Paper
BUILDING A BUSINESS CASE FOR AGILITY
Published 1998 · Joseph Sarkis, A. Presley, D. Liles
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Abstract
Agility is increasingly being seen as a prerequisite for continued competitiveness in the changing global marketplace. However, many of the technological and organizational changes required in making the migration to agility are radical and strategic in nature. Attempting to justify many of these pervasive changes is difficult using currently available techniques, especially those which focus solely on traditional economic criteria. The failure to consider strategic and long term benefits of agility can lead to the failure of manufacturers to adopt these required changes. This paper will discuss how the migration to agility can be justified from a business perspective using a business "case" methodology for the strategic justification of enterprise integration technologies. ACKNOWLEDGMENTS Research for this paper is funded in part by the National Center for Manufacturing Sciences, the State of Texas Advanced Technology Program Grant 003656-036 and by the National Science Foundation sponsored Agile Aerospace Manufacturing Research Center. INTRODUCTION The integration and adoption of agile technology, practices, processes and people into any organization relies heavily on strategic and operational measures and goals. For an organization to become more agile, a vision must be adopted that will guide them to accomplishing this goal. The process of adopting and integrating this vision will not be made without consideration of the overall sustainability of the organization. That is, for agility to be adopted and implemented within an organization it needs to be sold to management from a business perspective. This business case should not rely on the traditional practice of the strict use of economic performance measures. Agility is a pervasive concept that impacts the organization on a number of dimensions. Agility does not necessarily arrive immediately, and similar to many strategic visions, will probably require a relatively long migration period for a significant adoption of its principles [5,6]. This paper will present a unique application of a methodology that can be applied to justifying the adoption of agile manufacturing strategy and principles. It will discuss the characteristic benefits and costs which are incurred when making this transformation to agility. Possible metrics and performance measures identified from various literature and research sources, which can be used in the methodology, will be presented. The discussion will include the use of the methodology for building a business case for the overall decision to embrace agility and agile manufacturing as a paradigm for doing business. Additionally, the more general case presented in this paper can be made more specific for making a case for the acquisition of individual enablers for agility. A number of issues pertaining to building a case for agility are outlined in the concluding section. THE BUSINESS CASE METHODOLOGY The business case methodology, now known as SJET (Strategic Justification of Enterprise Technology), was developed under funding from the National Center for Manufacturing Sciences. The focus of the methodology is on justification of technologies having pervasive, enterprise wide impact through a structured analysis approach. In the context of this methodology, technology can refer to major organizational changes, such as agility, as well as hard automation and other more conventional process technologies. We have chosen to present the business case methodology within the unique context of a company seeking to build a case for the transition to agility. The discussion will include the methodology itself along with the specific factors involved in agility. It should be noted that the methodology would be equally appropriate in justifying an investment in a specific technology necessary for agility, such as a new integrated information system or flexible machining system. The methodology consists of five integrated phases as illustrated in Figure 1 by an IDEF0 based diagram. These phases are: Identify System Impact, Identify Transition Impact, Estimate Costs and Benefits, Perform Decision Analysis, and Audit Decision [8]. In the Identify System Impact phase, the technology or change is linked to the enterprise. This linkage uses an activity based approach to estimate financial costs and benefits. The activity also links the impacts of the new technology to the strategies of the enterprise. In much the same way, the Identify Transition Impact activity identifies the impacts the process by which the new technology is implemented. The Estimate Costs and Benefits activity estimates the actual magnitude of the strategic and financial impacts. In the Perform Decision Analysis activity, the analyst(s) performing the justification arrives at a decision recommendation. The Audit Decision phase is present to allow for an evaluation of the justification process so that improvements can be made to the methodology itself. The analysis in this methodology is accomplished through a series of documents and analysis matrices (templates) (as shown in Figure 2) in which the pervasive impact of the technology on the enterprise is determined. The documentation, labeled "forms" in Figure 2, can be extensive. Documentation data will require such elements as the written strategic vision of the organization to assumptions and constraints that face the decision making process. The detailed requirements for this documentation, as well as the details of the methodology, can be found in [8]. This data must be acquired for successful completion of this justification methodology and is assumed to exist prior to the use of the methodology. The matrices will help identify relationships among the strategic and activity based (operational) impacts of the technology. There are five major sets of "linkage matrices" used to link objectives, strategies, attributes, strategic and operational metrics, as well as activities, that are used by the methodology. Two of these, the Strategies to Objectives and the Strategies to Strategic Metrics Matrices are detailed within the illustrative example. Four "analysis matrices" are used to measure the actual impact of the adoption of a technology or business practice. The methodology relies on various performance metrics which may be used to measure or estimate the actual impacts. An activity based approach for determining cost impacts is used. These impacts are aggregated and placed within a cash flow matrix for the calculation of traditional financial impact in a form presentable to financial analysts or external funding sources such as banks and financiers. The net results of these cash flows, maybe expressed in financial criteria such as net present value (NPV) or return on investment (ROI). These criteria are then incorporated into a final strategic analysis matrix in which all impacts (from the traditional and strategic metrics matrices) are integrated to arrive at a final evaluation "score" for the technology alternative. A strategic analysis matrix is developed for each alternative. From this strategic analysis matrix, summarized data is extracted and presented in an alternatives comparison matrix which will be utilized to make a final evaluation among competing alternatives. For this approach to be successful it will require the efforts of a project/analysis team comprised of individuals from various functions. The next section will detail the methodology though an illustrative example focusing on agility as the "technology" to be justified. AN ILLUSTRATIVE EXAMPLE FOR JUSTIFYING AGILITY In this illustrative example we present the methodology within the framework of a company seeking to justify a transition to agility. To make the example meaningful, we will use reference material from management literature and the Agility Forum. In the interest of space, we will not present all of the forms or matrices used in the justification, but only highlight those which give the reader an overall understanding of the methodology. Additional information about the methodology can be found in the specification of the methodology [8]. The strategic nature of this justification methodology requires that the analysis team gain an understanding of the strategic direction of the firm. To be able to successfully accomplish this, a linkage matrix similar to the one shown in Figure 3 is completed. This Strategies to Objectives Matrix identifies the objectives of the enterprise and links them to the strategies employed to meet the objectives. Strategies are listed along the vertical axis and objectives along the horizontal axis. Within the methodology, objectives are broadly defined, long term results which an enterprise strives to reach. In this case, we use as objectives some of the "Enterprise Characteristics" of an agile enterprise as outlined in volume 2 of the 21st Century Manufacturing Enterprise Strategy document [5]. A company making and measuring progress in achieving desired characteristics in areas such as concurrency, customer responsiveness, and vision based management, should find itself progressing toward agility. A company may and should develop their own definitions of these or other objectives entirely. We have added an objective for long term financial viability, since it is implicit in being agile. Strategies are the means by which a company will meet its objectives. Where objectives define where a company wants to go, strategies define how it will get there. To maintain the general nature of this presentation, rather than present specific strategies, we present areas in which strategies should be defined. Financial Performance, Cost, Flexibility, Quality, Time, Product/Process Innovation, and Environmental are fairly well accepted in management literature as areas in which enterprises should develop strategies. The Strategies to Objectives Matrix defines the relationships of all or some of the corporate and functional strat
The SJET methodology effectively justifies the adoption of agile manufacturing strategies and principles, highlighting the strategic and long-term benefits of adopting agility within an organization.
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