In previous articles we have argued that all organisations have a ‘default’ future and that it is the responsibility of leaders to confront this future. If they consider it unacceptable then they are accountable for defining a future that is not only better but achievable. We have also argued that the main reason the majority of strategies and major change initiatives fail is because the forces driving the organisation to its default future are ignored or their influence underestimated. Only by understanding these forces and putting in place the necessary conditions for change success will leaders be able to alter the trajectory of their organisation away from its default future to an improved future.

One of the most powerful of these driving forces is the organisation’s existing organisational capabilities – the very capabilities that have contributed to past and current success. But are these capabilities the ones needed for future success? If the target improved future is different to the default future, then it’s highly likely that different organisational capabilities will be needed. It is not to say that all existing capabilities will need to change, only those preventing the organisation altering its trajectory away from its default future. The aim is to have the organisational capabilities in place that will ‘pull’ the organisation to its targeted improved future.

The ‘pull’ approach is contrary to how most change initiatives are undertaken. In most cases change is ‘pushed’, either implicitly or explicitly. The push approach is predicated on the assumption that successful change is achieved through the execution of a series of steps, essentially implementation of a pre-defined plan; where the completion of each step takes the organisation closer to its target state. The weakness of this approach is that it assumes that organisations are deterministic and ‘programmable’. The reality is that changing an organisation is not like changing the engine of a car or building a bridge. Organisations are not static or predictable under change; they are dynamic systems that respond – often in unforeseen ways – when attempts are made to change them. As a consequence a change plan is always out of date. Furthermore, having a change plan can lead people to believe it is someone else’s responsibility to implement the change, namely the people implementing the plan. The push approach therefore has a number of limitations, the most significant being that it doesn’t create a context where people can exercise their judgement, apply their experience and use their expertise to pull the organisation to its target improved future. Plans are of course necessary, but in themselves they are not sufficient.

But the ‘pull’ approach requires more than having a vision. While a vision aims to describe a motivating target future, it will be no more than a dream if the organisation does not have the capabilities needed to pull itself to its target future. Having these capabilities in place enables people to change their organisation’s trajectory through the thousands of decisions and actions that are taken daily. A vision is a necessary component of the ‘pull’ approach, but not sufficient.

What do we mean by organisational capabilities?

Firstly it’s important to make a distinction between organisational capabilities and individual competencies. Where competencies are held by individuals, capabilities are held within organisations. Obviously it’s not possible for an organisation to have capabilities without having competent people. But these people don’t need to be super-smart or highly intelligent because organisational capabilities are developed through application and practice. Like muscles, they get stronger the more they are used. Also, the more embedded they become the greater their influence on organisational culture. They can also become organisational habits, where people collectively do things in a particular way without consciously knowing how or why. As we will explore later in this article, their impact can be profound when it comes to developing strategy or implementing change, as existing organisational capabilities can make it difficult to alter an organisation’s trajectory away from its default future.

Organisational capabilities are based upon shared mental models, frameworks, language, skills, mindset, beliefs, conventions and experiences that collectively drive organisational behaviour. Significantly, they are not lost when individuals leave. Examples of organisational capabilities are given below.

Examples of organisations using organisational capabilities to pull themselves into an improved future

While researching our book Moving Beyond Default, we identified several organisations who were using organisational capabilities to pull themselves into their target improved. Three examples are given below.

Multi-channel business operating model
In our first example a very successful builders merchant and DIY chain recognised they lacked a compelling online presence. The more they thought about it the more they realised it wasn’t just a case of updating their website, but fundamentally rethinking their multi-channel approach to customers. After initially asking their IT organisation to take the lead it soon became apparent that they didn’t have the capability to deliver a successful outcome.

The more the CEO and his executive team understood what they wanted to achieve, the more they realised they simply didn’t have the capabilities needed, and that developing them in-house would take too long. The decision was therefore taken to acquire a company that had strong multi-channel capability. It was only after the acquisition that they fully understood and appreciated the capability they had acquired. It wasn’t so much the multi-channel business model, but the way people thought, acted and behaved. The challenge now for the CEO and his executive team is to spread these capabilities across other companies in the group without diluting or destroying what they have acquired.

Delivering ‘cool things’ digitally
In our second example the CEO of a successful home and motor insurance company wanted to give his customers ‘cool things’ digitally. He wanted to take his company to the ‘next level of digitisation’, where customers would have an easy to use, compelling and differentiated online (including mobile) experience, and where the cost of back-office processing would be significantly reduced through greater automation. The company already had a website that was no worse or better that the rest of the industry; what was lacking was the capability to realise his vision. While the IT organisation was perfectly capable of updating the website and managing their legacy systems, it lacked a fundamental understanding of what the ‘next-generation’ digital experience would look and feel like for customers and colleagues. What’s more, the CEO felt that the major consultancies and system integrators had little to offer in this respect. In the end he turned to other industries that did have the people with the competencies he was looking for, including online gaming and social media companies.

Transforming legacy technology, and also the entire IT organisation
In our final example, the newly appointed CIO of an energy utility needed to transform the technology base of the company whose legacy systems were increasingly difficult and expensive to maintain. Rather than starting with a traditional migration plan, he began by identifying the organisational capabilities needed to successfully operate in the target future. He then acquired these capabilities through in-house development, recruitment and partnerships. As the capabilities were put in place, the transformation plans were developed and executed. The beauty and power of this approach is that the people with the new capabilities were collectively able to stand in the future, and by looking back “manage the present as a past condition of the future”. When asked why he’d taken this approach, his response was that he had tried ‘push’ approaches in the past and the ‘pull’ approach was much faster and more effective!

The impact of past and future technology

It’s interesting to note that in all three examples information technology (IT) plays an important part. While it’s well accepted that IT plays a critical role in the operation of most organisations, it’s less apparent that the IT installed base – and organisational capabilities that reside within the IT organisation – act as a powerful force taking an organisation to its default future. And as a consequence, this makes changing an organisation’s trajectory to a different – and hopefully improved – future more difficult.

The challenge of identifying and acquiring organisational capabilities

Existing organisational capabilities will create ‘more of the same’. If the aim is to create a new (improved) future, then new organisational capabilities are needed in order to pull the organisation into that future. If this is the case, why is it that the organisational capabilities are not the cornerstone of all strategies or change programmes? We observe four common reasons:

Organisations are blind to the need for new organisational capabilities
Existing organisational capabilities can become organisational habits: they are the source of what organisations instinctively do. As they have been the source of success in the past, it’s assumed they will be the source of success in the future. It’s a natural reaction when things get tough to rely on what we know and what you can do. It’s the same with organisations. When things get difficult, they make their existing organisational capabilities work harder. As these organisational capabilities are embedded and omnipresent, it’s difficult for an organisation to appreciate that they exist and, as a result, they are blind to the need for new ones.

A good example of this trap is what’s currently happening on high streets across the UK. While online sales continue to grow year-on-year, traditional ‘bricks and mortar’ retailers are finding it increasingly difficult to compete. As a result several established brands, including HMV, Comet and Jessops have recently gone into receivership. Industry commentators are quick to point out that they failed because they didn’t recognise the threat from online competitors and were too slow in changing their business model. Easy to say, but the organisational capabilities of these companies were those needed for high street retailing. It’s therefore not surprising that they failed to recognise and acquire the capabilities needed for e-tailing.

The required organisational capabilities are not really understood
In today’s world where information is readily available it’s all too easy to believe you understand something, when actually you don’t. Equally, when you visit a company and observe interesting ways of doing things you may think that you understand the underlying processes and supporting technology, when actually you don’t. It’s the same with organisational capabilities. You may be able to name or even describe them, but true understanding only comes from experiencing them. In one of the examples above it was only when the IT organisation tried to implement the multi-channel strategy that it realised it – and the business – didn’t have sufficient understanding of what was really needed.

