Milestone Group Quarterly: April 2005

Articles

• Face to Face: Kim Polese, CEO of Spikesource
• Investment Viewpoint: Stephen J. Harrick, Managing Director & General Partner, Institutional Venture Partners (IVP)
• By Invitation: John Seely Brown & John Hagel, III - IT Platforms for Business Innovation
• Milestone POV: Kathleen Gilligan on Aligning Sales Vision and Process

By Invitation:

John Seely Brown & John Hagel, III - IT Platforms for Business Innovation

Business executives are facing increasing pressure to innovate and deliver more value to their customers. Until recently, though, they have tended to view IT as a constraint on business innovation. Hard-wired applications and connections across application silos made it very difficult, expensive and time consuming to modify business practices and processes, especially if they extended across enterprise boundaries. Fortunately, that barrier to business innovation is now giving way as new generations of IT become available.

Two broad IT developments - new architectures and new tools - are converging to enhance the potential for information technology to support capability building and innovation across enterprises.(1) New information technology architectures in the form of virtualization and service-oriented architectures are emerging. In parallel, we are seeing the development of interaction tools like social software, e-learning platforms and more versatile voice and video networks and access devices that will help to connect people

Each of developments - new architectures and new tools - is powerful in its own right but, as we will see later, they become even more powerful when they come together. These new architectures and tools are significant for two reasons. First, they help executives to more effectively access and mobilize people and resources distributed across enterprise boundaries. Second, they amplify the potential for capability building and innovation across enterprise boundaries.

These architectures and tools become even more powerful when they come together to support business initiatives. Given this ability to reinforce each other, it is remarkable that distinct communities in the technology world are championing each of these technology elements and that these communities rarely talk to each other. In some cases, they are barely aware of each other.

Loose coupling - the architectural foundation for coordination and innovation

Both virtualization architectures and SOA’s embrace the concept of loose coupling as a key design principle in establishing connections across technology resources. Loose coupling takes modular design one step further - it creates interfaces to modules using ubiquitous standards like Web service to provide users with all the information they require to discover what the module can do and to access this functionality. Loose coupling has many virtues. The reason loose coupling is attracting so much attention now is that it offers the potential to establish more flexible and lower cost connections across existing technology resources. This is very attractive to business executives who have invested large sums in technology platforms that are difficult to connect together and, once connected, are even more challenging to modify. Using loose coupling techniques, they now have an opportunity to make existing resources more accessible, generating more business value from the technology investments they have already made.

But there’s another, less obvious (at least at the outset), value to loose coupling. It provides a powerful enabler for business innovation at two levels. First, by enhancing the ability to connect existing resources, it provides an opportunity for businesses to create new value by recombining resources. A lot of business innovation in fact comes from this kind of recombination. This is especially powerful across enterprise boundaries. With these loosely coupled architectures, companies will now have an opportunity to access and assemble resources from diverse enterprises in ways that create more value for customers.

Second, loose coupling makes it easier to experiment with new ways of doing things at the local level. By implementing each resource as a service with standardized interfaces, it reduces the risk that changes in practices at the local level will ripple across modules and create unintended consequences in other areas. This will enhance incremental innovation capabilities by supporting rapid prototyping of new products, business process redesigns and even new business models and reducing concerns about potential disruption of existing business activities. As we will see below, it will also enhance the ability of local work groups to experiment and improvise, leading to more innovation.

Reversing the evolutionary path of technology architectures

Historically, information technologies have evolved from deep inside the enterprise to the edges of the enterprise. Think back to the deployment of hierarchical mainframe architectures centralized within the "glass house". These were replaced by more distributed client server architectures, often deployed by departments within the enterprise.

We are now seeing technology architectures evolve in a different direction - rather than continuing to proceed "inside-out," these architectures are evolving from the "outside-in." This is particularly the case with service-oriented architectures arising out of early deployments of Web services technology focused on connecting applications across enterprises.

In fact, these service-oriented architectures are uniquely equipped to deal with the extreme challenges involved in connecting distributed and very heterogeneous technology resources operated by multiple enterprises. On another level, however, these architectures will need to develop more robust(2) ways of handling the requirements of the long-lived, loosely coupled, asynchronous transactions that tend to prevail across enterprise boundaries. In this context, we anticipate that service grids, consisting of loosely coupled federations of enabling services ranging from messaging and data conversion to security and performance monitoring, will play a significant role in making connections across enterprises more robust. As these new architectures evolve from the "outside-in", they will begin by transforming the way enterprises connect with each other and then reorganize the technology resources operated within the enterprise.(3)

Bringing people back in - mobilizing resources to collaborate on demand

Flexible access to computing resources is only part of the answer. So far, information technology has largely focused on automating the formal and authorized processes of the enterprise. It has been much less helpful in supporting the emergent practices and accessing the underlying knowledge that is the real engine of business innovation. Practices and knowledge reside in people, not in data or process flow charts. By concentrating on standardizing and automating processes, information technology has sought to minimize the role of people. We have seen the business innovation pendulum swing heavily in the direction of process design and support over the past couple of decades. It is time to create more balance by effectively accessing and leveraging the practices and knowledge that only people can provide - and new technology is becoming available to support this effort.

