Transforming IT: From a solution-driven model to a capability-driven model

[tl;dr Moving from a solution-oriented to a capability-oriented model for software development is necessary to enable enterprises to achieve agility, but has substantial impacts on how enterprises organise themselves to support this transition.]

Most organisations which manage software change as part of their overall change portfolio take a project-oriented approach to delivery: the project goals are set up front, and a solution architecture and delivery plan are created in order to achieve the project goals.

Most organisations also fix project portfolios on a yearly basis, and deviating from this plan can often very difficult for organisations to cope with – at least partly because such plans are intrinsically tied into financial planning and cost-saving techniques such as capitalisation of expenses, etc, which reduce bottom-line cost to the firm of the investment (even if it says nothing about the value added).

As the portfolio of change projects rise every year, due to many extraneous factors (business opportunities, revenue protection, regulatory demand, maintenance, exploration, digital initiatives,  etc), cross-project dependency management becomes increasingly difficult. It becomes even more complex to manage solution architecture dependencies within that overall dependency framework.

What results is a massive set of compromises that ends up with building solutions that are sub-optimal for pretty much every project, and an investment in technology that is so enterprise-specific, that no other organisation could possibly derive any significant value from it.

While it is possible that even that sub-optimal technology can yield significant value to the organisation as a whole, this benefit may be short lived, as the cost-effective ability to change the architecture must inevitably decrease over time, reducing agility and therefore the ability to compete.

So a balance needs to be struck, between delivering enterprise value (even at the expense of individual projects) while maintaining relative technical and business agility. By relative I mean relative to peers in the same competitive sector…sectors which are themselves being disrupted by innovative technology firms which are very specialist and agile within their domain.

The concept of ‘capabilities’ realised through technology ‘products’, in addition to the traditional project/program management approach, is key to this. In particular, it recognises the following key trends:

  • Infrastructure- and platform-as-a-service
  • Increasingly tech-savvy work-force
  • Increasing controls on IT by regulators, auditors, etc
  • Closer integration of business functions led by ‘digital’ initiatives
  • The replacement of the desktop by mobile & IoT (Internet of Things)
  • The tension between innovation and standards in large organisations

Enterprises are adapting to all the above by recognising that the IT function cannot be responsible for both technical delivery and ensuring that all technology-dependent initiatives realise the value they were intended to realise.

As a result, many aspects of IT project and programme management are no longer driven out of the ‘core’ IT function, but by domain-specific change management functions. IT itself must consolidate its activities to focus on those activities that can only be performed by highly qualified and expert technologists.

The inevitable consequence of this transformation is that IT becomes more product driven, where a given product may support many projects. As such, IT needs to be clear on how to govern change for that product, to lead it in a direction that is most appropriate for the enterprise as a whole, and not just for any particular project or business line.

A product must provide capabilities to the stakeholders or users of that product. In the past, those capabilities were entirely decided by whatever IT built and delivered: if IT delivered something that in practice wasn’t entirely fit for purpose, then business functions had no alternative but to find ways to work around the system deficiencies – usually creating more complexity (through end-user-developed applications in tools like Excel etc) and more expense (through having to hire more people).

By taking a capability-based approach to product development, however, IT can give business functions more options and ways to work around inevitable IT shortfalls without compromising controls or data integrity – e.g., through controlled APIs and services, etc.

So, while solutions may explode in number and complexity, the number of products can be controlled – with individual businesses being more directly accountable for the complexity they create, rather than ‘IT’.

This approach requires a step-change in how traditional IT organisations manage change. Techniques from enterprise architecture, scaled agile, and DevOps are all key enablers for this new model of structuring the IT organisation.

In particular, except for product-strategy (where IT must be the leader), IT must get out of the business of deciding the relative value/importance of individual product changes requested by projects, which historically IT has been required to do. By imposing a governance structure to control the ‘epics’ and ‘stories’ that drive product evolution, projects and stakeholders have some transparency into when the work they need will be done, and demand can be balanced fairly across stakeholders in accordance with their ability to pay.

If changes implemented by IT do not end up delivering value, it should not be because IT delivered the wrong thing, but rather the right thing was delivered for the wrong reason. As long as IT maintains its product roadmap and vision, such mis-steps can be tolerated. But they cannot be tolerated if every change weakens the ability of the product platform to change.

Firms which successfully balance between the project and product view of their technology landscape will find that productivity increases, complexity is reduced and agility increases massively. This model also lends itself nicely to bounded domain development, microservices, use of container technologies and automated build/deployment – all of which will likely feature strongly in the enterprise technology platform of the future.

