FROM STRATEGY MAPS TO BUSINESS ENGINEERING:

A NEW BUSINESS MANAGEMENT METHODOLOGY FOR THE XXI CENTURY

 (c) Oleg Cheremnykh, 2005. All rights reserved cheremnykho@cnt.ru

Abstract

The article presents the fundamentals and the key components of business engineering (BE) – a new business management methodology developed to help businesses successfully meet the challenges of a radically new business environment in the XXI century. It is shown that the BE methodology is the next logical step in the evolution of business management technologies after _‘classic’ business management methodology and highly successful Business Scorecard/Strategy Maps methodologies. Also presented are the concepts and structures of practical BE implementation tools – Business Description Language (BDL), Business Engineering and Management Portal (BEMP), Enterprise Objects Management System (EOMS) and Standard Business Objects Repository (SBOR).

Definition and Structure of a Business Management Methodology

Definition of a Business Management Methodology

As this article compares and contrasts three business management methodologies (from the standpoint of the demands imposed on business management systems by the specifics of business environment in the XXI), it is important to begin this article with a proper definition of a business management methodology (i.e. to accurately define what exactly are we talking about in this article).

For the purpose of this article, the most appropriate definition of business management methodology would be as follows:

Business management methodology is a uniform system of rules, principles, procedures and tools for describing/modeling, defining, evaluating and optimizing a business system and its internal and external components – objects (SBU, products, brands, personnel, etc.), relationships (with customers, distributors, suppliers, employees, etc.) and activities (individual jobs, plans, projects, processes, etc.)

Structure of a Business Management Methodology

It is believed that the following structure/framework is best-suited for defining, presenting and analyzing a business management methodology:

  1. Fundamental propositions (“axioms”)

  2. Fundamental objectives of business management

  3. System of business objects in a general sense (objects per se, activities and relationships)

  4. Tools/structures used to define, describe and manage these objects

  5. Tools/structures used to integrate descriptions of propositions, objectives and business objects into a comprehensive and coherent business system

Key Challenges for the Business Management Methodologies in the XXI Century

Nature of the Competition Between Businesses

To succeed and prosper, businesses have to be able to successfully compete for customers’ expenditures (“customers’ wallets”), best employees and, in most cases, for sources of debt financing. In addition, public companies (i.e. companies, whose shares are publicly traded on one or several stock exchanges) have to compete for investors’ money (i.e. demand from investors which determines the company’s stock price – the most important performance indicator for a public company).

Customers, employees, lenders and investors make their decisions based on estimated (formally or informally) value of each alternative available to them, selecting the one that has the highest aggregate value to them (real or perceived).

Customers

For customers, aggregate value consists primarily of two components – functional and emotional. Functional value is measured by the “quality of fit” (or, reversely, by a ‘gap’) between specific functional needs of the customer and the functional attributes of the tangible or intangible product relative to the aggregate cost of the product or service in terms of money, time and effort. Emotional value for the customer is measured by the “quality of fit” (or, reversely, by a ‘gap’) between specific emotional needs of the customer and the emotional attributes of the tangible or intangible product (as well as of the relationship between the customer and vendor) relative to the aggregate cost of the product or service in terms of money, time and effort.

Some products and services (financial, consulting, etc.) can also generate financial value to the customers as they allow the latter to make or save money. Financial value is measured by the amount of money made or saved relative to the aggregate cost of the product or service in terms of money, time and effort.

Employees

For employees, aggregate value consists of all three components – financial, emotional and functional. Financial value is measured by the amount of aggregate financial compensation (salary, bonuses, pension contributions, stock options, benefits etc.) received by an employee in exchange for his or her services to the company.

Emotional value to employees is measured by the “quality of fit” (or, reversely, by a ‘gap’) between specific emotional needs of the employee and the realities of the workplace.

Functional value for employees is measured primarily by professional advancement opportunities (career development) and functional benefits (corporate fitness center, meals, etc.)

Lenders and Investors

For lenders and investors, aggregate value consists of two components – financial and emotional. Financial value is measured by the traditional risk/return criteria – expected return on investment/loan versus perceived risks of making an investment or lending money. Emotional value is measured by the “quality of fit” (or, reversely, by a ‘gap’) between emotional needs of investors/lenders, on the one side and emotional attributes of a specific transaction and relationship with recipients of the loan/investment, on the other.

Transparency

Probably the most important external factor influencing the business community in the XXI century is a radically increased transparency at all levels – local, regional, national and international (global).

Transparency has two aspects – informational (as radically more information/knowledge is available in a radically less time to customers, employees, lenders and investors on potential vendors, employers, investments and potential debtors) and transactional (with the removal of a lot of barriers financial and human capital are radically more mobile than it was the case even a few decades ago).

Therefore, customers, employees, lenders and investors now have a radically wider choice of opportunities which (1) radically intensifies the competitions between businesses and (2) makes this competition truly global.

To succeed and prosper in this new radically more competitive environment, businesses need to be able to satisfy needs and desires of customers, employees, lenders and investors better than their competitors.

Which, naturally, means that business have to (1) know and understand these needs and desires and (2) structure their business management systems (or business systems, for short) around the most effective and efficient satisfaction of these needs and desires. And, naturally, to achieve these objectives, they need to use the most appropriate business management methodology (BMM).

As the key objective of customers, employees, lenders and investors is to find businesses that provide the highest amount of aggregate value and with radically wider choices available to them, to be able to successfully compete in this new, radically more transparent environment, businesses have to become much more focused on aggregate value for their customers, employees, lenders and investors than they are today.

Therefore, business management systems and BMM which define these system have to ensure that each component of the business system and the business system as a whole maximizes its aggregate value to customers, employees, lenders and investors (and, as we will see below, to other key stakeholders of the business enterprise). It is also important to note that key aggregate value-generating components are business processes and business projects (the most important of the latter being products and brands).

Consumers realize aggregate value by consuming products – tangible (‘goods’) and intangible (‘services’), although in the XXI century almost any product is, in reality, a combination (often rather complex) of a tangible good and intangible services.

The most important component of aggregate value for investors is the financial value, which needs to be not only generated (creating wealth – a very important financial objective for an investor), but realized by being converted into ‘hard cash’. The latter can be accomplished in several ways – by receiving dividends from the free cash flow generated by the business enterprise; selling shares at an initial or subsequent public offerings; buying shares from investors by the company or selling shares to a strategic buyer.

Therefore, BMM has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) effective and efficient management of products, processes and projects; (2) integration of its product, processes and projects management components between each other and (3) integration of these components with other business management system components.

To accommodate the need of investors for accumulating long-term wealth and realizing generated value, the fundamentals of corporate strategy must include strategies for wealth accumulation and value realization.

As in order to be efficiently managed, aggregate value has to be appropriately measured, optimal BMM has to provide business managers with tools for measuring aggregate (financial, emotional and functional) value (‘valuation models') of a business enterprise as a whole, its strategic business units, regional branches, products, projects, brands and other components (as well as tools for integrating these models into a comprehensive aggregate value measurement and management system).

In addition, BMM has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for structuring and maintaining quality relationships (functional, emotional and financial) with customers, employees, lenders and investors and ultimately for structuring the business system around these all-important relationships (which are an important source of an aggregate value for company stakeholders).

Radically increased competition also means that business management systems and methodologies have to be able to maximize the efficiency of utilization of all their resources/capital – external and internal (customers, employees, assets, etc.). Which requires a radical decrease (and, hopefully, elimination) of waste of time, effort, money and other resources.