The risk is that strategies and change programmes are formulated on a shallow understanding of the organisational capabilities needed to successfully operate in the target future.

The time and effort needed to acquire new organisational capabilities are severely underestimated
In 2010 David Cameron, the Prime Minister of the UK, announced the most radical transformation of the National Health Service since its formation in 1948. The essence of this change was separating demand from supply. In the new model General Practitioner consortia would be created and commission treatments from service providers, principally the hospitals. The aim was to increase competition between service providers, improve the patient experience and drive greater efficiencies. To make this happen, new organisational capabilities would be required.

After these transformational changes were announced we had the opportunity to run a number of workshops with junior doctors, consultants and hospital staff. It was apparent to everyone that the capabilities needed to operate the new model simply did not exist and would take considerable time and effort to develop.

The power of existing organisational capabilities is underestimated
Over time, business functions like IT, HR and Finance learn what is expected of them and develop capabilities to meet these expectations. For example, most IT organisations have developed the capabilities needed to keep the systems running, fix problems when they occur and manage the risks that come with a complex legacy installed base. They do everything to avoid their CIO getting a call from their CEO asking when the systems – and the business – will be up and running again.

But if the context changes – for example, the organisation decides to re-platform their core IT systems – the existing capabilities within the IT organisation may no longer be sufficient, particularly if the decision is taken to use an offshore provider to configure and maintain the new platform. In this situation, it’s highly likely that the current organisational capabilities – that have been valued in the past – create an anchor to the present way of doing things and puts the transformation at risk.

Organisational capabilities ultimately define how an enterprise operates

If we accept that organisational capabilities are based upon shared mental models, frameworks, language, skills, mindset, beliefs, conventions and experiences, it’s reasonable to assume that they are a major influence in determining how things get done – thereby shaping the organisation’s operating model. Or to put it another way, an organisation’s operating model is a manifestation of the organisational capabilities.

It’s interesting to note that in most transformation programmes one of the first questions consultants ask is “what’s the target operating model”? If the people defining the target operating model are the same people that operate and manage the current model, then the best one can expect is improvements to the current model. If true transformation is to be achieved then the new operating model needs to be defined and built by people who collectively possess the organisational capabilities needed for the target future.

The enterprise as a portfolio of organisational capabilities

If we accept the argument that existing organisational capabilities determine how an organisation operates, it could also be argued that an enterprise consists of a portfolio of organisational capabilities. And like any portfolio, it needs to be managed. Not all organisational capabilities will be of equal importance and their contribution will change and shift over time. Tension is also likely between those people who value the ‘old’ capabilities and those who see the need for new ones. As one CEO put it: “We know cost control is our strongest organisational capability, and it’s also the one that stops us innovating and thinking long term”. If this argument is accepted then the role of leaders is to identify and acquire new organisational capabilities, nurture the ones that are most needed today and ‘retire’ those whose contribution prevents the organisation changing its trajectory to its targeted improved future.

Assessing and acquiring organisational capability

We believe organisational capabilities can be assessed in terms of their importance and maturity, and that they can be acquired in a number of different ways. Both these aspects will be covered in future articles.

Three key questions

If you are sponsoring or leading a strategy or change initiative, is it clear:

1. Which organisational capabilities are defining your current trajectory and taking the organisation to its default future?
2. What new organisational capabilities are needed to change the trajectory and pull the organisation to its targeted improved future?
3. How these new organisational capabilities will be acquired?

We welcome your thoughts.

David Trafford
david.trafford@formicio.com

Peter Boggis
peter.boggis@formicio.com

Related articles

Beyond Default – Moving Your Organisation to an Improved Future
The Six Core Conditions for Change Success

Formicio Insight Article: Using Organisational Capabilities to Pull the Present into the Future

In these situations the underlying cause is often a lack of alignment across the three domains of IT capability: Value Proposition, Operating Model and Operating State. Each of these has a number of facets that equally need to be aligned. Unfortunately, alignment does not happen naturally and can only be achieved through conscious and deliberate effort.

Furthermore, the quest for alignment is never-ending: as the context changes, so does the need to realign. Alignment therefore needs to be developed as an organisational capability that is embedded in the way things are done, and based upon shared mental models, frameworks, competencies, mindsets and beliefs. Failure to do so will always place the IT organisation on the back foot – playing catch-up.
In the following presentation we share our point of view on the case for continual realignment of the IT function and offer insights on how this can be achieved. We hope you will find it interesting and helpful.

We welcome your thoughts.

David Trafford
david.trafford@formicio.com

Peter Boggis
peter.boggis@formicio.com

In previous Formicio articles we have argued that all organisations have a default future: it’s the place they will end up if no action is taken, other than that currently planned. We’ve further argued that the default future is determined by a set of driving forces that define the trajectory. Some of these forces are easy to observe, like technology and regulation, while others, like mindset, values and culture, are often hidden deep within the organisation and not immediately apparent. Equally, some of these forces are generated externally, like regulation and economic conditions, while others are a result of past internal choices and actions, examples being legacy technology and product strategy.

Based upon the premise that all organisations have a default future we believe it’s the role of leaders to understand the default future for which they are accountable and, if they consider it unacceptable, to take action to create an improved future. These actions are likely to take the form of a new strategy, acquisition, divestment, merger or reorganisation. All of which involve some form of change.

The classic approach to creating an improved future goes something like this: firstly, devise a strategy – ideally one that has a compelling vision with audacious goals – then, secondly, implement the strategy through a change programme. Simple – if it were only so.

The inconvenient truth is that most organisations don’t really have a meaningful strategy. Yes, they have ambition and stretch goals, but as Richard Rumelt argues in his book Good Strategy/Bad Strategy, there is more bad strategy than good strategy. By ‘bad’ he doesn’t mean that a strategy is wrong, just that the strategic thinking is not complete and goes no further than a set of aspirational statements. Furthermore, he argues that the heart of ‘good’ strategy is having insight into the hidden power of a situation coupled with a response that contains appropriate policy and action. In addition, according to John P Kotter, Professor Emeritus at Harvard Business School and a leading authority on leadership and transformation, only about 5% of large-scale change programmes are successful. Of concern is that all the evidence spanning the last 25 years indicates that our ability to deliver successful change has not improved: in fact it could be argued that it’s actually getting worse.

In this article we offer an explanation as to why the success rate is so poor. We don’t offer a complete solution, but we do present a framework that we believe can increase the chances of success. The framework comprises six necessary conditions for successful change. If these conditions are put in place and maintained throughout the change journey we believe the chances of delivering successful change will be significantly increased.

Focusing on the wrong future

Before we describe the six conditions, let us first set the context by challenging some of the traditional thinking about delivering change. Firstly, the purpose of any change initiative is to deliver a vision of the future, where the vision is part of a strategy. Furthermore the change initiative should be justified by a business case that defines tangible financial benefits that exceed projected costs.

In our view this approach is fundamentally flawed as it focuses on the wrong future – the future leaders hope to achieve rather than the one they’re likely to get. As a result, leaders are often surprised and disappointed when the organisation doesn’t respond in the way they hoped and continues on the same path as if nothing had happened. What they don’t realise – or in many cases ignore – is that the destiny of their organisation is determined by a set of powerful forces that act as invisible ‘rail tracks’ taking it to its default future.

If a change programme is to have any chance of success it must identify and act to change the influence of these forces. It must and lay down ‘new tracks’ that take the organisation to a different (improved) future. It’s also often forgotten that these forces can be very powerful and create a momentum that makes it very difficult to change trajectory. To make a difference, the effort expended by the change programme – in terms of energy, resources and commitment – must be greater than the power of the driving forces. If not, the trajectory will not change and the initiative will fail.

