Structure in Threes: Management Systems

For the record I’m typically for performance based compensation systems.  Maybe because I think you should be focused to perform your role for the best of the company to start with.  I see approaches such as stack ranking, top grading, etc. as creating a cascading effect that has employees and management “game” the system.  The end result is a death spiral where people spend more time looking good than doing good at the expense of the customer and investors.  After reading chapter eight of Rummler’s book reDiscovering Value, I see why and where these systems have gone wrong; basically measuring and rewarding the wrong behavior (local optimization) rather than doing the best to create value across the enterprise.

I’m finding a lot to like about Rummler’s approach towards creating a management system that works:

  • First reengineer the processes cross functionally to enable real value creation
  • Second design a dual management system that focuses on the value creation performance and then resource performance
  • Third design the compensation system weighted towards value creation system performance as top priority

I can see this approach keeping in check the desire to optimize resources in deference to creating value which is what keeps a business in business.

Structure in Threes: Process Value

About two decades ago I was fortunate enough to collaborate with several brilliant people in IBM working in manufacturing research.  One of them Dr. Arno Schmachpfeffer had coauthored a paper in the IBM Journal of Research call Integrated Manufacturing Modeling System.   One of the key aspects of the paper was a taxonomy of activities in a process.  I was struck by the simplicity of the taxonomy and the ability for it to catalog any process activity into one of four categories: Rest, Move, Make, and Verify.  After working with this taxonomy for a while using it to catalog activities I had previously created in IDEF0 for various BPR engagements I came up with several simple insights:

  1. Most business ventures derive their value through the execution of one of these activities. Example, a Product development firm creates most of its value through the make activity, a Consulting firm typically from verify activities and an Airline from move activities
  2. Extending that insight further one can determine the efficiency of a process by inventorying, classifying and analyzing the rations of the activities in the processes these firms use to create their value.  Thus comparing the ratio of the firm’s primary value creating activity to the quantity of other activities provides one the BPR equivalent to a Asset Efficiency Ratio in Finance

Throughout the years –as a personal research project– I had been inventorying, cataloging and analyzing processes I have been reengineering.  This past few months as I started to look into valuation of services and processes, the question has come up often.  How does one create a valuation for a process.  Initially I was looking for a hard formula based upon standard accounting practices.  However, after considerable applications of such concepts as Activity Based Costing (ABC) I came to the conclusion that the formula may be standardize but the actual value of the parameters would change.  That is one could use the ration of primary value add activities to non-value add activates to determine the allocation of value applied to each process.

While this is a simplistic approach it enables the Process Analyst and the Portfolio Manager to work together to determine the value of services through a hierarchy without having to get too detailed in data collection.  The next aspect of using this relative allocation approach is to add adjustments for non-value add activities that are required or mandated (e.g., safety and regulation compliance).  However a case can be made for calling such activities value add as they enable a firm to fulfill its mission and requirements.  Thus compliance and safety activities are feature requirements of a product or service and without meeting such do not perform as required.

This month’s agenda is to merge my activity ratio spreadsheet with the value portion of the IT Portfolio Management spreadsheet.

Structure in Threes: Tools Development

Organizational Design Tools Need Completion

Continuing to build out Enterprise Analysis and Design tools this morning along with a workflow to integrate the Modern IT Portfolio Management methodology.  After finishing the Org Design Tool, the next steps will be to finish off the Portfolio Management Tool and then document the workflow for possible automation.

Strategy Analysis

Modern IT Portfolio Management

Digital Nervous System Architecture

It looks like I’m going to build out the original concepts I developed when discussing what and how Active Directory should be with Hans.  I had presented to Hans an idea that Active Directory (SMS Server) could accomplish its mission through usage of federation and abstraction into logical units (see below late 1996 presentation).  Added to that were the concepts I had been working on as a side research project during my employment at IBM the 80’s.  This later became a white paper “The body enterprise” where I through the network could become an enterprise’s digital nervous system.  Unfortunately, Hans and I could not get the funding to pursue going any further than simple IT product management.  However, I continued -though through small pieces of other projects- to research how to build a management and control system.  With my Modern IT Portfolio Management R&D at a foreseeable conclusion I’ll be able to build the CIO Workbench I had envisioned years ago.

