Enterprise Architecture Seminar (1-day)
by Ruth Malan and Dana Bredemeyer, Bredemeyer Consulting, April 2003
Kaplan and Norton (2001) offer a basic strategy taxonomy (or "architecture of strategy", Kaplan and Norton, 2001) , and we refer you to their work for the foundation to the Visual Strategy Framework that we present in this section.
Figure 1. Visual Strategy Framework
Ultimately, our business strategy must deliver owner or shareholder value. It does so most directly and tangibly through revenue growth or increased profits, but it can also be impacted by less tangible forces of market perception. Revenue growth is delivered by
Profitable growth (with some related measure such as productivity of capital employed) rather than growth by itself, is the more effective strategic goal. If growth is attained at higher cost per unit volume, profitability goes down. At the same volume, profitability is increased through higher revenue at the same cost, or through lower costs—that is, through premium pricing and/or higher productivity.
Our financial strategy determines which path we will pursue. Quite often, this top level strategy has two thrusts, one around growth and the other around productivity. It sets the stage for the other strategy bands (competitive strategy, value network strategy, and execution strategy).
Competitive Strategy: Customer
Our customer strategy is "the strategy for creating value and differentiation from the perspective of the customer" (Kaplan and Norton, 2001, p.23). The competitive strategy determines in large measure how we will achieve the financial strategy, laying out how we will win the battle for the hearts of customers, and if not their hearts, then at least their wallets. To achieve revenue growth, we need more customers, or customers willing pay more. To achieve higher profitability, we either have to work the productivity angle (execution strategy and value network strategy) or the revenue growth angle, or both.
Porter argues eloquently for creating a focused, clear competitive position based on some unique and compelling mix of value (Porter, 1998, ch. 2). At the strategic level, this is setting the direction for all the companies products or services, not individual offerings. This value relates to how the companies products or services are perceived. In the flood of competitive offerings in the printer market, I do not have time to evaluate all, or even several. I choose based on my perception of what I need and my beliefs about the company and its products. These beliefs are a product of experience with the companies printers, and are also shaped by the media, encounters with the channel, encounters with the company, and so forth. A company that pursues several diffuse strategies simultaneously, is not going to create any clear beliefs or perceptions that will help steer customers through the enormous proliferation of product offerings in every market.
Competitive Strategy: Value Network
The value network is, for the most part, outside our business, so it is out of scope for our strategy— "not" (to quote Sara Bredemeyer, a 3 year old). Those companies that fail to think strategically about their supply chain (upstream), and channel (downstream), and others who add or detract value (e.g., the media), will neglect opportunities or threats that would loom large, if they were only to be paying attention in the right place. Take, for example, all the companies that were taken by surprise by the emergence of the worldwide web as a major channel. No-one has caught up with Dell, who, early-on, saw and seized the opportunity to enhance its catalog business through the web. In the rush to compensate for the initial strategic blind spot, other companies blundered in their assessment of the web opportunity.
Thinking strategically about the value network also opens up surprising opportunities. Consider the B-to-B portal that was a joint venture by 3 leading automotive companies (DaimlerChrysler, Ford, and General Motors). These companies are, in every other respect, competitors, yet they collaborated on the creation of Covisint to create a common procurement portal. By making a strategic decision not to differentiate on the supply-chain management system, but rather to collaborate on that, they shared the investment in an essential business capability. ...But then each also continued to invest in their own manufacturer-supplier exchanges (InformationWeek, July 1, 2002), clouding the strategy and making it harder for Covisint to find its compelling value proposition.
Downstream players in the value network are critical too. I love my aging Jeep Grand Cherokee, but am reluctant to replace it with another Jeep because the local dealer/service agent provides horrible service at exorbitant cost. In a repeat purchase, the whole-life experience with the product comes into play. I purchase gas from the service station that not only has a competitive price, but has the fastest pumps and takes credit cards at the pump. I value my time, in addition to hard cash, and both factor into my purchase decision. Only one of these is directly impacted by the gas company (price), the other is impacted by the channel (convenience).
If we limit our strategy framework to financial and customer strategy and internal business processes (Kaplan and Norton, 2001), ignoring the value network, our framework will not prompt us to investigate (and may even lead us away from) a very crucial avenue for enhancing our value proposition and/or operational effectiveness.
The execution strategy determines how the competitive strategy and financial strategy will be carried out by the business. It focuses on the business capabilities strategy, which sets the direction for creating, enhancing or eliminating business capabilities, and organizational culture and climate strategy.
Though Porter focuses on activities, and Kaplan and Norton on business processes, we prefer to focus on capabilities, emphasizing that capabilities can come from business processes, from technology (built in-house or acquired using resources), from skills, or from combinations of these. Failing to treat capabilities in a systemic way leads, for example, to failures when enterprise systems like SAP are purchased without taking heed of the impact on business operations, processes, skills and culture.
By focusing on what high level capabilities are needed, strategic managers set direction without determining/constraining how the capabilities will be implemented. Business architects can then team with IT architects to create the best combination of process and technology to achieve the capability objectives of the strategic management team.
Culture and Climate
One of the biggest factors being overlooked by a slew of corporate executives in the current business world, is the role played by the culture and climate of the organization in enhancing—or debilitating—organizational capability. By their oversight, the absolutely critical role of climate in corporate creativity is being highlighted. Once powerfully innovative companies are being hamstrung by a malaise or corporate depression, resulting from unpopular executive choices. Depressed organizational cultures result in a quickening death spiral for the organization, as the depression makes results worse, which heightens the sense of executive panic and corporate churn, increasing depression and worsening results.
See our EA report for Cutter for an update on our approach to Strategy:
Kaplan, Robert, and David Norton, The Balanced Scorecard, Harvard Business School Press, 1996.
Kaplan, Robert, and David Norton, The Strategy Focused Organization, Harvard Business School Press, 2001.
Porter, Michael, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985.
Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1998.
Porter, Michael, Michael E. Porter on Competition, Harvard Business School Press, 1998.
We would like to thank Raj Krishnan who inspired and championed the Business Capabilities Architecture as the cornerstone of our approach to Enterprise Architecture. He recognized the centrality of capabilities, and drafted our Enterprise Visual Architecting Process (E-VAP) using capabilities as the organizing theme. We have taken that initial work and advanced it, used it with clients, and moved the whole frontier forward, but Raj deserves credit for the inspiration and genesis of the capabilities approach that we promulgate. Aaron LaFrenz, too, was instrumental in moving us into the Enterprise Architecture space. His ideas and energy have had a great impact on our work, and we are much indebted to his influence.
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