This view on organisational change is contrary to contemporary thinking, where the popular view is that successful change begins with a compelling vision, ideally one with audacious goals. The logic is that if an organisation is planning to a change it must, by definition, be dissatisfied with its default future and therefore there is no point in spending valuable time studying it. Surely, the argument goes, the focus must be on the future we aim to create rather than the one we might get if we do nothing.

This perspective on change has one fundamental flaw. It assumes that the organisation can easily change; that it is agile, and therefore able to change without constraint. While this may be true in small start-ups, the reality is that most established organisations are not agile: their decision-making is slow, resources are difficult to mobilise, established mindsets stifle innovation, and legacy technology makes any change complex and expensive.

Most organisations therefore need to accept that they are not agile and that successful change requires a significant level of insight and effort to change the trajectory away from its default future.

Conditions for change success

When asked to give examples of the conditions for successful change we often ask what the questioner knows about gardening. While gardening may not be as popular as it once was, we all know that the condition of the soil is important and that plants need nourishment. We know that certain plants will only flourish in certain types of soil and that some plants need to be pruned in spring and others in autumn. We may not all be expert gardeners, but we know enough to realise that that certain conditions need to be in place if we are to be successful. If not, gardening can be a very costly and disappointing pastime. It’s the same with change: if certain conditions are not established and maintained it can be very painful and costly.

Below we describe what we believe to be the six core conditions for successful change. Other conditions may be necessary depending upon the particular nature of the change, but in our experience these six are universally applicable for all types of change.

1. Targeted
   Our view is that the purpose of any change initiative is to change the trajectory of the organisation away from where it’s currently headed (its default future) to an improved future.

   Some initiatives will be small and therefore make a minor contribution to changing the trajectory, while others will be ‘transformational’ and aimed at making a significant shift. Some initiatives will be implemented through the line organisation and others will require the creation of a temporary project or programme organisation. What’s important is that individually and collectively they change the influence of the targeted driving forces, thereby changing the trajectory of the organisation. If a change initiative is not aimed at one or more driving forces it will have little or no impact on the current trajectory and nothing will change. It will be change for change’s sake. While this may give those involved a satisfying feeling, the reality is that the organisation continues to steam ahead to its default future.

   Understanding how the portfolio of change initiatives will alter the influence of the driving forces and thereby the trajectory of the organisation is probably the most important condition for change success. In fact, we go further and argue that the portfolio of change initiatives needs to be intentionally designed to change the trajectory, and that the design must be based upon a thorough analysis and understanding of the forces driving the organisation to its default future. This design should not only include the list of initiatives, but the logic by which the trajectory will be changed. It should define which driving forces are being targeted and how their influence will be changed.

2. Power
   The second condition for successful change is ensuring that the collective power of the change initiative is sufficient to have impact on the targeted driving forces, thereby changing the trajectory of the organisation away from its default future to its targeted improved future. The power comes from the number, capability and experience of the people accountable for delivering the change, the level of commitment of senior leadership and the chosen approach.

   Determining how much power is needed comes from analysing the driving forces. For example if it was concluded that mindset was the principal force driving consistently poor customer experience, more power might be needed than putting frontline staff through a one-day training programme. The ‘power’ of this training alone would be insufficient to change mindset. At best it could increase awareness; at worst reinforce perception that management is not really serious about change.

   The first condition for success ensures that the change initiatives are targeted on the forces controlling the current trajectory; this condition ensures that they possess sufficient power to have impact to change the trajectory to the targeted improved future.

3. Infrastructure
   The third condition for success is having the infrastructure in place to support the ‘mechanics’ of change. By this we mean having clear roles and accountabilities, plans, project structure, programme office, communications and reporting. In effect all the basics of good project, programme and portfolio management. Over the past 25 years, most organisations have improved their project management capabilities; some have improved their programme management capabilities – where the ‘family’ of inter-related projects collectively deliver the desired outcomes. However, portfolio management still remains a relatively weak capability in the majority of organisations.
4. Organisational capabilities
   The fourth condition is having the organisational capabilities in place to ‘pull’ the organisation into its target improved future. Here it’s important to distinguish between organisational capabilities and individual competencies. Whereas competencies are held by individuals, capabilities are held within organisations. Obviously individual competencies are important, but in the context of moving to an improved future, having the necessary organisational capabilities in place is key. Organisational capabilities form part of an organisation’s DNA. They are embedded in the way things are done and are not lost when individuals leave. They are formed from shared mental models, frameworks, language, skills, mindset, beliefs, conventions and experiences that collectively drive organisational behaviour.

   Organisational capabilities are important from two points of view. Firstly, new ones will almost certainly be needed to pull the organisation into its target improved future – particularly if the nature of the change is significant. Secondly, existing organisational capabilities are one of the forces driving an organisation to its current default future. The risk is that people who embody the current organisational capabilities will not see the need to develop new ones; as a result they are unlikely to take action and the organisation’s trajectory to its default future is unlikely to change.

5. Leading indicators
   The fifth condition is having the measures in place to know that the trajectory of the organisation is changing, and for these to be leading as opposed to lagging indicators. Lagging indicators like costs, revenues, technology implementations are examples of measures that are covered in condition 3 – infrastructure. Leading indicators, as the name suggests, tells us whether we’re on track, whether things are moving in the right direction much earlier than would appear in conventional management information.

   Most leading indicators tend to be qualitative rather than quantitative. For example, if a professional services organisation aimed to be more client centric (as opposed to product or service centric) an early indicator would be feedback from clients, not necessarily from formal reviews but how the content and tone of conversations had changed. Leading indicators tend to be based more upon peoples’ feelings than traditional management or financial information.

6. Governance
   The sixth condition is having people in place who have the decision rights and accountabilities to ensure that these six – and possibly more – conditions for success are established and maintained. Such governance needs to cover individual change initiatives as well as the whole portfolio of change. One of the common misconceptions of governance is that the role of the steering group – which is usually the name given to the governing body – is to steer and review progress. The danger of this perception is that it puts the steering group in a reactive mode, responding to issues as and when they emerge. This is the responsibility of people leading the change initiatives, not the steering group. The role of the steering group is to ensure that the conditions for success are put in place and maintained.

   If people on the steering group don’t have the decision rights (and resulting accountabilities) to put the conditions for success in place, either because they don’t have the authority or expertise, they are simply the wrong people.

These six core conditions for successful change are summarised below.

The conditions must be maintained throughout the change journey

Our belief, based on many years of experience, is that if attention is given to putting in place the necessary conditions, change is likely to be more successful. However, it needs to be a continual process as things change, both as a result of the change itself and also as a result of external factors. The conditions for success are powerful leading indicators that can give insight into whether a change initiative will be successful or not.

These conditions for success can be assessed at the outset of a change initiative or at any point along the way. Assessing the degree to which the conditions are in place can lead to corrective actions to ‘power up’ any that are weak and to identify any new ones that might be needed. Periodic assessment of these conditions – and reporting and discussing their state of health – is a powerful way of creating the right ‘dialogue’ with different stakeholders.

We welcome your thoughts.

David Trafford
david.trafford@formicio.com

Peter Boggis
peter.boggis@formicio.com

Formicio Insight Article: The Six Core Conditions for Change Success

The past 50 years have seen unprecedented change. Principally driven by technology, there have been remarkable advances in communications, transportation and medical science. As a result people in the developed world enjoy a better standard of living, have access to an ever increasing variety of digital information and entertainment, and have a longer life expectancy than their parents.

Over this period change has become the norm. Yet research indicates that while individuals may be good at responding to change, organisations – irrespective of whether they are commercial enterprises or government bodies – are not. In fact only a small proportion (typically 5%) of large-scale transformation programmes meet their original objectives. Other recent research shows that from a sample of 175,000 projects in the USA with a combined budget of $250 billion, 53% overspent and 82% overran. Across the European Union it is estimated that the cost of project failure is in excess of Euro 142 billion. Furthermore, there is continuing evidence that the majority of mergers and acquisitions actually destroy, rather than create, value.

