To hear the buzz around business capabilities one would expect some consensus about basic principles as well as an established track record. Since there is little to be found on either account, should the notion be seen as a modern philosophers’ stone ?
Clear evidence can be found by asking two questions: what should be looked for, and why it can’t be found.
What is looked for
Business capabilities can be understood as a modern avatar of the medieval philosophers’ stone, a alchemical substance capable of turning base metals into gold.
In the context of corporate governance, that would mean a combination of assets blueprints and managing principles paving the way to success.
But such a quest is to err between the sands of businesses specificities and the clouds of accounting generalities.
At ground level enterprises have to mark their territory and keep it safe from competitors. Whatever the means they use (niche segments, effective organization, monopolistic situations, …,) success comes from making a difference.
With hindsight, revealing singularities may be discovered among the idiosyncrasies of business successes, but that can only be done from accounting heights, where capabilities are clouded by numbers.
why it can’t be found
The fallacy of a notion can also be established a contrario if, assuming the existence of a philosophers’ stone, the same logic would also demonstrate the futility of the quest.
Such a reasoning appears more like a truism when applied to business capabilities: insofar as business competition is concerned success is exclusive and cutting edges are not shared. It ensues that assuming business capabilities could be found, they would by the same move become obsolete and be instantly dissolved.
What should be looked for
As far as business environments are concerned, success is by nature singular and transient, and it consequently depends on sustaining a balancing act between assets and opportunities; that’s what a business model is meant to achieve.
As defined by thermodynamics entropy is a measure of the energy within a system that cannot be harnessed to useful use; cybernetics has took over, making entropy a pillar of information theory.
Notwithstanding the focus put on viable systems and organizations (as epitomized by the pioneering work of Stafford Beer), cybernetics’ actual imprint on corporate governance has been frustrated by the correspondence assumed between information and energy. But the immersion of enterprises into digital environments brings entropy back in front, along with a paradigmatic shift out of thermodynamics.
domain: Physics vs Economics
The second law of thermodynamics states that entropy within a system is constant, and so is information as defined by cybernetics. But economics laws, if there is such a thing, are to differ: as far as business is concerned information is not to be found in commons but comes from the processing of raw data.
As a matter of fact, thermodynamic stability is meaningless in economics because business information is not a given and uniform quantity but a fluctuating and polymorph one. It ensues that for enterprises in competitive environments measures of entropy set in isolation are pointless: taking a leaf from Lewis Carroll’s Red Queen, the entropy of any given enterprise can only be assessed in relation with its competitors.
Taking a general perspective, entropy is meant to be observed either between the two ends of communication channels, or at the boundaries of complex systems (animals, machines, or organizations). While the former can be seen as a formal coding issue, the latter is of particular relevance for enterprises immersed in digital environments.
Departing from thermodynamics view of entropy measuring a system’s thermal energy unavailable for conversion into mechanical work, economics will consider unexplained information, i.e which cannot be acted upon.
But leaving physics also means forsaking the comfort of its metrics. That’s not a problem for communication entropy, which can be dealt with as a coding issue; but the difficulty appears when counts of digits have to be replaced by measures of knowledge.
complexity: microstates vs macrostates
When there are no clear and reliable metrics to put light on it, entropy becomes a black hole defined by disorder of randomness, the former in reference to the order borne out by classifications, the latter in reference to the predictability borne out by probabilities. Since both approaches deal with the relationship between configurations and information, the issue can be summarized with:
A quantum of hypothetical information (dashed line).
The complexity of identified items (aka microstates).
The complexity of representations (aka macrostates).
The quantum of information accounted for, ordered or predicted.
As stated by the basic law of thermodynamics, to be of any energetic use the internal heat of a system has to be lower than the external one. Generalized in terms of complexity, it means that the quantum of information accounted for will first increase with the number of configurations considered, reach a maximum, and then decrease until the complexity of configurations (aka internal heat) equates the complexity of the target (aka external heat).
Translated to economics, that scheme must be restated in terms of digital environments and business information.
Representation: whether the exchanges are carried out at digital level (data observations of microstates) or in association with symbolic representations (models of macrostates) of managed information.
Coupling: whether the processing of data is tied to operations or carried out independently.
The issue of entropy can be restated accordingly:
The direct consequence of the digital transformation is to increase osmosis between enterprises and their environment, with data flows bypassing traditional boundaries and feeding directly operational processes (bottom right).
As a result, data analytics can be integrated with business processes, improving operational decision-making. In terms of entropy the outcome would be a more effective use of information models (bottom left).
Next, information models (aka symbolic representations) can themselves be changed as to improve their effectiveness, i.e reduce entropy at process as well as architecture level (top left).