Which, in turn, requires (1) internal transparency of the company (to be able to properly identify internal inefficiencies); (2) tight integration (alignment) of all internal components of the business system and (3) tight integration of the business system and its immediate environment (customers/consumers, suppliers, distributors/dealers, etc.).

Naturally, successful accomplishment of these three objectives requires effective and efficient utilization of state-of-the-art information/knowledge management and electronic business technologies (which, in turn, requires tight integration and compatibility between BMM and e-business technologies).

Rising importance of emotional needs and emotional value

Due to six decades of peace, stability and steady economic growth (which are expected to continue in the XXI century), purely functional needs of consumers in economically developed nations have been largely satisfied. It is also important that as functional needs are to a great extent standard across nations and social groups and quite limited in scope, it is in most cases difficult to compete on the basis of ‘functional competitive advantages’ alone. In addition to that, due to a relative ease of duplication (especially in the transparent global economy of the XXI century), it is very difficult to acquire and sustain long-term ‘functional competitive advantages’.

Now emotional needs and emotional value come to the fore. They are much more individual and diverse across cultures, nations, social groups and individuals, are much less likely to be ‘saturated’ and much more difficult to duplicate (because of the typically high ‘emotional switching costs’).

Therefore, the issues of emotional value become more and more important on both demand and supply sides. Which is evidenced by rapidly increasing importance of the power of brands which, by themselves, have no functional value to the customer (one can not ‘consume’ a brand), only emotional.

Consequently, the optimal BMM for the XXI century has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) effective and efficient management of brands; (2) integration of its brand management components between each other and (3) integration of these tools & techniques with other business management system components.

Intangible assets/capital management

With the radical shift in importance from functional to emotional value and from tangible products to intangible services, demonstrated by a worldwide transition from an industrial to a post-industrial (“services”) economy and then to an information/knowledge economy intangible assets/capital (human/intellectual, information/knowledge, organizational/cultural, etc.) becomes more and more important than tangible assets/capital (financial and physical).

Therefore, the optimal BMM for the XXI century has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) effective and efficient management of intangible assets/capital and (2) integration of these tools & techniques with other business management system components.

Stakeholders' relationships management

As information/knowledge management technologies developed in late XX – early XXI century allowed business managers to develop and structure a far more comprehensive picture of the external environment (which is also becoming more and more complex), it became evident that in order to succeed and prosper, a business enterprise has to satisfy financial, functional and emotional needs of not only its “primary stakeholders” – investors/owners, customers, employees and creditors, but also all of its key stakeholders – government entities (local, regional and federal/national); mass-media (TV, radio, Internet, printed media, etc.); stock market actors (analysts, brokers, etc.); “third sector” (non-government/non-profit) organizations – local, regional, national and international; international regulatory bodies (such as European Commission); business community; community at large, etc.

Therefore, the optimal BMM for the XXI century has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) effective and efficient management of relationships with key business stakeholders (and, hopefully, management of stakeholders as well) and (2) integration of these tools & techniques with other business management system components.

Radically more rapid pace & uncertainty of change Radically increased transparency of today’s economy and dominance of much more flexible emotional needs (compared to purely functional needs) radically increased the pace, complexity and uncertainty of change. However, companies still need to maintain their short- medium and long-term planning capabilities to be able to create value for their stakeholders and to survive and prosper in the more and more turbulent XXI century (as well as to rapidly adjust to the new realities of the environment to ‘stay on course’ and even to utilize even the most unexpected changes as opportunities to create additional value to their stakeholders).

The latter requirement, naturally, calls for the most efficient and effective tools and techniques for managing innovation (including generation, identification, evaluation, structuring, implementation and post-implementation analysis) of external and internal ideas.

In addition, the power of mass-media and of information technologies (first and foremost, the Internet) allows even medium-sized (and often even smaller companies) to produce a powerful influence on their environment, create new opportunities and even new markets.

Therefore, the optimal BMM for the XXI century has to provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) adequate short- medium and long-term forecasting and planning capabilities (which require some very sophisticated computer algorithms and software); (2) rapid adjustment capabilities (while staying within the limits of an overall optimal long-term strategy); (3) influencing the external environment of the business; (4) managing innovations and (5) integration of these tools & techniques with other business management system components.

Evolution of market structures towards oligopolies

It is also important to remember that each mature market with time (and in the fast-paced environment of the XXI century rather quickly) develops an oligopolistic structure (the never-ending process of mergers and acquisition and corporate bankruptcies is an excellent evidence of that), which is quite understandable as oligopoly (domination of the market by a few large players with a large number of small players relegated to niche markets unattractive to the ‘big guys’) is more economically efficient than both the free competition (division of the market between a large number of roughly equal competitors) – due to the inherent economies of scale and the monopoly (due to the competition, in most cases very intense) between the oligopolists.

Therefore, the optimal BMM for the XXI century must also provide tools and techniques (including, naturally, state-of-the-art information and knowledge management technologies) for (1) monitoring and forecasting the market structure (division of the market share between vendors); (2) objectively evaluating the chances of the company to secure and maintain the status of ‘oligopolist’ and (3) translating the outcome of step 2 into an appropriate long-term strategy (acquire weaker competitors to “stay on top” or adequately prepare to sell the company or its division/business unit for the maximum price to a more powerful competitor)

Power of emerging e-business technologies

Existing e-business tools and technologies (hardware, systems software, application and information systems development tools) already allow to build ‘electronic companies’, ‘electronic marketplaces’ and ‘electronic business communities’, radically decreasing transaction costs, speeding up execution of business processes (as well as generation and implementation of ideas and innovations), reducing time and effort spent on searching and structuring information (which currently takes up to 80% of all decision-making time) and thus radically increasing aggregate value generated by a business enterprise.

In addition, ‘electronic companies’ help solve the fundamental problem of implementing change in business enterprises - change behavioral patterns of corporate employees and managers – by moving key activities of these individuals into the ‘corporate hyperspace’ structured in such a way that it simply leaves corporate personnel with no other choice but to act according to the new rules and procedures implemented in the electronic system.

The biggest ‘stumbling block’ on the road to fully unfolding the enormous value-generating potential of these technologies is lack of compatible business management methodologies.

As e-business tools and technologies have object-oriented internal structure and Web-style (hypertext) interface, the optimal BMM for the XXI century has to be also internally object-oriented and have a visual, hypertext-style ‘interface’. Ideally, its tools/constructs have to be compatible (i.e., easily converted) into templates developed in Unified Modeling Language (UML) – the now-standard tool for analysis and design of information systems and eXtensible Markup Language (XML) – the language of choice for development of Web-based information/knowledge management system.

“Classic” Business Management Methodology

Definition of “Classic” Business Management Methodology

“Classic” Business Management Methodology (CBMM) is best defined as a certain “common body” of business management knowledge typically taught in the Strategic Management and similar classes in undergraduate and graduate business schools worldwide. Despite variations in the curriculum (sometimes significant) most business schools worldwide build their business management programs on a common platform which, naturally can be called “classic” business management methodology, paradigm or theory.

CBMM was not a product of one individual or a group of individuals but rather evolved over the decades into a mutually accepted (but not really formalized) and, as it will be shown below, rather loose system of rules, principles, procedures and tools for describing/modeling, defining, evaluating and optimizing a business system and its internal and external components.

Fundamental propositions & procedures of CBMM

The most fundamental proposition of CBMM is that every company (business enterprise) exists to accomplish a certain mission.

