Business Architecture is critical in identifying which organisational assets exist, how they are used, and what can be done to improve their income generation, both operationally and through strategy driven (re)deployment. It enables organisations to do something that otherwise they would not be able to do, again and again.
Many organisations do not have a Business Architecture function because they believe it represents an unjustified overhead cost. I could not disagree more. In reality, centralised architecture is an indispensable asset, connecting strategic planning with operational teams (and operational teams between themselves) to create measurable value for the organisation.
Put simply, an asset is a resource with economic value that an individual or an organisation owns or controls with the expectation that it will provide them with a certain benefit. Quantification of this benefit, commonly referred to as Return on Assets (ROA), is a key ratio of profitability and is widely used to measure how efficiently an organisation uses its assets to generate money (or to spend money productively, in case of a non-profit, for example). The financial formula to calculate ROA is net income divided by total assets. You can read more about assets and ROA in great many places on the web, including Investopedia.
The ROA relationship between the net income and assets is simple – an organisation needs to generate as much net income as possible with as few assets as possible. Clearly, as investment in Business Architecture becomes part of the ROA’s formula divisor, the function needs to contribute positively to net income generation well in excess of its costs.
Business Architecture is critical in identifying which organisational assets exist, how they are used, and what can be done to improve their income generation, both operationally and through strategy driven (re)deployment. (In this sense, ‘assets’ become synonymous with ‘organisational capabilities’, moving away from pure buildings and machinery to structured organisation and functional value streams.)
For John Zachman, best known for his framework of enterprise ontology and one of the most vocal supporters of viewing [business] architecture as an asset, architecture enables organisations to do four things that otherwise they would not be able to do, again and again. In his original article, Zachman focused on IT systems but the concept is applicable to Target Operating Model design and implementation as well. It can be interpreted as follows:
- Architecture brings alignment between management’s strategic intent and implemented organisation and operating model. By defining requirements and modelling them through in a progressively more granular level of detail, architecture ensures that design levels below connect to design levels above in a coordinated and consequential way. In this regard, business architecture’s alignment role becomes a conceptual equivalent of Total Quality Management (TQM) in manufacturing, essentially mirroring all eight TQM’s core elements (more on TQM).
- Architecture brings integration across the entire organisation. It introduces the same meaning to operating model’s elements for everyone in the company by calling (and meaning it) the same thing by the same name. This includes data, information, rules, process, procedures – you name it. By so doing, architecture brings standardisation and interchangeability across the organisation and allows reuse and transfer of operating model’s elements from one place or function to another. For example, it would make the dream of successful Master Data Management a reality.
- Architecture facilitates change of Target Operating Model because it creates and captures the baseline for managing changes to the model over time. It links directly into the strategic planning and SWOT analysis process by maintaining an always-pertinent grasp on internal strengths and weaknesses. Once the company SWOT is defined based on strategic intent, it becomes a matter of straightforward gap analysis to clarify organisational capability deficiencies and what needs to be changed to execute strategy.
- Architecture ensures responsiveness of Target Operating Model, that is its ability to quickly adapt to changes in its environment. This ability is closely tied to integration, by allowing a particularly successful market response or innovation to be rapidly adopted and deployed across the entire company. This is because architecture implies no organisational silos and unimpeded flow of information, horizontal as well as vertical, thus minimising time of passing the best practice around.
When one considers a massive waste of resources happening daily in organisations on reinventing wheels, doing wrong things right, implementing internal compatibility systems and similar, investment in architecture to minimise all this becomes a very attractive proposition. Architecture treated as an asset has potential to contribute to net income generation on both fronts – revenue and productivity gains – and make it in a clear, transparent and logical way at that.
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