Monday, May 10, 2010

Differentiation and Integration

In my post on Business Design Choices, I suggested that the real challenge for business architecture was to appreciate the economic and social impact of structure. I identified some advanced business design choices where business architecture has a useful role to play, and where some IT people might have some relevant aptitude. In this post, I am going to expand on one of these.

Where does standardization make sense, and where should requisite variety be deployed? This question goes back to the work of Lawrence and Lorsch (L2), and has recently been rediscovered (in slightly different terms) by Ross, Weill and Robertson (RWR).

In their book Enterprise Architecture as Strategy, RWR define something they call an Operating Model, with two independent dimensions, business process standardization and integration. "Although we often think of standardization and integration as two sides of the same coin, they impose different demands. Executives need to recognize standardization and integration as two separate decisions." (p27)

Many people in the IT world take for granted that standardization (reduction in variety) is a good thing.  RWR acknowledge the benefits of standardization not only in terms of throughput and efficiency, but also predictability. However, they point out the potential downside of standardization both as a state (standardized processes limit local innovation) and as a state-change (politically difficult and expensive to rip out and replace perfectly good and occasionally superior systems and processes).

Integration, which RWR define primarily in terms of data sharing, is also assumed to be a good thing. RWR identify the benefits of integration in terms of efficiency, coordination, transparency and agility, and acknowledge the challenge of integration as a state-change in terms of "difficult, time-consuming decisions".

The two dimensions of standardization and integration produce a two-by-two matrix as follows.

Operating Model Quadrants (Adapted by Clive Finkelstein from Figure 2.3 of “Enterprise Architecture as Strategy”) - Source The Enterprise Newsletter #38.

Although RWR are careful to present a contingency theory of enterprise strategy, in which any of these four operating models may be strategically valid, the conventional rhetoric of the two-by-two matrix places the preferred strategy into the top right quadrant - thus Unification. Many enterprise architects from a traditional IT background may feel most comfortable with the Unification quadrant. (There may be a process of idealization here - see Schwartz.) Indeed, RWR go on to present an Enterprise Architecture Maturity Model, which starts with the easy bits of enterprise architecture (where things are already Unified) and ends with the challenging bits (where things are or should be Diversified).

L2 also identify two dimensions, which they call differentiation and integration. They tend to see increasing differentiation as a healthy response to increasing opportunity and complexity - a growing organization in a growing market - "faster change and greater heterogeneity" (p 235). Differentiation is not merely a difference in working practices, but includes at its core "the difference in cognitive and emotional orientation among managers in different functional departments" (p11).

Integration is then the administrative response to this increasing differentiation - how to maintain the overall coherence and viability of the enterprise as a whole. Integration is defined as "the quality of the state of collaboration that exists among departments that are required to achieve unity of effort by the demands of the environment" (p11). The topic of integration covers both the organizational state and the mechanisms to produce and support this state. For L2, the challenges of integration are not primarily IT related (data sharing) but personal and political (conflict resolution).

L2 don't offer a two-by-two matrix of Differentiation and Integration in their 1967 book (I guess the two-by-two matrix hadn't then established itself as an essential consultancy tool), but if they did then presumably the top-right quadrant would be High Differentiation, High Integration. This very roughly corresponds to what RWR call Coordination.

But in any case, a two-by-two matrix would be misleading. The point isn't to choose whether you have differentiation and integration or not; the point is to determine how much and what kinds of differentiation  and integration you need. L2 are explicit in their support of contingency theory (different strategies being appropriate for different organizations depending on environmental factors). The more complex and dynamic the environment, the greater the need for differentiation and integration.

If we are to take business architecture seriously as a discipline, then this kind of question is clearly central. In his post on Contingency Theory and Enterprise Architecture, Andy Blumenthal argues that contingency theory entails keeping your options open, but sometimes it just means making appropriate strategic choices. If the slogan "enterprise architecture as strategy" is to mean anything at all, then surely this is what it means.

Lawrence, P., and Lorsch, J., "Differentiation and Integration in Complex Organizations" Administrative Science Quarterly 12, (1967), 1-30. (see summary here)

Paul R. Lawrence and Jay W. Lorsch, Organization and Environment, Managing Differentiation and Integration. Harvard University 1967.

Jeanne W. Ross, Peter Weill and David C. Robertson, Enterprise Architecture as Strategy. Harvard Business School Press 2006.

Howard S. Schwartz, Narcissistic Process and Corporate Decay – The Theory of the Organizational Ideal. 1990. See his paper On the Psychodynamics of Organizational Disaster (Columbia Journal of World Business, Spring 1987) See also Joe Bormel's blogpost on Narcissism, Oxygen and HCIT Vision (June 2009).

1 comment:

itblagger said...

Hi Richard - I completely agree that this kind of matrix - whilst 'peppy' - is not sufficient nuanced to really be of use in and of itself. Businesses will need to make use of multiple of these strategies in parallel depending on the context of different parts of their businesses; I guess the trick is to work out which strategy is appropriate to each and then have a divergent management style for each. I've written a longer response on my blog: