Evolving the Organizational DNA, Part 1: How Business Architecture Can Enable Organizational Sustainability

This installment of StraightTalk is the first in a series that focuses on how business architecture can be used to catalyze, embed and enforce key sustainability, legal and ethical considerations into an organization’s DNA. Using business architecture in this way truly unlocks its value and power.

First up in our series: how business architecture can enable organizational sustainability, so here goes.

What exactly does sustainability mean?

According to the United Nations Environment Programme (UNEP) sustainability (or sustainable development) is defined as:

“Meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

Sustainability typically includes three components:

Social (People) – The fair and equitable treatment of people
Environment (Planet) – The responsible use of natural resources and minimization of environmental impacts
Economics (Profit) – The economic value created by the organization

This means then that an organization should commit to all three components in order to help address the needs of the society, aim to protect the environment, and focus on providing the best standard of living while still remaining competitive in a world market. And, organizations can measure their performance and value more holistically using the Triple Bottom Line, which includes not just financials but also social and environmental metrics to understand the full cost and benefits of doing business.

Sustainability should not be an afterthought or a set of isolated or superficial programs – but rather embedded in the DNA of how an organization thinks, acts and operates.

Addendum – 19 August 2019

A related note of great news: The influential association, Business Roundtable,* redefined the purpose of a corporation. The purpose includes delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, supporting the communities in which organizations work, and finally – but no longer principally – generating long-term value for shareholders.

We applaud this declaration of intention as a major step and look forward to seeing the action and measurement that needs to follow. We believe this announcement underscores the important themes discussed in this StraightTalk post and the critical role business architecture plays in helping organizations shift their priorities to achieve both purpose and profit. For more on this announcement, please read America’s CEOs Seek a New Purpose for the Corporation.

*Business Roundtable is a non-profit association consisting of Chief Executive Officers from nearly 200 of America’s most prominent companies.

And why does it matter?

Because a sustainable organization is one that can succeed and last. Don’t think about sustainability as some sort of bright-eyed do-goodery, but rather competitive strategic advantage. A sustainability lens helps organizations to be proactive such as by creating new product offerings, new markets, and new ways of capturing the hearts and minds of customers, employees and the public – as well as reactive such as by enabling better responses to regulatory requirements or risks due to climate change and other environmental or social challenges.

For example, here are some relevant excerpts from Larry Fink’s (Chairman and Chief Executive Officer of BlackRock) 2019 Letter to CEOs on Purpose and Profit:

“…every company needs a framework to navigate this difficult landscape, and that it must begin with a clear embodiment of your company’s purpose in your business model and corporate strategy. Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being – what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.

…One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity. Companies cannot solve every issue of public importance, but there are many – from retirement to infrastructure to preparing workers for the jobs of the future – that cannot be solved without corporate leadership.

…As wealth shifts and investing preferences change, environmental, social, and governance issues will be increasingly material to corporate valuations.”

Profit and purpose can coexist. Any organization can be sustainable.

In the bigger picture though, sustainability is about the survival of our world and ourselves. Check out the United Nations Sustainable Development Goals (SDG) for a global perspective on our collective social and environmental ambitions. And as successful entrepreneur, environmentalist and author Paul Hawken reminds us, business can have a tremendous impact:

“Business is the only mechanism on the planet today powerful enough to produce the changes necessary to reverse global environmental and social degradation.”

So how can business architecture help an organization to become more sustainable?

Since business architecture provides a set of business blueprints that represent the entire organization at a high level, it is a perfect framework for assessing, improving and infusing sustainability into the right conversations and the very fabric of the organization.

Here are a few examples of how business architecture can help.

