Business Architecture

There is a lot of “Architecture” out there in the enterprise world?  It seems that the title ARCHITECT once held a lot of cachet.  You’d find someone titled or a book titled with the term architect in it almost everywhere.  However, during my most recent deep dive into the term applied almost all –IMHO– were not architects but designers and in many cases project managers.  I reached this conclusion based upon the definition I used to define architecture.  That definition has as it foundation the understanding of the components, interactions and uses of such used to create a desired entity.  That entity can be as concrete as a house or as abstract as an enterprise.  Which has led me to an interesting linguistic puzzle:  In many organizations and associations there has been a stated difference between an Enterprise and a Business architect.  Yet isn’t the definition of enterprise a business?  So rightly so shouldn’t an enterprise architect be a business architect?

With that puzzle aside, I again started to ponder my activities around Portfolio Management.  Much of what I’ve seen and experienced in large corporations in regard to Portfolio Management has been around economic prioritization.  That is “We has a fixed budget, how can we spend it all to receive the greatest return on each individual investment?”  This inevitably results in a effort to stack rank projects by simple ROI or in the case of IT projects KLO (keep the lights on).

Most recently I watched several organization build up a portfolios (aka backlogs) of projects to be prioritized and executed.  Many of these projects were classified as either KLO or Innovation projects which were given the highest priorities depending upon who in executive leadership was overseeing.  However, deeper investigation revealed that these where neither, but rather what I would call optimization projects (see portfolio management project portfolios).  While not a bad thing doing such gamesmanship results the enterprise as a whole not achieving the optimum return on investment strategy.  That is to say senior leadership has developed a strategy and middle to lower management, though well meaning, compromises achievement of such through their efforts of local optimization.

The way out of such conundrums is not having senior leadership make every investment decision down to the smallest detail though.  My belief is the best way to ensure investment optimization for the enterprise is to make the business architecture explicit and develop a consistent means to determine alignment, interdependency, and priority of current and future desired states.  Though looking at the existing enterprise’s state as a whole — what needs to say the same, what needs to change and when– an optimum path to an uncertain future can be charted.

The problem with such an approach is that it is often looked upon as complicated, thus is rejected out of had as lately the management trend is make things simple.  Which is rather ironic given we are in an time of multiple priorities and the second generation of the information age.  Such thinking is both comical and disturbing, given that many high tech companies are pushing products for Business Intelligence and Analytics to gain actionable insights yet they are still managing their own investments with nothing more than glorified spreadsheets.  Maybe I should not be so critical of the state of industry, given how long it has taken other engineering and design disciplines to mature into well understood principles to be applied.

In either event I’m now about an eight (real swag) through defining a comprehensive enterprise design methodology and associated curriculum for the book.  In architect-speak, I’ve laid out the rough framework and have started construction/acquisition of components for the methodology.  Two moths in, I may have to push back my anticipated book completion date.  One the positive side my employers will gain the benefit of this research and hopefully be able to apply it to their advantage.

 

Enterprise Portfolio Management -Thoughts and Insights

Woke up early this morning to the buzzing in my head…An idea that Options Theory as currently applied within more sophisticated enterprises for IT Investment was off the mark.  I’d spent the past year going through application of approaches such as Black-Sholes which for external markets tracks well.  However, for IT Investments there is something slightly askew.  That uncomfortable feeling of what and how finally popped in my head this morning.

Several things about the standard approach to Investment Markets Options Theory rely upon market forces to determine value.  However, within the Enterprise Ecosystem value is not measured by standard economics of buyer/seller in the traditional sense.  Arbitrage in the market does not apply in the traditional sense.  The investment is either exercised for its perceived utility or not; typically based and prioritized upon return on investment of the asset (in the broadest sense of the word asset).   In corporations however there are two economic systems at play:

  • External Ecosystem, the one in which the enterprise participates in.  Here the economics that investment professionals typically discuss and where options theory approaches such as Black-Scholes apply.  One can apply hedging as in Black-Scholes to capture the best Risk/Reward.  Within this ecosystem market dynamics have investments flow between investment vehicles based upon perceived future value.  With items other than perishable commodities the perceived value is not always inline with standard accounting practices.  When valuation of corporations occur Intangible assets such as “Customer Good Will” and “Intellectual Property” are used as a filler to account for the difference between residual value of physical assets in general accounting practices  (i.e., cadaver accounting) and investment accounting.
  • Internal Ecosystem, a set of economics that is governed more strongly by general accounting practices; costs and benefits must somehow be in balance.  However, a semi-closed system is assumed within such an economic system.  That assumption is later adjusted each quarter or year by increasing an Intangible Asset valuation on the books.  This ecosystem is driven by several factors: Asset Depreciation and Utility Value of Assets deployed.

These two economic systems interact through several interfaces of which not all are visible or easily measurable.  Monetary funds go into the Internal Ecosystem from the External Ecosystem on the assumption that these funds will be used to purchase assets and through utilization of these assets return more or increase in value the enterprise.  This in the external system takes the form of stock price or dividends.   Which in many US based firms now provides a stronger drive to the internal dynamics of a publically held corporation.

However, the value of individual assets inside a corporation is not as simple as those in the external ecosystem.  Inside the corporation assets are combined with a purpose in mind, to create a utility value.  While the individual assets are accounted for in general accounting practices the utility value of a configuration of assets is typically not.

