How to identify use-cases for new technology

James McGovern asked an interesting question on LinkedIn: “What Methodology Should BA Use to Determine Applicable Blockchain Use Cases For Their Organization?”  In this sentence, BA means Business Architecture rather than British Airways!  It got me thinking – what methodology should operating model analysts use to determine what technology is used to execute any work in the organization.

My first reaction was that this is not a question that is addressed in operating model work.  When doing an operating model design for a restaurant, we do not decide what type of cooker is used by the chef or what type of lighting is used in the restaurant entrance.  These are level three or four decisions (level 1 being design principles and level 2 being a high-level operating model design).  But, I then began to think some more.

Operating model work involves deciding what sort of people you need to do the work, what sort of information support the work needs, where the work will be done, what external suppliers or partners are needed and how the work will be governed.  The answers to all of these questions depend at least in part on the technology that is used.  If an accounting ledger is kept in a large book with each entry hand written, you need different people, different IT support, different suppliers and different governance processes than if the ledger is held on a blockchain. In other words, once you have defined the work that needs to be done – the value chain needed to deliver a particular value proposition – you also need to decide, in broad terms, the technology that will be used to do the work in order to be able to address all the other operating model questions.

You may not need to decide what type of cooker the chef uses, but, if the cooking only involves microwave ovens, you will need a different kind of chef and different suppliers, than if the cooking involves Cordon Blue cuisine.  To give one more example, if you are designing an organization to make holes, you need to know whether the technology you will use is picks and shovels, a mechanical digger, a drill or dynamite before you can design an operating model.

This raises the question of whether this “high-level” technology choice should be part of strategy or part of operating model design.  Should the operating model designer say, “I know you want to make a hole, but until you tell me what technology you want to use, I can’t design an operating model for you”; or should the designer say “I know you want to make a hole, tell me a bit more about the type of hole you want and I will tell you what technology is most suitable and give you an operating model design as well”.  Personally, I think the latter is more practical, if only because, in operating model work, it is hard enough getting the client to give a clear articulation of the strategy, let alone getting clarity about technologies. 

Putting my academic hat on, though, I think the answer to the riddle is dependent on whether the technology choice is a source of advantage/excellence or not.  If it is, then it should be defined in the strategy.  If not, it can be left to the operating model designer.

So we come back to James’s question “what methodology should operating model designers use to choose technologies for doing the work?”  The answer, as with most operating model design, is to ask those who know.  Find an expert at “making holes of this kind” and ask him or her what is the best technology, what kind of people are needed to use this technology, etc.  When a new technology comes along, like blockchain, ask someone who understands the technology to explain what the technology is good at doing, and then consider each “work step” to assess whether the technology is likely to significantly improve the cost or quality or speed or … of the work step.

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Comparing Agile and Cross-functional Teams

