Whitepaper by Daniel Lambert
Here is the amazing story of Mela Apfel[1], a Business Architecture Director at Apple Republic[2], and how she and her team are assisting Apple Republic in completing a successful Merger and Acquisition using business architecture.
Context
Mela Apfel has been appointed about three months ago to the position of director – business architecture at Apple Republic. This was a new position. She received a bachelor’s in computer science at the University of Sioux Falls seven years ago, started right afterward at Apple Republic, and worked through promotions getting to the Business Analyst Manager position. While managing requirements in the IT department of Apple Republic, she was known to have good business acumen. The fact that her dad is an entrepreneur and talked all the time about his business to her family during her youth probably contributed a great deal to her disposition toward understanding business problems and finding common-sense solutions.
Apple Republic, headquartered in Omaha NE, is a multinational clothing and accessories retailer. It owns two brands, Apple Republic and BOLD NAVY[3], and wants to increase the number of its brands by mergers and acquisitions. BOLD NAVY was their first acquisition. It occurred right after Apple Republic became a public company. The integration went fairly well. With the integration of BOLD NAVY’s operation to Apple Republic’s operations, Apple Republic finally ended up earning more profits than it had anticipated originally, but the integration process took 12 months more than they had originally planned and the integration cost 195% more than anticipated. At the time, the Business Architecture department did not exist, and the Enterprise Architecture department was in its infancy focusing strictly on IT only.
Apple Republic’s made in USA products appeal to higher-income families. A client can purchase at an Apple Republic store and/or online high-quality clothing at a decent price. Its clothing design is somewhat traditional and yet unique. Execution at Apple Republic is among the best in its industry. With its excellent loyalty program and top-notch supply chain, its quality of services and delivery are the envy of the industry. High and very high customer satisfaction is over 70% year after year. Turnover of inventories is over 10 times a year. This means that on average a piece of clothing stays less than 37 days in stores and warehouses. Net profits have been over 19% for the last 3 years and the company aims to keep it that way in the future, even though their products are made in the USA at a higher cost than their competition.
Apple Republic wants to grow its revenue and profits at a minimum pace of 20% per year. In the past, it had done so by increasing its number of stores geographically first throughout the USA and then throughout other countries. Except for Asia, Apple Republic stores are now just about everywhere. To keep growing, Apple Republic needs to expand through mergers and acquisitions.
Apple Republic’s first acquisition was BOLD NAVY three years ago. It provides affordable in-vogue clothing to low- and middle-class income families at affordable prices. When Apple Republic purchased the brand, BOLD NAVY was only present in the USA, barely profitable, provided no online e-commerce, and no loyalty program. Many had doubts about the fact that Apple Republic could execute this turnaround and make BOLD NAVY strive like Apple Republic. Yet, Apple Republic applied the same recipe. In brief, it dumped the supply chain system that BOLD NAVY had and replaced it with theirs. It introduced a loyalty program, allowed clients to view and purchase clothing online, and has grown the number of its stores in other countries and continents. The turnaround took much longer than planned, but the results are now satisfactory. High and very high customer satisfaction is over 70%. Turnover of its inventories is 8 times a year (or 46 days). Net profits were 12% last year. Finally, BOLD NAVY’s 27 new store openings in Europe are going very well.
Critical First Initiative: The Next Merger and Acquisition
Mela Apfel’s new boss, the VP – Information Technology Services of Apple Republic, has warned her that a possible merger and acquisition of a private retail chain, called Amplitude[4], specializing in mainstream plus-size clothing for men and women with stores in the USA and Canada, could be imminent, as shown in the drafted org chart in Figure 1 above. The usual stages of a merger and acquisition process include (a) the identification of possible contenders for acquisition or (b) business units for divestiture, (c) due diligence, (d) post-merger integration, and/or (e) the implementation of divestitures. Mela read recently that almost 90% of enterprise architects are involved in merger and acquisition activities to support post-merger integration efforts. Less than 50% of enterprise architects provide support during due diligence or to implement divestiture.[5] In the case of Apple Republic, its Business Architecture team would be important during the due diligence process and essential during the post-merger integration process that would follow, as shown in the acquisition and integration plan in Figure 2 below. This time, the head office made clear that Apple Republic would integrate the next brand without delays. Or else, the consequences to the Information Technology Services could be severe. Mela’s boss was quick to point out that he counted on his Business Architecture team to get things rolling according to plan. In brief, the pressure was on full blast for Mela Apfel.
There are several reasons why Apple Republic wants to purchase Amplitude. The plus-size clothing market is growing over 20% per year, a lot more than other garment retail markets. Second, the retailers in this market are small and there is not yet any clear leader. Third, there is room to grow internationally. Fourth, the Apple Republic and BOLD NAVY brand did not serve the plus-size clothing market well. Fifth, Apple Republic’s line of products could be sold in Amplitude stores by offering sizes that were not really offered in Apple Republic stores currently. Finally, but not least, Amplitude’s current net profit margin is high at about 20%.