So why are organisations so poor at delivering successful change when individuals embrace change as part of normal life?

One explanation is that leaders fail to take their organisation’s default future into account when planning change, and ignore the forces that are controlling its destiny. Only by addressing these forces and putting in place the necessary conditions for success will an organisation be able to move beyond its default future to an improved future.

All organisations have a default future

All organisations, individuals, businesses and countries have a default future. It’s the place they will end up if no action is taken, other than that currently planned. If the default future is a desirable destination, then there’s no need to be concerned, just enjoy the journey. But if the default future is unacceptable, then choices need to be made and action taken to create an improved future.

One powerful way of understanding the default future of an organisation is to ask the question: “What would be the consequences of taking no action – other than that currently planned?”

Describing a default future should not be confused with a ‘burning platform’, which describes what is wrong with today, or a ‘business case’, which attempts to quantify the cost and benefit of change.

A default future is determined by its driving forces

All organisations are travelling a path to their default future, a path that is shaped by a number of factors. These factors act as driving forces that ultimately determine the direction of travel. Some of these forces, like economic climate, regulation and customer behaviour, originate outside the organisation, while others, like structure, technology and mindset, are from within the organisation.

Equally, some of these driving forces are easy to observe, like technology and regulation, while others, like mindset, values and culture, are often hidden deep within the organisation and are not apparent to the untrained eye.

Leaders must understand these driving forces, assess their impact and determine those that can be influenced in order to make informed choices about the type of change that will move their organisation from its default future to an improved future.

Two of the most powerful driving forces – technology and mindset – are discussed below.

The influence of technology – present and future – on an organisation’s default future

It’s safe to say that, today, most organisations are critically dependent on technology, especially information technology. For many organisations it’s so pervasive that it’s difficult to think about change without first considering the IT implications. In information-intensive businesses, like banking and insurance, the systems have become so complex – after years of incremental enhancements – that the effort and risk of making further changes is significant.

Complexity is not the only issue. Many of the systems still in use today were designed to support business models of the past, for example they are aligned to business functions and products as opposed to processes and customers. This lack of alignment between the architecture of the installed base and the desire of the business to operate in different ways can significantly constrain the choices leaders have about the future of their business. Past technology choices – made with the best intention in a different context – create what is often called the technology legacy. The reality is that the legacy systems are always the ones that are at the core of the organisation and therefore drive it to its default future. The challenge is to understand the true significance of this legacy and make choices that will lead to an improved future.

But it’s not only legacy technologies that act as a driving force: emerging technologies can have an equally profound impact on an organisation’s default future. With emerging technologies it’s not the case that the organisation itself changes, but the environment or context within which it operates. As a result an organisation can find its default future change significantly very quickly – and often not for the better. A recent example is the impact of digital photography on Kodak. In a very short period the demand for film and its processing shrunk as everyone switched to digital cameras and mobile phones with embedded cameras. The irony is that Kodak was a pioneer in the development of this technology. Some of the emerging technologies that will impact the default future of many organisations in the coming years are described below.

If an organisation is not aware of the potential impact of emerging technologies on its industry – or unaware of how competitors are intending to use these technologies – it could significantly change its default future to one that is not only unacceptable, but one that will arrive sooner than expected.

The influence of mindset on an organisation’s default future

If culture is the way things are done around here, then mindset is a major driver of culture. Mindset defines the context by which we see the world. Based upon a set of assumptions, mental models and accepted norms it defines the criteria by which we judge what is acceptable and not acceptable. Mindsets are often so established that they create a powerful incentive to continue to adopt or accept prior behaviours.

Mindsets develop over time and become embedded through a number of unwritten rules that people come to believe are truths, which in turn drive their decisions, actions and behaviours. As a result mindset often acts as a powerful force driving an organisation to its default future.

Mindsets can be changed, but rarely through rational argument. People need to experience and learn new ways of acting and behaving, discover new intrinsic and extrinsic motivators, and develop a new set of beliefs, truths and unwritten rules, which will guide their actions and behaviours. Only then will the organisation be able to escape its default future and successfully travel to its improved future.

An improved future must not only be better, but achievable

Defining an improved future involves more than describing a vision with audacious goals. It involves making choices about what is possible based upon an assessment of the influence of the driving forces discussed above. The reality is that not all of these forces can be controlled. Often external forces like regulation and the economic climate are beyond the influence of most organisations. To ignore these forces, or assume that they can all be controlled, significantly increases the probability of failure.

For people to be enthusiastic about an improved future, and sufficiently engaged that they give up their discretionary energy to travel the journey, they must be able to understand it in enough detail to be able to mentally model being in that future. Mental modelling the improved future triggers emotions. These emotions lead to conclusions about whether people want to be part of that future – and whether it’s possible to achieve that future. In turn, these conclusions ultimately result in behaviour. The more compelling the improved future and the better it is understood, the greater the chances of people ‘volunteering’ to travel the journey.

A powerful way of understanding an improved future is to imagine it is the present and describe it through articles, videos or an ‘experience’ studio. The aim is for people to be able to see what the future will be like. Not only will this build commitment to the journey the organisation will need to take, it will also enrich the understanding of the improved future and make it more robust through the questions, discussions and challenges that should be encouraged.

Change programmes also have default futures

Up until now we have talked about the default future of organisations, but change programmes also have a default future.

If the default future of a change programme is unacceptable, as the expected outcomes are unlikely to move the organisation to its improved future, then action needs to be taken to establish the necessary conditions for change success.

Establishing the conditions for change success

One of the best ways to explain the importance of putting in place the necessary conditions for success is to draw upon a gardening analogy. Successful gardeners know that certain conditions need to be in place in order for their garden to flourish; fertile soil being the most obvious. They also know that some of these conditions can be controlled and others cannot. For example they know that soil quality can be improved, but the climate cannot. They know that particular plants will never flourish in certain types of soil and that some plants need to be pruned in spring and others in autumn. If these conditions are not understood, or are ignored, gardening can be a costly and disappointing pastime.

It’s the same when delivering change. If the necessary conditions for success are not established and maintained, then change will simply not happen. Understanding the forces driving your organisation to its default future is one of the necessary conditions for success. Others include having clarity of the target improved future; project, programme and portfolio management capability; governance and committed leadership.

Establishing and maintaining the necessary conditions for change success reduces the risk of failure and increases the chances of an organisation successfully moving to its intended improved future.

Putting in place the capabilities to ‘pull’ the organisation into its improved future

One of the forces driving an organisation to its default future is its organisational capabilities. Often these capabilities are so deeply embedded in the culture that they are not apparent or explicitly managed. If an organisation wants to move to an improved future then one of the conditions for success is having the capabilities in place that will ‘pull’ the organisation into its improved future.

It’s worth noting the intentional use of the term capabilities as opposed to competencies. Competencies tend to be held by individuals and capabilities by the organisation, hence the use of the term organisational capability. Obviously individual competencies are important, but in the context of moving to an improved future, having the right organisational capabilities in place is key. The power of organisational capabilities is that they form part of an organisation’s DNA, they are embedded in the way things are done and are not lost when people leave. Furthermore they are based upon shared mental models, frameworks, language, processes, tools and beliefs.

The role of leaders

Understanding the default future for which we are accountable is one of the most important roles – and legacy – of leadership, as is deciding what actions to take to create an improved future. The remainder of what we do as executives is management.

I welcome your thoughts.