I was reading a McKinsey interview with the head of the Rijksmuseum on the subject of Agile. For some time now, since a conference I ran in July on Agile and New Forms of Organisation, I have been trying to get clear in my mind what the difference is between “agile organisation” and “cross-functional teams”. This interview helped me clarify a couple of points. Cross-functional teams have been a feature of organisation since the 1960s, when Boeing first developed a new aeroplane using a multi-functional approach.  This successful experience was documented by Jay Galbraith, who called it a “matrix structure”.  It was one of the first documented uses of matrix organisation ideas: in Boeing’s case a function/project matrix. So what is new/different about Agile compared to cross-functional teams?   Here is my list
  1. Agile team members are allocated to the agile team full time.  Many cross-functional project teams are part time.  Of course, many, like the Boeing example, are also full time (at least for a number of years).  Just to confuse us all, some people call teams with part-time members “agile” teams.
  2. Agile requires a fully defined mission for the team.  It also gives freedom for the team to “self-manage” in delivering the mission.  Project teams will typically have objectives, but often not as much care is taken in defining the mission of the team, and less commitment is given to ensuring the team has freedom to work in whatever way they like.
  3. Agile typically requires co-location of the team.  Cross-functional, project-team members often remain located in their function but come together for joint activities.  Co-location is believed to be an important part of agile because it produces better communication (essential to self-management), more commitment and more speed.
  4. Agile typically involves using many of the methods of ‘scrum’, like backlogs, sprints, stand up meetings, visible progress displays, etc.  Project teams, at least historically, involved few standard ways of working, and project management typically uses a “waterfall” approach.
  5. An agile team needs a “product owner”, the person in the team who prioritizes the backlog and does other “team-leader like” roles.  A cross-functional project team has a team leader, whose role is typically broader and less well defined.
  6. An agile team is expected to produce intermediate outputs and trial these outputs with the beneficiary/customer it is serving.  The concept of “minimum viable product”, from Lean Start Up thinking is important here.  Agile teams are expected to generate trial outputs quickly and expose them for comment and reaction.  Project teams, more typically work in a “waterfall” approach, only exposing their output towards the end of their work.
  7. An agile team is a permanent part of the organization.  Whereas a cross-functional project team is typically expected to have a limited life, often months not years.  However, many people use “agile” to refer to temporary teams, and because organizations change fairly frequently few agile teams stay the same for more than a year or two.
  8. Organisations with many agile teams (such as Spotify), typically call these teams “squads” and group them into “tribes” to help manage coordination between “squads”.  The functions are called “chapters”.  Organisations with many project teams may have a “project office” to coordinate “multiple workstreams”, as, for example, in post-merger integration projects.
In summary, some cross-functional project teams (those with long time horizons, well defined missions, clear team member roles, scrum working practices, sensitivity to their customers, etc) are very similar to agile teams.  But the typical cross-functional project team has important differences from the strictly applied agile team. This raises the question of what is the same between agile teams and cross-functional project teams.
  1. Both types of team have members drawn from different functional disciplines, and the functional disciplines are still responsible for the capabilities of their people.  This is the matrix element.
  2. Both types of team have defined objectives and are expected to deliver within set time frames.
Both are ways of breaking down the functional silos that stultify organisations.  But “agile” is also associated with speed, customer-orientation and higher levels of motivation and engagement.
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Yet another operating model framework

At the risk of driving you all mad with different frameworks, I recently came across the following from Adrian Pedroi of Turner & Townsend:

What do I like about this?  It incorporates “values, mission and strategy”, which is, of course, the starting point for all operating model work.  It has more of a focus on people than most models.  I particularly like the visuals against this part of the framework, which seem to give extra focus on individuals and on relationships.  Those who have been on my course Advanced Organisation Design will know that my definition of good organisation is “capable people working well together”.   I also like the balance of service, process and people, clearly the three most important ingredients in an operating model.

Where might I criticize?  The framwork separates ‘services’ from strategy, which feels odd to me because I think the decision about what services or products to offer and which customers to serve is the guts of strategy work.  This framework does give emphasis on services (or what the Operating Model Canvas calls “value propositions”).  In other frameworks, this is often presumed rather than explicit.  However, the customer or beneficiary is presumed (I assume part of strategy) rather than explicit.  As I have often commented, a way of keeping the customer front of mind is helpful when doing operating model work.

My other criticism is that the processes bucket is a catch all for a lot of stuff.  This has the advantage of keeping the framework down to three, but the disadvantage of mixing a lot of different stuff together under this bucket.  It also means that location and suppliers are probably given less attention when teams are using this framework.

I have always been a bit uncomfortable with people, process and technology, the classic framework used by Business and Enterprise Architects. I have also criticized the Business Model Canvas categorization of Key Partners, Key Activities and Key Resources.  This Turner & Townsend framework is, in my view stronger than both. Like the BMC it has a focus on services.  But its language and focus on people is much better than the BMC’s unfortunate ‘resources’.  The bundling of process and technology together may not be so mad in an RPA world where most process work is done by technology.

As always there is something to learn from everyone’s frameworks.

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BCG’s Agile Operating Model Framework

I am always interested in the frameworks used by consultancies because they are working regularly with clients, and, hence, should be learning the most about how to do operating model work.  So I eagerly read a BCG article by Miquel Carrasco, Kyle Peters and Peter Geluk on agile operating models for government.

The article argues that government should adopt agile methods, but without giving any compelling example or anecdotes.  The main point of interest is the framework that they called “BCG’s Agile Operating Model Framework” – see below

My immediate interest was to compare it with the Operating Model Canvas to see if I could learn anything.  First, there are a good many overlaps.  “Processes” is the same although the visual in their processes box does not look much like a process.  “Structure”, “Culture and behaviour” and “Leadership and talent” overlap with “Organisation” in the Canvas. Although the emphasis on leadership is interesting.   “Technological enablers” covers the same ground as “Information” in the OMC.  “Measurement framework” is similar to “Scorecard”.

