Abstract

As companies strive to build a competitive advantage in a world obsessed with Digitalization, they find that it's all about getting products out the door. Their top people must be able to transform the organization into a more Agile delivery model, where both speed and quality are achieved. That means a fundamental change in leadership culture, and executives need to get their hands dirty in the strategic building of an organization made for Product Development Flow.

Idea in brief

The problem

To thrive in our increasingly complex world, companies must challenge their existing structures and rethink what they do to create value. But most remain in a far too complex setup to allow frequent product releases with short feedback loops. A Value Network in constant movement characterizes the new digital age, and long-term planning and big deliveries are not an option.

The way forward 

Executives at the highest decision-making level must understand how an organization built around value should operate and create the prerequisite for a customer-focused Value Network with the power to adapt. The responsibility to develop the fundamental structures that control the responsibility and scope of Value Streams typically belongs to the board.

The steps to follow

The complexity dilemma in organizational design is the same as in IT systems design, and IT architects have since long mastered the various patterns that prevent complex systems from collapsing. This article will touch on typical challenges when transforming a business and how Enterprise Modularization can reduce the complexity of legacy structure to enable success in the new digital era. Executives need to take advantage of well-known architectural patterns and enforce forms relevant to the Digital Age.

Background

Organizations that produce complex cyber-physical systems increasingly have to compete with advanced digital services. New concepts are continuously emerging, and for example, Industry 4.0 is an established description of the Value Networks replacing traditional hierarchical structures. The concepts are opening up for new business models, and new actors with less legacy are just around the corner to challenge the incumbents. No one can be surprised when disruptive innovation will play faster than ever in the digital age.

The new technological landscape is a well-known fact covered in many articles and books. Still, many organizations have a leadership that has difficulty adjusting, and Mik Kersten gives one of the most distinct descriptions.

"Organizations that manage IT delivery as projects instead of products are using managerial principles from two ages ago and cannot expect those approaches to be adequate for succeeding in this one. Visionary organizations are creating and managing their Value Stream Networks and product portfolios to leapfrog their competition in the Age of Software."
― Mik Kersten, Project to Product: How to Survive and Thrive in the Age of Digital Disruption with the Flow Framework

The long tale of legacy

Naturally, large organizations that produce complex products have the most significant challenges. Under the hood of these organizations, there are many systems to support the operational value streams. All tighs together in a product structure which is the backbone for making it all work in the supply chain, production, development, finance, sales, distribution, and aftermarket. Especially companies with long-lived consumer products have a substantial legacy of supporting systems.

The most prevalent supporting system is the ERP system needed in all organizations. On top of the built-in functionality, an ERP system can have numerous system integrations and adaptions associated with internal working procedures. Maintaining, developing, and sometimes replacing an ERP system can consume a lot of effort with internal and external resources. How long time does it to adapt the ERP to a new business model in your organization?

The image below shows the generic Value Creation Structure of any product-developing organization. The model is a summary of Value Streams and Systems. The latter in yellow is divided in

• The Product; usually is a wide range of systems facing the customer. New products are continuously presented in the competing market simultaneously as existing products need to be maintained.

• The internal Product Development platform is closely connected to the Product and is sometimes maintained by the same people as in the Product Development Value Stream.

• All other supporting systems for development and operations construct the long tail of legacy that occasionally gets disconnected from the Product.

When governing an organization that develops end-user products, all levels of the Value Creation Structure must be considered. The crucial connection between Product Development Value Streams and Supporting Development Value Streams is challenging to manage and often not understood.

To counter the market competition, the long tail of support systems needs to be in shape, which requires continues upgrades. The technical perspective, such as Life Cycle Management, security, and system integration, give many reasons why existing systems must be invested in. Unfortunately, the structural and cultural view of working procedures is a significantly more complex scope than the technical one. It involves the thinking of a company's product offering and the tacit knowledge any organization has built up.

Companies generally understand the urgency to have a structure including support systems up to speed. The big question is: "How can we know how our future support systems should work when it is unknown what the future products look like?" And they start to investigate what future infrastructure they need. Meanwhile, the market is adapting faster and faster.

Many companies do invest in transforming how their infrastructure is maintained and developed. Many success stories show how Lean, Agile, and DevOps have reduced lead time, increased quality, and other business benefits. Regardless of how well you succeed in improving system development, the tale of legacy is, in most cases, far too long to manage a Value Stream Network and achieve Business Agility.