An example; a machine is purchased, a process developed to use it and others to create a product or service, supplies/consumables are also purchased, and people trained to create and sell the product / service.  This creates some value if the product or service is consumed by the external ecosystem in exchange for revenue.   Ten years later the internal assets have been depreciated in value to zero, yet the enterprise is still getting utility value from this configuration of assets.  One year later a competitor’s product / service attracts enough consumers to make the enterprise’s offering unprofitable.  The assets once providing utility value, though zero accounting value through depreciation, are now in negative territory.  Now we’ll complicate things.  One of the assets in the configuration was a computer.  It can be reassigned to do other tasks thus extending its utility value in another configuration.

Thus the value of assets in an internal ecosystem’s portfolio needs to be managed differently.  Those management practices need to more strongly account for internal utility value that it contributes within an hierarchy of abstract portfolios that support an enterprise’s participation in the various value streams in which it is a member.  That insight realized this morning has been what has been driving me to revise the portfolio management practices I had defined for previous employers –though better than none– seem not adequate for the task.   With that insight in mind developing the economic methods –for what I’ve called Level 5 Dynamic Management that are closer aligned to how an enterprise operates internally– appears more attainable and palatable than just inserting a standard Black-Scholes model.

Enterprise Portfolio Management

Updated the CMM and Capabilities Roadmap yesterday still have a few more items to add.  The roadmap is slowly coming into shape.  Hope to have presentation and tools ready by February conference

Modern IT Portfolio Management CMM

Like the original CMM this version for Portfolio Management has 5 levels.  Taking a page from the CMMI work I did in the Marketing Domain for IBM/Samsung, et al. It will contain an assessment tool to help enterprises do it themselves.

I’ve been developing a CMMI for Enterprises Architecture similar to the Software CMMI.  Enterprise Portfolio Management will be the first subsection of the EA CMMI which will be part of the Structure in Threes book in works. Modern IT Portfolio Management CMM Capabilities

Modern Enterprise Portfolio Management

Portfolio Management capabilities roadmap (initial) from last night’s brainstorming.  Planning (aspirational) to have Modern Enterprise Portfolio Management materials ready by February for a possible seminar at my home office over a holiday weekend.  The big question(s) will be if any of my colleagues and followers will be: 1) interested in attending a focused seminar, 2) willing to take the trek ~60 miles south of Seattle for a 1 to 2 day seminar.

 

 

Enterprise Portfolio Management CMM Roadmap

The nice thing about this research is I can leverage it as source materials for current projects I’m doing at work and for internal technical conferences.

Business Model Enablement

One of the problems with Enterprise Portfolio Management (EPM) is its’ limited focus.  EPM to a large extent has been dominated by technocrats that act as though the entire enterprise is populated primarily by hardware and software; that is people exist to serve hardware and software needs rather than the reverse.

One can hardly blame management for this perspective and behavior when you consider the management systems in place such as financial systems have not evolved much since the middle ages.  Financial systems are “thing” based, listing such artifacts as depreciable assets.  While executives give lip service with such fraises as “People are our most important asset”, the majority of systems account for people as liabilities. When was the last time you saw a balance sheet listing the value of the people employed within the corporation?  This seems rather odd considering H/W and S/W requires people and their skill and knowledge to operate, maintain, and gain benefit from these other assets.

This brings me back to business models, currently the rage within executive and VC circles.  In the Business Model Canvas activities and resources hold a key position.  Its though these two components that value is realized as per the company’s value proposition.  Yet often neither the activity or resources boxes account for the people component –expect as either partners to engage with or customers to engage with.

Yesterday’s R&D activities has me investigating corporate capabilities and the associated competencies of people that enable these capabilities which are used to enable the business model.  Several years ago I developed a competency model that was associated with the process activities for a major function within corporations.  I see revisiting that work in light of business models will likely produce the alignment between people, portfolio, and business model that I’m looking to address in this round of R&D.

Methods: Designing a new Service

Had a great brainstorming session yesterday with a colleague discussing how to apply DSM techniques to the Service Design activities we’re involved in. [Going to have to update my methods PowerPoint again]  Came up with using DSM to identify and cluster functions across various customer requirements and then a simple prioritization using Risk DSM and Business Impact [ Risk * Business Value = Priority ]

Brainstorming DSM

Clustering activity is initially based on common functions. These are later categorized into one or more basic causes using Fishbone (Iishikawa) diagraming and 5 whys:  Capability, Capacity, Schedule, and other.  The context is total throughput (i.e., “The Goal” ).  This sets the context to prioritize which areas to address first.

 

Afterwards I when to my whiteboard to draft a model of the service I’m working on using Osterwalder’s Business Model Canvas.  Once I summarized the Business Process models I created before and extracted key components, it became obvious that the context needed to be changed.  The business in a business model context yielded some strange relationship issues.  Once internal supplying and receiving groups became Key Partners everything snapped to the grid perfectly, even then cost structure and revenue stream categories which are often hard to identify in internal business models: especially in IT where chargeback is often applied inconsistently.

Business Model Canvas

Modern IT Portfolio Management: Risk Modeling

Applied R&D for rating interdependency risk almost complete this morning.  Models will work well from my reengineering project at Microsoft.  In the DSM model I adapted NASA’s model that uses interdependency and technology maturity as primary factors.  Multiplying the scales for each factor yields isographic map of the range of risk which is translated back to a simple scalar range for presentation.

 

Interdependency Risk DSM Model