The second fundamental proposition of CBMM is that to accomplish its mission, the company needs a certain general corporate strategy which is usually defined as a rather broad “game plan” aimed at accomplishing the company mission.

The third fundamental proposition of CBMM is that to successfully implement the corporate strategy and accomplish its mission, the company has to define and establish certain corporate structures (business units, functional departments, products, brands, tangible & intangible assets, plans, etc.) which must fit its mission and strategy.

The first step in defining the corporate mission, strategy and corporate structures is the identification of the corporate key competencies (i.e. what this particular company can do better than anything else). Key competencies, in turn, identify marketplaces where the company has to compete for its customers, employees, investors and lenders.

After defining key competencies and marketplaces, CBMM requires the company to conduct a classic Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, the three most important results of which are identification of competitive advantages (i.e. what this particular company can do better than anybody else in the marketplace), key success factors for different markets in the marketplace and the target markets, where the company has the highest opportunities to succeed and prosper (target markets are defined by the best “quality of fit” between the corresponding key success factors and the competitive advantages of a particular company).

Identification of core competencies, marketplaces, competitive advantages, strengths, weaknesses, opportunities, threats, key success factors and the target markets then allow to define the corporate mission, strategy and structures. In reality, this process is not linear (strictly consecutive), but rather iterative and often it takes quite a few iterations to arrive at adequate definitions of mission, strategy and structures.

Fundamental objectives of business management in CBMM

The fundamental objective of business management in CBMM is still short-term (typically, on the quarterly basis) maximization of net profit (corporate earnings as a whole, per share or, less often, per other measurement) as well as other profit-related performance indicators – earnings before interest, taxes, depreciation & amortization (EBITDA), earnings before interest & taxes (EBIT), pre-tax profit or earnings before taxes (EBT) – also on the aggregate or per share basis.

For public companies (that CBMM implicitly focuses on), it is believed that these short-term, accounting (or ‘paper’) profit-related performance indicators are then almost automatically translated into maximizing (in the short-term) company stock price on the stock exchange. And private (‘closely held’) companies in most cases simply adopt the similar fundamental objective of business management – without questioning the suitability of this approach to their specific situations.

System of business objects/structures in CBMM

CBMM uses a “four-dimensional” hierarchical view of a business enterprise (with each dimension having its own hierarchy or portfolio of structures). In its business dimension the company is broken down into divisions or [strategic] business units and then further down into product lines and individual products; in its geographic dimension – into headquarters and regional branches; in its functional dimension – into functional areas (sales, marketing, accounting/finance, operations, human resources, information technology, etc.), functional units and so on – to the level of individual employees and managers (each belonging to a specific functional area and functional unit).

The fourth dimension of the business enterprise in CBMM is the classic financial assets/liabilities/capital dimension which is completely defined by the structure of a corporate balance sheet constructed according to GAAP or IAS accounting principles and standards (sometimes with certain management accounting extensions).

In some practical implementations of CBMM (although not in the CBMM per se), there is also a fifth dimension of a business enterprise – corporate projects.

Tools/structures used to define, describe and manage business objects in CBMM

As the primary objective of business management in CBMM is strictly financial (maximization of net accounting profit), it is quite natural that the primary business reporting and management tools utilized in this methodology are mostly financial as well. At the corporate level, key business reporting and management tools are five GAAP/IAS financial statements – income statement, balance sheet, statement of cash flows, statement of retained earnings and footnotes to financial statements – plus a consolidated corporate cash budget.

All these forms are prepared on a periodic basis (monthly, quarterly and annual) and are accompanied by a corporate report (monthly, quarterly and annual) which does not have any formal structure.

Depending on an internal policy of a particular company, divisions/business units and regional branches can also have all five financial statements plus cash budgets or only cash budgets and no financial statements.

Functional areas and units, as well as corporate projects also have cash budgets (financial plans), but not financial statements (with the exception of projects, some of which are large and complex enough to justify having their own financial statements).

In CBMM product lines, products and brands are not supposed to have their individual budgets (the corresponding revenues and expenditures are included in budgets for functional areas and/or divisions/business units), although in practice they often do (due to the need to facilitate the horizontal integration in a fundamentally cross-functional nature of product and brand management).

Also, all abovementioned business objects (with the exception of product lines, products and brands) have operational plans which list activities to be performed and results to be achieved (including performance indicators which show the ‘degree of success’ in accomplishing stated objectives).

In addition, all abovementioned business objects (again, with the exception of product lines, products and brands) have business plans which are text files with explanation and justification of numbers in financial statements and plans and numbers and activities in operational plans by establishing and following key logical chains (“cause-and-effect” relationships).

In CBMM, business plans typically have functional structure, i.e. are divided into functional areas (sales, marketing, accounting/finance, operations, human resources, information technology, etc.). It should also be noted that, in practice (which for the purpose of this article can be called an “extended version” of CBMM), product lines, products and brands often also have operational and business plans (for integration purposes).

Individual employees have job descriptions typically based on the roles they are supposed to play in the corresponding functional units and individual plans (formal or informal) and sometimes individual budgets, typically based on operational and financial plans for the corresponding functional units.

Tools/structures for integrating business objects in CBMM

Tools for vertical integration

Due to its fundamentally hierarchical structure, CBMM provides tools & structures mostly for vertical integration of business objects. These tools & structures are consolidated versions of the same tools/structures used to describe business objects – financial statements, cash budgets (consolidated at the corporate level from statements for business units/divisions and geographical branches) and business plans.

Integration process in CBMM is conceptually simple and straightforward, consisting of three stages. At the first (‘strategy alignment’) stage, corresponding teams in business units, regional branches, functional areas and units, brands, product lines and products develop corresponding strategies based on the overall general corporate strategy developed at the corporate level with each strategy becoming a foundation for the corresponding business, operational and financial plans (thus providing the vital link between the long-term mission and strategy and short-term financial and operational performance objectives).

At the second (‘planning’) stage, team responsible for each component develops its own tentative business, financial (budget) and operational plans (business unit, regional branch and project teams preparing also the corresponding pro forma financial statements) which are subsequently updated and integrated into a consolidated and comprehensive corporate-wide business plan, operational plan and cash budget (financial plan).

At the third (‘monitoring, evaluation & adjustment’) stage corporate management accounting system generates information/knowledge (individual and consolidated) on the execution of plans at each level, evaluates and presents it to the appropriate decision-makers, which make all the necessary adjustments to company operations and activities.

Tools for horizontal integration

Due to its fundamentally hierarchical structure, horizontal integration tools in the basic version CBMM are limited to financial, operational and business plans for cross-functional corporate projects, and in the ‘extended version’ – to also financial, operational and business plans for brands, product lines and products (actually, templates and procedures for developing and managing the implementation of these plans).

Suitability of the CBMM for the challenges of the XXI century

While CBMM worked fine in the ‘industrial society’ and was more or less acceptable in the first few decades of the ‘post-industrial society’, it appears to be ill-suited for the demands of fast-paced ‘knowledge economy’ of the XXI century.

First, it builds the whole business management system on a highly intangible and often very ambiguous concept of corporate mission which in the environment of rapid and often chaotic change is expected to be unstable and subject to change as well (instead of a far more tangible, understandable and stable concept of value, especially its financial component).

Second, it does not even acknowledge the fundamental need to include in the foundations of corporate strategy such all-important for shareholders (the key stakeholders in the company) issues as market structure and dynamics (including its fundamentally oligopolistic long-term nature) and financial value realization.

Third, crucial concepts of functional and emotional value (especially the latter) are also nowhere to be found in the “classic” business management methodology.

