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A hit ti Fi St tA hit ti Fi St tArchitecting Firm StrategyArchitecting Firm Strategy

Application of Enterprise Architecture Application of Enterprise Architecture to the Development and Management to the Development and Management

of Organizational Strategyof Organizational Strategyof Organizational Strategyof Organizational Strategy

AgendaAgendaAgendaAgenda Organizational Strategy Overview

Strategic Analysis Frameworks

Strategic Analysis Tools/Techniques Strategic Analysis Tools/Techniques

Strategy Making and the Elements of a Strategic Plan

E t i A hit t O i Enterprise Architecture Overview

Value of Architecting Firm Strategy Enabling Strategic Frameworks and Analysesg g y Enabling Strategic Planning

Application of Architectures to Strategy Making and Management

Overview of StrategyOverview of StrategyOverview of StrategyOverview of StrategyCorporate Strategy Overview - Direction-setting based on any of a number of formal or informal constructs aimed at identifying existing and expected y g g pconditions related to the competitive environment, internal and external facets of the firm and its activities and resources.

Strategic Analysis Frameworks -Strategic Analysis Frameworks --Industrial Competition View (Porter’s Five Forces)-Resource-Based View-Core Competencies -Balanced Scorecard-Other Frameworks

Strategic Analysis Tools/Techniques-Activity MappingActivity Mapping-Value Chain Analysis-SWOT Analysis

Strategy-Making and Strategic Planning

Industrial Competition ViewSupplier Power

• Supplier switching costs relative to firm switching costs • Degree of differentiation of inputs • Presence of substitute inputs • Supplier concentration to firm concentration ratio • Threat of forward integration by suppliers• Cost of inputs relative to selling price of the product

Competitive

Threat of New Entrants

Cost o puts e at e to se g p ce o t e p oduct• Importance of volume to supplier

Threat of Substitutes

• Existence of barriers to entry • Brand Equity• Switching costs

• Buyer propensity to substitute • Relative price performanceCompetitive

Rivalry• Rate of industry growth & concentration • Intermittent industry overcapacity • Exit barriers • Diversity of competitors

Switching costs • Capital requirements • Access to distribution • Absolute cost advantages • Learning curve advantages • Expected retaliation • Government policies

Relative price performance of substitutes • Buyer switching costs • Perceived level of product differentiation

• Informational complexity and asymmetry • Brand equity • Fixed cost; value added • Level of advertising expense

• Government policies

Buyer Power• Buyer concentration to firm concentration ratio • Bargaining leverage g g g• Buyer volume • Buyer switching costs relative to firm switching costs • Buyer information availability •Availability of existing substitute products • Buyer price sensitivity & total price of purchase

Porter (1979)

ResourceResource--Based View (RBV)Based View (RBV)

•• ResourceResource--Based View (RBV), states that all firms have Based View (RBV), states that all firms have resources that are resources that are -- UniqueUnique StickySticky Imperfectly ImitableImperfectly Imitable

D l t P th D d tD l t P th D d t Development Pathway DependentDevelopment Pathway Dependent•• Their strategic resources are Their strategic resources are ––

ValuableValuableRR

Competitive Advantage RareRare InimitableInimitable Organization Support DependentOrganization Support Dependent

Best Allocation of Dynamic Resources Determines WhichBest Allocation of Dynamic Resources Determines Which

Sustainable Competitive Advantage

•• Best Allocation of Dynamic Resources Determines Which Best Allocation of Dynamic Resources Determines Which Firm Achieves Sustainable Competitive AdvantageFirm Achieves Sustainable Competitive Advantage

Wernerfelt (1984)

Core CompetenciesCore CompetenciesCore CompetenciesCore Competencies Core competencies are key capabilities, resources, Core competencies are key capabilities, resources,

knowledge, processes, management, methods and knowledge, processes, management, methods and g , p , g ,g , p , g ,integrative practice that a business sees as being vital to integrative practice that a business sees as being vital to its functions and its to competitive position. its functions and its to competitive position.

