Maturity Models for the Evolving Economy

Earlier in this four-part series, I discussed six key drivers that are fundamental to success in the new economy. These were described as combinations of people, processes and technologies that represent the vital contributors to value. This month, I’ll discuss each of the six key success drivers identified by IDC and the rationale behind their selection.

1. Human Resource Management

Revolutionary changes are underway in organizational structures, processes, systems, and cultures. This also applies to the management and valuation of human talent. Good HR management practices should be designed to support clearly articulated and understood strategic goals. They are fundamental to achieving the level of productivity, quality and customer satisfaction required to succeed in any business in our current period of transition.

In times of turbulence, the key differentiation in top-performing companies is often their ability to attract, retain and manage an excellent workforce. An enterprise-wide (perhaps even inter-enterprise) view of HR management and practices provides an excellent insight into overall HR capabilities, potential, and of course limitations.

In an environment in which innovation, responsiveness, flexibility, and learning are vital sources of competitive advantage, a management context driven by compliance, control, contract, and constraint is more a liability than an asset. 1

The futures of managers and other employees are interdependent. Values and trust are the foundation of a successful collaborative relationship, whereby both groups contribute to their joint success. Facts and truth shape communication, and a culture of trust and mutual respect must dominate. Information sharing is a prerequisite and open, transparent management processes reinforce the commitment to a collaborative culture.

Productivity and quality are important to maintaining cost-effective operations and often those things are higher when an organization has long-term employees. Appropriate reward and recognition is key to persuading employees to stay. Incentives and other performance metrics are most effective when they reflect personal and team contribution to strategic goals and when they are linked to value added by the employee(s).

Attracting and retaining top-level employees is difficult for all business units, however the IT executive is particularly challenged. She faces added complexities associated with a resource-constrained technical specialty area – training technical specialists, recruiting scarce talent, ongoing changes in the makeup of IT jobs, and reward and recognition systems that are totally unrelated to anything previously known. The IT executive must consider innovative ways to satisfy HR needs, many of which reflect increased pressure from non-IT business units.

It is important for organizational structure and strategy to be complementary. It is equally important for policy and practice to encourage behaviors that help the strategy succeed. It is essential that HR management and practices not constrain the introduction of change. IDC’s Maturity Models recognize that differences in culture and industry can affect recruiting, hiring and retaining a world-class workforce. They reflect the need for increasing creativity and innovation in HR management processes to complement growth in sophistication and competitive stature.

2. ROI Strategy and Management

Conventional wisdom has dictated the use of the same corporate valuation metrics for many years. But as the economy evolves and is increasingly defined by intangibles, it is difficult to rely entirely on traditional financial tools to measure progress. There is no doubt that cash flow and liquidity is the financial lifeblood of any organization, providing the fuel for day to day operations. But economic emphasis has changed. Growth in the commercial use of the Internet has effectively reduced the operational cost of many transactions to zero.

In the past, growth was dependent on major capital investment in plant and infrastructure and in the distribution channels needed to support the high cost of transactions. Therefore maximizing the use of these physical assets (and therefore enhancing return on the monies invested) was of primary importance.

The situation is now different. Physical plant can now be leased and non-core processes can be outsourced. The key investment is now in the information needed to support customers – acquiring and retaining them. These initiatives are knowledge-based and supported by large capital expenditures on the technology needed to leverage an organization’s intellectual capital.

There is no question that every organization must have the ability to drive sustained corporate value through any one or all of its key initiatives and also be willing and able to measure this success. This requires commitment across all functions and business units, and acceptance of a common set of metrics and valuation processes.

IDC’s Maturity Models provide a framework for assessing the strength and durability of existing ROI strategies and measurement systems. They incorporate tangible and intangible benefits and consider the lifetime cost of introducing change.

3. Operational Excellence

It is difficult for an organization to adapt to ever-changing external forces and still maintain high productivity and excellent quality while focusing on reducing costs and increasing revenue. Achieving operational excellence requires a high-performance organization – one that recognizes the high value of learning, agility, partnerships and leadership, and one that can respond to the demands of the marketplace in a reasonable timeframe while delivering superior value. Key processes must continually break new ground in terms of speed, quality and cost if they are to achieve this objective. 2

Moving business processes to digital networks eliminates much of the transactional friction and resistance (e.g., delays, hand-offs, rework etc.) inherent in physical or manual processing. This presents a dramatic opportunity to reduce costs, decrease the elapsed time in every process, and minimize errors – essentially, to change the way business is done. However, this requires an organization to be centred, and for everyone to be moving in a single direction. In today’s world that direction is towards the customer.

Today’s IT executive is in a unique position to play a critical role in the organization’s success. From an IT perspective, understanding and managing technology requires management of change, growth and development. It requires the IT executive to keep one eye on enterprise objectives and the other on technology change while working towards the goal of providing accurate, relevant information on demand to the business. Excellence is not achieved in a single project, or over a short period of time. The pursuit of excellence is a way of life for the IT executive. 3

It is unlikely that every business unit, every process and every system will be at the same point of maturity at any one time. Most organizations require certain functions or business units to be in high-performance mode at certain times, influenced by the ebbs and flows of the evolving economy. IDC’s Maturity Models provide the insights needed for an organization to evaluate its progress towards operational excellence across multiple phases and in multiple key areas at each point in time.

4. Business and IT Architectures

An organization is a system that operates within a larger system – the evolving economy or marketplace. Every function and process associated with an organization is also a system that operates within a larger system – the organization. Each component of the overall system is inter-related to other components in some way and each has the potential to impact all others.

The Business Architecture represents all entities involved in an organization’s extended business environment (e.g., customers, channels, suppliers, competitors, markets, etc.), how they inter-relate and which business processes support them. An organization increases its value by adapting its products and services to the needs of its customers, minimizing the potential erosion of its market share by competitors. It further adds value by leveraging available sales and service channels, choosing the most effective suppliers, and streamlining its business processes to maximize use of its resources.