New Business Architecture Department
Apple Republic’s recent Business Architecture team is now made up of three individuals, including Mela. The other two business architects were named a few weeks after her appointment, report to her, and they each take care of the business architecture initiatives and projects within one specific brand. A fourth business architect would be named after the formal transaction that took place regarding Apple Republic and Amplitude. Although Mela had been a member of the Business Architecture Guild[6] for a while, that she had glanced through the BIZBOK Guide[7], and read this more practical book entitled “Practical Guide to Agile Strategy Execution: Design, Architect, Prioritize, and Deliver your Corporate Future Successfully”, Mela decided right away to hire a reputable business architect consultant to get her business architecture practice going rapidly and guide her afterward a few times a year.
The second thing Mela Apfel did in parallel was to purchase a business architecture software application to gather all existing information that had been accumulated within their enterprise including a list and description of applications and databases on Excel files, a requirement management tool, and their main business processes in Visio diagrams. This tool was to be hosted on the cloud and be used by business architects, a few IT architects, and business analysts. Their findings and artifacts were to be shared with viewers, consisting of key business and IT stakeholders within Apple Republic. This would enable feedback from key business stakeholders, enterprise architects, business analysts, IT portfolio and project managers, business process experts, and all IT/data/software/application architects and make sure that Business Architecture would become an integral part of the corporate strategic planning process.
Building the Foundation
The import of all relevant data from the various systems and software applications already in place within the company into the business architecture software application was simple. Using Excel files, the fine-tuning and import of data took Mela’s team a little more than 2 weeks. Making frequent data intelligent synchronizations using restful APIs from their Jira and ServiceNow software to their new business and enterprise architecture software was also going to be an important task.
The data from all these different sources was sometimes inaccurate, with duplications and even conflicting information. Mela and her team intended to clean it up and update it in due course with the completion of additional initiatives. Initially, they would make sure to prioritize their efforts in fine-tuning the information that related to the Amplitude acquisition initiative. With time, all the information in the business architecture model would be fine-tuned with the start, realization, and delivery of other new initiatives not related to the acquisition.
Mela and her team rapidly ended up with Organization, Capabilities, Value Streams, Information, Stakeholders, Application/Systems, and Initiative/Project high-level current-state mapping for each of the 2 brands of Apple Republic. They needed to do the same rapidly with Amplitude. They would later get into more details and do the Business Strategies, Product, Process, and Requirement cross maps.
Critical and Client Facing Capability Ownership
The business architecture team initially completed Figure 1 above, which showed the first two levels of the future state of Apple Republic’s Organization Chart, including the new merger and acquisition with Amplitude. They also identified and described in detail thirteen critical and client-facing level-one capabilities of Apple Republic, which are mentioned in Figure 3 below. They are Billing Management, Contact / Leads Management, Client Management, Partner Management, Channel Management, Merchandising, Supply Chain Management, Human Resources Management, Brand Management, Manufacturing, Information Management, Application Management, and Stores / Franchises Management.
Right now, Amplitude owns and uses all these business capabilities, except Channel Management, where they have very limited knowledge of social media, and Manufacturing, where they have no expertise. With this merger and acquisition by Apple Republic, they would eventually stop owning and only use Billing Management, Partner Management, Supply Chain Management, Information Management, Application Management, Stores / Franchises Managements. These business capabilities would now be owned by various departments of Apple Republic.
Supporting Systems and Applications
After the completion of a merger and acquisition, odds are very high that there will be duplications of various applications. Using business capabilities to identify these duplications and formulating a plan to streamline these applications in an orderly fashion would rapidly be requested. Figure 4 below shows an example of the status of the supporting applications of one of the key capabilities mentioned in Figure 3 above, in occurrence the Billing Management, right after the acquisition of the retailer Amplitude by Apple Republic.
The Billing Management level one Capability includes the following level 2 capabilities: Billing Statement Management, Invoice Management, and Client Payment Management. Three applications support these capabilities after the Amplitude acquisition; one originates from Apple Republic and the other two are from Amplitude. As for the databases, 4 are used after the acquisition of Amplitude; two originate from Apple Republic and the other two are from Amplitude. At least 4 options can be executed to streamline the billing management capability. They are:
- Merge the "Amplitude Invoicing" database with the "Apple Republic Invoicing" database,
- Merge the "Amplitude Clients" database with the Apple "Republic Clients" database,
- Decommission the "Invoice Statement Application" that originates from Amplitude, and
- Stop the "Invoicing Application B Services" that was provided to Amplitude before the merger with Apple Republic.