The changes required to support this are significant..in terms of financial governance, delivery oversight, team collaborations, and the roles of senior managers and leaders. But organisations must be prepared to do this transition, as historical approaches to enterprise IT software development are clearly unsustainable.

Transforming IT: From a solution-driven model to a capability-driven model

Scaled Agile needs Slack

[tl;dr In order to effectively scale agile, organisations need to ensure that a portion of team capacity is explicitly set aside for enterprise priorities. A re-imagined enterprise architecture capability is a key factor in enabling scaled agile success.]

What’s the problem?

From an architectural perspective, Agile methodologies are heavily dependent on business- (or function-) aligned product owners, which tend to be very focused on *their* priorities – and not the enterprise’s priorities (i.e., other functions or businesses that may benefit from the work the team is doing).

This results in very inward-focused development, and where dependencies on other parts of the organisation are identified, these (in the absence of formal architecture governance) tend to be minimised where possible, if necessary through duplicative development. And other teams requiring access to the team’s resources (e.g., databases, applications, etc) are served on a best-effort basis – often causing those teams to seek other solutions instead, or work without formal support from the team they depend on.

This, of course, leads to architectural complexity, leading to reduced agility all round.

The Solution?

If we accept the premise that, from an architectural perspective, teams are the main consideration (it is where domain and technical knowledge resides), then the question is how to get the right demand to the right teams, in as scalable, agile manner as possible?

In agile teams, the product backlog determines their work schedule. The backlog usually has a long list of items awaiting prioritisation, and part of the Agile processes is to be constantly prioritising this backlog to ensure high-value tasks are done first.

Well known management research such as The Mythical Man Month has influenced Agile’s goal to keep team sizes small (e.g., 5-9 people for scrum). So when new work comes, adding people is generally not a scalable option.

So, how to reconcile the enterprise’s needs with the Agile team’s needs?

One approach would be to ensure that every team pays an ‘enterprise’ tax – i.e., in prioritising backlog items, at least, say, 20% of work-in-progress items must be for the benefit of other teams. (Needless to say, such work should be done in such a way as to preserve product architectural integrity.)

20% may seem like a lot – especially when there is so much work to be done for immediate priorities – but it cuts both ways. If *every* team allows 20% of their backlog to be for other teams, then every team has the possibility of using capacity from other teams – in effect, increasing their capacity by much more than they could do on their own. And by doing so they are helping achieve enterprise goals, reducing overall complexity and maximising reuse – resulting in a reduction in project schedule over-runs, higher quality resulting architecture, and overall reduced cost of change.

Slack does not mean Under-utilisation

The concept of ‘Slack’ is well described in the book ‘Slack: Getting Past Burn-out, Busywork, and the Myth of Total Efficiency‘. In effect, in an Agile sense, we are talking about organisational slack, and not team slack. Teams, in fact, will continue to be 100% utilised, as long as their backlog consists of more high-value items then they can deliver. The backlog owner – e.g., scrum master – can obviously embed local team slack into how a particular team’s backlog is managed.

Implications for Project & Financial Management

Project managers are used to getting funding to deliver a project, and then to be able to bring all those resources to bear to deliver that project. The problem is, that is neither agile, nor does it scale – in an enterprise environment, it leads to increasingly complex architectures, resulting in projects getting increasingly more expensive, increasingly late, or delivering increasingly poor quality.

It is difficult for a project manager to accept that 20% of their budget may actually be supporting other (as yet unknown) projects. So perhaps the solution here is to have Enterprise Architecture account for the effective allocation of that spending in an agile way? (i.e., based on how teams are prioritising and delivering those enterprise items on their backlog). An idea worth considering..

Note that the situation is a little different for planned cross-business initiatives, where product owners must actively prioritise the needs of those initiatives alongside their local needs. Such planned work does not count in the 20% enterprise allowance, but rather counts as part of how the team’s cost to the enterprise is formally funded. It may result in a temporary increase in resources on the team, but in this case discipline around ‘staff liquidity’ is required to ensure the team can still function optimally after the temporary resource boost has gone.

The challenge regarding project-oriented financial planning is that, once a project’s goals have been achieved, what’s left is the team and underlying architecture – both of which need to be managed over time. So some dissociation between transitory project goals and longer term team and architecture goals is necessary to manage complexity.

For smaller, non-strategic projects – i.e., no incoming enterprise dependencies – the technology can be maintained on a lights-on basis.

Enterprise architecture can be seen as a means to asses the relevance of a team’s work to the enterprise – i.e., managing both incoming and outgoing team dependencies.  The higher the enterprise relevance of the team, the more critical the team must be managed well over time – i.e., team structure changes must be carefully managed, and not left entirely to the discretion of individual managers.