Fourth, management of business processes (one of the key value-generating structures in the business enterprise) is not only completely absent in CBMM, but the very idea of business processes management and business processes optimization is fundamentally alien to some very basic concepts of CBMM (the former is fundamentally cross-functional, ‘network-shaped’ and focused on horizontal interactions while the latter – strictly functional and strictly hierarchical).

Fifth, the concept of business stakeholders and stakeholder relationship management has a very low attention and priority in CBMM and is totally separated from the ‘main system’ of objects, tools and structures in that methodology. Which completely ignores the obvious fact that in the current transparent, global and highly complex environment relationship with such influential stakeholders as mass-media, government entities, non-profit organizations or stock market actors (analysts, brokers, etc.) can make or break the company with the otherwise perfectly sound strategy.

Sixth, CBMM provides practically no tools for valuation or management of intangible assets (brands, human resources, information/knowledge, organization, etc.) which was OK in the industrial economy where these assets did not play any important role but not in the modern economy where the value of intangible assets accounts for 70%-80% (and even higher) of many (if not most) of business enterprises.

Seventh, business reporting statements in CBMM include almost exclusively financial measurements (performance indicators) and almost completely ignore operational (non-financial) quantitative and qualitative measurements vital for measurement and management of not only functional and emotional value (directly) but also a significant portion of financial value (indirectly) generated by the business enterprise.

Eighth, even financial statements in CBMM do not include estimation of a financial value of a corresponding business object (company as a whole, business unit, regional branch, brand, product, etc.). Which not only makes the business system focus on an entirely wrong financial objectives (the company can be highly profitable and dead broke as all profits are tied up in investment into exploding working capital or fixed assets or siphoned by equally exploding repayment of debt), but also overlooks an extremely important area of risk management (as company value is calculated as a sum of discounted cash flows where the discount rate is essentially a measurement of aggregate risks associated with conducting a business, it simply forces the company to develop and implement a sound risk management system).

Ninth, horizontal integration tools in CBMM are extremely poor (especially at the level of day-to-day operations). Vertical integration tools also leave much to be desired as it is very difficult to implement transparent and sound cause-and-effect relationships which in most cases are cross-functional and non-linear (two-dimensional) in a functional and hierarchical (linear) structure of a “classic” business plan.

And, finally, hierarchical paradigm of CBMM is exactly two generations behind the e-business paradigm which it is supposed to be compatible with (CBMM hierarchical paradigm corresponds to the flowchart methodology of software development which is exactly two generations behind the current object-oriented software paradigm with structural – procedure or process-oriented paradigm in between).

Being strictly hierarchical with very weak horizontal connections and alignment and linear in its fundamental construct – business plan – it is also very far from the hypertext (‘network’) paradigm of modern software and e-business interface.

Strategy Maps & Balanced Scorecard – a Much-Needed Step in the Right Direction

Although Strategy Maps & Balanced Scorecard (SM/BSC) – methodology developed by Robert Kaplan and David Norton - can be perceived as an extension of a classic business management methodology (a more or less “local” tool to facilitate transparent and efficient translation of strategy into action), it is so fundamentally and conceptually different from CBMM that it would be correct to treat it as a different business management methodology.

Fundamental propositions, concepts and logic of BSC/SM

The central proposition of the BSC/SM methodology is that in order to succeed and prosper, the business enterprise needs to formulate, communicate and implement the right (optimal) strategy and to structure all business objects and operations around this strategy, aligning them with each other and with the overall corporate strategy.

In fact, authors themselves on the cover of [1] define BSC/SM methodology as “a dynamic visual tool to describe & communicate [corporate] strategy”.

Another two important propositions, stated in [1] on many occasions are (1) you can manage only what you can measure and (2) you can measure only what you can [visually] describe (visualize). Which are two very important steps towards comprehensive business description, modeling and transparency – key requirements for the business management system in the XXI century (see above). And BSC/SM visual description/modeling tools make a giant step towards meeting the ‘software compatibility’ requirement.

In BSC/SM methodology, the corporate strategy is broken down into four perspectives/dimensions (financial, customer, internal process and learning and growth), integrated by “cause-and-effect relationships” (‘logical chains’) – both internally and between each other.

Financial perspective of corporate strategy allows the company to choose between two alternative value-generating strategies: revenue growth (focusing on revenues) and productivity (reducing costs and/or optimizing working capital and fixed assets, e.g. using ‘just-in-time’ approach to building relationships with suppliers).

If the company consists of several strategic business units (SBU), some of them may choose the revenue growth strategy, and the other – productivity strategy, depending of the nature of their businesses and/or their position on the market or in the corresponding product life cycle. The same is apparently true for regional/geographical branches, depending on the specific geographic area (whether it is a fast-growing or a mature market).

Customer perspective defines customer value proposition (more precisely, unique customer value proposition compared to the competition) which allows the company and its product to make itself “stand out of the crowd”, build and maintain stable and sustained competitive advantages, capture and sustain market share and thus create financial value for the company shareholders. According to Kaplan & Norton, customer perspective and customer value proposition “clarify the conditions that will create value for the customer” (Figure 2-1 on page 31 in [1]), and, therefore, for the shareholders of the company.

Customer value proposition (CVP) is defined using the following components: product/service attributes - price, quality, time and function (more precisely, functional attributes of a product or service); relationship/partnership and image/brand. Unfortunately, BSC/SM methodology does not provide any diagrams, templates or other structures to define/describe these CVP components which results in a rather informal description of the customer perspective of the strategy. Internal process perspective “defines the processes that will transform intangible assets into customer and financial outcomes [in other words, in customer and shareholders’ value]” (Figure 2-1 on page 31 in [1]).

This perspective is a radical (and highly welcome) departure from CVMM as it builds the whole business management system around the system of business processes (and therefore, around horizontal relationships) instead of hierarchical structures and vertical relationships (as it is in the CVMM). BSC/SM methodology identifies the following four basic business processes – operations management, customer management, innovation management and regulatory and social processes management.

And again, BSC/SM methodology does not provide any tools to describe/model business processes, leaving it up to its users to choose the appropriate business process modeling and optimization tools.

Learning and Growth Perspective “defines the intangible assets that must be aligned [with other perspectives] and integrated [with each other] to create the value [for customers and shareholders]” (Figure 2-1 on page 31 in [1]). BSC/SM methodology identifies the following three basic categories (portfolios) of intangible assets/capital: human capital, information capital and organization capital.

Human capital description centers around strategic job families – positions (“roles”) that are critically important for the execution of the overall corporate strategy. Key attributes used to describe each job positions are skills (professional and personal), training/experience and knowledge which comprise a competency profile for the corresponding strategic job family as well as values required from candidates to the corresponding position.

Information capital description is broken down into two major components – applications (transformation, analytical and transaction-processing) and technology infrastructure (computer & network hardware & systems software) and totally omits information/knowledge per se – databases, document repositories, etc. which are the core component of an information/knowledge management system.

Organization capital describes certain key aspects of the organization as a whole (as opposed to the description of individual strategic job families in human capital) that are of critical importance to the successful execution of the overall corporate strategy. BSC/SM methodology identifies the four key components of organization capital: culture, leadership, alignment and teamwork.

Another key concept in the BSC/SM methodology is strategic theme – one of the critical few business processes that are the most important for creating and delivering the differentiating and sustainable customer value proposition and thus for creating customer and shareholder value. According to the BSC/SM methodology, company managers and employees must focus on these themes to maximize customer and shareholder value of a business enterprise.

