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February 1, 2006

The Enterprise Logic of IT Investment

Managing the enterprise features such a high degree of complexity because by its nature the enterprise tries to grow amidst enormous possibilities of internal and external change.

The internal health of the organization, and the external growth of the business, both rely on great systemic coordination.

The overall view of the related dynamics is often shifting or obscure, and in learning to cope with the variations the enterprise focuses on how to adjust to the moment in ways that aim to sense future conditions and engineer future events.

The combination of increased awareness and increased ability protects its prospects for continued health and growth.

Visibility and controls are strong proactive correspondents to the desired awareness and ability. The enterprise's proactive stance on protecting its future opportunity is reflected in its vocabulary and institutions. It propagates its stance mainly through communications and procedures, and it formalizes those means in the way it promotes and tolerates management. But then it defends that formalization, and implements it, by deploying IT.

The high-level description of that enterprise management is fundamentally the same for most enterprises. In the following picture, the essential storyline of enterprise action is shown as a matrix of management topics that describe how the enterprise systemically associates its action with its expected challenges and desired outcomes.

Notes:
All of the terms in the illustration can be prefaced with the word "business". This is because the purpose of the idea or concern that each term represents is to support the business. As an example of how this applies, however: if "requirements" in the IT arena are under consideration, this illustration is about what the business needs to get from those requirements being handled in IT.

1. The semantic separation of Performance, Execution and Operation is crucial to understanding how the organization and its stakeholders recognize opportunities to affect the future. The table shows that each perspective has its own type of goal. Understanding the differences between the types of goals is superficially easy, since they tend to come from different sources. Only for example: standards may come from experts; requirements may come from partners or customers; and targets may come from executives or investors. If a change occurs to one of these goals, the point is to realize where it will have impact. Change to Standards will affect production. Change to Requirements will affect execution. Etc.

2. The Benefits column shows what the activity is intended to be all about. Additionally, it shows the critical linkage provided by process management and portfolio management. These two disciplines create the channel that converts operational investments into managed impact on business performance. (Shown in the Benefits column, the two disciplines are placeholders for the artifacts that they also represent; the enterprise typically wants to achieve and improve processes and portfolios as negotiable products or holdings, not just use them as conceptual models or tools.)

3. The difference between Production, Progress and Achievement is as follows: production is the shape of the activity; progress is the output of the activity; and achievement is the significance of the output in the context of what the organization is trying to deliver to its stakeholders. All three of these are factors that may be individually found "positive" or "negative" compared to expectations or plans. But that status may or may not directly correlate with the actual effect that the factor has on the economic prospects and risk prospects. The "systemic" nature of the enterprise is that success on one level increases the likelihood of sustainable success on the level above it. Negative factors decrease the stability of the enterprise, making it less able to proactively maintain suitable levels of desirable influence on future conditions.

4. Economic Prospects can be understood both literally and figuratively. To make this point clear, first assume for the sake of argument that all activity is about dollars. In this case, economy is about dollar consumption; capacity is about how powerful the available supply of dollars is versus spending needs; and profitability is about how many more dollars of better-than-previous-power have joined the supply. But in a second case, assume that all activity is about a different asset, such as "knowledge". In this case, economy would refer to the percent of the retained knowledge that has frequently high practicality; capacity refers to how much of it has frequently high relevance; and profitability would refer to how much more of the knowledge is usable by how many more users, compared to a previous time or population.

5. Risk Prospects identify the primary source of challenge to what the activity is trying to control. There are two kinds of comparisons to see here. One kind compares the Risk to the Measures, illustrating that the momentum and probable success of the as-measured activity is very sensitive to the risk. The other kind compares the Risk to the Benefit. The variability of the risk factors can alter the level of benefit and/or alter the degree to which the level of benefit matters to the economic prospect.

Posted by Malcolm Ryder at February 1, 2006 2:42 PM

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