Slide5Slide13

The unfortunate aspect to this was both IBM and Microsoft had the opportunity to build this out a decade ago but failed to see the vision was achievable. I guess you can chalk it up to other missed opportunities that companies have for not reaching far enough in the future.  I remember hearing internal chatter by Microsoft management when I departed for DMR Consulting this was a dream decades away, though BillG must not have through so or his Ghostwriter wouldn’t have spent so much time interviewing me to included in his book.

Structure in Threes: Positioning and Lessons not Learned

Had great discussion last night at Starbucks on Mercer Island with some former Microsoft Alumni.   One is at a Microsoft competitor now working at developing a competitive service to our mutual former employer’s.  The change in strategy at Microsoft has yielded a large shift in the Architecture domain enabling competitors to move in and eventually succeed.  My colleagues and I rather than sit around the table discussing what could have been are busy creating the future; spending several hours mapping out the landscape and what pieces need to be build or remodeled.  Sounds like Enterprise Architects at work.  However, unlike the paper mill approach that was being pushed we’ve been taking a more engineering design approach looking at how the methodologies we’ve each been developing yield implementable designs specific to client’s needs using modular componentry.

Discipline Maturity Lifecycle

I was wondering how much longer it would be before Enterprise Architecture would reach the next stage in its’ maturity.  I’ve been watching TOGAF, ZACHMAN, COBIT, ITIL, etc. for the past several years ideate and mature into a robust collection of heuristics waiting for the day these take the next step towards modularity. last night’s discussion inferred the time was rapidly approaching, both my colleagues began discussing their specific domains in context of creating a reusable component based approach.  That is to say having a set of design rules as to how to choose what components from a library or catalog of components to achieve design goals.  I was really pleased with the direction the discussion was talking.  Had I had my copy of Jon Lang’s Creating Architectural Theory –I leant it out to another peer at Microsoft this past month– I would have pointed out we’re finally making some progress.  However, that most likely would have confirmed in their eyes I was an academic (odd considering I spend more of my time building tools and applying these concepts than doing primary research in the area).

At different times during the conversation I was frantically searching for documents on my Windows Phone to point out some of the pieces I’ve already built or are in the process of building.  Unfortunately, this is where the promise doesn’t measure up to reality.  I could not get to my Office365 Small Business Online site or SkyDrive (it couldn’t recognize ANY or the Userids I entered).  Microsoft has a lot of work to do to get Services right before they can compete effectively with Amazon, Google, and Apple.  Sure individual components run, however, when combined in a system which is where the Services business is, they’re having challenges.  This systems approach is still elusive to the culture at Microsoft.  

We parted with a plan for a plan which could either mean this will result in just an nice academic discussion or that we will really start assembling a next generation of Architectural practice that will take one step closer to a engineering-like discipline rather than a artist colony debating about aesthetics of design.  In either event the discussion confirmed to me I am on the right track with ‘Structure in Threes” and creating the design methodology that enables using modular componentry at all levels of abstraction.

Intellectual Arbitrage Group: Website Redesign

intellectual Arbitrage Group’s Office365 Small Business Premium website V0.7

Spent a few minutes each day this week working on Intellectual Arbitrage Group’s new public website.

intelarbgrp-website-homeOffice365 Small Business Premium IAG Contact Up Page Design

It has taken a little while to get some time on my schedule to work this activity.  Like other small consulting firms,  Time to work on marketing, backoffice systems, and practice development is always in short supply when you don’t have a dedicated people working each task.  Fortunately, using most of the Office365 Small Business Premium templates means I can focus on content and customers instead of presentation.  Only wish it had more flexibility or useful help on how-to customize like WordPress.comto is very minimal.  While the library of SharePoint web parts is helpful, the flexibility of these parts is minimal or not very well supported by documentation.