Fundamental objective of business management in BSC/SM

Although formally BSC/SM methodology focuses on strategy at different hierarchical levels of the corporation, in reality its key focus is on value (financial value of the company to its shareholders) as strategy is defined by Kaplan and Norton as a “description of how an organization intends to create sustained value for its shareholders”. [1], p. 29.

It is a significant step forward compared to mission-focused CBMM; however, the heritage of CBMM is still felt as one of the key BSC/SM diagrams (Figure 2-2 on page 33 in [1]) still places mission, not value, at the pinnacle of the “business management continuum”. However, the fundamental objective of business management in BSC/SM methodology is (although more implicitly than explicitly) the maximization of shareholders’ financial value.

Other fundamental objectives (defined in [1] as “strategic outcomes”) of business management are satisfied shareholders, delighted customers, efficient and effective processes and motivated and prepared workforce (Figure 2-2 on page 33 in [1]). Which brings this methodology very close to the concept of aggregate value maximization – the fundamental requirement of the XXI century (although it stops short of developing and implementing this powerful concept).

System of business objects in BSC/SM

Fundamental concepts of the BSC/SM methodology pretty much define the system of business objects defined and described in this methodology. The key object is the company/corporation itself which is comprised of line businesses (strategic business units) and support units (functional units such as finance, marketing, etc.). The key building blocks of the business description system are business processes (strategic themes and process of lesser strategic importance) as well as employees and information systems components (hardware and applications).

Tools/structures used to define, describe and manage business objects

Key tools and structures used to define, describe and manage business objects in the BSC/SM methodology are the strategy map, balanced scorecard, strategy theme description card (albeit the latter is not identified that way in the BSC/SM methodology), capital readiness reports for human, information and organization capital of a corporation (the latter presented in [4]) and a measurement template for each measurement/performance indicator.

Strategy map integrates (through a system of cause-and-effect relationships) the four perspectives of the corporate strategy – financial, customer, internal process and learning & growth on a two-dimensional diagrams.

Balanced scorecard identifies measurements and targets for each perspective (financial, customer, internal and learning & growth) at the level of a company or a strategic theme or employee.

Strategy theme description card is the most comprehensive diagram (and essentially the core diagram for the whole BSC/SM methodology) as it combines the strategy map (a visual representation of cause-and-effect relationships between the four key perspectives in the strategic theme); the “objectives card” which identifies the key objectives for each strategy perspective, the balanced scorecard which identifies the key measurements and targets for each objective in each strategy perspective; and the rather rudimentary action plan which includes initiatives and budgets (more precisely, expenditures, budgeted for each of the initiatives).

Human capital readiness report identifies strategic themes in each business processes category (operations, customer, innovation and regulatory & social), strategic job families within each strategic theme, competency profiles (professional requirements), number of employees required (for each strategic job family), estimation (using the undisclosed methodology) of a strategic job readiness for each strategic job and for the human capital as a whole.

Information capital readiness report identifies strategic themes in each business processes category (operations, customer, innovation and regulatory & social), strategic job families within each strategic theme, computer applications (transformational, analytical and transaction-processing) and technology infrastructure (computer & networking hardware and systems software) within each strategic theme and rates each application or infrastructure component on a scale from 1 (OK) to 6 (new application or infrastructure component required).

Organization capital readiness report (related to the concept of organization change agenda) is structurally similar to the balanced scorecard as it lists the four components of the organization capital (culture, leadership, alignment and teamwork), strategic objective and strategic measures for each organization capital component targets and actual values of the readiness of each component of the organization capital (OC) and of the OC as a whole (again, using some undisclosed methodology).

Measurement template is a card that gives a very detailed description of each measurement (performance indicator) used in the business management system including the formula & methodology for computing the value of this PI, responsible employee(s), measurement history and a number of other highly useful attributes.

Tools/structures used to integrate business objects in BSC/SM

An important advantage of the BSC/SM methodology compared to CVMM is that the structures used to describe business objects are also used to integrate these objects (e.g. business processes and intangible assets). In addition to that, the BSC/SM methodology provides additional integration tools - linkage scorecard that link business units and service/support units (across perspectives) and cascading sheet/table used to create a vertical integration of measurements and targets in the management hierarchy – from the CEO to a rank-and-file employee.

There are also links to budgets – from financial measurements on BSC/SM to the corresponding budget which allows to build the integration system on already existing integration tool – a system of corporate budgets.

Another important integration tool is the ‘business management continuum diagram’ (Figure 2-2 on page 33 in [1]) which presents the whole process of creating the BSC/SM-based business management system, starting with mission (‘why we exist’) then proceeding with values (what is important to us) then following with vision (what we want to be), strategy (our 'game plan'), strategy map (translating strategy into perspectives and objectives), balanced scorecard (a system of measurements and targets for each strategy perspective), initiatives and budgets (action plans) and personal objectives (what each employee needs to do to successfully execute the strategy).

Suitability of the BSC/SM methodology for the challenges of the XXI century

Although the BSC/SM methodology is in many aspects a significant step forward compared to CVMM, it falls far short of the requirements imposed by the business environment of the XXI century (in some ways, even more so than the CBMM that it was supposed to replace).

First, there is still a significant ambiguity regarding the fundamental business objective. While the strategy map suggests that it is the maximization of shareholders value and there are some indications on the ‘business management continuum diagram’ that it might be even the aggregate value, the same ‘business management continuum diagram’ clearly shows the mission as the pinnacle of the business management system (while it should have had aggregate or at least financial value on top of it).

Second, (as the CBMM) it does not even acknowledge the fundamental need to include in the foundations of corporate strategy such all-important for shareholders (the key stakeholders in the company) issues as market structure and dynamics (including its fundamentally oligopolistic long-term nature) and financial value realization. In fact, it leaves the issue of strategy development completely out of the system of tools, which is probably not a good idea as the 70% to 90% strategic initiatives failure rate mentioned in [1] can very likely be attributed not only to the poor execution of good strategies but to attempts to execute bad strategies (and formulation of sound strategies does need its own methodology which currently appears to be lacking).

Third, the BSC/SM methodology completely leaves out of the picture tangible assets/capital, that still play an important role in successful execution of strategies.

Fourth, the concept of business stakeholders and stakeholder relationship management is totally absent. Which completely ignores the obvious fact that in the current transparent, global and highly complex environment relationship with such influential stakeholders as mass-media, government entities, non-profit organizations or stock market actors (analysts, brokers, etc.) can make or break the company with the otherwise perfectly sound strategy and need to be taken into account in the formulation and execution of an overall corporate strategy.

Fifth, the extremely high importance of brand management (and in many cases brands account for a lion’s share of the total value of the company – sometimes up to 90%) is completely ignored in the BSC/SM methodology. No tools for brand management are offered or even mentioned.

Sixth, the whole area of product management which is highly complex and highly important for the company well-being (as cash flows are generated not by a strategy or processes or intangible assets, but by products that customers buy and consume)

Seventh, there is no link between the BSC/SM methodology and corporate valuation models (even for the company as a whole or the SBUs, let alone for products or brands) which radically contradicts one of the very foundations of the BSC/SM methodology (how can we manage financial value when we have no tools for measuring it?)

Eighth, the BSC/SM methodology includes no tools for describing/modeling business processes which makes management of strategic themes highly difficult at best.

Ninth, the BSC/SM methodology provides very limited tools for audit/assessment of the current situation in the company (‘as is’), including the correctness of the existing strategy of the company and of the ‘quality of fit’ between the company and its external environment and between various components of the business system.

