In recent years, we have produced numerous blog posts, white-papers, and webinars on the topic of typical assessment approaches used with LeanIX: PACE, TIME & 6R

With this new blog series, we want to take you through this subject step-by-step and help you understand and apply these approaches and further complement our documentation.

Fundamentals

Pace layering – a concept that challenges conventional thinking and provides a structured approach to thrive amidst continuous transformation journeys.  Pace layering is not just another buzzword, but a fundamental strategy that can allow businesses to prioritize IT investments and resources based on the needs of each layer.

Pace Layering methodology is used in LeanIX EAM to classify business capabilities based on strategic value and pace of change. It enables the development of enterprise architecture strategies for each layer to effectively balance stability, agility, and innovation.
Pace Layering facilitates informed decision-making during application portfolio assessments and application modernization efforts.

In this article, we explore why you should think deeply about pace layering and how it can transform your approach to problem-solving, decision-making, and long-term sustainability.

To begin with share your experience on how:

 Have Pace-layered strategies helped you in adapting to rapidly changing business requirements and technology advancements? 

Pace Layering categorizes business capabilities into three different layers:

• Innovation: This layer includes business capabilities that support new business models, drive innovation, and are potential revenue drivers in the future. Changes to these services occur at a high pace. IT governance in this layer is scenario-based, accounting for increased complexity and rapid changes as the business capability is supported by emerging technologies and experimental applications. This layer ideally consists of 5 to 10% of your portfolio.
• Differentiation: This layer includes industry and/or company-specific capabilities that give the company a competitive advantage. Changes to these services occur at a moderate pace. IT governance in this layer is relatively flexible and autonomous, focusing on sustaining market advantages. This layer would ideally consist of around 20% of your portfolio.
• Commodity: This layer supports business capabilities by core transactional systems such as databases, ERPs, and CRMs that are critical to the business but change slowly over time. This layer includes highly integrated processes for operational efficiency. IT governance in this layer is systematic and enterprise-wide, focusing on standardization, reliability, and predictability. This layer would ideally consist of around 70% of your portfolio.

3 Steps for Pace-Layering Business Capabilities

Pace-layering business capabilities is a straightforward procedure but can profoundly impact how stakeholders perceive architectural change. Though business capability models are reliable waypoints for IT and business to understand one another’s needs, they’re valuable as they reflect the true nature of a modern digital enterprise. 

For finance and operations teams, this means making decisions based on explicit understandings of a company's overall capacity for differentiation and innovation. As for EAs who've spent years shaking their Ivory Tower image, it means doing what's necessary to translate the complexity of the digital age to help IT and business teams grow in tandem.

Here’s a quick outline on how to get started:

1. Develop Business Capability Maps

Develop business capability with business and IT stakeholders

• Establish clear responsibilities with business and IT stakeholders
• Ensure first level of business capabilities reflect those most critical to operations
• Go no more than three levels down for each capability

2. Apply Pace-Layers

Segment business capability maps by commodity (common ideas), differentiation (better ideas), and innovation (new ideas)

• Accommodate variations across business units, global regions, and user groups
• Use customized tags or fields to categorize business capabilities
• Align which business capabilities serve as future differentiators and are subject for explorations

3. Scope Investments/Resources

Move discussions on IT investments from applications to business capabilities such as having tangble data points to know if Over-invested in commodity? (Or) Under-invested in differentiation?

• Distribute costs and governance efforts based on which areas of a business are prone to change; prioritize resources where needed
• Gauge IT investments with expertise from across departments to broaden the feedback loop
• Ensure business capabilities evolve in parallel to technology roadmaps

Pace-layers acts as tool that allows the business and IT units to prioritize the requested IT investments/ applications work within a predefined budget, which is never enough to do everything. New features on a system of differentiation will always trump add-on features of a commodity that features processes that already follow industry best practices. Hence, CIOs and application leaders must take action to ensure that IT is not sidelined when developing and deploying a pace-layered strategy

In the context of pace layering, what are some common misconceptions or challenges you've encountered within your organizations, and how have you addressed them?

Conclusion

Organizing around stable capabilities provides companies with clear competitive advantages. An organization’s most distinctive capabilities can be leveraged across multiple products and services to quickly respond to changing market conditions.

Since most companies have business capabilities, they do not use them always the way intended, they must be transformed: first by consolidating how they are built, and then by how they are operated. A base of distinctive capabilities improves an organization’s ability to execute its strategy not only through superior performance of the capabilities, but also by helping the organization determine what to say “no” to IT investments, and that is the essence of strategy.