IAG-Office365 Website WP Blog-Webpart

This past Sunday, I asked my DNS Hoster [ZoneEdit] to build new records to forward my URL and Mail over to my Office365 site.  Both Registrar [DomainPeople] and DNS name service [ZoneEdit] were very fast and responsive, I switched over to new services in less than two hours.  I only hope Microsoft can match that Service Level, though I didn’t see a clear Service Level Agreement (SLA) from Microsoft when I signed up.  But then again they are still new to Services.

Creating Workflow for Modern IT Portfolio Management

On this week’s agenda is building out the workflow for the IT Portfolio Management Practice.  Unlike how IBM, DMR, and Microsoft accomplish practice implementation, I plan on creating a semi-automated workflow using SharePoint, MS Access and Excel.  While using PowerPoint and Word templates may capture content and present it in a “pretty” way, it does nothing for ensuring the quality of the output.  That was one of the reasons I created B.A.S.E. years ago.  I had gotten disgusted back then with the quality of analysis peer consultants were performing, choosing to spend all their time on formatting.  I guess I shouldn’t complain about such, as it created a market for me back then; fixing all the poor engagements and projects these people performed.  I’ve see lots of “pretty” engagements go bad due to poor analysis and thinking which creates the ultimate consulting sin in my book; doing harm to the client.  Having a structured process and supporting system may not guarantee perfect results or avoidance of harm, but it sure reduces the probability and provides better visibility to detect such.

Modern IT Portfolio Management: Investment Profiles

Last night I reviewed of my notes interviewing investment brokers, portfolio managers the past few months and delved deeper into my growing collection of Wiley Finance Series of books.  This morning I scanned through “The Art of Asset Allocation” by David M. Darst searching for the next analogs in financial portfolio management to pair up with IT Portfolio Management.  It occurred to me the metaphors currently in usage in wall street: Bulls, Bears and other animals used to characterize investment behavior is close to but not exactly a match for IT Investment.  In a previous White paper I had researched and written for Microsoft’s Services division on Business Continuity and Disaster Recovery I had started to layout a third dimensional grid-work on the organizational decision behavior and environment.   As I re-read the insight I had working on various aspects of decision science I can see how to apply these learnings plus several other insights to IT Portfolio Investments.

Investor Profiles

The only downside to this approach is that most consulting firms prefer to adhere to the 2×2 matrix.  The logic behind such is they feel more than 2×2 or binary decision values confuses management and executives.  A little insulting to their clients if you think about it.  However, the objective is to communicate quickly to the client not show the complexity and nuance behind the analysis.  As such when I develop a more comprehensive tool, I’ll have to have it yield several simple 2×2 views of the decision for ease of understanding.  I did this with the design of the Cloud and APM Portfolio Tool for Microsoft IT Strategy and Enterprise Architecture services division a few months ago.  The feedback I got from my personal CxO advisory panel were very positive.   Expect to have a wireframe of the tool’s output to match the personas I’ve developed ready by end of next month**.  The it becomes a decision on what technology to build.

**I like the advice I got from Alan Cooper a few years back; “Design from the outside in”.  The common sense of it seems apparent, however, so few companies and developers do such.  Today all the rage is teaching developers and consultants to use personas.  Unfortunately, the lessons typically stop at using them as sales tools to justify what has already been built rather than design tools to ensure operation and aesthetics match with the enduser’s needs and desires.

Modern IT Portfolio Management: Why the need for a business model?

This morning I started R&D for on developing business models for the Modern IT Portfolio Management Practice.  Why Business Models for the practice one would ask?  A answer is simpler and more complex than one would think.  Over the past several decades I’ve continually been throw or volunteered to drive IT Economic methods in various corporations; DMR, IBM and Microsoft the ones picking up the tab for such work.  Each iteration of developing these methodologies has brought with it greater mathematical sophistication.