In short, it appears that while CBMM is ‘the methodology’ for an industrial society and BSC/SM for a post-industrial society; information/knowledge society where we live today (at least, in the economically developed nations) requires a radically new business management methodology (which will, at the same time, keep the applicable components of the CBMM and the BSC/SM methodology).

Business Engineering Methodology

Definition of business engineering

Business engineering (BE) is the process and methodology of formal and comprehensive definition and detailed description of interconnected and interrelated business objects, processes & relationships – with the necessary degree of flexibility to accommodate for the optimal degree of ‘business chaos’ (external and internal) and to ensure the achievement of fundamental business objectives regardless of changes in the external environment.

Fundamental propositions & concepts of business engineering

Business engineering proper

The most fundamental proposition of business engineering (first presented in [6]) is that a business enterprise can – and should – be engineered almost like a factory (production plant).

The key word in this belief is ‘almost’, because, unlike its completely pre-determined counterpart in production or operations management, business does – and will! – always possess a certain degree of inevitable ‘chaos’ without which a business simply can not adapt to a rapidly changing external environment and, therefore, simply can not exist.

It is very important that BE should allow for truly comprehensive definition and description of all fundamental business objects (and not just business processes!) to make them all visible (as only what is seen/described can be effectively and efficiently managed) as well as all fundamental interactions between these objects and processes to make sure that business is managed and adapted to the rapidly changing external environment in a systematic, cohesive and comprehensive fashion.

Corporate identity

The key concept of the business engineering methodology is the concept of corporate identity – the most stable attribute of the corporation in the long term. Corporate identity of a company is defined by its core competencies, key values and key competitive advantages. The corporate identity becomes the foundation for the whole business management system as it defines the marketplaces that the company competes in, its mission, vision, overall strategy and culture.

Mission, vision & strategy

Unlike in other business management methodologies (CBMM and BSC/SM) in business engineering corporate mission is not the foundation of the whole business management system, but rather a derivative (or, to be more precise, manifestation or actualization) of corporate identity in the corresponding marketplaces.

Corporate vision in BE has essentially the same meaning as in other business management methodologies (what we want to be), while at the level of strategy BE deals not with one strategy (as other BMM), but with the whole portfolio of strategies – one for each component of the business portfolio (see below) – and even for each business object in the corresponding portfolio - as well as for the company/corporation as a whole.

Business objects, methods/activities and relationships

In order to make BE compatible with information system analysis, design and implementation tools (information systems engineering tools) BE has to follow the same object-oriented paradigm as the former. Therefore, in BE the whole business system is viewed in the same way as any information system – as a comprehensive, coherent system of objects, methods (jobs/processes/activities) associated with these objects (e.g. customer acquisition, servicing & retention processes) and relationships between these objects.

Business dimensions/portfolios

Like CBMM, BE methodology recognizes that business management system is multi-dimensional. In other words, maximization of aggregate value requires effective and efficient management of all key dimensions of business. It also notes that these ‘business management dimensions’ coincide with key portfolios of business objects:

Market portfolios:

  • Products
  • Brands
  • Customers
  • Marketplaces
  • Target markets
  • Distributors/dealers/retailers
  • Promotion/communication channels

Structure portfolios:

  • Strategic business units
  • Regional branches
  • Functional areas and units
  • Franchisees
  • Licensees
  • Workgroups

Activity portfolios:

  • Projects
  • Processes
  • Plans

Tools/Assets portfolios:

  • Financial assets
  • Physical assets
  • Intangible assets
  • Human capital
  • Information/knowledge capital
  • Organization capital

Data, information and knowledge

Today’s business is rapidly becoming more and more knowledge-intensive. It means that business knowledge is becoming more and more important financial value factor. Therefore, proper management of business knowledge becomes a matter of strategic importance for prosperity and often even the survivability of business enterprise. Naturally, effective and efficient management of business knowledge requires proper definition of both the concept of business knowledge and its substance – knowledge proper.

The first step in defining and describing business knowledge is the proper definition of the concept of business knowledge which, in turn, requires a proper distinction between data, information and knowledge.

Data is the elementary piece (‘atom’) of information, such as the last or first name of an employee, zip code, etc. Information is a structured collection of data that has a distinct meaning, such as employee or transaction record. Knowledge is information that allows to make decision and/or perform action which creates additional value – functional, financial and emotional – compared to decisions and actions possible without this knowledge.

In other words, information and knowledge management system of a business enterprise has to be structured along the following line (sequence of steps):

Data -> Information -> Knowledge -> Decision -> Action -> Additional Aggregate Value

Measurements

Measurements are classified as financial and non-financial (operational). The latter are further classified as quantitative and qualitative (the latter have to be converted into quantitative using the appropriate ‘intervalization’ procedures).

Need for a formal business engineering

It is true that any structure of business management system (BMS) and corresponding business management technologies (BMT) have to be able to account for an inevitable ‘degree of chaos’ inherent in any business system and its environment.

But the problem is that existing BMS & BMT are much more chaotic and much less orderly than they should be in order to (1) maximize the aggregate value (financial, emotional & functional) of a business enterprise and its value-generating capacity – VGC; and (2) to be compatible with existing e-business technologies which do have the necessary formal description & development tools (and it is precisely this lack of vertical compatibility and integration that prevents e-business technologies from unlocking its full aggregate value-generating potential).

in the 1990’s a concept of ‘business re-engineering’ was developed and implemented (sometimes very successfully, but most often not at all) using mostly the process-oriented (‘procedural’) approach to business management and the corresponding modeling tools and techniques (SA/SD, SADT, IDEF0, etc.) mostly obtained from information systems engineering technologies. With the business processes reengineering (BPR) projects failure rate running as high as 75-80% (according to the estimates of pioneers of these technologies) the idea was rather quickly rejected by the mainstream business community (despite of a number of impressive advantages & capabilities). In short, (as usual) the BPR methodology did not deliver on its promises and perceived enormous potential.

This spectacular failure is, in fact, a strong argument for – not against – the need for formal business system engineering methodology as this failure can be attributed to just three fundamental reasons: (1) total absence of a formal engineering methodology – in other words, proponents of this methodology tried to re-engineer the system without first engineering it – an obvious exercise in futility; (2) a procedure/process-oriented approach which immediately makes modeling of large systems prohibitively expensive in terms of time, financial expenses and manpower (and often simply technically impossible) and makes the system totally obsolete before it is even properly described/modeled (let alone deployed) and (3) makes business re-engineering models developed using procedural methodologies totally incompatible with information systems engineering models developed using object-oriented methodologies.

Therefore, unlocking a full potential of e-business technologies requires development of object-oriented business system engineering and re-engineering principles, methodologies, tools & techniques fully compatible and tightly integrated with the corresponding tools for engineering and re-engineering lower levels of e-business hierarchy.

As most business objects, methods and relationships are more or less standard, development of object-oriented business system engineering and re-engineering tools will allow for development of ‘business object banks’ (general, industry-specific, country-specific, etc.) which will allow entrepreneurs and business managers to simply ‘download’ (naturally, for a steep fee) necessary business system objects, instead of developing them ‘from scratch’ thus radically reducing the ‘reinventing-the-wheel’ activities (and corresponding business management costs) and thus dramatically increasing the efficiency, competitiveness and value of a business enterprise. No other architecture offers such an enormous opportunity.

Fundamental objectives of business management in business engineering

Need for a ‘Corporate Happiness’ and a ‘Happy Company’

Pursuit of happiness is one of the most fundamental human rights and desires (in the U.S. Constitution it is recognized as the third most fundamental human right after the rights to life and freedom). Naturally, human beings want to be happy not only at home and in their social relationships, but also in the workplace and in their professional relationships.