It goes without saying that examining in detail the enabling applications of key capabilities involved in the merger and acquisition for the business architecture team needs to be coordinated with the more IT-focused enterprise architects within Apple Republic. “Nearly all enterprise architects surveyed (94%) value establishing transparent IT landscapes. Without such transparency, companies lack the very basics to make sound architectural decisions, especially when harmonizing IT landscapes. (…) Another 88% point to their role in application rationalization, which consists of eliminating redundant applications and services. At least 84% also have a role in developing a target IT landscape, while 74% get involved in charting application roadmaps. Establishing a framework for both the future architecture as well as for all individual applications is regarded as an important part of any post-merger integration effort"[8].
The Value Streams
Examining key value streams delivering crucial value propositions should eventually be examined for Apple Republic’s business architecture team.
This is why Mela Apfel and her team have also built drafted client-driven value streams as shown in Figure 5 above. The business architecture team needs to validate at least some of these value streams with subject matter experts from each business unit to find a common framework vocabulary and definitions. The team also needs to define the enabling capabilities of these value streams as shown in Figure 6 below and validate it again with subject matter experts.
Once Amplitude is officially acquired, Mela will need to turn her attention to this new business unit and examine some and eventually all these client-driven value streams, focusing on the business capabilities that are missing, low performing, and of critical, very high, or high priority, as shown in Figure 7 below.
Measuring current and new customer-centric enabling capabilities will allow building strategic initiatives that focus foremost on the capabilities that provide the most value to both the customer and the organization. These are usually referred to as problematic capabilities, like the business capabilities Client Interaction Management (number 15.5), Client and Building Address Pairing (number 15.4.6), and Client Incident Status Pairing (number 15.5.3.5) in this example.
Capability-Based Gap Analysis
After highlighting the problematic capabilities enabling customer-driven value streams as shown in Figure 6 above, it is becoming more and more common to examine in detail the gaps for each one of them, as shown in Figure 8 below.
A gap analysis will typically include several gap items for each identified problematic capability enabling a value stream. In this example, there are 3 gap items. Each gap item will include a current status, a precise description of the gap, the desired future state of the problematic capability, and finally an action plan indicating how to get from the current state to the future state. Each gap item is addressed by at minimum one initiative, sub-initiative, or more commonly projects.
Projects and Business Outcomes
Most if not all your initiatives and projects should be derived from capability-based roadmaps. Laying out the nomenclature, roadmap, and GANTT Chart of your initiatives and projects into sub-initiatives and sub-projects needs to include a business outcome derived at minimum from strategies and tactics, as shown in Figure 9 below. At best a business outcome should be derived from goals and objectives.
Strategies consist of high–level plan items that also include short period tactics to achieve an organization’s significant goals under conditions of uncertainty. A goal is a desired result that an organization envisions, plans, and commits to accomplishing within a finite timeframe. As for objectives, they are essentially short period goals whose achievement brings an organization closer to its long-term goals. Goals are drawn from strategies. As for objectives are derived from tactics, which are conceptual short period actions to deliver and execute a strategy.
If goals and objectives are nowhere to be found in the organization, the business and enterprise architecture team should try to extract them from management. In reality, many business and enterprise architects often must fall back on imprecise strategies and tactics because of the reluctance of some managers to commit to precise goals and objectives. As for Mela Apfel and her team, they are very fortunate. Apple Republic is very well managed. All sections of its organization have clear strategies and goals that can be disseminated into tactics and objectives and guide the business architecture team in deriving clear business outcomes for each one of the initiatives and projects where they will be involved.
Conclusion
Mela Apfel is now ready for her meetings with the big brass of the company (key stakeholders). She will now be able to show, gather and modify relevant information on requests to assist them in their decision-making during the current due diligence and integration stage that will follow.
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[1] Mela Apfel is a fictional character made especially for this whitepaper.
[2] Apple Republic is a fictional company made especially for this whitepaper.
[3] BOLD NAVY is a fictional brand made especially for this whitepaper.
[4] Amplitude is a fictional brand made especially for this whitepaper.
[5] Numbers obtain from this article entitled “Enterprise architects, the new heroes of mergers and acquisitions” published on February 10, 2021 by ZDNet.
[6] This is the Business Architect Guild website: https://www.businessarchitectureguild.org/default.aspx.
[7] The introduction to the BIZBOK Guide can be viewed on this Webpage: https://cdn.ymaws.com/www.businessarchitectureguild.org/resource/resmgr/bizbok_8_5/bizbok_v8.5_final_part1.pdf.
[8] Quote from this article entitled “Enterprise architects, the new heroes of mergers and acquisitions” published on February 10, 2021, by ZDNet.
