Part 1 of the 3-part “Strategy and Enterprise Architecture” series that explores the link connecting strategy and business models to enterprise architecture and the underlying technology that executes the strategy. Understanding this link enables companies to align resources, people, and processes to transform themselves in response to market dynamics and maintain a competitive edge.
Much has been written about strategy and innovation – for example, the imperative for companies to transform themselves into agile organizations to constantly respond to market and industry dynamics. But how do we connect a company’s high-level strategic priorities and objectives to the resources, processes, and ultimately the system landscape that execute the strategy? How do we align the company strategy with a sound business model? How does a business architecture that sits on top of a system architecture enable the business model to deliver value to its intended customers? And most important, how do we align all the components after one of them has been changed to cope with demanding new marketing conditions?
Business capabilities are the link between these two sides of an enterprise. Business capabilities can be thought of as the resources, processes, and values that ultimately execute on the strategy, delivering the value proposition at a profitable level to the intended customer segment.
The model described here is a simplistic point of view, but there are too many factors and complexity around enterprise structure. As with any model, we must simplify it to the point we want to focus on. In this case, it’s the connection between strategy and the architecture (business, systems, and technology) that executes and makes that strategy a reality.
This series of blogs quickly reviews each of the building blocks that constitute an enterprise. My purpose is to cover the company business strategy, business model, and business capabilities required to run it. In the next sequence, I will cover the business, system, and technology architecture that implement and execute company strategy through the business’ capabilities.
Company business strategy
The underlying building blocks of a strategy consist of an assessment of what is considered true today and an extrapolation or prediction of what will be considered true in the future. That creates a gap that requires a decision on alternatives and a roadmap to guide you from the present into your envisioned future. Then you’ll need to make a decision about how to allocate resources to realize your prediction by building the necessary capabilities.
According to Clayton Christensen, the established incumbent’s strength is sustaining innovation in existing markets. The focus is on efficiency and creating a better version of its products and services in a highly competitive environment. The company uses a deliberate strategy to exploit its position; this is also called a red ocean strategy.
Innovative disruptors, on the other hand, focus on new markets; this is called a blue ocean strategy. The company might set out to serve non-consumers by making available products and services previously unattainable to a certain segment. The disruptor doesn’t initially look into a deliberate strategy, rather lets an appropriate strategy emerge as it matures its operations.
The content of a strategy
It is conventional to begin by analyzing the industry or environmental conditions in which the company operates after an assessment of strengths and weaknesses of the existing players against those of the company. Based on this industry and competitive analysis, a distinctive strategic position can be identified where the company can outperform competitors. The competitive advantage generally gravitates toward differentiation in hopes of earning a premium price or focusing on low cost by driving efficiency in operations. Once there is clarity on the strategic position, the company must align its value chain, deriving strategies for marketing, sales, manufacturing, supply chain, and other internal functions. Financial planning and budgeting then can allocate resources to realize the company strategy in implementing and deploying its business model.
Any strategy exercise must be carried out while taking into consideration the company’s business model. Strategists should go further to ask whether changes to the existing business model are warranted or if conditions are just right for creating totally new business models.
Any good strategy is built on the following basic building blocks:
- A value proposition that customers are willing to buy into because it addresses a job they need to get done
- Revenue streams and consequently profit through delivering the value proposition to the market segment
- Business capabilities that ultimately execute on the strategy of delivering the value proposition at a profitable level
The next blog in this series examines how a business model helps structure these different dimensions of a strategy.
Learn how businesses can optimize the transition to an intelligent enterprise in the “Anatomy Of The Intelligent Enterprise” series.