Cadence and Sync

If you have been involved in an Agile transformation, you have likely seen the struggle to deliver working Features within a short period. It can be hard enough for an Agile Release Train to finalize Features within a Program Increment. But, in a sizeable Lean-Agile organization, the ability to quickly deliver working Features across several domains in multiple Release Trains is needed to accomplish Cadence and Sync.

There is an end-to-end flow for any Feature. From the starting point of development to the delivery where value may be utilized. There may be islands in the flow where mature Agile teams do an excellent job. But as long as the teams cannot observe and influence the entire end-to-end flow, teams will lose the context of their delivery.

Cadence and Sync is the way to create alignment through short feedback loops that provide the necessary learning. Without fast and frequent feedback, the dream of Business Agility flies out the window.

The following image demonstrates a typical mature scenario where the development of the Product, including the development platform, has reached Cadence and Sync. The Supporting Systems are still scattered in different development models and are far from reaching any Cadance and Sync.

You may think that the Supporting Systems is a platform with a well-defined interface that does not need to be in Sync with Product Development. Then imagine a consumer product that has:

• retail and service shops worldwide,

• 100 variants,

• 30,000 physical parts,

• One thousand suppliers and five factories.

• one million lines of code in distributed in 30 embedded computers,

• emerging digital services,

• 100 critical integrated supporting systems,

• a hurried need for a new product and pricing structure.

Does your organization have an overview of what systems need to be developed in Cadence and Sync to benefit from full feedback in your Value Stream Network?

Modularization

Modularization is not a new invention, nor is it unknown. It is a prerequisite for making it all work in many industries, like the automotive with its large clusters of component suppliers.

An improved Product Development Flow in a large complex organization can not only be based on reshaping the organization and within the existing company.

The solution for an improved Product Development Flow in a very enterprise setup cannot only be to work harder on defining Value Streams and improve ways of working.

The problem with a complex monolith organization is, in principle, the same as system architecture.

When speaking about enterprise modularity, it seems as if it is something owned by IT.

Modularized architecture is not something that solely belongs to IT, it is as important for Business Architecture.

Instead, a macro-level view of Value Streams and Modularized Business Entities can clarify business structures and create better options for a successful Lean enterprise.

Modularization with viable business interfaces will reduce the complexity and remove the limitations any system ultimately will reach. The strategic forming of new business entities requires decisions on the highest level of authority and must be supported by business architecture competency.

The figure below shows the high-level structure of two businesses where the flow of value a forced to take very different routes. There are Operational Value Streams (OVS), Development Value Streams (DVS), and the Supporting Systems and Products needed for development and operations in both alternatives.

Any business is built on Operational Value Streams (OVS), Development Value Streams (DVS), and the Supporting Systems and Products needed for development and operations.

Executives on enterprise-level and below continuously put a lot of effort into improvement programs. Consultants are hired, change initiatives are launched, the staff is trained, and much more is done.

and making sure structures are flexible and may be adapted afterward.

Succeed with the projects that are always the top decisions and

Regardless of Agile team performance, the Development Value Streams are too long and too far away from where the customer actions are.

The uncertainty of features of a system that can support the development and execution of a business with complex products is high and no one knows how to specify the systems.

By taking a high-level view of value streams in a typical automotive business we can explore the challenges in business architecture.

The human side of Modularization

Managers want to be a part of an organization that faces a new market. Where the money is

The role is to serve not to rule the customer-facing

Monolith enterprise with Value Streams & Systems

The concept of value streams can help to understand how an enterprise operates.

An enterprise in the automotive market has operational Value Streams much the same as any product-oriented business. However, the Product is complex with eager competitors, a global market, long life, demanding customers, regulations, and more.

Therefore, the systems supporting the operational systems are also very complex and integrated with internal and external systems and the car, which in itself is the most important system.

The development of the car and the supporting systems are two separate value streams with different characteristics. Nevertheless, the Value streams are very interdependent and steered towards the same objectives.

Selling new digital services in completely different channels and business models than in the past requires supporting systems with other structures and flexibility than in the past.

In one monolith enterprise, the lead time for creating the required new structures is far too long compared to what speed of the market.

Modularized business models

We have seen this happen in many industries before. Telecom may be the clearest example of infrastructure providers, operators, and then Google and Apple at the top. Also, the automotive business has modularization in its blood and the industry is based on component suppliers that work for a multitude of brands. But will the brand owners be able to take the next leap to the top of the value pyramid, or will they become a commodity?

