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April 13, 2005

Strategy, Architecture, and Performance

A business is an organization that exists to convert resources into assets at a pace faster than the assets lose superior value to the resources.

Meanwhile, markets define the value of the asset. Move the asset to a different market, and its value gets regenerated from scratch by the new market, with a likely (but not necessarily) different result.

If that is true, then against that backdrop all businesses have the same deep questions about driving business performance.
- Market model: how do I get a position to capture the value that a market can generate?
- Business model: how do I optimize the resource-conversion potential, for delivering assets into that value-making market?
- Process model: how do I build and maximize the resource-conversion capability?

Let's step towards some answers.

Position: Most business strategists initially address the problem of decoding the way a market can generate value around an asset. This results in a market model of various dynamics to be leveraged. Then, the business looks for (i.e., conceives) a "fulcrum" (one or more of them) that enables the leverage.

Optimization: Actually making and sustaining that fulcrum is the next issue. Specifically, the organization must engineer certain conditions that create the leverage. This engineering becomes the primary purpose of the business's operations (yet is often unrecognized as such because people are accustomed to thinking of operational outputs as goals instead of as causes.) To engineer the conditions necessary for market leverage, the organization must implement and exercise a business model for the market, respecting the ongoing changes occurring within the market. For that, the essential elements that make up the business's structure -- resources, services and relationships -- must be continually re-aligned to ensure that the business's effects stay within accepted tolerances for the target market. Naturally, this ongoing reconstruction is constrained by the known characteristics of those basic business elements. To ensure that strategic reconstruction is successful with the constraints, management relies on an architecture (a pragmatic systems design framework) to provide principles for alignment, and relies on change management (a governance framework) to defend the architecture.(For some reason, people tend to not take credit as the "architect" of the setup unless it acquires some celebrity as a success. Regardless...)

Development: As said above, the business organization that is derived from the business alignment must generate the events needed to exploit the market position.

This occurs as "production", through organizing activities in a sustainable balance with supplies and skills. That balance point within production usually tries to simultaneously maximize economies of scale and economies of scope (a blending that is again an "architect's" natural domain).

In that effort, the actual provision and consumption of supplies and skills are quite variable and therefore take up a lot of management attention. This variability is often assumed to be covered by ERP systems. But increasingly, establishing real cross-functional manageability requires process modeling.

The process model orchestrates events around strategic objectives. Those events are what mostly occupy the awareness of the parties who "use" the business through their own roles within the conversion chain and/or as market-makers. The orchestration predictively arranges or promises these events, and the participants execute to make them occur. Keeping those promises is what operational performance is about.

So the hierarchy of interdependencies, from market model to business model to process model, respectively links strategy, architecture and performance.

Posted by Malcolm Ryder at April 13, 2005 12:38 AM

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