Core competencies have three general attributes Core competencies have three general attributes –– They return value to the customerThey return value to the customer They are inimitableThey are inimitable They are inimitableThey are inimitable They are broadly applicable in the market, products They are broadly applicable in the market, products

and services that the ownerand services that the owner--firm servesfirm serves

Prahalad and Hamel (1990)Prahalad and Hamel (1990)

Balanced Scorecard (BSC)Balanced Scorecard (BSC)

Financial Performance

BSC s ppo tsBSC supports broad-spanning measures of

Strategy Internal ProcessesCustomers

measures of performance that align with the gmulti-dimensional strategies of the fi

Development & Knowledge

firm.

Schneiderman (1987)Kaplan & Norton (1992)

Other Competitive Analysis Other Competitive Analysis F kF kFrameworksFrameworks

Porter’s Three Generic StrategiesC t L d hi Cost Leadership

Differentiation (Responsiveness) Focus

Dynamic View of Strategy Evolutionary and responsive

Game Theoretic Framework Game Theoretic Framework Role perspectives and single v. repetitive games

Shareholder Value Analysis FrameworkM i ti i t it t ti l t i t h h ld it Measuring every action against its potential to increase return shareholder equity

Activity MappingActivity MappingEnables management to link strategic objectives with

activities and their attributes

Service -Courteous but

Efficient

Inputs -Low

inventory, lean

Facility Location -Lower cost, easy

access

Competitive Advantage:Cost Leadership

lean

Processes -

Utilization -Maximized,

low flex

Schedules -Tightly

managed, low-fleStandardized flex

Value Chain AnalysisValue Chain AnalysisIsolates, categorizes and assesses the value of

ti iti d t k i Finance/Accountingactivities undertaken in a given firm’s varying lines of businesses or across the functions executed in

Finance/Accounting

Procurement

Human ResourcesSupportingFunctionsthe functions executed in

a supply network. Distinguishes between primary and supporting

Human Resources

Desig

Produc

Logist

Servi

Sale

Functions

PrimaryFunctions

primary and supporting activities. Discretely attributes costs and value drivers to each

gn

ction

tics

ice

es

activity. Enables reconciliation of expected and actual costs/value.

Porter (1996)

SWOT MatrixSWOT Matrix

Strengths Weaknesses

These are factors internal to your company and its These are factors internal to your company and itsThese are factors internal to your company and its product, things over which you should have direct influence. What advantages does your company or product have? What do they do better than anyone else? How is your organization or their product achieving differentiation cost

These are factors internal to your company and its product, things over which you should have direct influence. What can be improved or avoided? How is your organization or their product not achieving differentiation, cost leadership or focus? How is your organization or their product achieving differentiation, cost

leadership or focus? leadership or focus? Do customers have a poor view of the company, its products or services?

Opportunities Threats

These are factors external to your company and its product things over which you should have little direct

These are factors external to your company and itsproduct things over which you should have little directproduct, things over which you should have little direct

influence (e.g., technological forces, market forces). However, careful assessment and action of these factors can be vital to success.

A th h i li bl t h l i d k t b th b d

product, things over which you should have little directinfluence (e.g., technological forces, market forces).However, careful assessment and action of thesefactors can be vital to success.

A th b t l t it d t ? H i th Are there changes in applicable technologies and markets on both a broad and narrow scale? Are government policies relating to your product or industry a source of potential opportunity? Are there demographic, social, political, military or other factors that might be important?

Are there obstacles to your company or its products success? How is thecompetition dealing with these obstacles? Are changes in technology or product/service evolution threatening yourcompetitive position? Has a financial risk and ratings firm (e.g. Dunn & Bradstreet) down-classifiedyour company?

Strategy Making and Strategic PlanningStrategy Making and Strategic Planning

-- Keys elements of a strategic plan

Strategy-making can be informal or formal. Strategic Planning the process of formalizing & institutionalizing plans and measuring & controlling performance against plans.

• Mission Statement – Outlines organizational purpose/rationale• Vision Statement – Frames the organization’s future• Goals & Objectives – Set parameters and quantifiable targets to be

hi dachieved • Key Performance Indicators (KPIs) – Specifies measures of success• Benchmarking – Provides frames of comparison against prior performance or against the performance of othersperformance or against the performance of others

Corporate StrategyOnce corporate strategy has been established it is important to ensure that

Business Line and Division Strategy

D t t l d

established, it is important to ensure that subordinate organizations build supporting strategic plans, each with their own goals and objectives aligned to superior

Departmental and Partner Integration

Strategystrategies and with one another.

