Architecture of Business: Architectural Governance

Part 1.

Architectural Governance: What and Why

A concept of an Architecture of Business organisation (AoB) includes four fundamental artefacts, one of which is an Architectural Governance (AG). The Architecture of Business’s AG is defined as a set of principles, policies and procedures or activities, by which

1. the Architecture of Business Practice, itself, is governed upon a review and approval by the CxO Executives and the Board of Directors;
2. the rest of the business organisation is governed with regards to all functionality and information-related matters;
3. the Intrinsic Business Architecture is modified by Business Architects operating in the Architecture of Business Practice (AoB Practice);
4. the modifications of Intrinsic Business Architecture are propagated into the design of a Target Operating Model (TOM);
5. the TOM is developed and, then, the work of the Operating Model is monitored and refined.

The AG is designed in compliance with existing industry regulations, promotes corporate strategy objectives and rules the adoption of changes in the market. The AG activities are directed and executed by Business Architects or their representatives.

The AG works across the organisation and may be implemented in two forms depending on the maturity of AoB Practice and its embracing in the company. At the lower maturity stage, the AG has to control:

1. the design of architectural solutions against architectural and governance principles
2. the TOM design against the architectural requirements and deployment plans
3. the TOM implementation against the TOM design
4. the Operating Model (OM) execution against architectural adjustments to the environment changes.

At the higher maturity stage, the purpose and role of the AG become less about complete fine-grained control, but more about enabling the individual business units (BU), value streams, business services, operational groups and people to work together productively and efficiently.

The AG needs to balance between the various interested parties in a company’s business. More particularly, between the corporate strategy, changes in the market, existing operational structure and all resources needed for the strategy realisation via TOM. However, by applying the AG Principles, discussed later on in this article, the AG can make priorities and related decisions. The positioning of the AG in the corporate governance and management structure is illustrated in Figure 1.

Figure 1.

Architectural Governance Principles and Processes

Architectural Governance Principles (AGP) provide guidance for how Business Architects should behave in executing AoB Practice and cascading the AG throughout the organisation. Every company should create its own AGP depending on the maturity of AoB, type of business, corporate strategy and situation in the market. However, it might be easier to have a set of default AGP and adjust them if needed.

We propose the following default AGP:

1. Independence from corporate management
2. Preserving a dominance of corporate interests over all others
3. Prerogative of the AoB Governance over all functionality- and information-related matters
4. Least Compromise
5. Transparency of policies
6. Absolute access to corporate information
7. Authority
8. Responsiveness
9. Manageability.

As the AG is a part of corporate governance, it inherits following principles as well:

1. Effectiveness and Efficiency
2. Personal Accountability
3. Personal Responsibility
4. Fairness of decisions

which we won’t discuss in this article.

The AG can create many rules and policies, but the AGP should be firm at least for the period of constructing TOM and implementing it into practice.

Since the AG regulates business functionality and information matter from end to end, it should be independent of all levels of corporate management while reporting directly to CEO.  Neither CFO nor COO may be able to override the AG decision alone; this has to be a collegial agreement.

The AG recognises that each LOB, Division, Department, Team and employee may have individual interests. They may be personal or for the business unit’s benefits. At the same time, the AoB operates based on the interests of corporate strategy as it is defined and agreed upon within the C-level and Board. The strategy considers the interests of the organisation’s stakeholders and reflects them in corporate governance. As a part of corporate governance, the AG preserves the interests of the company as a whole as well.

The AG regulates the work of Business Architects, i.e. those who architect the company. Business Architects focus on what the business can do in certain business cases, in the scope of corporate strategy and in the given execution environment. They design and decide what business needs to change from what it does now. Everything that relates to domain functionality and related business information should be under the control of AoB Business Architects; otherwise, their solutions for TOM risk bcome inadequate for the task. This relates to the financing of new initiatives or modifying existing operational solutions, creating or retiring business capabilities and related business services, implementing or changing business functions or features provided to the corporate customers, partners and suppliers. Any other investments and organisational initiatives remain under corporate governance. For example, a Six Sigma analysis can propose splitting a business process or merging a few processes together – the AG does not need to be involved until proposed modifications do not impact the business functionality provided by initial processes. If a reorganisation in the example creates a new business value or alters a previously existing one, the AG should approve the proposal before it can be funded.

The principle of Least Compromise addresses the cases where required and designed operational solutions cannot be realised by available internal resources. If the company experiences a shortage in these resources, the AoB Practice will look for financing external specialists or for outsourcing the implementation of the task as a whole (do not mistake it for outsourcing the task). Only if this would not resolve the problem, the architectural solutions may be compromised, redesigned, re-planned and then implemented.

