Viewpoint: April 3, 2003
We are now at war, and the war is taking longer than the optimists hoped but not yet as long as the pessimists feared. The coverage of the war reflects our obsession as a nation – we love to keep score. How many miles did our troops cover today? What cities have we taken? Is Saddam dead or alive? With correspondents “embedded” in the military units advancing on Baghdad and providing live coverage, it is easy to become narrowly focused on the events of the day. Easy, but dangerous. We begin to lose sight of the broader processes surrounding and shaping these events. Yet, these processes that will end up having a much more profound impact on business than the war itself will.
The war in Iraq is merely one event in a much more fundamental process playing out on the world stage. It represents a major strategic move in a broader effort to redefine the architecture of international relations – in fact, it may prove to be the most fundamental architectural shift since the realignment that followed World War II. In that earlier realignment, we saw the evolution of a series of international institutions like the United Nations and NATO, shaped by the core reality of sharp rivalry between two powerful blocs of nations and, in the case of the UN, providing a forum for a large group of “non-aligned” developing nations seeking to exploit their new found influence as swing votes in the confrontations between the superpowers.
With the collapse of the Communist bloc, the architecture of international governance failed to adapt to the new reality: a profound asymmetry of power, with the United States having much greater capability to exercise influence on the world stage than any other nation. The war on Iraq can be viewed as part of a broader effort to close the gap that has emerged between architecture and reality. By proceeding without the support of major international institutions, the United States intends to demonstrate the ineffectiveness of these institutions as currently structured. When the war on Iraq is won, you can bet that US policy-makers will be working hard to realign international governance architectures to more accurately reflect the overwhelming power of the U.S. In a curious way, we are likely to move from more distributed governance architectures to much more centralized and concentrated governance architectures.
This will not happen without some turmoil. Architectural shifts never do. Especially when the participants have sovereign governments and armies. Already, we are starting to see France, Germany and Russia draw closer together. China and India are becoming more concerned over the growth of U.S. power. Rogue nations like Iran and North Korea are wondering who is next on the hit list and what to do about it. Even Saudi Arabia begins to worry that it might also be a target for regime change. The near-term impact of all of this is likely to be growing friction in international relations and instability of traditional alliances. The second order effects are likely to be a slowing down, if not a reversal, in the decades-long trend towards freer global financial, product and labor markets. At a minimum, we are likely to see growing uncertainty around key areas of public policy on a global scale: monetary policy, trade policy, regulatory policy, fiscal policy and immigration policy.
What are the implications of all of this for business? As if we didn’t have enough uncertainty already, we are likely to face even more uncertain global markets. Here are some likely implications:
– Outsourcing, one of the growth trends in business, will likely be reshaped in an effort to cope with this uncertainty. We are likely to see a more rapid shift from outsourcing to orchestration as a technique for accessing capabilities from third parties (see my working papers co-authored with John Seely Brown “Orchestrating Business Processes : Harnessing the Value of Web Services Technology” and “Orchestrating Loosely Coupled Business Processes: The Secret to Successful Collaboration”.
– The focus of outsourcing and orchestration activities may shift from distant and potentially riskier offshore locations like India and China to potentially safer “nearshore” locations like Latin America and Canada.
– Management is likely to find increasing value in flexibility of operations on a global scale, even at the expense of efficiency. Flexibility in turn is likely to produce greater interest in federation as a governance concept (see the discussion below) and accelerate adoption of Web services technology (see my book Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services).
– From a markets perspective, emerging markets like China, India and a number of former Communist bloc countries have provided a significant growth engine for many global corporations over the past five to ten years. Growing concern about access to, and stability of, these emerging markets is likely to increase pressure on corporations to find additional sources of growth. This in turn is likely to intensify competition within more mature markets.
The irony is that the architectural shift we are witnessing on the global stage is proceeding in the opposite direction from the architectural shifts occurring in the information technology arena and in business. In the information technology arena, the move from highly centralized, hierarchical architectures to more decentralized and dispersed architectures is accelerating. It began with the move from proprietary mainframe architectures to more open “n-tier” client-server architectures in the 1990’s. It continues in this decade with the emergence of distributed service oriented architectures. This most recent shift has been reinforced by the deployment of Web services technology.
Like the architectures of international governance, these new IT architectures are emerging in response to changing conditions. As flexibility becomes a more central business value and as collaboration with other companies becomes more essential to deliver distinctive value to customers, the IT architectures of the last decade are showing their limitations. The new IT architectures are shaped by the principle of loose coupling (see my blog entry “Loosely Coupled: A Term Worth Understanding”) to create more modular IT resources that can be tailored to respond to rapidly changing conditions.
These new IT architectures demand new governance models. As IT architectures become ever more distributed, spanning across multiple enterprises, we can no longer operate with the assumption of a single decision-maker shaping the architecture. Instead, we need to move to federation as a governance model. Federation is an organizational construct that enables independent entities to preserve their independence while at the same time creating mechanisms to address matters that require collaborative action.
Federation arrangements are the only way to accommodate the reality of multiple independent decision-making nodes. Federation lodges decision-making authority in the lowest layers possible. Federations make a clear distinction between what is local and what must be escalated to higher levels for resolution. Adhering to the principle of the least escalation possible, federations explicitly define appropriate escalation and conflict resolution procedures in advance.
This shift in IT architectures calls into question the current approach to IT systems management. Until now, IT systems management platforms have been steadily centralizing management functionality, feeding information about systems performance to centralized analytical engines. This centralized management approach cannot handle the growing complexity of distributed service oriented architectures. To cope with this complexity, these management systems will need to more effectively serve the very different needs of distinct layers of management accountability. We are likely to see specialized management platforms addressing Network and Systems Management (NSM), Technical Services Management (TSM), Business Process Performance Management (BPPM) and Business Operations Performance Management (BOPM). These platforms will also need to expand the functionality available at each layer, providing more capability to automate problem resolution, proactively identify potential performance issues, manage systems performance across multiple enterprises and prioritizing problem resolution based on a clear view of the operating and financial impact of specific performance issues.
Business architectures will also need to shift in order to exploit the more distributed and loosely coupled attributes of IT architectures. Over decades, we have developed very hard wired and centralized approaches to business management, at least in part because our IT architectures did not offer any other option. I have written extensively about the current shift in business architectures in Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services and it is the focus of much of my current consulting activity and research. Once again, the need for flexibility and increased collaboration with other enterprises drive us to very different management approaches in areas like operations (loosely coupled business processes), organization (federation models) and strategy (layered strategies).
Stepping back from all of this, I wonder how the architectural shift we are seeing in international governance toward more centralized architectures can be reconciled with the architectural shifts away from centralization that we are seeing in the IT and business arena. Could it be that the forces shaping the IT and business landscape are so different from the forces that are shaping the global political landscape? Perhaps the push toward more centralized governance architectures on the global stage is an aberration and not sustainable. Perhaps the logic of centralization driven by the overwhelming political and military power of the United States is too narrow. Perhaps it focuses too much on the power of national governments and fails to take into account the role of technology in producing a different kind of power asymmetry.
Maybe the real shifts in power on the global stage have to do less with power relationships among governments and more with the ability of non-governmental entities like corporations, public interests groups and, yes, terrorists to amplify their impact through the creative use of technology. If this is the real power shift that matters, perhaps we will yet see a move to even more distributed architectures of international governance. The outcome of this architectural uncertainty will have enormous impact on business strategy in the years ahead.