David Trafford
david.trafford@formicio.com

Formicio Insight Article: Beyond Default – Moving Your Organisation to an Improved Future

In a recent article my colleague David Trafford describes the forces that determine an organisation’s default future. People’s mindsets, technology, regulation, the constraints imposed by customers, the economic climate and the organisation’s history are among the forces he identifies that limit the possibilities open to an organisation, and fix its default future. In a later article Peter Boggis describes one of these constraining forces in more detail: information technology.

In this article I offer two tests that a leader can undertake to see if their organisation is on course for the default future or for the improved future.

Test 1: Will our change programmes produce change?

Any organisation these days has a number of change programmes in progress. With the concept of default future in mind, leaders need to ensure that their portfolio of change efforts is driving the organisation to an improved future.

If the default future is unacceptable, then a leader can usefully classify the list of change programmes and initiatives, by asking: “Which of these are ‘housekeeping’ and which are actively moving us to a new place and affecting our future state?”

Many change programmes are necessary simply to stay in business. We need to take measures to ensure regulatory compliance, maintain customer service levels, control costs, keep track of goods and money flows, and keep facilities up to date, for example. These are the essential housekeeping initiatives and those that will produce the default future.

Alongside these, and often mingled in with them, are initiatives that can potentially drive an improved future: shifting towards new markets, finding new sources of profitability, providing access to different pools of talent, for example. To maintain progress towards an improved future, leaders need to ensure that the portfolio of change projects remains balanced. A first step is to classify change initiatives into ‘default future’ or ‘improved future’, and then to check that there are, in fact, funded initiatives in the ‘improved future’ pile.

Test 2: Does our portfolio of staff development programmes match our intention for an improved future?

Another way to access the future state is to look at what people are learning today. This is usually straightforward, as organisations often have a training catalogue or learning portal.

As with change initiatives, there will be learning and development programmes that are essential in order to stay in business and remain compliant, competent and customer-oriented. It’s worth asking: “Where are the learning and development programmes that are enabling us to address new markets, change our business model or develop skills we don’t currently have?” What people learn today will affect the state of the company in the future. So if a leader has a clear idea of the improved future of their organisation, it’s worth checking whether people today are acquiring skills that match that future.

These two tests, though not by any means complete, can give a leader an indication of the trajectory of their organisation, and help to answer the question:

If there is an improved future, are we heading for it?

I welcome your thoughts.

Jane Northcote
jane.northcote@formicio.com

Formicio Insight Article: Testing the Trajectory

When it comes to delivering major change, research suggests that we haven’t always made the right choices. All too often we hear stories of programmes overrunning or, in extreme cases, being cancelled.

Is this caused by organisations not ‘doing things right’, or not ‘doing the right things’?

In my view organisations have, over the past 20 years, got much better at doing things right. Developments in project and programme management, change management, process management and service delivery have all helped organisations get better at doing things right – but not necessarily doing the right things. Doing the right things is essentially about making the right choices: choices on what to start, stop, retire, reshape and reschedule.

In the following presentation I share a point of view on how organisations get better at doing the right things by developing a capability based upon shared mental models, frameworks, language, processes, tools and beliefs. A capability that supports and documents the process and discipline of choosing what the enterprise has chosen to do – and by implication chosen not to do. The payoff of having such a capability can be significant as it eliminates the waste resulting from initiatives that were always destined to fail.

I welcome your thoughts.

David Trafford
david.trafford@formicio.com

My colleagues and I have argued consistently that every individual, organisation and even every country has a default future. This is where they will end up if no action is taken, other than that currently planned. For some organisations, their default future may be perfectly acceptable – possible, but unlikely. For most it provides a focus for taking the actions necessary to create an improved future.

In a recent article my colleague David Trafford argues that an organisation’s default future is ultimately determined by a small number of driving forces, which include regulation, the economy, customers, past winning strategies, talent, technology and peoples’ mindsets. In effect, these driving forces define the trajectory for the organisation that will ultimately lead it to its default future. It’s therefore the role of leaders to identify and influence those driving forces that they can control – and isolate their organisation from those over which they have no influence.   

In this article I want to focus on technology – particularly information technology – as a dominant force that is driving an organisation to its default future. I’ll argue that this driving force has three dimensions, each of which needs to be understood if informed choices are to be made on how best to navigate an organisation to an improved future. I should stress that technology is one, albeit important, driving force and leaders planning an improved future need to give appropriate consideration to the other forces discussed in David’s article. I also want to introduce a different way of thinking about making future technology choices and the role that CIOs need to take in helping their executive colleagues understand the implications of technology choices.

Dimension 1: Legacy of past technology choices

It’s safe to say that, today, most organisations are critically dependent on their IT systems. For many the technology is so pervasive that it’s difficult to think about change without first considering the IT implications. In information-intensive businesses, like banking and insurance, the systems have become so complex – after years of incremental enhancements – that the effort and risk of making further changes is significant. A recent example is the problems faced by Royal Bank of Scotland when they undertook what they thought was a routine upgrade. The outage resulted in some 12 million customers not being able to access their accounts for up to three weeks and businesses not being able to pay their employees. 

Complexity is not the only issue – as many of the systems still in use today were designed to support business operating models of the past, for example supporting business functions and products as opposed to processes and customers. This lack of alignment between the architecture of the installed base and the desire of the business to operate in different ways can significantly constrain leaders’ choices on the future of their business. Past technology choices – made with the best intent in a different context (see below) – create what is often called the technology legacy. The reality is that the legacy systems are always the ones that are at the core of the organisation and therefore drive it to its default future. The challenge is to understand the true significance of this legacy and make choices that will lead to an improved future. 

Dimension 2: Impact of emerging technologies

Over the past 50 years we have seen many examples of how information technologies have fundamentally changed industries and societies – the most obvious examples being television, mobile phones, digital music, digital photography, the internet and social media. It’s important to note that each of these so-called disruptive technologies created their own demand. To quote Steve Jobs; “You can’t ask customers what they want – you have to give them something they don’t yet know they want”. This is equally true when thinking about the potential contribution that new and emerging technologies could have on improving an organisation’s future. The simple answer is we often don’t know until it happens. Equally, these emerging technologies could have a profound impact on an organisation’s default future by making it even more unacceptable. In fact it’s not that the organisation itself changes, but the environment or context within which it operates and how it responds or reacts to this change. A recent example is the impact of digital photography on Kodak. The irony is that Kodak was a pioneer in the development of this technology.

The reality is that most new technologies like beyond the iPad, cloud computing, NFC (Near Field Communication), flexible screens, TV everywhere, voice control, second screen experiences, 3D printing, RFID, HTML5 and Watson are already present. Some will be successful and create their own demand and some will fall by the wayside. To quote William Ford Gibson, the American-Canadian writer; “The future is already here – it’s just not very evenly distributed”.

If an organisation is not aware of the potential impact of emerging technologies on their industry – or unaware of how competitors are intending to use these technologies – it could significantly change their default future to one that is not only unacceptable, but one that will arrive sooner.

Dimension 3: Mindset and competencies

In her book The Last Word on Power Tracy Goss argues that individuals, groups and organisations all have winning strategies. It’s the set of behaviours that have delivered success in the past. We may not recognise that we have them or be able to describe them, but we act in the belief that they will contribute to delivering success. This may be true if the context does not change, but when it does, Tracy argues that a new winning strategy is required. Unfortunately, it’s very difficult, and sometimes impossible, for individuals, groups or organisations to re-align their winning strategy to the new context. IT organisations often face this challenge where the prevailing mindset or core belief is “what has made us successful in the past is sufficient to make us successful in the future”.