At the same time, all architectural governing policies have to be fully transparent to the operational management and employees. Before an architectural policy can be put in force, it has to be validated on effectiveness and efficiency. This may require a grace period of trying it as a “proof of concept” in the real operational environment. It is anticipated that the company’s personal responses to the AF with feedback. It should be documented, protected, reviewed and responded in a timely manner. Execution of the follow-up activities as agreed is the crucial element of the governance discipline.

Business Architects, performing the AG work should have unconditional access to all strategic and operational decisions, conclusions, recommendations and other complete business documents. The cost of making mistakes in promoting corporate management and ownership decisions can be way too costly.

Also, Business Architects, performing the AG work should have rights not only to review any low-level decision made in the areas of functionality and information, but also the authority to approve/disapprove/stop development and/or operations and initiatives. An involvement of related outsourcing means should be also controlled by the AG.

The AG is a type of adaptive case management. It includes defining roles, responsibilities, documentation, notifications and news letters, training and execution policies while the core decisions are made by Business Architects.  This relates not only to the governing activities but also to the feedback resolution and policy adjustment on the go. Governing processes establish the checks, accountability, and decision points to ensure that architectural solutions and investments into their realisation are executed against the strategic objectives first of all.

Apparently, the AG processes cannot be conducted by Business Architects in isolation from other architectural and managerial roles in the company. At each level of implementation and execution of TOM, including involved technology resources, different roles of architects, QA and compliance managers may be delegated certain controlling authority, which allows them to operate on behalf of an AoB AG team. This does not contradict TOGAF’s six qualities of architectural governance such as discipline, transparency, independence, accountability, responsibility and fairness, but in AoB they are linked to the business AG – outside and above the boundaries of the IT department. This means that if an AG-delegated Enterprise Technology Architect stops the project dedicated to the development of a new functional system or data transformation, CIO cannot override this decision – it is the prerogative of the AG function. 

Part 2.

Architectural Governance and Corporate Governance

The AG in AoB is a subset of traditional corporate governance, which aims only at one area – business functionality and business information, but throughout the organisation. This includes an Information Technology department if such exists. According to Business Dictionary , corporate governance comprises “(1) explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights, and rewards, (2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and (3) procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances”.

The AG operates within the corporate business model, drives business objectives and strategies into implementation via architectural solutions and balances them with the dynamics of a business environment. If the company has corporate management policies as well, these are usually ruled and directed by the corporate executives. Corporate governance policies also may be set by peers, e.g. by a council of business executives.

Fundamentally, the AG differs from corporate governance in that the former focuses on internal affairs while the latter, in essence, involves balancing the interests of the company’s shareholders, management, customers, suppliers, financiers, government and the community. At the same time, “Corporate governance is generally a matter of law based on corporate legislation, securities laws and policies, and decisions of the courts and securities regulators.  Generally, directors owe a duty of loyalty to the companies they serve, and have a fiduciary duty to act honestly, in good faith and in the company’s best interests.”

The AoB’s AG, reflecting the fundamental drivers of the organisation’s system, helps corporate governance to keep managers in line with the company’s best interests.

At the same time, if corporate governance, which is expected to facilitate effective and sensible management for delivering corporate strategy, ignores the Intrinsic Business Architecture of the organisation promoted by the AG, the company heads to trouble or even to failure. For instance, in the business system, all enterprise elements depend on the architectural functionality and information; if autocratic management tries to modify a business element or create a new one without considering these dependencies, the element becomes disconnected and functioning in conflict with the rest of the system. This conflict can destroy either the element or the entire system. 

Architectural governance and corporate culture

The transition of the management model and organisational structure to the architected Target Operating Model requires a certain shift in the corporate culture.  Corporate culture is a combination of many factors, including country or national traditions, social structure, a brand of the business, an individual influence of leaders, a deficit of resources, local and global labour situation and some others. In essence, it is a set of human values shared and assumed by a specific group of people in the organisation.

Governing an organisation even in one of its aspects such as the architecture of its business means having the ability to change corporate culture as and when needed. In the past, when the market evolved slowly, changing an organizational culture was one of the toughest tasks. Particular corporate culture was formed over years of interaction between employees, managers, external legal and economic environment. Attempts of changing corporate culture that people consider comfortable without shifting this comfort zone to the needed point were and are a utopia. Since management behaviour re-generates current culture via examples of their own behaviour, ruling the activities and hiring people just the same they have already, just articulating new rules by executives without conveying to new perks/benefits for compliance is useless (punishment is not a motivation for doing).