This leaves “Governance and funding” which appears to overlap partially with “Management Calendar” in the OMC.  But the focus on funding is clearly different.   Thinking about this, funding is a major issue in government as it is in charities.  So special attention on this topic seems sensible.  The link with governance also makes sense because the funding comes from the government.  However, the wording in the article does not throw much light on this category: “Organizations should move to a more flexible, capacity-based funding approach, with regular reevaluation of initiatives to ensure that they are on track and merit continued funding.”

The final box in the BCG framework is “Purpose, strategy and priorities”.  This has some connection to the “Value Proposition” and “Customer” parts of the Canvas.

What is interesting is that “Location” and “Suppliers” are not part of the BCG framework.  Given that one of the core ideas in agile working is the bringing together of cross functional capability into a single location so that they can work closely together, the absence of location in an agile framework feels like an omission.  Furthermore, since agile is about moving fast, government departments are likely to need to work with suppliers who are more used to reacting in a few days rather than a few months.  So some attention to Suppliers would also seem important to designing an agile approach.

As is normal, when comparing frameworks, there is something to learn and something to teach.  BCG’s attention to leadership is worth thinking about.  As the authors point out, in an agile environment, leaders need to be good at articulating purpose and constraints, assembling teams and then giving teams the freedom to act.  Not a natural style in government.  But one that is well articulated by Stephen Bungay in The Art of Action.

More broadly almost every new operating model requires changes in leadership behavior.  So maybe the “Organisation” box in the Operating Model Canvas, should include special attention on the leadership behaviors needed to make the new model work.  Some of this is captured in “Management Calendar”, but more thought about leadership behavior is probably warranted.

BCG’s focus on funding is also worth attention.  In a commercial organization the funding issue is part of the business model, and hence excluded from the operating model thinking.  But in government, the distinction between business model and operating model is less useful.  Hence it may make more sense to blend the two as BCG appears to do.

On the teaching side, BCG might benefit from adding location and suppliers to their framework. They also lack any concept of customer or beneficiary in their framework.  No doubt this is included in their “Purpose, strategy and priorities” space, but, even in government, it is important to keep a focus on who the beneficiary is.

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One of the problems with capability maps

Last evening I was with Alan Crawley of Optima Partners (specialists in marketing function transformation) talking about marketing operating models.  A most stimulating discussion.   Parallel to this I have been in a LinkedIn discussion with Peter Murchland about capability maps.  In it we were using marketing as an example, or, as a capability map would call it, “marketing management”.

I started the dialogue with Peter like this “I find a capability such as “marketing management” is a dangerous abstraction because “marketing management of a restaurant” is a very different capability from “marketing management of a toothpaste” which is a different capability from “marketing management of a consulting service”. Yet I have never seen a capability defined with this degree of specificity.

The dialogue then focused on the marketing challenges of Ashridge Business School where we have tailored courses, open courses, qualifications courses, weddings and research outputs such as books and articles.  I was suggesting that these may all be different kinds of marketing capability, but capability mapping does not make it easy to consider these differences because all of these types of marketing would be captured under the term “marketing management”.

Peter commented, “Taking one line of investigation, where I use APQC Process Classification Framework as an indirect path to capabilities (which surround processes), process 3 is Market and Sell Products and Services.

This is composed of:
3.1 Understand markets, customers and capabilities
3.2 Develop market strategy
3.3 Develop sales strategy
3.4 Develop and manage marketing plans
3.5 Develop and manage sales plans

This would indicate that the marketing capability can be considered to comprise three capabilities:
a) Market assessment
b) Market strategy
c) Marketing planning

We could then consider each of these capabilities (and associated processes). For example, market strategy relies upon:
i) Value proposition development
ii) Pricing strategy development
iii) Channel strategy development

(Note: this decomposition does not yet address the differences you have highlighted)”

This response seemed to illustrate the problem of a capability approach rather well.  The issue that seems to me most important in this part of the Ashridge Business School operating model is relegated to a note in brackets at the end of Peter’s analysis.

Peter’s follow on comment tried to address “the differences you have highlighted”.

When I look at the different types of marketing you have nominated, several considerations come to mind:
a) what are you encompassing within “marketing” – the market strategy element or the promotional element – two quite distinct activities
b) there may be distinct differences that emerge in dealing with products versus services
c) the differences may be addressed through the competencies of one individual performing the entire marketing function (in which case it is a moot point and unnecessary level of detail to accommodate in the capability model)”

I quote Peter because I consider him to be a high quality thinker and enterprise architect.  But I can’t help feeling that he is being held back by his capability view of the enterprise.