It’s often overlooked that most IT organisations are successful most of the time. In the main they do what is expected of them; they keep the systems running, fix problems when they arise and manage the risks that come with a complex installed base. They do everything to avoid their CIO getting a call from their CEO asking when the systems – and the business – will be up and running again. Unfortunately, this sometimes happens – as in the case of Royal Bank of Scotland mentioned above and Blackberry, where an outage of its email, messaging and browsing services affected over half of its 70 million customers over a three-day period in October 2011. Meeting these expectations develops a mindset and set of competencies that are appropriate to the current context. Should the context change – for example following a decision to transform the business through the re-platforming of core IT systems – the existing mindset and competencies are likely to become inappropriate. Add to this a decision to use an offshore provider to configure and maintain the new platform, and you create a context that most IT organisations would struggle with, particularly when they are also expected to manage the legacy systems during the transition.

The reality is that current mindsets and competencies (the foundation of winning strategies) create an anchor to the present. They become a force driving an organisation to its default future, one that IT and business leaders need to understand if they are to make the correct choices about how best to navigate to an improved future.

Aligning technology choices to an improved future

If the context is fixing today’s problems then the outcome is likely to be a better short-term future. If the context is creating an improved future then the outcome is likely to be better over the longer term. But how can defining an improved future be done in business terms that enable informed technology choices?

One of the most effective ways of achieving this is to begin by defining how the business wants to operate at a point in the future through a small number of guiding principles. This is a robust and proven approach to developing some objective and soundly-based choices. Let’s explore this approach further through a couple of examples.

Example 1: Becoming customer-centric
“We want to build and manage an integrated, consistent, coherent and complete view of a customer’s relationship with us – thereby enabling us to increase the number of products and services we sell and increase the breadth and depth of our relationship with customers.”

The implications of such a business principle for future technology choices are non-trivial. For example, many legacy systems in banking and insurance were developed decades ago and are product-based rather than customer-based. Banks and other financial services companies have spent un-told billions of dollars trying to be more customer-centric by leveraging data from inflexible legacy systems. In many cases, because of their age and design, no-one really understands how the systems really work and what impact changes may have.

But, if that is the direction the business wants to pursue, then future technology choices need to reflect this. In many cases, it will be easier and less painful – although costly – to simply start again, based upon a modern well-designed ‘bank-in-a box’ solution. As discussed earlier, taking this route could have significant implications for the IT organisation as it would need to rethink its role from being a systems developer to a systems configurator and integrator. It would also need to develop new competencies, including the ability to manage the often complex relationship with the platform provider.

For some traditional banks and financial services companies, the sheer size of the historic investment in legacy systems and the on-going cost of maintaining and enhancing them represent a driving force that they may not be able to change.

Example 2: Supporting rapid integration
“We will grow by acquisition and integrate those acquisitions in 90 days or less.”

This business principle articulates a conscious choice to grow through acquisitions rather than relying solely on organic growth in increasingly mature markets, and sets a target for realising the synergy benefits within a three-month time-box. Sounds heroic? Cannot possibly be done? Well in fact, such a business principle has been articulated by the likes of Kraft General Foods (with limited success) and the technology firm Cisco. The book Net Ready, which tells the story of Cisco’s evolution and growth, reveals that its CIO spent almost a decade putting in place a technology architecture to do exactly that. At the peak of its growth, Cisco was acquiring relatively small companies at the rate of several per month. The IT architecture had been designed explicitly to achieve the rapid integration into the “Cisco way of doing things”.

Other examples include many global pharmaceutical and chemicals companies where the sheer diversity and complexity of hundreds of different ERP systems around the world in hundreds of different countries simply represents too high a cost to serve – and also constrains growth. Rationalising and standardising these systems to a smaller number – five to seven is often quoted – enables more rapid growth in emerging markets, more cost-effective systems in larger countries and the opportunity to have a small number of Centres of Excellence, which can design and help implement ‘common template’ solutions much more quickly and cost-effectively. Companies such as Shell recognised more than two decades ago that this would be a long journey and over time moved from a multiplicity of national systems, to regional hubs and clusters, to truly global ERP solutions built around a small number of global business processes – some six to eight typically – each with global process owner.

So, the best IT choices are based upon a small number of clear direction-setting business principles. This is the minimum that a CIO needs to have articulated in order to develop the kind of IT architecture that enables the organisation to move to its improved future.

It’s also worth noting that some of these choices will be strategic (see my article Strategy – The World of Choices and their Implications) as they will be difficult if not impossible to reverse once taken, whilst others could be reversed, albeit at a cost, should the need arise.

Role of the CIO

If technology was a commodity, with no downstream legacy implications, then it could be argued that there is no need for a CIO. As this is clearly not the case, I believe that the prime role of a CIO is to prevent the business making technology-related choices that take it to an unacceptable default future, and encourage the business to make choices that lead it to an improved future. The CIO therefore has a crucial role to play, including: 

• Creating a shared understanding with business executives about the default future that past technology choices are leading to.
• Helping business executives understand the implications of future technology choices on the future legacy they will create.
• Anticipating the impact that emerging technologies could have on both the organisation’s current default future and the role they could play in creating an improved future.
• Recognising that the winning strategy for their IT organisation may not be what is necessary to lead the enterprise to an improved future.

I welcome your thoughts.

Peter Boggis                                                      
peter.boggis@formicio.com

Formicio Insight Article: How Information Technology Drives an Organisation to its Default Future

Twenty-five years ago MIT’s Sloan School of Management undertook a research project that fundamentally changed our thinking about improving organisational performance. It was a five-year, multimillion-dollar research programme called Management in the Nineties, and its aim was to better understand the role and impact of information technology on the formulation of business strategy and structure in an enterprise. The research produced some ground-breaking insights and prepared the way for what became known as business reengineering. Publications from this period include Thomas Davenport and James Short’s seminal Sloan paper entitled The New Industrial Engineering: Information Technology and Business Process Redesign published in 1990, and Michael Hammer and Jim Champy’s best-selling book Reengineering the Corporation: A Manifesto for Business Revolution published in 1993.

The legacy of this early work is that we now have a better understanding of the important role that process has on organisational performance, and the need to develop IT strategies that support end-to-end business processes as opposed to business functions. It was a time of revolutionary thinking about enterprise design and the powerful role that information technology could play.

What followed was a period when virtually every organisation reengineered all or part of its operations. Whether it was in product development, supply chain or customer services, processes were mapped, analysed and redesigned. Unfortunately, as often happens with new powerful ideas, the movement got hijacked by those who saw it as a way of giving credibility to their own ideas and initiatives. As a result, a good proportion of change initiatives did not apply true reengineering principles and therefore failed to deliver expected benefits. Furthermore, reengineering was often criticised for its lack of humanity and its focus on process over people. Unfortunately these critics failed to understand the true nature of business reengineering and confused process reengineering with business reengineering.

Inevitably the popularity of business reengineering declined, but many of the insights, principles and practices are as equally valid today as they were 20 years ago. One of the most powerful insights to emerge from this period was the notion of an operating model: an abstraction of the enterprise (or a part of the enterprise) that enables you to describe how it operates in a way that is understandable to others. In essence an operating model makes the implicit, explicit.

Unfortunately, the term operating model is still not well understood and much confusion remains about what an operating model should describe and to what level of detail. For some it’s a term used to describe structure or operational footprint, and for others core business processes. Some executives feel that the term is so overused (or misused) that it has lost all meaning and they have banned its use. This is unfortunate as decisions on operating model strategy are as important as decisions on marketplace strategy.

Operating models are one domain of an enterprise business model

An operating model does not describe all aspects of an enterprise; it simply describes how the enterprise operates. There are numerous frameworks for describing an enterprise, each with their own merits. The one I find most helpful is to think about an enterprise having a small number of domains, where choices in these domains ultimately determine success. In my preferred framework there are three domains, all of equal importance.

Value proposition: This essentially defines the basis of competition, for example if you are in the hotel business your proposition could be aimed at the lower-cost budget sector or guests looking for five-star luxury with full concierge service. The choices relating to an enterprise’s value proposition are the traditional domain of marketplace strategy as they define WHAT the business does, both in terms of products and services, and target customers.

