By Jeanne Ross
Recent operational issues at Tesla Inc., the future-forward electric-car maker based in California, serve as a reminder that a great strategy is valuable only if a company is capable of executing that strategy. And whether or not a company can execute its strategy depends largely on whether it is designed to do so. In other words, it depends on business architecture — the way a company’s people, processes, systems, and data interact to deliver goods and services to customers.
As companies now develop digital strategies, they are invariably promising integrated customer solutions. These strategies will be especially difficult to execute because so many organizational elements must be synchronized to deliver an integrated solution. And it’s not just the number of organizational elements that makes digital strategy execution difficult. Speed matters. To keep pace with customer demands and competitor moves, companies must be able to quickly experiment with a potential offering and, depending on customer response, continuously enrich and scale that offering, or discard it and move on to the next experiment.
In other words, business architecture just became more important — and more difficult. In the pre-digital economy, business architecture most often focused on operational efficiency — designing seamless end-to-end business processes. That is no longer sufficient. In the digital economy, business architecture must also focus on agility — designing rapid reuse of individual business components.
Organizational agility won’t happen by accident. It must be architected.
Innovating at Speed Means Utilizing Empowered Teams
To facilitate speed, companies must design themselves to minimize the obstacles to getting work done. This requires empowering and supporting problem-solvers.
To this end, growing numbers of companies are creating small, cross-functional, agile teams. Each team owns delivery of a digital offering or a set of services contributing to an offering. Typically, teams clarify their own objectives and define their metrics for success.
Spotify AB, the digital music service, serves as a model for many companies’ forays into empowered teams. The Stockholm-based company relies on small teams, called squads, to deliver product features and related business components. Squads are assembled into tribes that provide major offerings and capabilities, such as online music offerings or services in support of artists or advertisers.
The concept of continuous release is essential to the effectiveness of empowered teams. At Spotify, squads release new digital features and offerings as quickly as they become viable rather than conform to scheduled release dates. Rapid innovation depends on teams learning quickly what does and doesn’t work. Empowered teams experiment, and the best teams learn how to rapidly respond to the outcomes of their experiments.
These teams don’t fear failure. In fact, critical to the concept of empowered teams is that when experiments fail, company managers do not assume responsibility for dictating how to fix things. Instead, they act as coaches, posing questions and eliciting hypotheses and expected outcomes.
Failed experiments are essential to learning. If an entire concept is deemed a failure, the team can be disbanded and reassigned to a new initiative. This helps to keep team formation fluid. Unlike traditional organizational structures, a design built on empowered teams is in a constant state of change.
The Critical Role of Alignment
Empowered teams invariably contribute innovation — and high energy — to companies. The challenge is ensuring that the efforts of individual teams align to achieve company-wide objectives. Our research at the MIT Center for Information Systems Research has identified three mechanisms for achieving alignment: (1) clear missions, (2) common business components, and (3) fruitful knowledge sharing.
Missions provide direction, both at the enterprise and at the individual team level. At the enterprise level, a clear mission or vision statement establishes priorities for the entire organization. It directs teams’ innovation efforts by clarifying the objectives of the company’s investments in resources. At the team level, mission statements define how the team will contribute to the company’s goals.
At Spotify, managers told us that the company defines a small set of “big bets” that establishes enterprise priorities based on beliefs managers derive from their data. Individual teams then state missions to help achieve the big bets. For example, the mission of a music delivery tribe is “providing fast and reliable access to all the world’s music.” The mission of an infrastructure tribe is “enabling high product development speed while maintaining a highly available service.” A clear mission will guide a team’s choice of metrics, so that the team can easily track its progress in contributing to the enterprise mission.
To respond to changes in customer needs or market conditions, companies can redefine missions at the enterprise or individual team level. Restating a mission enables a company to adjust priorities without necessarily requiring changes in organizational structures.
To ensure alignment across teams, companies need to embrace reuse. Reusable business components such as on-boarding processes, dashboarding, and payment systems, facilitate integration and speed. New business capabilities build on existing capabilities and provide consistency across offerings.
For example, the Dutch electronics company Philips is building digital offerings to enable seamless health care for its hospital clients in accordance with a vision to “build a healthier tomorrow.” To support this effort, an internal platform team reviews all propositions for new digital offerings to distinguish unique business needs from common needs. The team then establishes a road map to ensure that common business components are available when needed.
Technical standards are essential to business component reuse. Standards for application programming interface (API) development, for instance, ensure that teams approach development of their business components so that they are API-enabled and available through the company’s catalogue of internal services.
Finally, empowered teams depend on knowledge sharing to coordinate their activities and share their learning. It appears that when it comes to sharing knowledge, the more mechanisms a company deploys, the better.
Spotify relies on what it calls chapters, guilds, and agile coaches. Every Spotify squad member is assigned to a chapter, which is usually organized around a single competency, such as graphical design or back-end development. Chapter members meet to discuss issues and ideas specific to their roles, which leads to more coherent technical decisions. Guilds bring together people with common interests to share the latest discoveries in their domain and develop specialized skills. Agile coaches, who facilitate team dynamics, can recommend best practices observed in one squad to others.
Other companies rely on weekly stand-up meetings where teams inform each other — and other people in the company — about their deliverables and learning. And many companies provide collaboration tools for communicating within and across companies. These tools are designed to provide transparency and move away from command-and-control approaches that attempt to distribute information only on a need-to-know basis. Although initial attempts to provide transparency can lead to concerns of information overload, people on empowered teams eventually learn which people and tools are the most valuable — and therefore which to pay the most attention to.
Learning How to Architect Your Business
Most companies are still learning how to architect for efficiency. To do so, they must design people, processes, systems, and data that discipline their core operations.
As they learn to architect for efficiency, however, companies must also start learning how to architect for agility. This means designing empowered teams, as well as the systems, data, and processes that ensure the synchronization of individual teams’ efforts. These business architecture efforts will ultimately allow for rapid delivery of integrated customer solutions.
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This content was originally published by MIT Sloan Management Review. Original publishers retain all rights. It appears here for a limited time before automated archiving. By MIT Sloan Management Review