By Myles Suer, #CIOChat Facilitator, CIO.com Contributor, and Dell Boomi Head of Global Enterprise Marketing
As enterprise architecture has developed as a discipline over the last 25 years, it has borrowed significantly from business strategy. Given this, it is important to recognize and understand the business strategy underpinnings of enterprise architecture. A great example is the “Creating the Corporate Future” (1981) written by strategic, systems thinker Russell Ackoff. This article will share some of the key insights from the book that were building blocks of enterprise architecture, so you can be an even better enterprise architect and strategic thinker.
From Machine Age to Systems Age
Ackoff shares in his book that much of the 20th century thinking was centered around machine age thinking. The machine age was about analysis, reductionism, and determinism. It worked well during the industrial revolution which was founded around the concepts of work and machine. The aim here was to analyze work and reduce it to its core elements. Sounds a bit like historical IT operations. Specifically, the role of the analyst was to design and reduce work to elementary tasks that were simple enough to be done by machines. Here work was dehumanized because humans were effectively reduced to behaving like machines that operated.
With the move to the later 20th century, post-industrial age began with the systems thinking at its core. The initiating dilemma for this change was that not all problems could be solved by the prevailing world view, analysis. It is unfortunate to think about the number of MBAs that were graduated with callus analysis at their core. As enterprise architects know, when a system is taken apart, it loses its essential properties. A system is a whole that cannot be understood through analysis. What is needed instead is a synthesis or the putting together things together. In sum, analysis focuses on structure whereas synthesis focuses on why things operate as they do.
A New Concept of the Corporation
At the beginning of the industrial age, the corporation was viewed as a legal mechanism and as a machine. However, in the post-industrial age, Ackoff suggests a new view of the corporation. He suggests a view of the corporation as a purposefully system that is part of more purposeful systems and parts of which, people, have purposes on their own. Here leaders need to be aware of the interactions of corporations at the societal, organizational, and individual level. At the same time, they need to realize how an organizations parts affect the system and how external systems affect the system. Given this, Ackoff suggested a stakeholder view of the firm which at minimum considers employees, debtors, consumers, government, investors and lenders, and suppliers. Here the following types exchanges occur:
- The corporation exchanges money for work with employees
- The corporation exchanges money for goods and services with suppliers
- The corporation exchanges goods and services for money with customers
- The corporation exchanges money paid later for money now with investors and lenders
- The corporation exchanges money paid now for money paid later with debtors
- The corporation exchanges money for goods, services, and regulation with government
In this model, a corporation does two things, it consumes and makes consumption possible. And the wealth produced by the corporation is the difference between the consumption it makes possible and its own consumption. While wealth is one function of the corporation, its societal function is the distribution of income through which consumption is made possible. From a societal view, employment is the principal means by which income is distributed in industrial societies. And where corporations fail at this like during a recession or during the COVID 19 crisis, governments have no alternative to take over all or part of this. Importantly, Ackoff suggests the costs to society of having governments distribute income are generally larger than that of having it primarily done by private corporations. At the same time, corporations have a social responsibility not merely to distributing wealth, but for doing so equitably. Many have asked recently how well corporations are doing at this societal aim. In sum, a systems view of corporation holds that the corporation is an instrument of all its stakeholders and a corporation is purposefully capable of selecting its own objectives and the means for pursuing them.
Changing Concept of Planning
Ackoff reviews different styles of planning and the impacts of planning styles on enterprise longevity. These include the following:
- Reactivism: Aims to return to a previous state by unmaking relevant internal changes
- Inactivism: Tries to prevent change. Aims for stability and survival
- Preactivism: Seeks to accelerate change and exploit the opportunities that it brings
- Interactivism: Tries to not return to a previous state, to not settle for things as they are, and to not accept the future that appears to confront them
Ackoff goes onto define planning type different planning modalities. In the organizations that I have been a part of these distinctions have been rarely clear. Here are the definitions: operational planning (selecting means for pursuing goals); tactical plan (consists of selecting means and goals for pursuing objectives); strategic planning (selecting means, goals, and objectives); and normative planning (selection of means, goals, objectives, and ideals).
In the end, Ackoff suggests organizations pursue interactive planning which consists of five steps:
- Formulating the mess: determining the system of threats and opportunities
- Ends planning: specify the ends to be pursued
- Means planning: selecting the means by which the specified ends are achieved
- Resource planning: determining what resources will be required to support the means
- Implementation and control: determining who is to do what, when, where, and how
Formulating The Means
The aim of formulating the mess is to identify concealed threats and suggest changes that can increase the corporation’s ability to survive and thrive. This involves three tasks: 1) systems analysis (a detailed description of the state of the corporation, how it operates, and how it affects and is affected by its larger environment); 2) obstruction analysis (identifying and defining the obstructions to corporate development); and 3) reference projections (extrapolations forward of corporate performance). I believe that enterprise architects often are involved in considering all three.
Ends planning consists of three things: goals (ends that can be obtained with in the period); Objectives (ends expected to be obtained after the planned period); and ideals (ends that are believed to be unobtainable, but toward which progress is believed to be possible). As part of ends planning, an organization should select a mission—a purpose that integrates a variety of roles that the corporate system plays.
As part of this, you should define a company’s management systems and how well that they work or do not work. Here, Ackoff discusses modeling. He suggests that the performance of any systems has a specified relationship between controlled and uncontrolled variables. For Ackoff, controlled variables include the number of people employed, the amount spent on materials, etc. Uncontrolled variables are the weather, the economy, the cost of labor, competitive behavior, and consumer behavior. With these consider, Ackoff suggests enterprise leaders seek to model enterprise problems in order to create optimal solutions. Ackoff stresses it is critical to remember in this process that models are simplifications of reality and seldom contain all the relevant variables.
Ackoff does something in amazing when it comes to financial planning. He considers finances rather than as pieces parts as a system and suggests that planning take place for earnings per share, dividends per share, return on investments, profits per unit sold, capital availability, debt to equity ratios, and market shares. As part of this, he suggests organizations model capital requirements, capital availability, costs and expenses, and sales. The open question is how many organizations actually do this. I think it is likely zero.
Ackoff’s insights have significant value for strategy leaders and enterprise architects. His key insights include that organizations and corporations are purposeful system that contain purposeful parts and are themselves part of larger purposeful systems. For these purposeful systems, planning should not be to resurrect the past or to prepare for a predicted future. Instead, planning should consist of the design of a desirable future and the invention of ways to bring that future about. As well as perceiving DevOps, Ackoff says that planning should be continuous and consider the interaction between the parts of the organization and the five phases of interactive process.
Myles Suer, according to LeadTails, is the 9th leading influencer of CIOs. He is the facilitator for the #CIOChat. The chat has executive level participants from around the world in a mix of industries including banking, insurance, education, and government. Mr. Suer also has a weekly column at CIO.com (The Adaptive CIO) and has had his articles published in ComputerWorld, Innovation Enterprise, and COBIT Focus. He also heads global enterprise marketing at Boomi.