Business-IT Alignment: Having Meaningful Discussion with Business Leaders

What is business-IT alignment? How does IT align itself with the business when the business itself is not aligned? While enterprise architecture originated in the IT organization, its scope must expand beyond IT to maximize its benefit to the organization. SOA and BPM have both refocused their attention on “business architecture”, but what does the term really mean?

In heavily siloed businesses, IT is one of the few groups that sees the negative business impact of functional silos. Due to its nature, IT is forced to deal with the “white space” between the functional silos in the organization chart, while attempting to integrate siloed processes and data. The enterprise architecture team understands what “white space” issues are and how IT is currently addressing them. This puts the enterprise architecture team in an ideal position to assist senior business leaders in understanding and addressing the underlying business and organizational issues that cause this siloed behavior.

This article will review concepts and techniques from the Process Improvement and Business Reengineering movements, which are the key to a meaningful and useful conversation with senior business leaders.

THE ENTERPRISE VIEW

Most businesses are organized into a functional reporting structure where employees are grouped by their job function. Typically, there are separate departments for HR, sales, manufacturing, etc. In businesses where each executive is focused on optimizing his or her particular slice of the business without regard for, or in the absence of, an overarching business strategy, a “silo” is born. In this situation, the larger strategic goals of the business are lost or ignored, as executives seek to maximize the business resources allocated to their silos. Yearly planning cycles turn into a zero-sum game, where any increase in the share of funding or resources for one silo becomes a loss for all others. Resource allocation becomes driven by politics and personality instead of being rationally allocated to achieve corporate goals and objectives. Besides fostering the misallocation of resources, it becomes difficult and expensive to deliver any business initiative that requires coordination between silos. Geary A. Rummler and Alan P. Brache offer a number of examples with these effects in their classic study of siloed organizations, Improving Performance: How to Manage the White Space in the Organization Chart.

Figure 1: Silos, Oh No!

A DIFFERENT VIEW OF THE BUSINESS

The purpose of any business is to provide financial returns to its financial stakeholders by offering products and/or services that customers value. Michael Porter introduced the concept of a value chain in 1985 in his book, Competitive Advantage: Creating and Sustaining Superior Performance. The value chain is a set of business processes used to create, sell, and deliver the products and/or services, which provide value to its customers and generate earnings for its financial stakeholders. Of course, this activity doesn’t happen in a vacuum. There are other businesses competing for the same customers or consuming resources, such as capital, labor, materials, and equipment that are needed by the business. There may be regulations imposed on the business by government, changes in economic or cultural factors that can increase or diminish the perceived value of the business’ offerings. All of these external factors must be mitigated if they negatively impact the earnings that the business returns to its financial stakeholders.

Besides the processes making up the value chain, there are also business processes that do not directly participate in the chain, but are necessary for those that do, to function. We can categorize these two different sets of processes as core and supporting processes. Core processes are focused on transforming inputs into outputs: raw materials into finished products, product delivery, and product support. Supporting processes enable core processes.

MOVING FROM SILOS TO AN ENTERPRISE VIEW

Enterprise architects bring value to the business by improving business results. Historically, enterprise architects have achieved this by focusing on improving IT efficiencies and attempting to align IT more closely to the goals of the business. The following steps allow the enterprise architect to more clearly identify those goals and, where there are conflicts or confused goals within the business itself, help the business to reach consensus on its goals.

Step 1: Identify the Customer
Who is your customer, really? Do all the different parts of the organization agree on who the true customer of the business is? Do their actions confirm this? If not, then the business will be internally fragmented and will not deliver maximum value to either its customers or its financial stakeholders.

Step 2: Identify the Value Chain
What value are you providing to your customer? How does the business create, sell, and deliver this value to the customer? Where in the organization do these processes happen? All of these questions are the starting point for determining your core and supporting processes.

Step 3: Identify Your Core Processes
What processes in your organization create, sell, and deliver the value that you are providing to your customer? It is important to begin first with large-scale, high-level processes. Don’t do a deep dive at this point. Look at the processes such as procure to pay, hire to retire, order to cash, etc. Most of these cross organizational boundaries and probably do not have a clear owner. Identifying and classifying these processes enables the business to:

• Make better investment decisions. Core processes are where the business differentiates itself from its competitors. Certain core processes (in an ideal world all of them) will provide a competitive advantage to the business. These select core processes are differentiating processes. Once the business has categorized its processes, investments can be weighed on what category of process they benefit with “differentiating” having a higher priority than “non-differentiating,” which has a higher priority than supporting.
• Review the business’ organizational structure to ensure that, at a minimum, all differentiating processes have an owner accountable for delivering value to the customer and providing competitive advantage.
• Make better outsourcing/insourcing decisions. All supporting processes are candidates for outsourcing. If a supporting process can be provided cheaper and better from an outside vendor, the business should give serious thought to doing so.