Measure, Improve and Create Transparency – Organizations need a framework to assess, analyze, monitor and communicate sustainability performance in order to improve (what gets measured gets managed). Voila, business architecture as an enterprise-wide framework, especially capabilities and value streams, is perfectly suited to help. Sustainability metrics and considerations can be tied to capabilities (and value streams) to ensure that the measurement is framed and communicated within a shared business context and priorities. For example, an Asset Management capability within a corporate vehicle context would, of course, have standard metrics such as Average Utilization of Fleet Vehicles (Days Per Year), but environmental and social metrics could be captured as well to round out the perspective, such as Total Carbon Dioxide Emissions From Fleet Vehicles (Tons Per Year) or Average Efficiency of Fleet Vehicles (Average Actual Miles Per Gallon). Sustainability improvement opportunities can be identified at a high level using the business architecture (e.g., targeted capabilities) and then other teams such as business process or Lean teams can do their magic to remove inefficiencies or waste.
Identify New Business Opportunities or Risks – Business architects can help identify new sustainability-related opportunities with business model, value stream, capability or other architecture-based innovation. For example, an opportunity to shift a product offering into a service (and facilitate the sharing economy) may be identified. Or, an opportunity to reuse an asset in new ways where it would otherwise be disposed of may be identified. On the other hand, business architects can help to identify sustainability-related risks. For example, capabilities most at risk of climate change impacts or other environmental or social issues could be identified and analyzed.
Make Sustainability Top of Mind – Business architecture is the great connector, especially capabilities and value streams. So for example, if an organization has sustainability metrics and considerations tied to each capability (and value stream), and if all initiatives are framed by the value streams and capabilities impacted, then it becomes a natural trigger to make sure that sustainability is not negatively impacted with intended changes (or that opportunities to create a positive sustainability benefit can be leveraged). Sustainability is hard to manage well in silos, so business architecture facilitates the big picture. Business architects are also fantastic dot connectors, so they can bring sustainability considerations into the right conversations at the right times as well. (More in Post No. 53.)
Translate Sustainability Strategies Into Execution – Of course, you were expecting this one. Translating strategies into action in a coordinated way across an organization is at the heart of what business architecture does. (More on that here in Posts No. 3, No. 50 and No. 9.) Many organizations initially create targeted sustainability strategies to help them transform towards their sustainability visions and goals. Business architecture can be a key enabler to make them a reality. However, once the transforming is done, sustainability should be fully embedded in every aspect of how the organization does business – not a standalone strategy or program.
Architect Ecosystems – Turns out nature is really smart. In nature, nothing is wasted, and in fact waste = food. This same principle can apply to organizations with a concept of Industrial Ecology (the study of material and energy flows throughout industrial systems) where the “waste” of one organization (e.g., excess steam) can become a valuable input for another organization (e.g., a source of energy or heat). And, business architecture is perfectly suited to find these opportunities by modeling and analyzing value streams and value networks that cross organizational boundaries. (More on architecting ecosystems here in Post No. 53.)

Here is a diagram that offers sustainability consideration examples within an enterprise capability context of a for-profit organization.

How can business architects help?

Business architects are perfectly suited to help their organizations become more sustainable. Why? Because business architects…

Get sustainability and think in systems – they see the whole picture, how the pieces relate and how things play out long-term
Can balance many different concerns
Serve as dot connectors between people, ideas and initiatives
Are leaders
Are change agents
Consider all stakeholders including customers, employees, partners, the community in which they operate, the greater society and even future generations
Work within possibility
Are wired to care

What next?

Seek out the people within your organization who are responsible for sustainability. For example, this could be a targeted role (e.g. Head of Sustainability), included within Corporate Social Responsibility (CSR) or potentially distributed across functions (and potentially not coordinated). Let them know how you can help. And just start doing it (even if no one picks you, pick yourself).

More Good Stuff…

Larry Fink’s 2019 Letter to CEOs on Purpose and Profit (BlackRock): A must-read and call-to-action by Chairman and Chief Executive Officer of BlackRock.

Global Reporting Initiative (GRI): An absolutely fantastic resource. Check out the standards if you’re looking for ideas of sustainability metrics.

B Impact Assessment: A leading tool any organization can use to measure its impact on its workers, community, environment and customers.

The Natural Step: A framework for achieving sustainability leveraged by corporations, municipalities, academic institutions and not-for-profit organizations.

Green to Gold (book by Esty and Winston): An absolute classic on how to use environmental strategy to innovate, create value and build competitive advantage.

Danone Rethinks the Idea of the Firm (The Economist): A revolution in the food industry and more.

The Future of Management is Teal (Strategy + Business): Organizations are moving forward along an evolutionary spectrum, toward self-management, wholeness, and a deeper sense of purpose. The article asserts that a new form of organization is emerging that is a living organism – which makes most of today’s organizations look painfully outdated.

Business Architecture For Non-Profits and Small Organizations (S2E): A short presentation on how business is evolving and how intentionally architecting organizations can help them to start and scale successfully, including a case study.

Natural Capitalism (book by Hawken, Lovins and Lovins): How today’s global businesses can be both environmentally responsible and highly profitable. Originally groundbreaking. Still is.

The Ecology of Commerce (book by Paul Hawken): A compelling vision of the restorative (rather than destructive) economy we must create, centered on eight imperatives.

Cradle-to-Cradle: Remaking the Way We Make Things and The Upcycle: Beyond Sustainability: Designing For Abundance (books by Braungart and McDonough): Visionary pieces on a new approach to products.

United Nations Environment Programme and Sustainable Development Goals Knowledge Platform (UN): Amazing vision and content from the source.

A World Without Waste (TED Talk): An innovative talk by Kate E. Brandt, Head of Sustainability at Google, on her plan to green up Google by creating a circular economy which reuses, recycles and eliminates waste altogether.