Setting the StageSetting the StageE t i A hit tE t i A hit t

Enterprise Architecture: “an abstract

Enterprise ArchitecturesEnterprise Architectures

Strategy

pdynamic causal representation of the function, structure and behavior of the enterprise, showing the configuration of major enterprise

Organization

Process

Systems

configuration of major enterprise elements (e.g., processes, technologies, organizational units, knowledge, information systems) and

Organization Systems

Products and Services Resources

ghow they are aligned, and mapping the multilevel and multidimensional interactions among them as well as the interactions between the

DataInformation

and Knowledge

Partners and Stakeholders

the interactions between the enterprise itself and its evolving external environment,” (LAI, 2006).

Notably, the least discussed element of ‘ENTERPRISE’ architecture is arguably the most important – the STRATEGIC element… Not just IT or data strategy but the larger Organizational, Enterprise, Corporate strategy – the Big ‘S’. After all, it is or should be the glue that binds the Enterprise.

Value of Architecting Firm StrategyValue of Architecting Firm StrategyValue of Architecting Firm StrategyValue of Architecting Firm Strategy Architectures are useful tools is strategic analysis and strategy Architectures are useful tools is strategic analysis and strategy

making making -- in terms of applying strategic frameworks, methods, tools in terms of applying strategic frameworks, methods, tools and techniques. and techniques.

Architectures are also useful resources in structured strategic plan Architectures are also useful resources in structured strategic plan formulation formulation -- in aligning strategic plans within the organization, in aligning strategic plans within the organization, across partner firms and in linking and aligning strategies to the across partner firms and in linking and aligning strategies to the activities, processes, resources and other important facets of activities, processes, resources and other important facets of organizational function & structure.organizational function & structure.

Architectures are likewise useful tools in strategic performance Architectures are likewise useful tools in strategic performance measurementmeasurement

Finally, architectures are useful tools in strategic controlling Finally, architectures are useful tools in strategic controlling --validating that what we do fits with our strategic objectives over validating that what we do fits with our strategic objectives over timetime

Architectures as Strategic EnablersArchitectures as Strategic EnablersD t ti th C tiD t ti th C tiDemonstrating the ConnectionDemonstrating the Connection

Enabling the Industrial CompetitionEnabling the Industrial Competition Enabling the Industrial Competition Enabling the Industrial Competition Framework Framework –– Connecting strategy Connecting strategy with partners/stakeholders, with partners/stakeholders,

Strategy

Organization

Process

Systems

products and servicesproducts and servicesg y

Data

Products and Services

Information and

Knowledge

Resources

Partners and StakeholdersDeveloping, managing & measuringg g g g

strategy with architectures:

• How to model, analyze & control supplier power, buyer power and titi i l M d l l h i t icompetitive rivalry: Model supply chain processes, costs, responsiveness,

geographic concentration. Run simulations and constrained optimization models. Plan for mergers and acquisitions.• How to model, analyze & control new entrants and substitutes: Model , yproducts and services, associations with substitutes and new products. Document costs, bill of materials, linkage to suppliers and competitors.


Enabling the ResourceEnabling the Resource--Based ViewBased View Enabling the ResourceEnabling the Resource Based View Based View Framework Framework –– Connecting strategy Connecting strategy with resourceswith resources

Strategy

Organization

Process

Systemsg y

Data


Information and

Knowledge

Resources

Partners and StakeholdersDeveloping, managing & measuring


How to model, analyze & control resources: Model and distinctly identify resources that are Valuable, Rare, Inimitable or Organization Support , , g ppDependent. Isolate those resources’ attributes, parameters and enablers.


Enabling the Core Competencies Enabling the Core Competencies g pg pFramework Framework –– Connecting strategy with Connecting strategy with capabilities, resources, knowledge, capabilities, resources, knowledge, processes management methods andprocesses management methods and

Strategy

Organization

Process

Systemsprocesses, management, methods and processes, management, methods and integrative practiceintegrative practice

g y

Data


Information and

Knowledge

Resources

Partners and StakeholdersDeveloping, managing & measuringp g, g g g


How to model, analyze & control resources: Model and isolate processes, products services information knowledge and resources and their attributesproducts, services, information, knowledge and resources and their attributes that renders them core competencies in that they are persistent, inimitable and return value to the customer.