IT Economics History

IBM

In the 1980s while working on Investment Strategies for Information Systems (ISIS) at IBM, the state of the art practice for IT Economics and Finance was a simple stack ranking of projects based upon a simple ROI calculation [ROI = (Gain from investment – cost of investment) / cost of investment].  As electronic spreadsheets were just on the edge of acceptance much of this calculation was either done programmatically or on tabular paper by consultants and/or someone reporting to the Vice Presidents of Finance.  The work of Marylyn Parker and Robert Benson miles away in the IBM Systems Center Lab in Los Angles was still in process.  Despite the groundbreaking work on decision theory for IT Investment Management this group developed [Balanced Scorecard before Balanced Scorecard], it never gain acceptance within IBM as a practice.  There are many reasons for this; the strongest for such was this was research and journal article materials.  At that time IBM was structured to deliver hardware or software products; it would be a decade before IBM would seriously invest in IT Professional Services as a line of business.

Microsoft Round One

Years later just after departing DMR Consulting I agreed to assist my former employer, Microsoft. The issues of Total Cost of Ownership (TCO) were having an impact of sales to large corporations and a means to breakout of the desktop was needed.  At the urging and recommendation of the former CIO to I was asked to assist in development and training of field staff on a fast and light Economic Justification methodology; thus Rapid Economic Justification (REJ) was born.  The approach formalized calculating cost and benefits, and added spreadsheets to automate the process cutting down cycle time from what was several weeks or months to a potential week of activity.  It was moderately successful as a secondary practice.   Giuseppe Mascarella, the project manager and lead, and I would commiserate about this often.  Why was this more successful? Clearly there is a need for this practice.  Financial Consulting firms are brought in for similar activities in other domains all the time. Something must be missing but what?

Microsoft Round Two

After completing reengineering assignments for IBM corporation and a small boutique consulting firm I returned to Microsoft specifically to develop IP for the IT Strategy and Architecture practice within Microsoft Services.  Microsoft had matured a bit.  The had reestablished the concept using economic justification and brought in a few of former IBMers and other consultants in the IT economics field to created a rebranded IT economics practice. Value Realization Framework (VRF).  The methodology had improved, now using concepts that Parker and Benson had pioneered.  However, field and customer acceptance has still been a problem.  Just prior to departing from Microsoft this time, I had started to have discussions with the lead architect on the project.  Having had decades of working this issue he was interested in my insights on what needed to be changed or augmented.   We had started to brainstorm a plan to address the situation when Microsoft has announced the new corporate strategy: Devices and Services:  Read into that Microsoft has updated its business lines and branding to mean Hardware &, Software products and IT Services (i.e., hosting of software applications).  This placed the emerging practice back to a potential REJ status, a nice to have but not really of importance expect when needed to make a sale.

Intellectual Arbitrage Group

During the past few decades I have been researching, gathering lessons learned, brainstorming and coming up with insights from these initiatives under the brand Intellectual Arbitrage Group.  One might say this is my continual entrepreneurial venture. IAG has been a vehicle for me to collaborate with many of the great thought leaders in this and related domains.  The one clear insight I’ve come up with has been that the reason most of these initiatives continue to fail at crossing the chasm is that the intent and mission of IT Economics has always been secondary in the minds of the sponsors.  That is to say IT Economics is not a line of business practice but a marketing tactic for the line of business.  As such the business model is flawed from the outset and thus creates a chain of decisions which will naturally lead to limiting its acceptance and adoption by the field.  This becomes the mission for Intellectual Arbitrage Group (IAG) and the Structure in Threes book development this blog chronicles.  This morning’s activities are continuing to research and brainstorm using the business model canvas that Alexander Osterwalder has assembled along with the MIT 24 step approach to entrepreneurship that Bill Aulet has outlined has documented in his book.