Operating model: If the value proposition defines the WHAT, the operating model defines the HOW. An organisation’s operating model embodies decisions about how work gets done and where. Operating models are multifaceted (see below) as they comprise processes, structure, technology, suppliers, people and governance. Their performance (and cost) ultimately depends upon how the different facets work together.

It’s important to remember that the operating model is not restricted to customer-related activity and includes those processes that address how staff are hired, trained, nurtured and rewarded.

Operating state: This domain focuses on the people dimension, not with respect to roles, jobs, skills and structure – which is defined in the operating model – but how people feel about their work, their identity with the mission of the enterprise, their relationship with management and colleagues, and how they see their future. The operating state is ultimately reflected in the level of employee engagement and prevailing mindset.

This three-domain model is recursive in that it can be applied in any part of an organisation, and not just at the enterprise level. For example all HR functions have a value proposition, operating model and operating state, as do IT, finance and procurement functions.

Alignment is key to performance

Alignment across all three domains – and across the different facets of the operating model – is key to performance. For example, if a bank’s value proposition is to provide basic current and savings accounts for low net-worth customers, then its operating model and operating state need to reflect this strategic choice. As a consequence all aspects of its operating model need to be lean with low management overheads and a high degree of self-service. Furthermore, people in the organisation need to have a mindset – and resulting behaviour – that relates to the chosen customer base and not one best suited to serving high net-worth customers in the private banking sector.

Unfortunately, when organisations embark on an improvement initiative they tend to focus only on one domain, for example operating state (typically under a cultural or mindset change initiative) without due consideration to the other two domains. The reality is that changing one domain in isolation is unlikely to result in sustained change.

Equally, changing one facet of the operating model in isolation can have unintended consequences. The classic example is when a new technology platform is introduced without fully understanding the implications on business processes, organisation and skills. Also, in a drive to reduce cost, many organisations have either outsourced operations and/or moved them offshore without fully understanding the impact on other facets of the operating model. For example when operations are outsourced new governance processes and capabilities need to be established in order to effectively manage the outsourcing partner and ensure the expected benefits are delivered.

The importance of values

An enterprise is defined by the choices made in the three domains discussed above: the criteria that drive these choices are ultimately the quest for performance, to beat the competition and dominate a chosen market. But as markets change value propositions need to evolve, operating models need to be redesigned, and operating states need to change. Throughout this ongoing change the one constant, it could be argued, are the values of the organisation. The values of an organisation can be implicit, in that they have evolved over time, or explicit in that they have been defined by leadership. The benefit of making an organisation’s values explicit is that they provide guidance when difficult choices need to be made within the three domains discussed above.

In the remainder of this article I will focus on the importance of making explicit choices on the design of operating models. I will address the importance of value proposition and operating state in future articles.

Operating models can – and should – be designed

Organisations are artefacts, in that they are created by men and women to serve a purpose. Choices are made on how work will be done and where, the technology required to support the processes and how people will be managed. Some of these choices will be strategic (see my colleague Peter Boggis’s article Strategy – The World of Choices and their Implications) as they are difficult, if not impossible, to reverse or undo. Other choices can be changed later, albeit at a cost. All these choices are in effect design decisions aimed at achieving target outcomes. But how often are the target outcomes explicitly defined and a clear line of sight established between design decisions and target outcomes? In my experience rarely, as the focus tends to be on justifying an initiative based upon its business case alone, with little or no alignment to the target strategic outcomes of the enterprise.

If we accept that operating models can be explicitly designed to achieve target outcomes, it’s important to base the resulting decisions on proven operating principles – see below.

Today’s operating models also need to be agile

For most organisations, change is the norm: whether it is the result of an acquisition, replacing legacy IT systems, outsourcing to an offshore provider or delivering day-to-day business improvements, an organisation’s operating model is continually undergoing change. Today’s operating models therefore need to be able to respond to change; in short they need to be agile. Unfortunately, as one COO put it: “Agility isn’t designed or thought about by leaders until it’s too late to influence or create.”

But agility is a relative term; organisations can become more agile or less agile depending upon their circumstances and how they are managed and led.

In a past Formicio article entitled Building Organisational Agility I argued that agility can be created or destroyed by the choices and actions that leaders take. I also discussed the common barriers to becoming more agile and identified a number of enablers. A good place to start is for leaders to articulate a set of agile operating model principles that guide all change initiatives.

A collaborative approach to operating model design

Traditional approaches to designing operating models often result in numerous PowerPoint slides, Word documents and Excel spreadsheets that collectively attempt to define the different facets, eg processes, roles, governance, structure, metrics. While these often bring clarity to the people who created them, they rarely become part of the organisational fabric and quickly become out of date.

Furthermore, this documentation is typically created through a series of workshops involving representatives from different parts of the organisation. Often those who are expected to bring the newly defined operating model to life don’t get exposure to the work until relatively late and, as they have not been involved in the creation process, it’s not surprising that they are slow to understand and embrace the new model.

My colleague Vaughan Merlyn believes there is an alternative approach that uses the capabilities emerging from Web 2.0 technologies, specifically a new type of collaboration tool called the Semantic Wiki. Using such an approach enables broader and deeper participation by staff at all levels, and leaves behind a ‘living, breathing’ definition of the operating model that is captured as a set of editable and easily accessible wiki pages. These pages are developed collaboratively, so the act of development and deployment essentially becomes concurrent. Furthermore, the Semantic Wiki has the ability to accommodate the complexities and fluidity inherent in contemporary operating models, thereby enabling collaborative continuous improvement. Vaughan describes the approach in a recent Formicio article Creating Organisational Clarity using a Semantic Wiki.

Operating model strategy is often the poor relation of marketplace strategy

It could be argued that the design of enterprise operating models is more an engineering discipline than a management discipline. If this is the case, how many managers have the skills necessary to design and build operating models that are both high performing and agile? Furthermore, how much executive airtime is given to discussing operating model strategy as opposed to product and market strategy? Unfortunately operating models only get serious attention when the enterprise needs to drastically reduce cost or invest in the replacement of core legacy IT platforms.

The performance of an enterprise is dependent upon its operating model, and the performance of the operating model is defined by its design.

I welcome your thoughts.

David Trafford
david.trafford@formicio.com

Formicio Insight Article: Operating Model Performance is Defined by its Design

For sure we need to improve our log-on processes, firewalls and malware protection, but thin clients change the name of the game. A lack of memory and processing power leverage down any malware sophistication, whilst access and utilisation will be harder to compromise when we choose different devices and servers at random. If we also sign up for applications and services from multiple players, and disperse our information in parsed and scattered locations that are never connected in the same manner more than once, then infiltration will be orders of magnitude more difficult.

All clouds are not the same, and there will be large numbers of them spanning corporates, governments, social and personal applications. Some will last, others will be sporadic and last for seconds. Connections too will be continually varying and sporadic. A moving target is harder to hit, and The Cloud might be the ultimate target!

I welcome your thoughts.

Peter Cochrane
peter.cochrane@formicio.com

The problem with assessments is that people don’t like being assessed, but they love being part of an assessment process! By and large, people like to know how they are doing, especially from an organisational perspective. But they are mistrustful (rightly so!) of consultants or other ‘agencies’ that come in and assess them or their organisations. Self-assessments, supported by a facilitator – who can bring experience and act as an impartial ‘judge’ to resolve differences of perspective, opinion or interpretation – work best as they allow those being assessed to retain ownership, both of the results and resultant actions.

Furthermore the assessment must be transparent and repeatable. Like any meaningful scientific experiment, the process should lend itself to repetition with consistent results. In fact, repetition over time may well be important to sustained investment in capability improvement activities. Too many assessments are conducted, discussed and then swept under the table. Not only is this wasted effort, but it will be that much harder, or even impossible, to get people to participate in future assessments. 