Enabling the Balanced Scorecard Enabling the Balanced Scorecard ggFramework Framework –– Connecting strategy with Connecting strategy with financial performance, internal processes, financial performance, internal processes, customers and knowledge andcustomers and knowledge and

Strategy

Organization

Process

Systemscustomers and knowledge and customers and knowledge and performanceperformance

g y

Data


Information and

Knowledge

Resources



How to model, analyze & control resources: Model processes, information, knowledge and resources and customer/partner interactions Isolate theknowledge and resources and customer/partner interactions. Isolate the financial and non-financial parameters that can be captured as attributes of those components. Measure, analyze and act/react to support firm strategy.


Enabling the Activity Mapping Technique Enabling the Activity Mapping Technique --g y pp g qg y pp g qConnecting strategy with business Connecting strategy with business activities and isolating the attributes of activities and isolating the attributes of those activities that make them fit thethose activities that make them fit the

Strategy

Organization

Process

Systemsthose activities that make them fit the those activities that make them fit the firm’s objectives firm’s objectives

g y

Data


Information and

Knowledge

Resources



How to model, analyze & control resources: Model activities and their attributes Explicitly link strategy to activities & activity attributesattributes. Explicitly link strategy to activities & activity attributes.


Enabling the Value Chain Analysis Enabling the Value Chain Analysis g yg yTechnique Technique -- Connecting strategy with Connecting strategy with value added activities. Identifies costs value added activities. Identifies costs and value drivers for each primary &and value drivers for each primary &

Strategy

Organization

Process

Systemsand value drivers for each primary & and value drivers for each primary & supporting activity.supporting activity.

g y

Data


Information and

Knowledge

Resources



How to model, analyze & control resources: Model activities and their cost and value attributes Explicitly link strategic objectives to activities & activityand value attributes. Explicitly link strategic objectives to activities & activity cost and value attributes.


Architecting the Enterprise Strategic Plan Architecting the Enterprise Strategic Plan -- MissionVisiong p gg p g

Build a corporate strategic plan that links Build a corporate strategic plan that links to business line/division, departmental to business line/division, departmental and partner plansand partner plans

VisionGoals

ObjectivesKPIs Benchmarks

Strategic Alignmentand partner plans. and partner plans. Strategy

Organization

Process

Systems

Strategic Alignment

Data


Information and

Knowledge

Resources

Partners and Stakeholders

Developing, managing & measuringstrategy with architectures:

How to model, analyze & control resources: Model strategic plans at successive organizational hierarchy levels. Align mission, vision, goals, objectives, KPIs, and benchmarks organizationally. Also link and align with processes, systems, organizations, resources, products, services, information & k l d t d t k h ld d d t& knowledge, partners and stakeholders and data.

Cit tiCit tiCitationsCitations Kaplan, R. S. and Norton, D. (1992). The Balanced Scorecard - Measures

that Drive Performance" Harvard Business Review February 1992that Drive Performance , Harvard Business Review, February 1992. Lean Aerospace Initiative (LAI). (2006). Enterprise Architecture Motivation.”

MIT-MITRE Joint Research Program. Porter, M. E. (1998). Competitive Strategy: Techniques for Analyzing

Industries and Competitors Free Press 1 editionIndustries and Competitors. Free Press, 1 edition. Porter, M.E. (1979) How competitive forces shape strategy, Harvard business

Review, March/April 1979. Porter, M. E. (1996). What is strategy? Harvard Business Review, November-

December 61-78December, 61-78. Prahalad, C.K. and Hamel, G. (1990) The core competence of the

corporation, Harvard Business Review. pp. 79–91. Schneiderman, A. (1987). “The First Balanced Scorecard.” Analog Devices.

W f lt B (1984) "A b d i f th fi " St t i Wernerfelt, B. (1984), "A resource-based view of the firm". Strategic Management Journal, Vol.5, pp.171–180

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