Last but not least, deep learning could be applied to digitalized contexts (aka microstates) in order to derive new symbolic representations (aka macrostates) (top right).
On that basis entropy policies should be set at operational and strategic levels, the former dealing with processes, the latter with architectures.
Homeostasis: from Data to knowledge
As far as enterprises are concerned, homeostasis means the adaptation of organizations and systems to changes in competitive environments. To that end, policies set along the entropy paradigm could draw on improving the perception of microstates (data level) as well as the representation of macrostates (information level).
At data level, the perception of changes depends on the osmosis between systems and environments. To that end data mining is to be used to hone the sampling of populations and refine microstates.
At symbolic level (representations), the economics perspective differs from physics on two critical aspects:
Contrary to heat, economic information is not a constant, which means that macrostates are to be continuously updated.
Moreover, the economic playground is not homogenous but combines physical (e.g demographics or climate), socio-economic (e.g income or education) and symbolic (e.g politics or culture) microstates, which means that macrostates are to be differentiated.
With or without differentiated macrostates, policies are to rely on two categories of models:
Extensional ones target environments, dealing with the analysis of business context, operations, and changes (descriptive models), as well as what should be expected (predictive models).
Intensional ones deal with enterprise architectures, current or planned, at processes as well as architecture level (prescriptive models).
As figured above, representations and policies are to be combined, hence the need to anchor them to enterprise architectures, as can be illustrated with the Pagoda blueprint:
Populations of instances (microstates) are obtained from digital environments as well as from processes execution (1). Data analytics are used to improve descriptive and predictive models (operational macrostates), and consequently the osmosis between processes and environment (2).
Architecture improvements can be achieved through changes in prescriptive models (structural macrostates). Compared to strategic planning carried out top-down from business models and requirements, homeostasis also relies on bottom-up forces which can combine with business models and coalesce into emerging architectures (3).
Business and organization models are arguably a primary factor in sorting out data, respectively from environments and systems; and being by nature essentially symbolic, they are more pliable than systems models (0). Homeostasis could therefore bypass architectural macrostates, with models of business and organization emerging directly from digital environments through data mining and deep learning (4).
Such alignment of enterprise architectures and symbolic representations is to greatly enhance the transparency and traceability of digital transformations by organising changes and policies with regard to their nature (physical, functional, organizational, or business) and decision-making horizon (operational or strategic).
As a capability of live organisms, languages are best understood in terms of communication.
That understanding is of particular interest for enterprises immersed in digital environments inhabited by hybrids with deep learning capabilities.
Languages begin with the need of direct (here) and immediate (now) communication. While there is no time for explanations, messages must convey some meaning, if only to distinguish friends from foes. Hence the use of signs pointing to categories of objects or phenomena. That’s the language lexical layer linking instantly observations (data) to information (bottom right).
Rules governing the combination of signs follow soon because more has to be communicated about circumstances and what is to be done with. That’s the language syntactic layer linking observations (data) to current information (top right).
The breakthrough comes with symbolic representation: once disentangled from immediate circumstances, communications can encompass whatever is deemed relevant in contexts and concerns; That’s the language semantic layer that weave together information and knowledge (top left).
The cognitive ability to “manipulate” symbolic representations (aka models) independently of circumstances opens the door to any kind of constructions. That’s the language pragmatic layer meant to put knowledge to actual use (bottom left).
That functional taxonomy can be usefully applied to the digital transformation of enterprise architectures, the first layer aligned with data, the second and third with information, and the fourth with knowledge.
Strategic planning can be summarily defined as the alignment of two kinds of horizons:
External horizons are set on markets, competition, and technologies, with views and anticipations coming through data analytics and game theory.
Internal horizons are set on enterprise architectures, with business models and policies on one hand, organization and systems on the other. Both are set on purposes, the former aiming at specificity and edge, the latter at sharing and stability.
As far as the strategic alignment of means (internal horizons) and ends (external horizons) are concerned, time is of the essence; that’s where is the fault line: whatever enterprise planned time-frames, they can only be mapped to fuzzy or unreliable ones outside. As a corollary, alignments have to be carried out either as a continuum, or through discrete and periodic adjustments to predictive models.
The future begins now
As suggested by Lewis Carroll’s Red Queen, the survival of enterprises in their evolutionary arms race doesn’t depend on their absolute speed set against some universal time-frame but on the relative one set by markets and competitors. Taking into account the role of a reliable and up-to-date basis for decision-making, strategic schemes can be characterized in terms of virtual and augmented reality:
Strategies set along predefined time-frames are by construct loosely tied to business environments since discrepancies are bound to develop during the intervals between anticipations (virtual reality) and realizations (actual reality). Hence the need of overall and planned adjustments.