FOCUS ON PROCESS

We’ve identified our high-level processes, but what do we really mean by a process? Here is a slightly modified form of the definition given in Method Integration: Concepts and Case Studies (Klaus Kronlöf, editor; Chichester, England: Wiley, 1993):

A process is an abstracted activity, or set of activities, which takes place over time and which has a precise aim regarding the result to be achieved. The concept of a process is hierarchical, which means that a process may consist of a partially ordered set of sub-processes.

Paul Harmon, in chapter 4 of Business Process Change, Second Edition: A Guide for Business Managers and BPM and Six Sigma Professionals, shows how to decompose these high-level processes into smaller and smaller sub-processes and finally into concrete activities performed by humans and systems.

If you decompose a process and can’t find a concrete activity for your organization, then you either don’t know your organization as well as you thought you did, or you’ve identified a gap in its operational capabilities. In highly siloed organizations, you’ll find this type of gap in a process, as it crosses silos. Faulty governance and communications are typical root causes for this type of operational gap.

PROCESS HEALTH

Are our processes producing the results needed by the business? If not, is it due to a gap in the implementation of the process, as discussed above, or for other reasons? The business has hopefully identified the key performance indicators (KPIs) and appropriate target values for each process. If not, this is an opportunity for enterprise architects to work with the business to develop them.
Where a process is performing inadequately, a root-cause analysis may require a decomposition of that process to the level of specific activities and systems, in order to determine the elements that need to change so they can effectively support the goals of the business.

As this process decomposition continues, it will point to where the business has duplicated activities and systems are performing the same function. Here’s an example: The procurement department and the sales department each need the capability to perform business-to-business communications by EDI. In a siloed organization, each department may have implemented its own EDI solution, resulting in duplicate computer systems, value added networks (VANs), job functions, etc. If this happens, it creates an opportunity to improve the cost structure of the business by standardizing its EDI capability.

BUSINESS CAPABILITY MAPS

A business requires certain capabilities to execute its processes. Besides identifying potential cost savings by eliminating duplicate systems, knowing how capabilities are implemented and which processes utilize these capabilities enables:

• Prioritization of system improvements by process category (differentiating, core, and supporting).
• More effective IT risk management as the systems-to-business process relationship is clearly defined.
• More effective hiring and training decisions as capabilities requiring specific skills are mapped to the organizations skills inventory.

SUMMING UP

The enterprise architecture team is in a unique position to understand how the business culture and the organization affects IT and to see how IT responds to that effect. IT and “the business” are not two separate entities (unless IT is totally outsourced, which only increases the need for effective alignment and management) because IT is the business for both good and bad. A heavily siloed business is likely to have a siloed IT organization as well. Duplication of effort, too large of a technology footprint, and excessive labor costs are only a few of the negative consequences of “siloing.” Attempts at rationalizing the application and technology portfolios as an “IT-only effort” quickly become exercises in futility as each business silo passionately justifies the status quo and its portion of the IT organization. Attempting to introduce business process management (BPM) and service-oriented architecture (SOA) into the organization either fails entirely or does not deliver sufficient value to justify the effort. Even if such initiatives are championed by a business silo, instead of IT, the other silos will still see this as a zero-sum game where any benefit to one silo is a loss to all others.

Only the enterprise as a whole can triumph over individual business silos. Strong leadership and cultural and organizational changes are required to move from siloed thinking to an “enterprise view.”

As Porter says in What Is Strategy? (Harvard Business Review, November/December 1996): “The challenge of developing or reestablishing a clear strategy is often primarily an organizational one and depends on leadership. With so many forces that work against making choices and trade-offs in organizations, a clear intellectual framework to guide strategy is a necessary counterweight.”

While only senior business leadership can mandate this type of change, the enterprise architecture team can play a key role in documenting the need for such change, facilitating the strategic discussions required to define the “true customer” and the value chain, and crystallizing what differentiates the business from its competitors. However, this can only happen if the enterprise architecture team is prepared and ready for a business architect role. So in conclusion, we suggest you embrace the concepts discussed here, focus on delivering value to your business, and make this a reality for your team.

by Ken LaCrosse.  Ken has over 20 years of experience in applying information technology to meet business challenges as well as experience in health care. He is currently an IT architect at Raley’s, a privately held supermarket chain in northern California.