Half a dozen years ago the AGI-Goldratt Institute published a white paper in which it reported, “The core constraint of virtually every organization AGI-Goldratt Institute has worked with over the past 20+ years is that organizations are structured, measured, and managed in parts, rather than as a whole.”[1] That finding is not surprising and the organizations cited shouldn’t be faulted, because industrial age enterprises were specifically organized in silos (e.g., production, sales, marketing, administration, etc.). But as the white paper noted, that kind of industrial age thinking is a constraint on doing business. Overcoming siloed thinking is one of the primary reasons that organizations need to transform into digital enterprises. For years, I have been writing about the pitfalls of traditional business silos and how they create barriers to better information sharing and corporate alignment. The AGI- Goldratt Institute white paper details a few of the challenges that result from corporate silos:
“The results of this are lower than expected overall performance results, difficulties securing or maintaining a strategic advantage in the marketplace, financial hardships, seemingly constant firefighting, customer service expectations being rarely met, the constraint constantly shifting from one place to another, and chronic conflicts between people representing different parts of the organization, to name a few.”
The theory of constraints, which is the main focus of the white paper, recommends taking a holistic (or system of systems) approach to managing an organization. The underlying assumption of the theory is that a system can be no stronger than its weakest parts — they represent constraints to the organization as a whole. Part of the transformation from industrial-age organization to digital enterprise involves what Enterra Solutions® calls Enterprise Resilience Management?. This approach takes the kind of holistic look at an enterprise that AGI-Goldratt Institute paper insists is required. The white paper suggests taking five focusing steps. They are:
1. Identify the constraint.
2. Decide how to exploit the constraint.
3. Subordinate and synchronize everything else to the above decisions.To improve the performance of that same value-chain, continue:
4. Elevate the performance of the constraint.
5. If in any of the above steps the constraint has shifted, go back to Step 1.
Proponents of a strong Integrated Business Planning (IBP) process, whether they know it or not, are also proponents of the theory of constraints. A good IBP process helps break down silos and improves information sharing and corporate alignment —- which are also goals that emerge from the theory of constraints. In many ways, the theory of constraints parallels the Enterprise Resilience Management Methodology® (ERMM) pioneered and patented by Enterra Solutions® a number of years ago in collaboration with Carnegie Mellon University’s Software Engineering Institute. ERMM helps organizations identify their critical assets (that is, those assets that if lost would cripple the business), assess how well those assets are currently being protected, and develop a course of action to cover any shortfalls. As the AGI-Goldratt Institute whitepaper implies, part of addressing those shortfalls is eliminating corporate data silos. One of the best ways to do that is to implement a System of Insight powered by cognitive computing.
Enterra defines Cognitive Computing as Artificial Intelligence + Advanced Math + Natural Language Processing. The Enterra Enterprise Cognitive System™ (ECS) leverages Natural Language Processing and advanced cognitive reasoning to find strategic answers and inter-relationships that have not previously been auto-detectable. It forms the heart of the Enterra System of Insight and Actions™. The System of Insight is an IT layer that sits between a corporation’s Systems of Record and its external data. The actionable insights it generates can improve visibility, execute decisions, integrate data, and support corporate alignment. Better decision making is probably the most compelling reason for companies to transform into digital enterprises. Bain analysts, Michael C. Mankins and Lori Sherer (@lorisherer), note that decision making is one of the most important aspects of any business. “The best way to understand any company’s operations,” they write, “is to view them as a series of decisions.”[2] They explain:
“People in organizations make thousands of decisions every day. The decisions range from big, one-off strategic choices (such as where to locate the next multibillion-dollar plant) to everyday frontline decisions that add up to a lot of value over time (such as whether to suggest another purchase to a customer). In between those extremes are all the decisions that marketers, finance people, operations specialists and so on must make as they carry out their jobs week in and week out. We know from extensive research that decisions matter — a lot. Companies that make better decisions, make them faster and execute them more effectively than rivals nearly always turn in better financial performance. Not surprisingly, companies that employ advanced analytics to improve decision making and execution have the results to show for it.”
Advanced analytics is exactly what the System of Insight employs to make automated routine decisions and generate actionable insights that that help human decision makers improve their decision making. Ben Rossi (@BenRossi89) observes, “Two themes will shape the next five to ten years for businesses: digital transformation and new work styles. Becoming a digital enterprise means embracing the new ways people want to work and putting the customer at the center of your business. And companies and individuals alike will need to adapt to succeed in a digital economy.”[3] I’m not sure that people want to work in new ways (change is always unsettling); but, I believe new ways of working are going to emerge whether people are ready for them or not. Rossi notes, “We’re entering an age of disruption that extends beyond the technology industry.” In fact, few, if any, industries are going to remain untouched by digital transformation. “Right now,” Rossi writes, “companies across all industries are reinventing themselves through the strategic use of technology.” He concludes:
“The new trends driving demand and changing behavior outside your business are doing the same inside. New work styles have emerged, and supporting them is crucial. Today’s professionals expect to work from any device, anywhere they go. People who need to collaborate often span many organizations, posing all sorts of challenges for sharing and security. Enabling collaboration and mobility means moving to next-generation platforms built to support these new ways of working. Businesses can stick with legacy systems and older, slower ways of doing things, but their competition might not.”
Stated another way, enterprise resilience will only be achieved through digital transformation. Organizations failing to transform will likely find themselves in history’s dustbin. Transformation will not be easy. Change management is always difficult. To read more about the difficulties associated with change management, read my post entitled Change Management: On the Cusp of a Revolution? But, as the old adage goes, “I didn’t say it would be easy. I just said it would be worth it.”
Footnotes
[1] “The Theory of Constraints and its Thinking Processes: A Brief Introduction to TOC,” AGI-Goldratt Institute, 2009
[2] Michael C. Mankins and Lori Sherer, “Creating value through advanced analytics,” Bain Brief, 11 February 2015.
[3] Ben Rossi, “The digital imperative: why business transformation is essential,” Information Age, 18 January 2016.