I shared this feeling.  “Peter, your responses most perfectly illustrate why I am uncomfortable with a capability approach. While you are thinking “marketing capability” or “marketing function” and breaking the capability down into level two and three capabilities. I am thinking, should we consider marketing a tailored course to be the same capability as marketing a wedding or a research paper? I am thinking, do I need five “marketing functions”, one for each line of business, or one function for all of ABS? If I have one marketing function should it be organized into market assessment, market strategy and market planning teams or into tailored, open, qualifications, weddings, and research teams? These questions are all best addressed with a value chain map (rather than a capability map) as the starting point.”

I continued, “I feel that starting from a capability view of the world (one that does not have 1000 different kinds of marketing capability) is a handicap. I feel you are trying to do an operating model for a sport, starting with terms like “ball contact management”. Whereas first you need to know whether you are playing tennis or hockey or rugby, because “ball contact management” is a completely different activity in these three sports.”

I am sure the dialogue will continue – I have had previous interactions with Peter on this topic.  You can follow along here – although you may need Peter to approve your membership of the group.

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Value Chain Maps

Over the years, I have become convinced that a value chain map is a more powerful and more easily accepted starting point, both in consulting and teaching, for operating model work (compared, for example, to a capability map).  This blog explains what a value chain map is.

A Value Chain Map is a high-level process map or value stream map: the term value chain coming from the strategy literature – Michael Porter.  I prefer the term value chain because it reminds me that we are trying to link operations to strategy.  But any other term is acceptable so long as the tool does the same thing.

To create a Value Chain Map, you first need to identify the different “value propositions” (the products or services) that the organization provides.  Ashridge Business School provides tailored courses for executives, open courses, qualifications courses, research papers and books and even weddings using our beautiful building.  An HR function might provide talent development, recruitment, remuneration and organisation development services.  A factory might produce standard products and specials.

Figuring out the best way of defining the value propositions is not a trivial task (see separate blog). Should I think of Ashridge as offering courses, research papers and weddings, or should I think of Ashridge as offering open courses, tailored courses, qualifications courses, etc, or should I think of Ashridge as offering finance courses, marketing courses, leadership courses, etc, or should I think of Ashridge as offering 1 day courses, 2 day courses, 3 day courses, etc?   The answer should come from the strategy: how does the strategy chunk up Ashridge’s different services into groups/segments/offers and how does this link to the way Ashridge thinks about its customers ?  If the strategy is silent on this issue, it is probably better to work on strategy than on operating models.

Armed with a way of defining the value propositions, lay out the high-level process steps needed to create each value proposition.  So for “open courses” the steps (the value chain) would be

  • Market to companies
  • Design courses for prospective clients
  • Agree terms and contract with the client
  • Deliver course
  • Invoice and collect money
  • Follow up with the client

It is helpful to keep the number of different value propositions and the number of steps in each high-level process to less than seven (aggregate if needed).  The reason is that you need to be able to hold the whole Value Chain Map in your head at one time; and a matrix of 36 (6 value propositions with 6 process steps each) is about the maximum you can cope with.  It is always possible to go into more detail later, as needed.

When you have done high-level process steps for each value proposition, you can then create a Value Chain Map.   Draw the process steps as chains of chevrons along the horizontal, placing different chains above or below each other.   Then arrange individual process steps into columns of like capability.  So that, in the Ashridge example, the “design” activity in each chain sits in one column and the “deliver” activity sits in another column, etc (see exhibit 1).

Exhibit 1

Once created, additional information can be added to the value chain map (see exhibit 2).

  1. Identify which chevrons in each chain are critical success factors as opposed to commodity factors for delivering the chain’s value proposition.
  2. Identify in which chevrons the organization currently has difficulties or is under performing. For these problem chevrons, it is often helpful to go to the next level of detail: breaking the chevron down into five or so more detailed chevrons and considering where the problem is at the next level of detail.
  3. Identify how the organization’s costs or headcount divides amongst the chevrons.

Exhibit 2

However, the main benefit of the Value Chain Map is that it provides a visual background for considering organization structure.  The people doing the work in each chevron of the map could report in two ways: along the value chain to someone responsible for ensuring that the total value chain delivers the value proposition; or within a vertical column to someone responsible for a single capability across all the value chains.  So, the people doing course design for open courses at Ashridge, could report to the head of open courses or to the head of course design for all types of courses.

