Business alignment
> If done right, it can bring about higher performance
RECENTLY, there was a call for an EGM by a group of disgruntled unit holders of a Real Estate Investment Trust (REIT) firm in Singapore. Inevitably, it is about the fees that the beleaguered REIT has been paying its manager, even though the REIT’s distributions per unit (DPUs) have dropped. The dissatisfaction among unit holders stems not just from the fees that the manager has been collecting, but from the fact that it has been doing so even as unit holders have been losing money. The questions are: What are to be considered for sizing up a REIT? Have standards shifted for REITs over the years? How can key processes, in this case of managing a REIT, be cost optimised so as to satisfy the unit holders by charging lower fees as demanded? The last question is what this article aims to discuss: Is there a mismatch of the REIT unit holders’ expectation (investment return) and the performance of the managers? Obviously, there is a misalignment of business objectives and performance.
Business alignment is the process and the result of linking an organisation's structure and resources with its strategy and business environment (regulatory, physical, etc). If it is done well, business alignment can bring about higher performance by optimising the contributions of people, processes, and inputs to the realisation of measurable objectives and, thus, minimising waste and misdirection of effort and resources to unintended or unspecified purposes.
In the modern, global business environment, business alignment should be viewed broadly as encompassing not only the human and other resources within any particular organisation but also across organisations with complementary objectives (i.e., performance/business partners). However, not all crossorganisational and inter-functional collaborations are value-adding. This is highlighted in the article “Collaborative Overload” by Rob Cross, Reb Rebele and Adam Grant in Harvard Business Review (HBR) issue of Jan-Feb 2016 that in most cases of the 300 organisations surveyed by them, 20-35% of value-added collaborations have come from only 35% of employees.
On one hand, there has been much rhetoric about data analytics. On the other hand, the processes that make use of the data are equally, if not more important to the business alignment efforts. There are data aplenty in transactional information systems (e.g. Enterprise resource planning systems, supply chain management systems). The data/information in these systems are rarely used to analyse the underlying processes. Process mining is the act of discovering process, control, data, organisational and social structures from transaction data. Its main purpose is to diagnose business processes by mining data/ information for knowledge. Process mining is therefore used to do “reality check” – measuring the business alignment by comparing the real behaviour of a business process or its managers/users, with the intended expectations.
Knowing the values of the business processes is just an initial step towards business alignment. We are familiar with Porterian Value Chain as a set of activities that an enterprise performs in order to deliver a valuable product for the market. It is based on the process view of that whole enterprise and its partners. It is about seeing a manufacturing (or service) organisation as a system, made up of subsystems – each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources (e.g. finance, talent, materials, equipment). The overall costs and final profit (if any) are determined by these activities.
However, the classic value-chain model has been challenged by iPhone’s rapid burst onto the mobile-phone scene and its phenomenal success in gaining 90% of global market share by 2015. Apple is not merely an efficient “pipeline” where inputs at one end of the chain undergo value-adding processes are transformed into finished products (iPhones). When it is combined with the App Store, the marketplace that connects app developers and consumers (iPhone owners), it becomes a platform. Van Alstyne, Parker and Choudary in their article “Pipelines, Platforms, and the New Rules of Strategy” in the HBR issue of April 2016, attributes the success of Apple to the power of network effects of its platform.
For instance, the network of producers and consumers is the key asset of a platform. The community and the resources its members own and contribute are the valuable asset that others may find hard to copy, according to the resourcebased view (RBV) of competition. The RBV of competition is that businesses gain advantage by leveraging on scarce and valuable, not easily imitable assets and/or capabilities. But, badly managed platforms can diminish the network effects. For examples, producers may lure the consumers away from the platform to their own, unconstrained network growth can discourage participation, misbehaviours of certain members of the ecosystem can erode trust and brand equity.
When the only constant is change in many organisations, new processes are emerging and existing processes are changing. To “maintain the fit”, the alignment of business processes, information systems and business objectives require continuous attention by managers. To “create the fit”, it is utmost critical to monitor the actual business landscape and the behaviour of the people in the organisation. In practice, business alignment, thus business success, is secured through creating and maintaining the fit.