Conclusion

By ensuring that every project that purports to be Agile has a mandatory allowance for enterprise resource requirements, teams can have confidence that there is a route for them to get their dependencies addressed through other agile teams, in a manner that is independent of annual budget planning processes or short-term individual business priorities.

The effectiveness of this approach can be governed and evaluated by Enterprise Architecture, which would then allow enterprise complexity goals to be addressed without concentrating such spending within the central EA function.

In summary, to effectively scale agile, an effective (and possibly rethought) enterprise architecture capability is needed.

Scaled Agile needs Slack

Agile quantitative analytics in Financial Services

[tl;dr technology is empowering quantitative analysts to much more on their own. IT organisations will need to think about how to make these capabilities available to their users, and how to incorporate it into IT strategies around big-data, cloud computing, security and data governance.]

The quest for positive (financial) returns in investments is helping drive considerable innovation in the space of quantitative analytics. This, coupled with the ever-decreasing capital investment required to do number-crunching, has created demand for ‘social’ analytics – where algorithms are shared and discussed amongst practitioners rather than kept sealed behind the closed doors of corporate research & trading departments.

I am not a quant, but have in the past built systems that provided an alternate (to Excel) vehicle  for quantitative research analysts to capture and publish their models. While Excel is hard to beat for experimenting with new ideas, from a quantitative analyst perspective, it suffers from many deficiencies, including:

  • Spreadsheets get complex very quickly and are hard to maintain
  • They are not very efficient for back-end (server-side) use
  • They cannot be efficiently incorporated into scalable automated workflows
  • Models cannot be distributed or shared without losing control of the model
  • Integrating spreadsheets with multiple large data sets can be cumbersome and memory inefficient at best, and impossible at worst (constrained by machine memory limits)

QuantCon was created to provide a forum for quantitative analysts to discuss and share tools and techniques for  quantitative research, with a particular focus on the sharing and distribution of models (either outcomes or logic, or both).

Some key themes from QuantCon which I found interesting were:

  • The emergence of social analytics platforms that can execute strategies on your venue of choice (e.g. quantopian.com)
  • The search for uncorrelated returns & innovation in (algorithmic) investment strategies
  • Back-testing as a means of validating algorithms – and the perils of assuming backtests would execute at the same prices in real-life
  • The rise of freely available interactive model distribution tools such as the Jupyter project (similar to Mathematica Notebooks)
  • The evolution of probabilistic programming and machine learning – in particular the PyMC3 extensions to Python
  • The rise in the number of free and commercial data sources (APIs) of data points (signals) that can be included in models

From an architectural perspective, there are some interesting implications. Specifically:

  • There really is no limit to what a single quant with access to multiple data sources (either internal or external) and access to platform- or infrastructure-as-a-service capabilities can do.
  • Big data technologies make it very easy to ingest, transform and process multiple data sources (static or real-time) at very low cost (but raise governance concerns).
  • It has never been cheaper or easier to efficiently and safely distribute, publish or share analytics models (although the tools for this are still evolving).
  • The line between the ‘IT developer’ and the user has never been more blurred.

Over the coming years, we can expect analytics (and business intelligence in general) capabilities to become key functions within every functional domain in an organisation, integrated both into the function itself through feedback loops, as well as for more conventional MIS reporting. Some of the basic building blocks will be the same as they are today, but the key characteristic is that users of these tools will be technologists specifically supporting business needs – i.e., part of ‘the business’ and not part of ‘IT’.

In the past, businesses have been supported by vendors providing expensive but easy-to-use tools to allow non-technical people to work with large datasets. The IT folks were very specifically supporting the core data warehouse & business intelligence infrastructure, or provided technical support for the development of particular reports. In these cases, the clients were typically non-technical, and the platform could only evolve as quickly as the software  vendors evolved.

The emerging (low-cost) tools for quantitative analytics will give rise to a post-Excel world of innovation, scale and distribution that will empower users, give rise to whole new business models, and be itself a big driver into how enterprise IT defines its role in the agile, unbundled, decentralised and as-a-service technology landscape of the near future.

Traditional IT organisations often saw the ‘application development’ functions as business aligned, and were comfortable with the client-oriented nature of providing technical infrastructure services to development teams. However, internal development teams supporting other (business-aligned) development teams is a fairly new concept, and will likely best be done by external specialist providers. This is a good example of where IT’s biggest role (apart from governance) in the future is in sourcing relevant providers, and ensuring business technologists are able to do their job effectively and efficiently in that environment.

In summary, technology is empowering quantitative analysts to much more on their own. IT organisations will need to think about how to make these capabilities available to their users, and how to incorporate it into IT strategies around big-data, cloud computing, security and data governance.

Agile quantitative analytics in Financial Services