Fortunately, there is a rule of thumb to help you decide which way the people should report.  The rule says that the default reporting line should be along the value chain (the design people for open courses should report to the head of open courses), unless significant improvements can be made to the value proposition by reporting in a different way.  In other words, report along the value chain unless reporting by capability significantly lowers cost or significantly improves the value delivered.

The reason for this rule of thumb is that it is easier to create the value proposition and adjust it to match changing customer preferences, if all of the people doing the work for this value proposition report to one person and are focused only on delivering this value proposition to this customer type.  The rule of thumb means that the onus is on those who want to organize by capability to create a convincing business case.  If in doubt, report along the value chain.

The wonder of the Value Chain Map is that it gives a visual representation on one page, of the core work that needs to be done to deliver the products or services; and it provides the platform for thinking about organization structure.  With a picture of the core work of the organization and how this work should be structured, you are already half way to an operating model.

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A KPMG framework

As readers of this blog will know, I am always interested in other frameworks (other than the Operating Model Canvas) because it is often possible to learn something or to see the same issues from a new perspective.

So here is a KPMG framework that I extracted from a document on LNG operating models (liquid natural gas).  Unfortunately the resolution of the exhibit is poor, so I will explain.  In the coloured column the top dark blue box says “Financial ambition” and the bottom dark blue box says “Measures and incentives”.  The three slightly lighter shades of blue are bracketed as “Business Model” – Propositions, Markets, Customers and channels.  The four

even lighter blue boxes are bracketed as “Operating model” – Core business processes; Operational and technology infrastructure; Organizational structure, governance and risk controls; People and culture.  The other two columns are “Key questions” and “Accelerators”.

So what?   First there is nothing in this categorization of business model and operating model that is different from Operating Model Canvas.  But a couple of points are worth noting.  First, the term business model is used to refer only to the front end of the Business Model Canvas.  In other frameworks, such as PA Consulting’s framework, this is referred to as “customer model” or “value proposition model”.  Business model includes customer model and operating model. So readers should be aware of the different ways different consultants use the term business model.

Second, in the operating model categories there is one for “Operational and technology infrastructure”.  This combines digital and mechanical machines and applications, which seems odd for LNG companies who have drilling rigs and IT systems. It also makes me think that the Operating Model Canvas lacks a good place for thinking about things like drilling rigs.  When they come up, I typically think of them as part of the “core processes” and also think about them again when considering locations.  But this framework gives them a bit more status.

Third, the KPMG framework has a box for “Organisational structure, governance and risk controls” and a separate box for “Measures and incentives”.  This seems a very odd split.  The question in the next column against measures and incentives is “Do you have the right metrics to incentivize the organization for end-to-end business optimization?” which is a pretty odd question, but makes me feel that this should be part of the organization box.

In the Operating Model Canvas the split is between the design of the organization – structure, people, incentive systems, culture, decision rights, etc – and the management system needed to run the organization – planning, budgeting, targeting, performance management, risk management and continuous improvement – and the scorecard that tells leaders whether they are on track. I think this is a cleaner split.

The word governance, however, has always given me difficulties in this context.  For a project, governance refers to the steering group and the design authority that the project needs to work with.  For an organization it is partly the decision rights and committees, which I think of as part of organization design, but it is also the planning, budgeting and risk processes that I position as part of the management system. So the word governance cuts across different categories in the Operating Model Canvas. As a result, I have started avoiding the word where possible, yet its usage is growing and may be confusing people rather than enlightening them.

Last point, I was intrigued by the other two columns – Key questions and Accelerators.  What is attempted here is to list the key questions for an LNG company in the current market and also the levers that managers might use to accelerate future performance.   I like the idea very much – but I did not feel that this list of questions and accelerators quite delivered.  Either it is too long so not honing in on the real insights or it is not based on good insights.  Questions like the “Are you able to respond to changing demands?” or “How are you monitoring risk and evaluating new risks?” left me flat.  I was equally unmoved by the text in the Accelerators column “5. Unit cost competitiveness.  Challenge complacency and bring insights from downstream business with a relentless focus on asset performance through lower capex and opex as well as maximum possible throughput.”

But I am determined to have a go at this format for a business I know well to see if it can be made to deliver something more dramatically insightful, as I tried to do on pages 144 and 145 of Operating Model Canvas.

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