Three categories of technology are converging to make it easier and more effective to bring people with their practices and knowledge back in to the equation. Social software, e-learning tools and new access devices combined with versatile voice, video and data networks are helping to amplify the opportunities for groups of people to "collaborate on demand" and to develop more effective practices based on real-time problem-solving. In fact, without focusing on enhancing the ability to "collaborate on demand," the broader potential of business on demand or business agility will be difficult to realize.

Social software has been around in early forms for quite some time, but it is now developing much more robust capabilities to help connect the right people at relevant times, provide them with collaboration tools and create records of interactions that can generate insight regarding opportunities for innovation. Social software includes such traditional tools as e-mail (especially when enhanced by group lists) and bulletin boards as well as more recent innovations like instant messaging (in business environments), blogs (in their collaborative applications), wikis (collaborative workspaces) and social network analysis tools. SOA’s enhance the potential of social software by making it easier to connect social software tools with existing software resources like databases, electronic documents (for example, CAD/CAM drawings for complex systems) and analytic tools to enhance the problem solving among the people mobilized by the social software.

Companies are just now beginning to deploy social software to support exception handling in their business processes. Exceptions are the big secret underbelly of the massive enterprise applications implemented over the past couple of decades. In their quest for standardization, these applications generate large numbers of exceptions that must be handled by people. In fact, in many operational areas of the enterprise, exception handling has become one of the largest sources of operating expense. It also represents a major source of inefficiency.

Often, the right people to handle the exception cannot be identified. Where they can be identified, significant time is consumed trying to access them and bring them together (since one person is rarely sufficient to resolve one of these exceptions). More time and effort is consumed in providing these people with relevant information and analytical tools to come up with an effective resolution. In particular, effective resolution of these exceptions requires a rich understanding by all the stakeholders of the context at the time of the exception. Often, by the time the exception is addressed, the key elements of the context have been lost.

Once the resolution has been reached, record of it is too often lost so that, the next time the same exception arises, the entire resolution scramble must be repeated from scratch. This is not only highly inefficient; it also limits a major source of business innovation. Exceptions are a rich seedbed for business innovation. They force employees to address unexpected challenges and opportunities and to push their practices into new directions. Ultimately, if specific exceptions reoccur frequently enough, they often lead to significant refinements in business processes themselves.

Social software can take exception handling and transform it at two levels. First, it can provide the tools to help accelerate and reduce the cost of exception handling, especially when the people required to resolve the exception are geographically distributed. Secondly, it can help to create a repository documenting the exceptions, the people involved in resolving the exceptions and the resolutions themselves. This repository can become an extremely valuable resource to disseminate business innovations based on the accumulated experience developed in handling a broad range of exceptions. These capabilities are valuable in all business settings, but especially across geographically distributed enterprises where the challenges of bringing people quickly together and capturing the learning from these interactions can be especially severe.

Appropriately implemented, SOA’s rely heavily on electronic documents for coordinating resources. These documents can play a significant role in supporting exception handling by providing valuable information regarding the context of the breakdown (e.g., the process history). This information is available in a form that is both machine readable and readable by people, helping to bring computing resources and people more closely together. With a richer context available at the time of problem solving, the opportunity for innovative business solutions increases.

Re-shaping approaches to innovation

Traditional hard-wired IT architectures make it expensive and difficult to support smaller, incremental modifications to business practices. As a result, these architectures encourage executives to support "big bang" approaches to IT spending. Small changes to the IT architecture are so challenging that it is difficult to justify these efforts. On the other hand, major business initiatives with very large pay-offs often can overcome the significant organizational inertia created by these IT architectures. There is only one problem: "big bang" approaches to IT spending rarely deliver on their expected pay-offs. Companies poured billions of dollars into enterprise application projects and Internet initiatives designed to transform the business, discovering to their dismay that the returns were smaller, longer in coming and far more uncertain than they had anticipated.

Large-scale transformational projects require massive resources to execute, but the returns are usually so far down the road that it is difficult to sustain the organizational commitment and momentum necessary to deliver the returns. Even where this commitment and momentum can be sustained, these projects often founder in terms of lack of adequate understanding of how work really gets done or inability to adapt rapidly to changing market conditions.

Rapid incremental waves of business innovation, shaped by clear near-term operational performance milestones, are generally much more effective in delivering real business value from IT investments. The new IT architectures and tools described above offer the potential to shift the focus away from "big bang" approaches to innovation in favor of a much more effective radical incrementalism.

John Seely Brown is the former Chief Scientist at Xerox - for more information, check out www.johnseelybrown.com. John Hagel, III is an independent management consultant - for more information, check out www.johnhagel.com. Their new book, The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization, will be published by Harvard Business School Press in May 2005.