Why assess IT capabilities?

I think there are some parallels in the question “Why have a medical check-up?” Sometimes, we have a medical check-up because we suspect something might be wrong with our health – perhaps we are more tired than we think we should be, or we get tightness in the chest if we exert ourselves. This falls into the category “I think I might have a medical problem – I need to find out if I do, what it is and what I need to do about it!” At other times we have a medical check-up because we like to be proactive about our health – assure ourselves that all is as well as we think it is, and find out about unrecognised problems before they become critical. And at other times, an external force leads to the medical check-up – applying for new medical insurance, for example.

So, the corollary is that we should assess IT capabilities when:

1. We think we might have a problem, eg costs too high, performance too low, etc.
2. We think everything’s just fine, but would like to prove it!
3. Someone of importance wants us to be assessed, eg the CEO, an audit committee, a major client, etc.

The results of an assessment must be multi-dimensional

This actually gets to the question of ‘goodness’. I believe there are three important aspects of ‘goodness’ as it relates to IT capability:

Performance: This relates to efficiency – what resources it takes to achieve a given result.
Value: This relates to the effectiveness of an IT capability – what benefits are being derived from the capability.
Health: This relates to the ability to perform and deliver value over time. We’ve all seen heroics, where, for example, a project team moves mountains in the final weeks of a project by working 20-hour days, 7 days a week. It’s a wonderful thing to behold, and sometimes is necessary and may even promote ‘good health’ for the organisation as people pull together and participate in a miracle. But it’s not sustainable. 

What is meant by ‘capability’?

Capability is simply the ability to perform actions. As it applies to human capital, capability is the sum of expertise and capacity.

When it comes to IT capabilities it’s important to note:

1. Capability maturity models such as CMMI put processes as the central construct of a capability – and the key to capability maturity assessment. In practice not all IT capabilities are inherently process-centric. Some depend more on people’s skills and competencies (think Business Relationship Manager, for example), while others depend more on deliverables than they do on specific processes. For a more detailed treatment of this distinction see the table below.
2. You don’t need to ‘own’ any given IT capability: you can ‘rent’ it as in outsourcing or contracting, for example.
3. Not all IT capabilities exist in an IT (or IS) organisation.  Some are embedded in business units or other organisations.  For example, the capability to choose, procure and maintain personal computing devices may belong to the business – think BYOD (Bring Your Own Device) as this rapidly growing movement is often referred to.

Not all IT capabilities are born equal

It is helpful to classify IT capabilities into one of three different types, as illustrated in the graphic below.

Value chain capabilities: At the core are those capabilities that take inputs, add value and deliver outputs to a customer or end consumer. In the world of IT, these tend to be services and products. Think of these value chain capabilities as those that the end customer appreciates and is willing to pay money for.

For example, as a business user, I may have a business problem I’d like IT help to solve. That problem (or opportunity) is the input to a value chain. The first capability that will approach that problem adds value by analysing the problem, identifying and proposing a solution. As the business user, I appreciate that value has been added by drilling into my stated problem and offering one or more proposed solutions. 

The next capability in the value chain might take the chosen solution, and develop and deploy that solution. Again, as the business user, value has been clearly added – taking a proposed solution and delivering it. The final capability where value can be added is supporting and maintaining that solution – again, a recognisable way of adding value for me, the customer.

Ultimately, as the business user or consumer, these are the only capabilities I care about and am willing to pay for (directly or indirectly) because of the value they add for me. Unfortunately, while these value chain capabilities are necessary, they are not sufficient.

Enabling capabilities: Value chain capabilities typically draw upon other capabilities that enable them. Think of these as shared services that are common to other capabilities, or to other instances of problems/solutions working their way through the value chain. Examples of IT services that might enable the value chain capabilities include project management, IT operations and IT supply.

Alignment and governance capabilities: Value chain capabilities also typically depend upon other capabilities that ensure that the work they are doing is aligned and governed to ensure they are operating effectively and in the interests of the enterprise. For example, determining which business problems will be addressed, which solutions will be selected, how staff and resources will be allocated are all important controls that value chain capabilities will be subjected to.

The diagram above gives a normative IT capabilities model. One can debate the specific labels for each of these capabilities, but essentially, any enterprise that depends upon information technology to any degree needs each of these IT capabilities. Of course, the devil, as they say, is in the detail, and the detail exists in the drill-down decompositions for each of these high-level IT capabilities. 

How do you know what IT capabilities you need?

There must be a clear and explicit linkage from business strategy to required IT capabilities. There are many methods for achieving and expressing this linkage, and this is in the realm of strategy formulation. At its simplest, a given business strategy will require a set of business capabilities. In turn most, if not all, business capabilities will depend upon one or more IT capabilities. Common techniques for achieving this linkage include:

• Strategy mapping
• Business capability mapping
• Capability road mapping.

The big danger with most strategic alignment methods is that they are inherently reactive; ie to enable ‘x’ business capability or strategy, we need ‘y’ IT capability. But how do you know that the business strategy is properly informed by IT possibilities? This is where the first in the value chain capabilities (see graphic above) comes into play – Discovering Business-IT Potential – and where the role of the business relationship manager is so key. So, you don’t just need the IT capabilities the business thinks it needs – you also need IT capabilities that create IT ‘savvy’ and equip the business to understand and fully exploit IT potential.

Assessment dimensions

The figure below shows a capability assessment approach that uses four top-level dimensions – Purpose, Commitment, Ability and Accountability. Each dimension is decomposed into lower (leaf) level dimensions. Purpose, for example, is a function of how clearly and effectively the service(s) produced by a capability are defined, and how clearly the goals for that capability and principles by which the capability operates are defined.

Note there is a hierarchy implied among the top-level dimensions. It is unreasonable to expect management commitment to a given capability if the purpose and goals for that capability are unclear or inappropriate. It is unlikely that appropriate ability is in place without the necessary management commitment. It is unreasonable to expect clarity of accountability for a given capability if ability is lacking.

In practice, it’s best not to disclose this hierarchical relationship until the assessment is underway, when it can be used as a validation mechanism. For example, if the assessment team is scoring Accountability as fully in place, when they’ve scored Purpose or Commitment or Ability as not in place or only partially in place, then it’s appropriate to challenge the team’s conclusions and probe the inconsistency.

Assessment options

The multi-level assessment dimensions provide several options for the assessment method:

1. Assess a capability at the top-level, but use the leaf levels to clarify what is meant by the top level. For example, I can assess the degree to which the purpose of a given capability is in place by thinking about the effectiveness and clarity of the service definition for that capability, and the quality of the goals and guiding principles for that capability.
2. Assess a capability at the leaf-level dimensions.
3. Mix and match between top-level and leaf-level dimension based upon the needs (purpose and goals of the assessment) and feasibility (available time, available knowledge) of the assessment situation.

Assessment ratings

Each capability across the four dimensions can be rated on the following scale:

• Fully in place – this is our universal practice and will be found to be used consistently, with few, if any, exceptions.
• Mostly in place – this is common practice, though is not universal or consistent, or there are frequent exceptions. We know how to do this well – but we need to get better in practice.
• Partially in place – this is not common practice, though we have many of the necessary characteristics, but not all of them. We have some work to do to strengthen the capability as it exists as common practice.
• Not in place – we have few, if any, of the necessary characteristics.  We have a great deal of work to do to develop this capability.

Note that there is clearly room for interpretation in these ratings. This is more art than science, and for most IT capabilities, we are not dealing with highly mature processes and statistical process control! From my experience, that is ok, and is why I previously said that my preference is to use a facilitated self-assessment approach. It is usually the dialogue this generates that has the most value, and leads to the insight and commitment from the team to initiate and sustain improvement efforts.