There are a number of well-developed theories about constructing effective governance models. In some companies, a Managerial Hegemony theory (TMH) prevails being fed by the modern liberal concept of that business organisation should dictate to its owners what to do and how to work. The TMH suggests that Boards of Directors and C-executives are statutory additions, which should be controlled by managers. While such model can take place, it is not scalable and not agile in the market – every manager accountable for the delivery of his/her business unit (BU) naturally places related interests above the corporate ones. 

When the corporation grows in size and complexity, delivery management loses connections with effective decisions about what to deliver, when and where. This decisions requires lots of time, analytical information/ knowledge and attention, but, most important, this requires a cross-divisional objective view and recognition of the company’s interests above the interests of the managed BU. Whether the BU managers still have such a view under the pressure of growing complexity and prioritise corporate interests becomes, the more questionable the bigger these BUs become. This produces an unjustifiable business risk.

A more popular and widely applied is the Agency theory. It suggests several mechanisms that reward agents – managers and employees – for accepting governed changes and, thus, maximizing shareholders’ profit. The AG helps to promote incentives that act as motivation factors for changing people’s behaviour. At the same time, the AG helps to identify accidental or chronic compliance with policies and principles.

 As we have outlined already, corporate governance needs to keep a balance between internal and external changes. The AG, in contrast, supports the AoB Practice.

that is responsible for reacting to and adapting to the external changes (in the market). In AoB, governance cannot be characterised by one characteristic because it depends on the dynamics of the market. The AG has no other choices than to influence a transformation of corporate culture in line with the market changes. In other words, the AoB is the provider of business-related modifications in the people’s comfort zone within the organisation.

One of the major problems the AG has is that it must reflect executive business decisions based on external changes that may be not adopted within the company yet. If corporate executives and the AG would wait until the company culture absorbs the moved economic environment, the company can lose not only its competitive advantage but also its position in the market. This problem did not exist in the past – at that time we could talk about different grace periods for changing corporate culture. When the dynamics of market change accelerate, as many analytics recognise these days, the company needs a proactive strategy and tactics for the directed cultural movements.

Such strategy should include non-popular means that would eliminate any contradictions, sabotage, resistance and conflicts between the pace of market changes and the pace of cultural adjustment. Otherwise, the business organisations likely will head to dramatic, if not fatal, troubles. This is not an aggressive, anti-human nature of the AG, but an objective reality of the economic environment where the people live and the companies operate. As Jack Welch said, “If change is happening on the outside faster than on the inside, the end is in sight”, i.e. if management or other employees resit the pace of changes required in the company, they risk to lose not only their jobs but also the company itself that could potentially hire them and pay for their bills.

Figure 2.

Cultural mobility is taken into account in the AoB from the first moment and included in the AG. As the diagram in Figure 2 illustrates, the Ag has to facilitate the development of mitigation plans covering the cultural disbalance between peoples’ behaviour and the required pace of adoption changes,  especially during the period of sharp acceleration of changes. This period is characterised by multiple cases when the internal resources of the company cannot deliver architected solutions for TOM due to latency in the people’s acceptance of the changes.

Such plans include both out- and in-sourcing of management and professional resources. The presence of such plans itself impacts corporate culture and transforms it toward so-called service-oriented corporate culture (SOCC). In this culture, everyone serves everyone else; everyone competes with everyone else for servicing the consumers; each consumer is a service provider at the same time.

In SOCC, the AG does not need to be strict and fine-grained. Instead, it would be enough to point to the changes in need, which creates a new “market” for servicing. The organisation immediately responds to this: new consumer demand – new opportunity to gain incentives. Each organisation of business is oriented to servicing its clients, customers or consumers; it is the most natural type of behaviour. However, existing hierarchical structures appear not flexible enough to react to changes in external demand as fast as needed. If a corporate culture appreciates an orientation on service, it does not need to change its culture significantly to adopt external changes or accept internal reorganisations on-demand.

To take away

Architectural Governance is one of four fundamental artefacts of the Architecture of Business concept. An Architectural Governance represents the architectural interests of the owners and top management of the business organisation in a particular business environment for now and for going forward. It helps to improve the efficiency of operations, and return on investment as well as achieve sustained growth and development.

Architectural Governance is a subset of corporate governance, which applies to the Practice of Architecture of Business itself as well as to all business activities in development and operations related to business functionality and information. This includes technology used in business operations. Architectural Governance is authoritative and prescriptive, however, the strictness of this governance depends on the internal and external situation of the company.

Architectural Governance has its own principles and processes that are strongly linked to the corporate strategic objectives and the state of the corporate culture. This governance is inter-influential with corporate culture. Depending on the dynamics of the change in the market, sometimes the culture dictates certain governance model, and sometimes the governance directs culture changes. When a company matures in using the AoB Practice, Architectural Governance can be more relaxed and primarily concerned with coarse-grained strategic corporate goals and objectives.