StraightTalk Podcasts Are Now Available On Popular Platforms

S2E Transformation recently published its series of StraightTalk interviews on popular podcast destinations, which include Apple Podcast, Spotify, Stitcher, and other popular apps. Search “Straight Talk – Business Architecture” on your preferred platform.

Return On Business Architecture Investment (ROBAI): How to Calculate the ROI of Business Architecture

In this installment of StraightTalk, we will focus on one of those burning questions: how do we calculate the return on investment (ROI) of a business architecture practice within an organization?

As a global discipline and community of practitioners, we’ve come a long, long way with business architecture. But we’re still on the journey, with work ahead to continue building understanding, adoption and practice. Business architecture success stories and demonstrable ROI are crucial for this.

In this StraightTalk post, we will explore a method for determining the ROI of a business architecture practice that you can put into use ASAP. The intention here is to provide a place to start and give you some ideas, but hopefully, inspire many more of your own.

Why is this important?

First, knowing the ROI of your business architecture practice will give your business architecture team visibility to and accountability for value delivered to the organization, right?

Second, communicating the ROI of your business architecture practice within your organization will help you to build buy-in and advocacy for the discipline internally. Communicating the ROI of your business architecture practice to others outside of your organization, such as by sharing with the business architecture community, will help us all to build understanding and advocacy for the discipline worldwide – which in turn strengthens us as individual business architecture practitioners and teams.

So, where do we start?

How about a definition. According to Investopedia, ROI is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. Furthermore, it states, that ROI is a popular metric because of its versatility and simplicity. Essentially, ROI can be used as a rudimentary gauge of an investment’s profitability.

So, ROI can give us a basic gauge for the profitability of an organization’s investment in business architecture. And, we need to look at two sides: business architecture costs and business architecture benefits. But first, how we frame business architecture ROI for an organization is extremely important.

Okay, how do we frame business architecture ROI for an organization?

It all starts with how the value proposition of business architecture has been defined for your organization. This is perhaps the most important thing a business architecture team needs to do as it will drive outcomes, measurement, decisions, focus, priorities and investments.

An organization’s intended business architecture value proposition will directly inform the metrics used to capture its benefits. For example, if the intended value for using business architecture in a particular organization is primarily focused on simplification, then metrics that reflect the amounts of reuse and cost savings realized would likely be useful.

Important: If your team has not already defined the value of business architecture to your organization, do not proceed further with ROI calculation, do not focus on your models and tools, do not pass Go, do not collect $200 until you have done so. More on starting a practice in Post No. 4.

What’s the formula?

This is the easy part. The hard part is actually obtaining the business architecture cost and benefit data, especially the benefit data.

The formula for Return on Investment (ROI) is:

ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment

So, the formula for the Return on Business Architecture Investment (ROBAI) is:

ROBAI = (Business Architecture Benefits – Business Architecture Costs) / Business Architecture Costs

We can express ROI as a ratio or percentage.

You can also get fancy and calculate Net Present Value (NPV), which accounts for differences in the value of money over time due to inflation, or Breakeven Point, which defines the point when the business architecture benefits will have exceeded the costs.

How do we calculate business architecture costs?

This is the easy one. Business architecture costs are the summation of what your organization spends to create, maintain, use and govern its business architecture and supporting practice.

Here are some categories for consideration. (Or make up your own.)

Team – This includes salary and/or contracting costs for those working in a business architecture role. It could also include those who play a direct role in supporting the business architecture team as well, such as a graphic designer.
Training – This includes business architecture training and resource costs, such as training courses, certification fees, conferences, memberships to industry associations, access to research, books, etc.
Tools – This includes costs for business architecture knowledgebase tools and any supporting tools such as those used for analytics, visualization or team collaboration.

How do we calculate business architecture benefits?

Business architecture benefits are the summation of the metrics you’ve chosen that best monetize your value proposition, as referenced above. (More on these metrics in Post No. 21.)

Here are some categories for consideration. (Or make up your own.)

Strategic Value Contribution – This quantifies business architecture contribution to measures such as revenue or customer experience improvement. For example, business architects may identify or facilitate the identification of new sources of customer value or revenue with business model or value stream innovation.
Strategy Execution Performance Improvement – This quantifies business architecture contribution specifically to improving end-to-end strategy execution, and may be reflected in measures such as cost or time reduction or avoidance. For example, business architects may identify or facilitate the identification of potentially redundant or improperly sequenced initiatives before they happen, or reduce the time necessary for defining requirements downstream due to the input of business architecture. (P.S. StraightTalk Posts No. 3 and No. 50 have you covered on the role of business architecture in strategy execution and No. 9 discusses a bit on how it is used to translate strategy.)
Operational Performance Improvement – This quantifies business architecture contribution to any sort of efficiency or simplification efforts, and may also include preventing or reducing risk or compliance issues. This may be reflected in measures such as cost, time or risk reduction or avoidance. For example, business architects may identify or facilitate the identification of potentially redundant systems and processes, or head off a potential risk or compliance issue before it happens.
Business Effectiveness Improvement – This quantifies business architecture contribution to the daily course of doing business and may be reflected in measures such as cost or time reduction. For example, the presence of a well-defined business architecture (minimally inclusive of a capability map, information map and value streams) can save time on an ongoing basis by providing the common vocabulary and mental model that enables effective communication and onboarding for both internal and external resources.

