EA Radio - Episode 3 - Large and Disruptive Innovation
Are you an innovative organization? Have you considered the impact of disruptive innovation within your organization? How can Enterprise Architecture help?
Welcome to the episode 4 of the enterprise architecture radio. Until now we have talked about large, disruptive transformation innovation. And that was the topic of my discussion because these are very difficult to pull off because of cultural challenges and fear of change. That may give you the impression that small evolutionary changes should be easier to pull off. But these type of changes have their own set of challenges.
The first challenge it faces is knowledge. Knowledge about where the efficiencies that need to be brought in. There are two ways that an organization grows. First is organically. This is usually the slow change. More products and services get added to the catalog. So more business functions get added. Organization grows geographically as the markets expand. More people get added to the organization slowly. The organizational hierarchy gets deeper and it becomes necessary to delegate decision authority. Slowly people start taking decisions about technology, vendors, partners, etc. In silos and we start losing efficiencies.
The second way the organization grows is inorganically. Mergers and acquisitions happen and the scope of the organization grows. New products get added suddenly. Sure there is usually an M & A team that takes care of these events, but there is still only so much that they can do. These changes are usually more visible than the organic growth. But they are usually very fast. The leadership wants to leverage the benefits that these mergers and acquisitions bring in because usually they involve large investments. This means that the teams that are usually involved in undertaking the integration between the two organizations are in a hurry to leverage the benefits. This, due to the time pressure, usually forces the teams to cut corners. The integration is usually quick and dirty and not the most efficient. This means that there are areas where a bigger picture view could have helped in making the integration more efficient, which gets left out and then once the integration is complete, those areas are never looked into and the team usually moves on to their next big project.
At some point in time in the future the leadership notices that the operational costs of the organization are increasing and in trying to manage the bottom line they end up taking cost cutting measures that are probably not the best for the organization. People get laid off, strategic project budgets get cut and the organization is left none the wiser.
But then it is not just about the costs. These changes, because of the silos and because of the inefficient integrations usually make the organization more rigid simply because there are nooks and corners of the organization that are not very well understood. There are processes that are known only to the subject matter experts. Tools and partnership contracts that are managed by specific teams within parts of the organization that are not well understood. And dependencies that are difficult to manage. Overall the organization becomes monolithic and less modular for change. And a general impression is created that large enterprises are less agile than young start-ups.
The very thing that makes the young start-ups more agile is the understanding of the founders about their new and simple organization. They understand all the technologies they are using, all the products and services in their catalog all the different moving parts and business models off the top of their head. So any transformation or change in direction is easy to analyze, outcomes easy to understand. Take the example of Uber. It has a simple business model. Well simpler than a pharma or a healthcare company anyways. I am not going to explain the entire business model. They run a cab platform. Cab owners register as... Well cab owners and customers book cabs.
During the pandemic in 2020 and after, they realized that the customers were using their cab service for a different reason. Since people couldn't get out of their house, they were sending packages using their cabs. Uber changed their business model and officially started a service called "Connect". And most interestingly, it is cheaper than booking a cab. Now that's innovation. But it was easy for Uber, because their business model is simple. They are Agile. All they had to do was give an advisory to their already existing cab owners about the new service, come up with a payment model for them and of course, add a section called "Connect" to their app.
But does that mean a larger organization cannot be agile? What do you do to ensure that an organization, large or small can be efficient, cost effective and agile enough to go through any transformation with a reasonable and viable investment of effort and resources?
Just a few days ago, I wanted to buy an inverter and set it up in my house so that whenever there was a power outage I wouldn't have to worry. So I called the electrician. The first question he asked me was do I have the electrical blueprints that the builder had given me when I purchased my house? Now there is already a Diesel Generator backup in my house already in 5 electrical points. Lights ceiling fans in the drawing room and the master bedroom and a few plugs. But I wanted a full failover. What was connected to the DG, didn't require the inverter backup and the rest did. So setting up the inverter wasn't a simple job. There was a little complexity understanding how the wiring was done. And having the electrical blueprints would help him do the job.
It is the same logic with the enterprise. If you would like to change something in your organization, it would be infinitely more complex than setting up an inverter for power backup. And yet, most organizations do not have any blueprints. Of course the electrical blueprints in houses usually do not change once they have been setup so a blueprint printed on paper usually suffices. But when it comes to enterprises its a constantly changing, constantly evolving landscape. And still we do not have a blueprints for most organizations.
This set of blueprints that tell someone how the organization is structured, how it behaves, how it does its job and meets its objectives is what we call enterprise architecture. It is the architecture of the enterprise and it tells us how things are, how they should be changed and what are the gaps that can be eliminated to make the enterprise efficient, cost effective and agile.
Thankfully we have made strides of progress in how we can document the blueprints of an enterprise. Today there are tools and technologies that keep the blueprints constantly alive and constantly reflecting the current state of the organization. There are EA Frameworks that provide standardized methods for building these tools and yet most organizations think that these tools are a waste of time and money. And then they go about laying off people and rejecting capital investment into strategic projects when it comes to cutting costs.
Operational efficiencies have built great organizations. Innovation doesn't always have to be huge, drastic and disrupting. It doesn't always have to involve the invention of the light bulb or the digital camera. Sometimes innovation is quiet. And there are innumerable examples.
Facebook didn't invent the social media. And nobody gave it any importance because they thought that there is no business model in social media. And yet, today, it is the biggest giant in social media. Walmart didn't invest the business model of selling things cheap. Economies of scale, division of labor and specialization were suggested by Adam Smith many years ago in his book "The enquiry into wealth of nations". Nobody clearly understood what they were doing or how they were remaining efficient. And yet Walmart ate up all its competitors and became the biggest in retail. Pan American airlines was the big disruption. They practically innovated all kinds of aeroplanes, were a major contributor to the jet engine and were the first to fly internationally. And yet it was American Airlines that survived after the deregulation of the airlines industry in 1978. Look it up.
These small changes, operational efficiencies, constantly working on improving the products and services by making minute course corrections, in the long run can make a huge difference.
And a good mature EA capability in the enterprise can help the leaders achieve just that. Make small course corrections as they go along and also manage large disruptive transformational innovation in their stride.
EA makes organizational agility possible. EA eliminates the fear of change. In fact, EA makes an organization look forward to change.