Modularized enterprise with Value Streams & Systems

To modularize a large business and work with a well-defined interface between the basic Product and the customer-facing digital services would create many advantages.

The base component may develop a container interface to make it possible for the satellite component to deploy and execute code inside the car. Just as cloud computing, where servers provide containers.

Services based on the in-car purchases will drive new revenue streams and partnerships.

The classic architectural principle of low coupling and high cohesion can be used for driving organizational design.

Conway's law is another applicable guide for understanding how the organization and products should be set up.

Advantages of a Modularized enterprise

To modularize a large business and work with a well-defined interface between the basic Product and the customer-facing digital services would create many advantages.

• Separate ERP systems that can support different business models

• Time to invest in quality rather than rebuilding the structure of legacy systems

• Possible to create fast end-to-end customer delivery and feedback

• Shorter time to market

• Keep structures and make sure there is time for quality enhancements

More choices

Separate decision making

Different drivers

Flexibility

Clear and open dependencies

Goals and strategy

Adaptability

Mer passande architecture

Decentralizing

Grundare hierarchy

Everyone is working closer to the end business case

Smaller "tribes" with collaboration on the right level

Isolate failure

Understand business drivers

Separate compliance responsibility

The right decision level

The power needed to rebuild fundamental organizational structures belongs to the highest decision-making level. Determination to form new business entities is often for the board to engage in organizational design and decide about the business model and principles for operations.

Unfortunately, board members seldom engage in business architecture, nor do they have the expertise to model and explore alternatives. Their alternative is to expand strategic authority for the C-level and to reshape business structures.

The power needed to rebuild fundamental organizational structures belongs to the highest decision-making level. The board is usually determined to form new business entities to engage in organizational design and decide about the business model and principles for operations.

Unfortunately, board members seldom engage in business architecture, nor do they have the expertise to model and explore alternatives. Their alternative is to expand the C-level's strategic authority and reshape business structures.

It requires skills in Business Architecture, a mandate to make strategic decisions, and the guts to do it.

Waste of investment

Coaches running around helping to coach individuals and teams, facilitate and training.

Not saying it's going bad. Many nice things are emerging, and people are happier, and organizations can measure their progress. But compared to the reachable outcomes, what we celebrate is far from….

Summary

References

https://www.pega.com/insights/articles/applying-microservices-principles-your-business-architecture

https://en.wikipedia.org/wiki/Organizational_architecture

https://en.wikipedia.org/wiki/Federated_architecture

Disruptive innovation

Organize for Complexity, Niels Pflaeging

Project to Product, Mik Kersten

Principles of Product Development Flow, Don Reinertsen

Brave new work, Aron Dignan

Old

Regardless of excellency in transforming into Lean-Agile development, the burden of the legacy structure is a strategic obstacle that inhibits execution in cadence and synchronization. Thus, removing the benefits of enabling short feedback cycles as the underlying idea in Lean and Agile.

The enterprises that have been around for a while, normally have plenty of legacies, both technical and structural. The legacy is hindering business agility because the systems are not designed for the complex area of digital services.

Enterprise and business architecture frameworks offer little support for the high-level models needed. The frameworks seldom cover strategic relations and interfaces between entities within a corporate group.

An Enterprise's foundational structure, Macro Structure, is the strategic prerequisite that controls the workings of an organization. form Business Models, Value Streams, and other fundamentals needed to develop and operate a business.

Industries like Automotive, Aircraft, Aerospace, Defense, and more have an increasing need to deliver with both speed and quality.

Compliance is another field ta

But, there is no time to investigate new operative structures or how the supporting systems should work.

To unleash innovation and create new attractive products, it is not just the product development in itself that must become faster and more reliable.

At most companies, IT support for business processes has been cobbled together in a series of unrelated IT projects. Some projects build application silos; others link them together. The result is a highly inflexible IT architecture. Most IT and business executives agree that a more modular architecture—where IT-enabled business processes are plug-and-play components that can be used to meet changing business demands—provides far more capability for companies to grow rapidly and profitably. But inflexible legacy systems and processes are impeding progress in building modular IT and business capabilities. Firms wanting to move toward a modular enterprise architecture face a multi-year evolutionary process.2 Building modular capabilities is a gradual process and is often slowed down by the tendency to invest in immediate business needs rather than long-term capabilities. As a consequence, few companies have achieved a modular IT and business environment.