Why is it so hard to calculate business architecture benefits?

Measuring business architecture benefits and value can be a little bit of a challenge. For example:

Some business architecture results are intangible, like when it helps to inform decisions or create clarity
Business architecture can lead to the avoidance of negative results, like that misaligned investment that you didn’t make or like that compliance issue which didn’t happen
Business architecture results can be hard to isolate because it is one team among many working together within the strategy execution ecosystem
Business architecture results can create unwanted visibility for some people, so proceed with sensitivity when sharing results

So, just keep it simple and be at peace with the fact that you will often need to calculate your benefit numbers manually and in partnership with the people to whom you’ve provided them – just to make sure they agree on how you’ll be accounting for them.

Putting some numbers around business architecture benefits will help you reframe how people think about business architecture and its contribution to the organization. It’s well worth doing just for this fact alone. Otherwise, people tend to miss the bigger and longer-term picture and just focus on the fact that there were no business architects previously and now there are new salaries on the payroll. However, the bigger picture is that an investment in business architecture can be minuscule compared to the cost and time it can help save, the misaligned decisions or investments that didn’t happen, and the risks, issues or mistakes that were avoided.

Put it all together.

How about an example. See below for a simplified hypothetical illustration of the Return On Business Architecture Investment (ROBAI) that might be delivered by a dedicated, five-person business architecture team in its third year. The business architecture cost and benefit amounts are shown by category, resulting in a Business Architecture Benefit/Cost Ratio of 3.33:1 and a ROBAI of 233%.

The Fine Print: This is a pretty realistic example for a small but mighty business architecture team working in a large corporate environment, assuming they have had the right investment and positioning over time. One could get more precise in counting business architecture benefits, such as by calculating the time saved by everyone in the organization on an ongoing basis by having a common vocabulary and framework for onboarding. On the other hand, it could also take into account more precise business architecture costs such as the time dedicated by business people to build the business architecture. Perhaps the most important consideration is determining how you will account for costs and benefits within your defined reporting period. For example, will a new revenue idea be counted as an estimate when it is discovered, or as it is realized over months or years? The granularity of reporting should also be considered, such as if ROBAI will be calculated by initiative, by team member, by benefit category, or by the practice as a whole. You decide.

How should we communicate business architecture ROI?

Communicate your business architecture ROI to your business architecture leaders and stakeholders within the organization together with any other reporting you do on a regular basis, such as with your business architecture metrics (see Post No. 21) and success stories.

Remember that while numbers like your business architecture ROI are useful, they are only part of communicating business architecture value and success. It’s not just about the quantifiable numbers. The success stories, quotes and advocacy by others in the organization on your behalf are just as important and will speak to people on a different level.

A Charge To Us As Business Architects.

There’s good news and bad news.

The bad news is that there is almost no business architecture ROI data in the public domain. So, the good news is that you’re not missing anything. The good news is also that if you are a business architecture leader, practitioner or passionate advocate, you get to be a pioneer.

Therefore, stop looking for business architecture ROI data and start creating it and sharing it. Pivot your passion for modeling to proving. It’s never been more important than right now. We are a global community and to truly succeed, the only way to full maturity and formalization of the business architecture discipline is together.

As Mahatma Gandhi is often quoted, “Be the change that you wish to see in the world.”

Would you like to share your method for calculating business architecture ROI? If you have an idea, give us a shout. We’ll commit to publishing the ideas back to everyone through StraightTalk to help us all learn from each other.

Share your ROI method >

More Good Stuff…

The Value of Business Architecture: New Mindset, New Results (S2E white paper): Just in case you haven’t read it, check out this overview of the value of business architecture and how it can be applied.

A Framework for Measuring ROI of Enterprise Architecture (David F. Rico): Big shout out to Mr. David Rico, whose unique and important work underpinned this post.

Business Architecture Case Studies (Business Architecture Guild^®): Not necessarily ROI numbers, but you can find loads of business architecture case studies from previous Summits on the Public Resources page of the Guild website.

How Will You Measure Your Life? (TED Talk): An excellent TED Talk by Clay Christensen, Harvard Business School professor and innovation guru, on how we measure success in life against the progress we make in our careers. Good reflection here on what is truly important.