Michael Porter is one of the leading authors and thinkers on Business Strategy. Porter opines that operational effectiveness is not a strategy, and it is necessary but not sufficient. He states that:
the root of the problem is the failure to distinguish between operational effectiveness and strategy. The quest for productivity, quality, and speed has spawned a remarkable number of management tools and techniques: total quality management, benchmarking, time-based competition, outsourcing, partnering, reengineering, change management. Although the resulting operational improvements have often been dramatic, many companies have been frustrated by their inability to translate those gains into sustainable profitability. And bit by bit, almost imperceptibly, management tools have taken the place of strategy." He goes on to add that operational effectiveness "means performing similar activities better than rivals perform them. Operational effectiveness includes but is not limited to efficiency. ....In contrast, strategic positioning means performing different activities from rivals' or performing similar activities in different ways.
The well-acclaimed and recommended Gartner Pace Layer Model helps companies determine the appropriate solution strategy by decomposing the systems and solution suites corresponding to the rate of change in an organization. In its Pace Layer Model, Gartner categorizes systems along three categories:
Slowest pace of change—Systems of Record
Medium pace of change—Systems of Differentiation
Fastest pace of change—Systems of Innovation
The Gartner classification essentially determines the rate of change of the corresponding system in an organization, and accordingly makes recommendations on how to go about the evaluation and replacement process. A good way to understand the Pace Layer Model is to relate the system application architecture to the architecture and design of a building. The following diagram makes the correlation:
A building begins with the foundation. Once this is set, it is unlikely to be changed unless some major architectural needs surface. Similarly, the root of business solutions is the Administrative ERP systems, which support the company's finance and human resource needs. These Systems of Record are typically set and remain unchanged for twenty to thirty years, ongoing modifications to and maintenance of general ledgers and charts of accounts notwithstanding, of course. In his blog on Model-Driven Development and Pace Layering, Butti describes these as:
systems that support core transaction processing and manage the organization's critical master data. The rate of change is low, because the processes are well-established and common to most organizations, and often are subject to regulatory requirements.
Then you have the walls, Heating, Ventilation, and Air Conditioning (HVAC), Plumbing, Electrical, and other core aspects of the building which differentiate it from other buildings. These aspects of a building undergo faster transformation than the foundation. From an application architecture standpoint, these would be akin to Systems of Differentiation. This area encompasses the operational systems, including Supply Chain Management systems, Sales Force Automation systems, and Shop Floor Control systems. Organizations will seek new or updated systems as they encounter changes in their ecosystem, anywhere from every three to ten years. Butti describes these as:
Applications that enable unique company processes or industry-specific capabilities.
They need to be reconfigured frequently to accommodate changing business practices or customer requirements.
Lastly you see the interior decoration and furnishings in a building. The wall paint can be changed, or the furniture, paintings, pictures, and so on, can all be moved around on a regular basis. Similarly, the Systems of Innovation can require rapid updates, within a few months to a year. Social Commerce, and Business Intelligence and Reporting systems are among those that would require rapid changes to existing platforms. Butti alludes to these as:
New applications that are built on an ad hoc basis to address new business requirements or opportunities. These are typically short life cycle projects…using departmental or outside resources and consumer-grade technologies.
In his research article Applying Pace Layering to ERP Strategy, Nigel Raynor talks about how this approach can help reduce the dominance of ERP vendors in the organization's application strategy, and create a more differentiated business solution governance model. He also talks about how the pace-layered strategy can help organizations to decompose their application portfolio into smaller groups, thereby helping their business users to identify opportunities for differentiation and innovation.
The Pace Layer Model helps organizations to bridge the divide between business and IT groups. Business users clamor for modern systems that are easy to use and deploy, and meet a specific set of requirements. IT Departments on the other hand, have a more strategic objective to manage a limited set of applications, to minimize integration and system management costs. The Pace Layer Model helps companies to build a strategy that caters to the needs of the business for differentiated and innovative systems, while also meeting IT team goals of secure systems that support core business processes.