify in detail the actions that must be performed to deliver value to the enterprise. SOA's create an opportunity to develop more loosely coupled business processes, but these require a very different management approach. In particular, the focus must shift from specifying and managing activities to specifying and managing interfaces at the boundaries of modules of the process. Specifically, CPO's must define in some detail the deliverables at the end of each module of activity and the methods of communication across modules so that other modules can function smoothly. This creates more flexibility within the modules of activity for staff to experiment with new approaches without worrying about disrupting other parts of the process. This approach is also much better suited to management of business processes that extend across multiple enterprises.

CIO's must become strategists and relationship managers to effectively exploit the capabilities of SOA's

As SOA's become more broadly deployed, CIO's will need to become much more actively involved in strategic decisions regarding both IT and broader business resources. These architectures will make it easier to access resources owned by other companies as well as to generate more business value from the company's own resources, by making them more broadly available to others. CIO's will need to think strategically about the choices involved in owning or accessing resources from others. CIO's will also need to develop much deeper relationship skills, actively structuring and managing relationships with third parties to generate as much value as possible from both owned resources and third party resources.

CSO's need to tighten performance feedback loops and ensure that organizational learning is rapidly translated into action

In implementing a new strategic architecture, CSO's will become the key integration point managing the learning that is generated across multiple horizons of the business. In order for the new strategic architecture to realize its full potential, the organization must rapidly process learning from aggressive near-term business initiatives and use that learning both to refine the definition of long-term direction and to shape the next wave of near-term business initiatives. By working with the rest of senior management to define effective performance metrics designed to accelerate movement towards a longer-term destination, CSO's can play a significant role in shaping near-term actions and focusing the learning experience from these actions. Appropriate performance metrics will also help to ensure that this learning is rapidly converted into higher-impact operational initiatives.

 

Authors

John Hagel, III is an independent management consultant whose work focuses on the intersection of business strategy and technology. His most recent book, Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow, was published by Harvard Business School Press. He can be reached through his website www.johnhagel.com or by e-mail at john@johnhagel.com.

John Seely Brown was the director of Xerox PARC until 2000. He continues his personal research into digital culture, learning and Web services. His most recent book (co-authored with Paul Duguid) is The Social Life of Information. He can be reached at jsb@johnseelybrown.com.

 

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