Fascinating summation from a series of studies by MIT SLOAN’s CISR that identifies a series of patterns and processes that serve as a guidepost for embracing Enterprise Architecture. Here are a few takeaways from the book:
In order to execute against strategy, you first need to build a foundation of technology that supports the global needs of the organization more than the individual needs of functional / divisional areas. By building a platform to support the core business processes, organizations can reduce their costs & complexity while improving their ability to leverage services in a reusable manner thereby enabling flexibility and agility. Easier said than done…
One key piece of advice is that companies need to progress through a series of “stages” to bring their culture along and to align the management processes to ensure they can leverage and support the technology as it moves through each stage. The 5 stages include:
- Business Silos
- Standardized Technology
- Optimized Core
- Business Modularity
- Dynamic Venturing
Most folks will recognize the first 2 right away. The 3rd stage (Optimized Core) is where we start to see real differentiation in the market (esp. at a the management level due to the commitment required across the board). Optimizing the Core processes is where most ERP implementations take place. Some folks try to accelerate the journey by collapsing multiple stages together and this is when projects become exceedingly expensive, transformation pushes people and the organization to the edge, and where leadership changes can occur (ahem). The authors stress that this is a slow and deliberate process of learning and internal growth for the organization and moving too fast can disrupt and/or disable organizations. Obviously, there are exceptions but these are the organizations that have unique cultures and/or are experiencing uniquely challenging market dynamics (a.k.a. extinction).
Foundation for Execution:
This is a business modeling exercise where the core business processes are identified in a 1-page diagram. This visual model is very useful for identifying the 3 key components (operating model, enterprise architecture, IT engagement model) used to link strategy with technology enabled services.
- Operating Model – defines the core business processes required for delivering products & services to customers that are consistent across the enterprise.
- Enterprise Architecture – defines the logical abstraction covering business and technology that identifies areas of synergy to support enterprise integration, promote asset reuse, and platform the technology services required to enable the operating model.
- IT Engagement Model – defines the governance model required to ensure business strategy is efficiently and accurately transformed into operational execution.
Once organizations build their foundations, they can begin building value-added services to differentiate themselves and increase the value they deliver to customers. For example: Companies can reuse the foundation to branch into adjacent markets and/or build out new products much easier and at lower cost.
Identifying the 4 Distinct Operating Models:
- Coordination – shared customers, products, and perhaps suppliers. Decentralized decisions for IT services
- Unification – customers & suppliers may be local or global. Globally integrated business processes using enterprise systems, centralized decisions for IT services
- Diversification – few if any shared customers, independent transactions, operationally unique business units, autonomous business management. Decentralized decisions for IT services
- Replication – few if any shared customers, independent transactions which are aggregated at a high level, operationally similar business units, autonomous business management. Centralized decisions for IT services.
Implementing the Operating Model via EA:
- Enterprise Architecture encompasses the business processes and technology encompassing the entire enterprise whereas IT Architecture typically is confined to the business & operational processes. IT Architecture has begun to expand beyond business systems to encompass supply chain operations as a result of ERP implementations. The ERP platforms provide modules to extend the business systems core to other areas of the organization. However, these need to be implemented using EA to ensure the ERP accommodates the Operating Model for the organization. The EA also needs to span the value network to ensure the “whole of technology” supports the growth and differentiation needs for the organization.
- Encapsulating EA in a “core diagram” involves outlining the 4 key elements (core business processes, shared data used to drive core processes, key linking & automation technologies, and key customers). The drafting of the core diagram is a collaborative effort often lead or facilitated by a Chief EA.
The journey that organizations need to make to progress through the 5 stages is a learning process for the organization to shift from a local to an enterprise wide perspective regarding flexibility and agility. The authors pose a very interesting diagram that maps out the downward trend away from local flexibility (units / areas / countries), which requires patience, solid communications, and ongoing support. The flip-side is that enterprise-wide flexibility increases dramatically as the organization moves through progressive stages of architectural maturity (agility increases geometrically in the latter stages).
There are 5 areas of learning that organizations need to benefit from:
- Business Case – understanding how to measure value against cost to assess an investment
- Prioritizing Investments – determining which technology initiatives to fund
- Management Capabilities – ability to leverage IT benefits (this is the shift in thinking)
- Management Ownership for identifying value – to guide the definition of technology enabled business services
- Technology Governance – establishing standards for local & enterprise-wide use of technology, aligning investment priorities with EA objectives, sourcing and funding technology extensions in business modularity
While organizations are “learning”, they will realize a number of benefits along the journey:
- Reduced business risk – improved reliability of business systems, increased resiliency, and increased security
- Increased management satisfaction – senior (global) leaders appreciate reduced costs & improved global agility and local business units appreciate the positive impact on their value delivery, improved service levels and reduced costs)
- Enhanced strategic outcomes – improved operational excellence, improved customers satisfaction, improved product leadership in the market, and improved strategic agility.
Along with the maturation of the organization’s architecture and the technology platforms (via the 5 stages), there is also an evolution of the processes used to manage architecture:
Stage (Business Silos)
- Business Cases
- Formal Project Methodology
Stage (Standardized Technology)
- Architects on project teams
- IT Steering Committee
- Architecture exception process
- Formal EA Compliance process
- Infrastructure renewal process
- Centralized funding for enterprise-wide applications (promotes commonality & simplicity)
- Centralized standards team is established
Stage (Optimized Core)
- Enterprise-Wide Process owners are established for the core processes
- EA Guiding Principles are established (guides investments in tech & how tech is applied)
- Business Leadership for project teams (not lead by tech)
- Senior Executive oversight for EA (ensures architecture aligns with strategy & is adopted)
- Technology Program Managers who coordinate systems & projects to drive optimized core
Stage (Business Modularity)
- Core Diagram is created as the guide post for integration & standardization for the organization
- Post Implementation Assessments are established (lessons learned)
- Formal Research & Adoption process for emerging technologies
- Full time EA team is established
As the organization matures, the role of technology leaders must also evolve. CIOs may start out reporting to CFOs or below executive leadership in organizations in the early stages of architecture maturity. As the architecture for the organization matures, more CIOs and architects begin meeting / reporting to CEOs. Once Stage 3 (Optimized Core) has been obtained, 50% of the CIOs begin reporting into the CEO.