As it has been proven many times before (and beyond the reasonable doubt) that (1) all business activities and objectives are ultimately accomplished by human beings that long for happiness; and (2) “a happy worker is a productive worker ”, the most fundamental objective of business management in business engineering is creating and maintaining an environment which will make happy all company stakeholders (shareholders, employees, clients, suppliers, partners, community, etc.); in other words, creating a happy company.

Definition of a “happy company”

To come up with a proper definition of a happy company, it is necessary to start with asking ourselves a couple of simple questions: “Why do entrepreneurs start businesses?”; “Why do business owners own businesses?”; “Why do employees work for the businesses?”; “Why do business stakeholders (suppliers, customers, partners, government entities, etc.) interact with businesses?”. Interestingly enough, answers to these most fundamental questions of business management are not that difficult to find.

First of all, the abovementioned activities are undertaken for financial reasons (in other words, to create and, hopefully, maximize financial value of these activities and corresponding objects created, modified or consumed in these activities). Entrepreneurs start businesses (and shareholders own business) to make money; employees work for businesses to earn money; suppliers sell their products to businesses also to make money and government and non-government entities also want to get money from businesses (in taxes, charitable contributions, etc.)

Second, these activities are undertaken to satisfy functional needs of businesses (external and internal), individuals, government entities and other stakeholders (in other words, to create and, hopefully, maximize functional value of these activities and corresponding objects created, modified or consumed in these activities). Individuals and businesses buy products and services to satisfy their functional needs; businesses create functional positions, workgroups and departments to generate internal products and services that satisfy corresponding functional needs; government and non-government entities require certain products or services from commercial enterprises (information, donations in-kind, pro bono services, etc.) to satisfy their functional needs.

Third, it has been long known that human being are not machines and in addition to satisfying their financial and functional needs, they also want to satisfy their emotional needs (in other words, to create and, hopefully, maximize emotional value of these activities and corresponding objects created, modified or consumed in these activities).

Certain products, business objects and services, consumed by individuals, satisfy exclusively emotional needs (brands, movies and other entertainment services, etc.); entrepreneurs start, own and develop businesses and employees work for businesses to enjoy what they are doing (i.e. to get emotional satisfaction out of their activities and corresponding objects) and all business stakeholders want to make relationships with business enterprise emotionally valuable and fulfilling.

From the abovementioned realities it immediately follows that managing a business enterprise is essentially managing aggregate value of this enterprise with an objective of maximization of the aggregate value of the business.

Therefore, the definition of a “happy company” is very simple:

A happy company is a business enterprise that maximizes its aggregate value – financial, functional and emotional – for all key stakeholders of the company.

It can be also argued that aggregate value of the company exhibits the synergy effect between different categories of value (financial, functional and emotional). In other words, if understood and managed correctly, maximization of one category of company value both requires and assists maximization of two other value categories.

Maximization of the aggregate value of a business enterprise

As maximization of aggregate value of a business enterprise is the necessary prerequisite for building a ‘happy company’, the fundamental objective of business management in business engineering methodology is maximization of aggregate value of a business enterprise to its key stakeholders.

Maximizing the efficiency of utilization of fundamental business resources

Naturally, maximization of the aggregate value of a business enterprise requires maximization of efficiency of utilization of fundamental business resources – tangible and intangible assets/capital, human/intellectual assets/capital as well as information/knowledge assets/capital. It should be noted that in the modern informational/knowledge economy and society human/intellectual assets/capital and information/knowledge assets/capital the importance are becoming more and more important compared to tangible and other intangible assets/capital (which in industrial and post-industrial society were considered to make the highest contribution to the aggregate value of the company).

Therefore, the happy company can be defined in the following way:

A happy company is a business enterprise that maximizes the efficiency of utilization of all of its fundamental resources - tangible and intangible assets/capital, human/intellectual assets/capital as well as information/knowledge assets/capital.

Hence, the fundamental objective of business management in business engineering methodology is maximization of the efficiency of utilization of fundamental business resources/assets/capital – tangible & intangible.

System of business objects in business engineering methodology

Internal objects, methods/activities and relationships

BE methodology defines the following categories of internal objects (and related methods/activities/processes and relationships):

  • Company/corporation as a whole

  • Strategic business units (‘line businesses’)

  • Regional branches

  • Business processes and strategic themes (which can be also treated as objects)

  • Plans and projects

  • Products and product lines

  • Brands

  • Functional areas and functional units

  • Workgroups

  • Individual employees and managers

  • Tangible and intangible assets/capital

  • Promotion channels (media outlets and other instruments for promoting company products & services)

  • Measurements (performance indicators or key value factors)

External objects, methods/activities/processes and relationships

BE methodology defines the following categories of external objects (and related methods/activities/processes and relationships):

  • Customers/consumers - individuals and/or organizations that actually consume company products (distributors, dealers, retailers and the like are actually partners, rather than customers in a classic sense)

  • Stakeholders (suppliers, distributors/dealers/retailers, government entities, media, non-government/non-profit organizations, etc.)

  • Marketplaces (industries and target markets)

  • _Competitors _(organizations, brands and products)

Tools/structures used to define, describe and manage business objects

Business object description card

Business object description card is conceptually similar to the strategy theme description card in the BSC/SM methodology as it combines the object strategy map (a visual representation of cause-and-effect relationships between the four key perspectives of the business object – aggregate value perspective, customer perspective, method perspective and tools/assets perspective ); the “objectives card” which identifies the key objectives for each object perspective, the object scorecard which identifies the key measurements (performance indicator - PI) and targets for each objective in each strategy perspective; and the aggregate action plan which includes initiatives and budgets (more precisely, expenditures, budgeted fort each of the initiatives).

Business object evaluation/’readiness’ card

Business object evaluation/’readiness’ card is conceptually similar to the capital readiness report in the BSC/SM methodology and serves both as a comprehensive business audit tool and as an extension/explanation to the business object description card. For each measurement/performance indicator it lists the current situation (“as is”), desired situation (“to be”), analysis of the discrepancy and recommendations for ‘correcting the situation’.

Business object history card

Business object history card is used for the analysis of the historical performance of a specific business object by (1) comparing planned and actual values of measurements/performance indicators in each time period and (2) analyzing the dynamics of both planned and actual values of measurements/performance indicators across time.

Business object reengineering/development plans

In order to facilitate a successful transition from “as is” to “to be” situation, it is necessary to develop and execute object development plans which consists of three components – financial plan, operational plan and business plan (these concepts have been defined in the previous sections of this article).

Business object valuation models

As the fundamental objective of each business object is to create aggregate value - financial, functional and emotional – and proper value management requires proper value measurement, each object has to have up to three valuation models attached to its – financial (where applicable), functional and emotional, developed according to the principles outlined in the previous sections of this article.

Financial value estimation models (‘valuation models’) are applicable to the following internal and external business objects:

  • Company/corporation as a whole

  • Strategic business units (‘line businesses’)

  • Regional branches

  • Products and product lines

  • Brands

  • Corporate projects

  • Customers/consumers

  • Distributors/dealers/retailers

  • Other business stakeholders

  • Promotion channels

  • Marketplaces

  • Target markets

Tools/structures used to integrate business objects

Business management continuum diagram

Business management continuum diagram is conceptually similar to the same diagram in the BSC/SM methodology as it presents the logical chain (cause-and-effect relationship) from the corporate identity (defined in the previous sections of the article) through mission, vision and strategy to the personal objectives and actions of each individual employee (also identifying and listing all relevant external factors that influence each level of the ‘business management continuum’).