The Business Architecture supports these efforts by helping to develop a common understanding of what the business actually does (or wants to do) and the context within which strategic decisions are made. The links between internal and external entities are presented in a simulated view of the business. This can then be coupled with process models and IT infrastructure models to provide an all-encompassing view of an organization’s operating environment.

IT executives are being asked to take a much more strategic role in developing long-term technology strategies that are responsive to the changing requirements of the business, and which create business opportunity. Technology serves as the conduit through which increasingly complex work is channeled. Organizations must take advantage of new technologies and deploy them to drive new businesses and new business processes.

The IT Architecture encompasses the information and information-resource requirements, applications that support work activities, and technologies (hardware, networks, software) needed to support the Business Architecture. It is of critical importance that IT systems be modular in design and that they have sufficient flexibility to support continued growth and ongoing change.

IDC’s Maturity Models provide the framework needed to view the organization as it moves toward achieving its goals and objectives. Thinking of the organization as a system assists in the development of a culture that learns and capitalizes and builds on its (and others’) past experiences as it increasingly deploys best known practices. The combination of Business and IT Architectures provides a framework that can be used to support the entire process of executing in the evolving economy.

5. Business/IT Partnership

In recent years, the structure of an organization has moved away from the simple hierarchical, vertically integrated model towards something that is closer to a web in its form. Power is more decentralized and the relationships among organizational entities are often poorly defined. Less authoritarian and more utilitarian, these new organizational structures depend extensively on forming partnerships (internal and external) that can satisfy stakeholder needs.

It has never been more important for IT and non-IT executives to be in partnership – with each other and with others. The boundaries between IT and non-IT business units, as well as between suppliers and customers, continue to blur as the “extended enterprise” becomes more commonplace.

Success requires IT executives and non-IT executives to work together to develop and execute a transformation strategy that supports the organization’s short and long term objectives. The IT executive is challenged to develop a plan and implement systems that can deliver immediately and seamlessly the following benefits:

• A way to reach and open new global markets ahead of existing and emerging competitors;

• Faster service and delivery capability through global partners; and,

• Information on demand to satisfy the need to know a customer better than a competitor knows the same customer.

Despite the range of technical solutions and systems available to this executive, the real challenge is finding the right set of technology strategies and resources to achieve the new techno-business objectives of the organization. It is a challenge that requires the insights of a technology expert and the instincts of a smart business strategist. Shared vision and transformational leadership play a major role.

IDC research has identified a dramatic change in the role of the IT organization across all industries, shifting from a strict service and support function to a full strategic business partner within the organization. Technology is critical to business success and this co-dependency drives the need for the IT and non-IT executive to pursue a win/win relationship. This requires both parties to fully understand and commit to shared goals and objectives that go beyond the traditional, more parochial interests of individual business units. IDC’s Maturity Models provide the insights necessary for IT and non-IT executives to aggressively pursue the introduction of processes that accelerate progress towards the best known practices of today.

6. Innovation and Renewal Strategy

The new economic order continues to evolve at a rapid rate and every organization will feel the effects of these changes. The elapsed time between an impending shift in any one of the many external market drivers and the time by which an organization must respond is very short. Businesses that cannot adapt quickly will be displaced without warning by more perceptive and responsive organizations.

New, previously unheard of, competitors can and will emerge to offer equal or better value to customers. New ways of delivering products are no longer unusual, and revolutionary new business models, usually dependent on technology, set new standards and success metrics in established and new markets. The old rules no longer apply and the new rules change quickly. In order to play a role in setting the new rules, or even to prepare to participate in the new game, constant renewal and innovation are critical.

While innovation and renewal are often linked directly to the leadership of an organization, its culture and organizational design can influence the spread of innovative behavior and encourage (or discourage) activities that contribute to this key success driver. Markets reward innovation, but as the rate of innovation increases so does the speed with which new ideas must be generated. Organizations must constantly take action to extend the life of products as well as to develop new ones. IDC’s Maturity Models provide insight into the indicators of progress towards today’s best-known innovation and renewal practices.

The six key success drivers outlined in this article are interdependent, but each one has its own requirements and potential short- and long-term implications. Together, they represent a holistic view of what contributes the most to achieving success. Individually, they can mean the success or failure of an organization’s efforts to execute its business strategies. Today’s strategies are bound to a significant extent by what an organization currently has available in the way of resources and capabilities. These limitations can also constrain an organization’s ability to move forward. When noticeable change is required it is best when it is based on a foundation of understanding – an understanding of what the current situation is, and of the sequential steps that are necessary to achieving the desired state.

Maturity Models provide the insight that an organization needs to recognize where it is situated in comparison with the best known practices in these critical areas. Because all of the models address a common set of six key success drivers it is possible for an organization to develop an understanding of where interdependencies are hindering or encouraging growth. Models also help the organization identify and leverage common elements, and compare progress in one business initiative with another.

1 Christopher A. Bartlett and Sumantra Gohoshal, “Rebuilding Behavioral Context: Turn Process Reengineering into People Rejuvenation”, Sloan Management Review, Fall 1995, pg. 15.

2 Jeremy Hope and Tony Hope, “Competing in the Third Wave”, Harvard Business School Press, Boston, Mass., 1997, pg. 141.

3 Thomas D. Oleson, “The Pursuit of Excellence: Harnessing the Power of Change in the Data Center”, International Data Corporation, October 1999.

Jan Duffy is Group Vice President, Solutions Research, for IDC Canada, and is the author of the recently published “Harvesting Experience – Reaping the Benefits of Knowledge” . She can be contacted at [email protected]

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