First published in the April 2012 edition of the Lean Management Journal (LMJ) and republished here with permission. When it comes to sustainably and profitably growing an organisation in the face of changing market conditions, Roddy Martin identifies various ‘disconnects’ within these initiatives. To understand and manage these disconnects, a four-layer management system must be well understood by executive leadership teams: Systems of Control, Systems of Record, Systems of Process and Systems of Venture and Sufficiency. Another disconnect is IT’s role within these four layers in order to collaborate, not hinder the process. Roddy explains how executive leadership teams can overcome these hurdles.
Roddy Martin proposes a four-layer management system model and explains why alignment between these four layers is so critical.
As continuous improvement and supply chain performance improvement practitioners, we know that aligning business operating strategy and business performance improvements, and building end-to-end supply chain capabilities to achieve competitive advantage, are merging to achieve one goal: To grow sustainably and profitably while weathering the dynamics of market change. In reality, however, ‘disconnects’ and ‘project-based approaches’ in these initiatives highlight cross-functional gaps that stand in the way of collaboratively building an end-to-end business with demand-driven process capabilities.
“Disconnects” are characterised in the following leadership questions:
- What is the challenge involved in translating and aligning the business operating strategy into end-to-end business processes and supply chain design, and in achieving sustainable performance improvement capabilities by aligning with continuous improvement?
- What factors are in the way of aligning and synchronising IT with business and supply chain transformation?
- How is leading and managing the transformational change embedded into every maturity stage of the transformation journey?
- Is there a model that helps us understand the different management systems operating in the business so we can reduce complexity, and institute a governance model with a change leadership process to ensure sustainable and effective progress on the journey?
These fundamental executive-level questions must be understood and answered if the business performance improvement outcome of end-to-end supply chain transformation is to be sustainable in delivering measurable and improved business results. The most fundamental issue, and the one that embeds much of the complexity, is understanding the four layers of the management system that runs the business.
In the following section, I propose a four-layer model that leading executives have found useful in understanding and managing this issue.
The Four Layers
Three of the layers are more heavily vested in technology and data management and one is based on business process capability. These layers evolved bottom up as they were largely developed functionally, and were reinforced by the development and deployment of IT.
The bottom layers grew by necessity as the business realised the need to operate holistically as an integrated end-to-end set of demand-driven processes, but needed to start at a low-level control of integrated data and event management.
From the lowest, these layers evolved from:
- Layer 1: Systems of Control (real time data, for example process control), to
- Layer 2: Systems of Record (transaction and data processing applications, such as ERP), to
- Layer 3: Systems of Process (work flow management systems, such as integrated quality, governance and compliance, sales and operations planning)
Unfortunately, investments into these bottom three layers of management systems were dominated by technology-oriented requirements that were indicative of the low levels of data and information integration. Investments were not made into
- Layer 4: Systems of Venture and Sufficiency, because the business ‘didn’t know what it didn’t know’. (A layer 4 that represented business actually operates as a set of operational and management processes comprised of people, process and technology.)
While layers 1, 2 and 3 are important in the data and transaction efficiency and effectiveness of the business, they do not holistically represent the way the business actually effectively operates with people, process and technology. These layers also generally do not reflect or align to the stage of the business’ performance improvement and operating process maturity (Stages 1-5). This was described in a previous article entitled Understanding Your Company’s Levels of Maturity.
With the best intentions, the IT organisation designs and deploys systems for best in class end-to-end value network capabilities. The business, typically still at a Stage 2-3 of maturity in its process operating capabilities (project-based improvement), cannot operate as a Stage 5 value network process-based operating system. To make the investment usable in its current stage, the business customises the Stage 5 value network-based design to fit the current Stage 2 of business operating capabilities. This vicious cycle of continually adapting and fitting Stage 1-3 systems to the business as it evolves, becomes a major source of business disruption and a hurdle to integrative performance improvement initiatives.
Furthermore, today’s global businesses operate across many cultures, business product lines and geographies — the reality is that there are many different stages of process capability maturity, not just one. Again, the business must continually adapt and re-implement its layer 1-3 systems to fit different stages of maturity across the business.
The net impact is that customisation, the lack of business standards, and the continual adaptation and redeployment of technology and information management systems all represent serious constraints to learning, sharing best practices, process development and sustainable continuous improvement across the business. This impact is compounded by the lack of a decoupling layer from the way the business actually operates.
Why is this Situation a Problem?
An operational excellence executive from a leading global life sciences company stated the issue very succinctly when she attended an IT systems design and blueprinting meeting to deploy a major vendor’s application. She noted that the IT-based ‘blueprinting’ and systems design in layers 1-3 did not represent the way the business actually works, but was being done that way because the IT system required it. Secondly, one simple transaction or work flow process in layer 2-3 designs could involve five to nine different departments in the business to be successfully executed. This was not reflected in the systems design.
This means that businesses are encapsulating IT, data management and process automation into layers 1-3, but not taking into account the real people, process and stage of organisational and process maturity implications in layer 4 (the way the business actually operates). As a result, many technology investments are not necessarily leading to organisational and process effectiveness across the business as a whole.
This approach is also not developing integrative improvement capabilities and end-to-end value network process capabilities as found in the requirements the business has in layer 4.
After billions of dollars of IT investments in layers 1-3, the business is still not at a proficient level of process capabilities that enables it to operate as a demand-driven value network across people, process and technology components ― at least not in a way that performance improvements are sustainable and the business is agile to change.
What is the Conclusion?
The strategic alignment and integration of continuous improvement, change management, strategic planning, enterprise architecture planning, enterprise data warehousing and advanced process analytics are a leadership, top-down business responsibility. These investments will not achieve the same objectives cost effectively, if they are allowed to evolve from the bottom up.
The first conclusion is that responsibility lies firmly in the hands of the business executive leadership team and must include IT.
Secondly, the business and IT must collaboratively discover, plan, build and deploy a flexible information management and analytics layer between layers 3 and 4 that allows decoupling of technology from the way the business operates in processes, without disconnecting the two critical pieces. The flexible analytics and performance management layer and information model must support different levels of maturity, and be able to grow to support different levels of process and operating maturity found across the business. These flexible model-based capabilities already exist with vendors such as Vecco.
The key principle in the second conclusion is that companies must institute this reference layer for information and process performance management to support the way the business actually operates, and be agile and adaptable to support new questions that the business is asking as the level of process maturity evolves.
Investment in this layer must have the outcome that the business does need to continuously change, redesign and redeploy technology applications at layers 1-3 to support evolving business capability maturity in layer 4. It is a leadership and strategic planning responsibility to synchronise change management across layers 1-3 to align it with the business operating system in layer 4.
The combination of the decoupling information layer and the leader’s top-down alignment strategy (between the business operating system and IT investment) in layers 1-3, means that prioritised technology, work flow initiatives, and IT architectural planning must be driven top-down by the process maturity of the business, and governed by its performance improvement needs.
For example, a business can only leverage applications such as network planning and master data management when these are aligned and synchronised with its process capabilities and integrative improvement priorities.