Thursday, February 22, 2024
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Keeping Businesses Aligned

Imagine being a unitholder of a Real Estate Investment Trust (REIT) firm and the distributions per unit (DPUs) have dropped. Imagine the anger as you discover that the firm continues to pay its manager despite these circumstances. The dissatisfaction stems not just from the fees that the manager has been collecting, but from the fact that it has withheld that knowledge from the unitholders as they lose money.

How is this possible? Have standards shifted in REITs over the years? Is there a mismatch of REIT unitholders’ expectations and the performance of the managers? Obviously, there is a gross misalignment of business objectives and performance.

Business alignment is the process and result of linking an organisation’s structure and resources with its strategy and business environment. Executing it properly could bring about higher performance by optimising the contribution processes and input of the workforce to the realisation of quantitative objectives. Thus, it can keep mismanagement of effort and resources to a minimum.

In the modern era of a globalised business environment, business alignment should have a broad view not only towards the power and resources within a particular organisation but across entire organisations with complementary objectives. However, not all cross organisational and inter-functional collaborations are an added value. This is highlighted in the article “Collaborative Overload’ of Cross, Rebele and Grant in Harvard Business Review (HBR) emphasising that in most cases of the 300 organisations surveyed by them, 20-35% of value-added collaborations have only come from 3-5% of employees.

Recently, there has been much debate about data analytics. On the other hand, the processes that makes use of the data are equally, if not more important to business alignment efforts. There is data aplenty in the transactional information systems (e.g. enterprise resource planning systems, supply chain management systems). The information in these systems is rarely used to analyse the underlying processes in the organisation. It would benefit the organisation greatly to figure out which objectives can be used to utilise the efficiency of its business.

Process mining is the act of diagnosing business processes by mining data for observation. Its usage, is meant to perform a ‘reality check’ on measuring business alignment by comparing the real behaviour of a business process with its intended expectations.

Aware that the values of business processes are just initial steps towards business alignment, we have come to know of the Porterian Value Chain as a set of activities that an enterprise can perform in order to deliver a valuable product for the market. Basically, it encompasses the view of the whole enterprise and its partners. It perceives the manufacturing organisation as a system comprising of subsystems, each with its own input, transformation developments and output. All the subsystems involve the acquisition and consumption of resources which will determine the overall costs and final profit, if any.

However, the classic model has been challenged by iPhone’s rapid burst onto the smart-phone scene and its phenomenal success in gaining 90% of global market share by 2015. Apple is not merely an efficient ‘pipeline’ where inputs at one end of the chain undergo value-adding processes that are transformed into finished products. When it is combined with the app store, the marketplace which connects app developers and consumers (iPhone owners), it becomes a platform. Van Alstyne, Parker and Choudary in their article “Pipelines, Platforms, and the New Rules of Strategy” in HBR, attribute the success of Apple to the power of the network effects of its platform.

In this instance, the network of producers and consumers is the key asset of the business platform, in which others may find hard to copy, according to the resource-based view (RBV) of competition. The RBV explains that businesses gain advantage by leveraging on scarce and valuable, not easily imitatable, assets. Badly managed platforms on the other hand, can diminish the network effects. For example, producers may lure consumers away from the platform to their own, unconstrained network which can discourage users from participating, misbehaviours of certain members that will diminish trust and brand equity.

When the only constant in many organisations is change, the irony has caused businesses to focus on the alignment of business processes, information systems and business objectives. It is imperative to monitor actual businesses and the behaviour of the people associated with it, in order to achieve success in its organisations, from the organisation to its consumers.

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