The authors stop short of leadership development for both the CIO and the Chief EA. So, I will boldly go where some have imagined and suggest that Beyond Stage 3… (Business Modularity & Dynamic Venturing), the Chief Enterprise Architect begins reporting into the CEO and work with the CIO and other C-level staff to drive growth and differentiation. I see the CEA replacing the CTO position in the future. Also, there are a number of organizations (notably lead by CAEAP) who are aspiring to move the role of EA to a professional status. This plays well into the future evolution of EA as well as the maturing role of the CEA as one of the c-level leaders.
The authors devoted a chapter on The IT Engagement Model, which incorporates Project Management, IT Governance, and Linking Mechanisms (designed to ensure what gets measured gets done in accordance with strategic goals). The notion of IT Governance seems a bit narrow. I would like to see this approached from a different vantage point. It’s more about Technology Governance, where IT has played a traditionally smaller role for the whole of the enterprise. This requires an enterprise wide focus for governance, which takes on a much broader perspective. Further, I would like to see Governance (whether IT or EA) be folded under the umbrella of compliance to leverage the compliance auditing roles already established in organizations. This would simplify the oversight, reporting, alignment, and management of architectural/technical/IT compliance with external requirement. In addition, this would ensure that compliance-related processes are built into the change management lifecycle.
A closer look at Governance:
- Principles (IT, EA, Technology) – guide decisions for investing in technology and how it will be used
- Enterprise Architecture – organizing logic for business processes and IT infrastructure
- Technology Infrastructure – centrally coordinated, shared Technology services that provide the foundation for execution
- Business Requirements – formal requirements engineering (bridges external & internal customers) to guide development & delivery of technology products & services
- Prioritization and investment – framework for guiding how/when/what investments will be made and establishing consistent criteria for evaluating the portfolio of investments / projections.
The Linkage Mechanisms are used to ensure processes, projects, people, and technology are aligned with the business needs, compliance needs, and operational needs.
Unfortunately, the results of all these change management frameworks do not always align with the desired outcomes for customers (internal & external). There is a need for a more integrated and enterprise wide focus on identifying customer needs to ensure there is alignment throughout the value network to properly ensure that linkage is realized.
A large chapter was devoted to Outsourcing (which is important for laying the groundwork around dynamic venturing). Outsourcing has 3 key objectives:
- Efficiency (cost reduction, variable capacity, expertise on demand)
- Architectural Improvement (re-engineer internal business processes, increase process discipline)
- Strategic Adaptation (focus on competitiveness, strategic agility, leverage new technologies, mitigate technology risks, technology & expertise transfer)
There are 3 Outsourcing Models in use today:
- Strategic Partnering (50% – lowest level of success for consumer & provider)
- Co-Sourcing (65% / 75% – level of success for consumer / provider)
- Transaction (90% – the highest level of success for consumer & provider)
A guide for outsourcing w/in each stage of maturity:
- Business Silos (easily isolated processes, narrowly focused transaction outsourcing, focus on cost savings)
- Standardized Technology (IT infrastructure mgmt, strategic partnership, focus on IT mgmt discipline, cost savings, risk reduction, mgmt focus)
- Optimized Core (Project mgmt of major systems implementations, co-sourcing alliance, focus on technology/expertise transfer, process discipline, re-engineering, mgmt focus, cost effectiveness, variable capacity, and risk sharing)
- Business Modularity (process design & operational support with technology, transaction outsourcing, strategic agility, leverage IT & Process expertise for world class processes, variable capacity, mgmt focus, cost-effectiveness, and risk sharing)
Exploring Stage 5 (Dynamic Venturing):
- Technology Capability – Seamless merging with systems
- Business Objectives – ROI of new business ventures
- key Mgmt Capability – Create self-contained business components
- Who defines Technology Services – IT, business, and industry leaders and partners
- Key Governance Issues – Joint Venture governance
- Strategic Implications – Organic reconfiguration
Stage 5 includes the following elements:
- Business Rules – abstraction, governance, and control
- Business Processes – optimized processes that can be exposed to partners
- Data – key data to be shared & kept private is accessible via standard modular interfaces
- Interfaces – standard ways of connecting components w/in & w/out the organization
- Security – ubiquitous capability covering core assets (data/process/business rules/components)
- Integration – strategic, negotiated, and rules-driven to ensure compliance, adaptation, & resiliency
6 Step Program to rethink an organization’s foundation for execution:
- Analyze the existing foundation for execution
- Define the operating model
- Design the enterprise architecture
- Set Priorities
- Design and implement a Technology engagement model (IT & beyond)
- Exploit your foundation for execution to drive growth
Top 10 Leadership Principles
- Commit to the foundation
- Initiate Change from the top & remove barriers
- Feed the Core – Experiment
- Use Architecture as a Compass & Communication Tool
- Don’t skip stages
- Implement the foundation one project at a time
- Don’t do it alone – outsource
- Invest in your people
- Reward enterprise thinking
- Empower employees with the foundation for Execution