Value-generation chain/channel diagrams

Value-generation chain/channel diagrams show in an easy-to-understand visual form the key value-generating chains and channels in the business enterprise (general, client, stakeholder, product/brand, geographic, distribution, promotion/communication, etc.).

Portfolio structure diagrams

Portfolio structure diagrams demonstrate both the structure of the corresponding business portfolio and the basic mechanism for aggregate value generation by the corresponding business objects (components of the corresponding business portfolio).

Business processes/methods diagrams

Alignment & optimization of business processes has an enormous potential for creating financial, financial and emotional value in a business enterprise – see examples in [5] (and this potential can not be realized without the proper visual description/modeling tools).

Therefore, business engineering includes the methodology for visual business description/modeling tools - IDEF0, which defines and describes business processes in terms of activities (subprocesses), outputs, inputs, mechanisms, controls and personnel. Example of an IDEF0-based business process description diagram is presented in Appendix 3.

“Matching” diagrams for business objects

“Matching” diagrams for business objects are used to evaluate the efficiency (or ‘readiness’ in terms of the BSC/SM methodology) of business objects by establishing the ‘quality of fit’ between the attributes/measurements of the corresponding business object and the requirements imposed by its external environment.

For example, a key ‘match’ required for aggregate value maximization is the match between corporate identity, on the one hand, and ‘most valuable’ target markets (or with the marketplace in general) on the other.

Suitability of the business engineering methodology for the challenges of the XXI century

As business engineering methodology was developed specifically with challenges of the XXI century in mind, it meets the requirements imposed by the corresponding business environment (see Appendix 1).

Business Engineering Project/Process

Business engineering project/process is visually represented by a diagram in Appendix 2. It should be noted, however, that in reality this process is iterative and somewhat parallel, rather than sequential and strictly hierarchical.

Practical Implementation of Business Engineering

Business Description Language

Business engineering diagrams collectively represent a Business Description Language (BDL) – a visual, formal, scalable, object-oriented language for describing/modeling and optimizing any business system – from a start-up venture to an established multinational company.

Business Engineering & Management Portal

Business Engineering & Management Portal (BEMP) is a software tool developed with the objective to automate business engineering project/process.

The concept of BEMP is based on the two tools rather common in present-day business management and intends to overcome their limitations:

  • Information/investment memorandum used as one of the key instruments in business valuation projects (whether for raising capital from direct equity investors, executing an IPO or selling a company to a strategic buyer)

  • “Classic” strategic business plan

Unfortunately, none of these documents/tools takes into account the need to design a comprehensive business system aimed at maximizing financial value (which is the primary objective of capital raising and M&A projects and is supposed to be – but rarely is - the primary objective of a “classic” business plan) and built around information/investment memorandum or a business plan. Naturally, this business system must be supported by adequate business management system as well as (in the contemporary electronic society) by proper business automation system (including information/knowledge management system).

And it will be only natural to expect that to facilitate maximization of financial and aggregate value of a business enterprise, analysis, design and implementation of these systems must be based on a reasonably formal methodology for developing the corresponding system. And it was exactly the lack of such methodology or a tool for business systems development (whether outside or inside the field of development of information/investment memoranda or “classic” business plans) that prompted the development of the Business Engineering & Management Portal.

Therefore, Business Engineering & Management Portal is essentially a software tool for analysis, audit, design and implementation of business systems aimed at maximizing financial and aggregate value of the corresponding business enterprise. Naturally, BEMP is based on the methodology of business engineering.

Enterprise Objects Management System (EOMS)

Sometimes it appears that the whole history of information technologies is the history of ‘broken promises’ (technologies promised but did not deliver) and of expectations not met. As the ultimate objective of e-business technologies is to build a highly efficient electronic company and ultimately an electronic marketplace, electronic business community and even electronic society, it could be expected that e-business technologies should created a seamlessly integrated electronic working environment (both internal and external).

It could be also expected that an ERP system, judging from its very name Enterprise Resources Planning (although it probably should have been called Enterprise Resources Management - ERM) System should have become this kind of integrator – the core of the electronic working environment into which all other electronic systems would be integrated.

Unfortunately, it did not happen. Despite its name and promises, an ERP system still remains little more than a rather primitive transaction processing/analysis system (OLTP/OLAP) instead of an Aggregate Value Management Support System that it should have been and still generates mostly ‘tombs of data’ instead of the ‘gems of business knowledge’.

Therefore, an ERP system still remains just one of the ‘islands’ of the ‘IS archipelago’ that needs to be transformed into an ‘e-business continent’ to allow e-business technologies to unlock their enormous value-generating potential.

To facilitate this transformation, it is necessary to develop a successor to ERP systems which will be able to deliver on initial promises of such systems and to become the core of the electronic company and of the business knowledge management system by connecting all business objects & methods into single business objects management system aimed at maximizing the aggregate value – financial, emotional and functional – of a business enterprise.

Consequently this system will be most appropriately called Enterprise Object Management System (EOMS). Naturally, to be able to deliver on its promises, EOMS has to be based on the comprehensive business engineering methodology.

In addition, due to its comprehensive nature, EOMS will become a foundation for a so-called ‘situation room’ or ‘simulation center’ allowing to run several business development scenarios for selecting the best one from the standpoint of value maximization (including developing and managing radical business innovation).

Selected scenario can then be implemented by creating first ‘virtual reality’ (an electronic version of the would-be business management system structure) and then by gradually replacing the existing system with the new one (making the ‘as is’ -> ‘to be’ transition).

Standard Business Objects Repository

Due to its comprehensive nature, EOMS will be able to develop and maintain a Standard Business Objects Repository (SBOR) - a library/bank/repository of standard business objects (to be used for assembling and customizing business automation and information/knowledge management systems, instead of development systems from scratch), incorporating general and industry-specific “best practices” in business management.

Literature (recommended reading)

  1. Kaplan, Robert S. and Norton, David P. Strategy maps: converting intangible assets into tangible outcomes. / Boston : Harvard Business School Press, c2004

  2. Kaplan, Robert S. and Norton, David P. The balanced scorecard : translating strategy into action / Boston, Mass. : Harvard Business School Press, c1996

  3. Kaplan, Robert S. and Norton, David P. The strategy-focused organization: how balanced scorecard companies thrive in the new business environment / Boston : Harvard Business School Press, c2001

  4. Kaplan, Robert S. and Norton, David P. Measuring the Strategic Readiness of Intangible Assets. Harvard Business Review, February 2004.

  5. Tom Copeland, Tim Koller, Jack Murrin Valuation: Measuring and Managing the Value of Companies. – 3rd. ed. / McKinsey & Company, inc., 2001

  6. Champy, James. Reengineering management: the mandate for new leadership / New York : HarperBusiness, c1995.

  7. Hammer, Michael & Champy, James. Reengineering the corporation : a manifesto for business revolution / New York : HarperBusiness, c2001

  8. Hammer, Michael & Champy, James. Beyond reengineering : how the process-centered organization is changing our work and our lives / New York : HarperBusiness, c1997

  9. Sharp, Alec & McDermott, Patrick. Workflow Modeling: Tools for Process Improvement and Application Development. Artech House, 2001

Appendix 1. Business Management Methodologies Comparison Table

Appendix 2. Business Engineering/Re-Engineering Process Diagram

changed January 7, 2008