By contrast, strategies set dynamically through OODA (observations, orientation, decision, action) loops can be carried out without overall anticipations; like augmented reality (AR) they mix fine-grained data observations and business intelligence with additional layers of information deemed to be relevant.
The first category has for long been a cornerstone of established strategic planning, with its implicit assumption of a conceptual gap between ‘Here and Now’ and future visions. But the induced latencies and discrepancies may become liabilities if enterprises have to continuously adjust representations and policies.
For mammals such awareness is a biological capability: any discrepancy between perceived movements and their counterpart in the vestibular system is to generate motion sickness or vertigo.
Enterprises have no such built-in mechanism yet their awareness is nonetheless contingent on the alignment of representations with observations and orientations. As a corollary, out-of-kilter time-frames and outdated schemes may remain unnoticed, introducing governance dizziness and strategic missteps.
Such drawbacks can be limited with decision-making set along differentiated time-frames, e.g:
Operational decisions, to be carried out within processes time-frame (a).
Architecture decisions, for changes in assets affecting the design of business processes and supporting platforms (b).
Organizational decisions, for changes affecting roles and processes (c).
That would allow the weaving of fine-grained policies across enterprise architectures and along consistent time-frames, mixing actual observations, representations of current and planned assets and resources, and anticipations of markets changes a competitors moves.
On that basis strategic alignments would not have to be set at fixed time for overall models, but could be managed continuously, with decision-making finely tuned for targets and timing:
External horizons: business decisions could be balanced by the need to know with the reliability of available information.
Internal horizons: decisions about organization and systems could be taken at the “last responsible moment”, i.e until not taking side could change the possible options.
Strategic planning could then be defined by crossing these rationales at the relevant granularity.
The digital transformation induces fundamental changes for the exchanges between enterprises and their environment.
To begin with, their immersion into digital environments means that the traditional fences surrounding their IT systems are losing their relevance, being bypassed by massive data flows to be processed without delay.
Then, the induced osmosis upturns the competition playground and compels drastic changes in governance: less they fall behind, enterprises have to redefine their organization, systems, and processes.
Strategic thinking is first and foremost making differences with regard to markets, resources and assets, and time-frames. But what makes the digital revolution so disruptive is that it resets the ways differences are made:
Markets: the traditional distinctions between products and services are all but forgotten.
Resources and assets: with software, smart or otherwise, now tightly mixed in products fabric, and business processes now driven by knowledge, intangible assets are taking the lead on conventional ones.
Time-frames: strategies have for long been defined as a combination of anticipations, objectives and policies whose scope extends beyond managed horizons. But digital osmosis and the ironing out of markets and assets traditional boundaries are dissolving the milestones used to draw horizons perspectives.
To overcome these challenges enterprises strategies should focus on four pillars:
Data and Information: massive and continuous inflows of data calls for a seamless integration of data analytics (perception), information models (reasoning), and knowledge (decision-making).
Security & Confidentiality: new regulatory environments and costs of privacy breaches call for a clear distinction between data tied to identified individuals and information associated to designed categories.
Innovation: digital environments induce a new order of magnitude for the pace of technological change. Making opportunities from changes can only be achieved through collaboration mechanisms harnessing enterprise knowledge management to environments intakes.
Despite (or because) their ubiquity across powerpoint presentations, business capabilities appear under a wide range of guises. Putting them in perspectives could clarify the issue.
To begin with, business capabilities should not be confused with systems ones as they are supposed to be driven by changing environments and opportunities, in contrast to continuity, integrity, and returns on investments. Were it not for the need to juggle with both there would be no need of chief “whatever” officers.
Then, if they are to be assessed across changing contexts and concerns, business capabilities should not be tied to specific ones but focus on enterprise wherewithal :
Material: capacity and maturity of platforms with regard to changes in business processes and environments.
Functional: capacity and maturity of supporting systems with regard to changes in business processes.
Organizational: versatility and plasticity of roles and processes in dealing with changes in business opportunities.
Intelligence: information assets and ability of people to use them.
These could then be adjusted with regard to finance and time:
Strategic: assets, to be deployed and paid for across a number of business exercices.
Tactical: resources, to be deployed and paid for within single business exercices.
Particular: combined assets and resources needed to support specific value chains.
The role of enterprise architects would then to plan, assess, and manage the dynamic alignment of business and architecture capabilities.
Distinctions must serve a purpose and be assessed accordingly. On that account, what would be the point of setting apart data and information, and on what basis could that be done.
Until recently the two terms seem to have been used indifferently; until, that is, the digital revolution. But the generalization of digital surroundings and the tumbling down of traditional barriers surrounding enterprises have upturned the playground as well as the rules of the game.
Previously, with data analytics, information modeling, and knowledge management mostly carried out as separate threads, there wasn’t much concerns about semantic overlaps; no more. Lest they fall behind, enterprises have to combine observation (data), reasoning (information), and judgment (knowledge) as a continuous process. But such integration implies in return more transparency and traceability with regard to resources (e.g external or internal) and objectives (e.g operational or strategic); that’s when a distinction between data and information becomes necessary.
Economics: Resources vs Assets
Understood as a whole or separately, there is little doubt that data and information have become a key success factor, calling for more selective and effective management schemes.
Being immersed in digital environments, enterprises first depend on accurate, reliable, and timely observations of their business surroundings. But in the new digital world the flows of data are so massive and so transient that mining meaningful and reliable pieces is by itself a decisive success factor. Next, assuming data flows duly processed, part of the outcome has to be consolidated into models, to be managed on a persistent basis (e.g customer records or banking transactions), the rest being put on temporary shelves for customary uses, or immediately thrown away (e.g personal data subject to privacy regulations). Such a transition constitutes a pivotal inflexion point for systems architectures and governance as it sorts out data resources with limited lifespan from information assets with strategic relevance. Not to mention the sensibility of regulatory compliance to data management.
Processes: Operations vs Intelligence
Making sense of data is pointless without putting the resulting information to use, which in digital environments implies a tight integration of data and information processing. Yet, as already noted, tighter integration of processes calls for greater traceability and transparency, in particular with regard to the origin and scope: external (enterprise business and organization) or internal (systems). The purposes of data and information processing can be squared accordingly:
The top left corner is where business models and strategies are meant to be defined.
The top right corner corresponds to traditional data or information models derived from business objectives, organization, and requirement analysis.
The bottom line correspond to analytic models for business (left) and operations (right).
That view illustrates the shift of paradigm induced by the digital transformation. Prior, most mappings would be set along straight lines:
Horizontally (same nature), e.g requirement analysis (a) or configuration management (b). With source and destination at the same level, the terms employed (data or information) have no practical consequence.
Vertically (same scope), e.g systems logical to physical models (c) or business intelligence (d). With source and destination set in the same semantic context the distinction (data or information) can be ignored.
The digital transformation makes room for diagonal transitions set across heterogeneous targets, e.g mapping data analytics with conceptual or logical models (e).
That double mix of levels and scopes constitutes the nexus of decision-making processes; their transparency is contingent on a conceptual distinction between data and information.
Data is used to align operations (systems) with observations (territories).
Information is used to align categories (maps) with objectives.
Then, the conceptual distinction between data and information is instrumental for the integration of operational and strategic decision-making processes:
Data analytics feeding business intelligence
Information modeling supporting operational assessment.
Not by chance, these distinctions can be aligned with architecture layers.
Architectures: Instances vs Categories
Blending data with information overlooks a difference of nature, the former being associated with actual instances (external observation or systems operations), the latter with symbolic descriptions (categories or types). That intrinsic difference can be aligned with architecture layers (resources are consumed, assets are managed), and decision-making processes (operations deal with instances, strategies with categories).
With regard to architectures, the relationship between instances (data) and categories (information) can be neatly aligned with capability layers, as represented by the Pagoda blueprint:
The platform layer deals with data reflecting observations (external facts) and actions (system operations).
The functional layer deals with information, i.e the symbolic representation of business and organization categories.
The business and organization layer defines the business and organization categories.
It must also be noted that setting apart what pertains to individual data independently of the information managed by systems clearly props up compliance with privacy regulations.
With regard to decision-making processes, business intelligence uses the distinction to integrate levels, from operations to strategic planning, the former dealing with observations and operations (data), the latter with concepts and categories (information and knowledge).
Representations: Knowledge Architecture
As noted above, the distinction between data and information is a necessary counterpart of the integration of operational and intelligence processes; that implies in return to bring data, information, and knowledge under a common conceptual roof, respectively as resources, assets, and service:
Resources: data is captured through continuous and heterogeneous flows from a wide range of sources.
Assets: information is built by adding identity, structure, and semantics to data.
Services: knowledge is information put to use through decision-making.
Ontologies, which are meant to encompass all and every kind of knowledge, are ideally suited for the management of whatever pertains to enterprise architecture, thesaurus, models, heuristics, etc.
The significance of the distinction between data and information shows up at the two ends of the spectrum:
On one hand, it straightens the meaning of metadata, to be understood as attributes of observations independently of semantics, a dimension that plays a critical role in machine learning.
On the other hand, enshrining the distinction between what can be known of individuals facts or phenomena and what can be abstracted into categories is to enable an open and dynamic knowledge management, also a critical requisite for machine learning.