TEN#38: Enterprise Architecture as Strategy
September 25, 2007: This issue reviews a new book on Enterprise Architecture for senior management, titled: "Enterprise Architecture as Strategy: Creating a Foundation for Business Execution" by Jeanne Ross, Peter Weill and David Robertson. The issue also refers you to online webcast video courses covering the "Rapid Delivery of Enterprise Architecture ", as well as the self-study course: "Certified Business Data Modeler (CBDM)". These were discussed in TEN37.
Book Review. Enterprise Architecture as Strategy
One of the most difficult aspects of enterprise architecture is gaining the support of senior management. Most senior managers consider that enterprise architecture is the responsibility of the IT Department. In fact it is they, themselves, who are the real architects of the enterprise, while IT has the responsibility to build the systems required to support the enterprise.
It has been exceedingly difficult to communicate this message clearly. At last I've found a book that helps in this task. It is titled: “Enterprise Architecture as Strategy: Creating a Foundation for Business Execution”, by Jeanne Ross, Peter Weill and David Robertson, Harvard Business School Press, Boston: MA (2006). The authors all work for the MIT Center for Information Systems Research (CISR) in Boston in the MIT Sloan School of Management, which recently published a report on the “Four Stages of Enterprise Architecture”. This was discussed in TEN36.
This issue of TEN reviews the book: it shows how enterprise architecture can be used to achieve business excellence and profitability with strategic agility.
“Enterprise Architecture as Strategy: Creating a Foundation for Business Execution”
The book is modest in size (207 pages) but is powerful in its message. I will provide a brief overview:
The authors start by discussing problems encountered by most organizations, through business silos and redundant data. In discussing how to build a foundation for execution, they present the concept of an operating model, which is the “necessary level of business process integration and standardization for delivering goods and services to customers”. They introduce enterprise architecture as “the organizing logic of business processes and IT infrastructure, reflecting the integration and standardization requirements of the company’s operating model”. They discuss the IT engagement model, which is “the system of governance mechanisms that ensure business and IT projects achieve both local and company-wide objectives”.
Many case study examples from real-life organizations are used throughout the book to illustrate concepts by example. Although they consistently refer to “companies” in the book, their message applies also to Government, Defense and non-profit organizations, with case study examples from Government also included.
The authors introduce four types of operating models in a diagram with four quadrants, with the X-axis ranging from low to high Business Process Standardization and the Y-axis ranging from low to high Business Process Integration (see Figure 1) as follows:
- Coordination (low standardization, high integration) Diversification (low standardization, low integration) Unification (high standardization, high integration) Replication (high standardization, low integration)
Figure 1: Operating Model Quadrants (Adapted from Figure 2.3 of “Enterprise Architecture as Strategy”)
They give examples of companies in the separate operating model quadrants in Figure 1 and discuss the characteristics of each quadrant so that you can characterize your own company and decide its operating model. They discuss that: a Coordination model provides seamless access to shared data; a Diversification model provides independence with shared services; a Unification model uses standardized, integrated processes; while a Replication model provides standardized independence. They explain:
“An operating model represents a general vision of how a company will enable and execute strategies. Each operating model presents different opportunities and challenges for growth. For example, the need to integrate business processes, as in Coordination and Unification operating models, makes acquisition more challenging because the new company must reconcile disparate data definitions. On the other hand, the process integration of the Coordination and Unification models facilitates organic growth through expansion into new markets or extensions of current product lines.”
The authors discuss how the operating model becomes the company vision:
“Focusing on the operating model rather than on individual business strategies gives the company better guidance for developing IT and business process capabilities. This stable foundation enables IT to become a proactive – rather than reactive – force in identifying future strategic initiatives. In selecting an operating model, management defines the role of business process standardization and integration in the company's daily decisions and tasks.
The operating model concept requires that management put a stake in the ground and declare which business processes will distinguish a company from its competitors. A poor choice of operating model – one that is not viable in a given market – will have dire consequences. But not choosing an operating model is just as risky. Without a clear operating model, management careens from one market opportunity to the next, unable to leverage reusable capabilities. With a declared operating model, management builds capabilities that can drive profitable growth.”
The authors present the concept of enterprise architecture using a one-page core diagram. They provide examples of this EA diagram for case study companies in each operating model. Figure 2 shows the Core Enterprise Architecture diagram for Delta Airlines, which uses a Unification operating model.
Figure 2: Core Enterprise Architecture Diagram for Delta Airlines (Adapted from Figure 3.1 of “Enterprise Architecture as Strategy”)
Delta identified four core processes: customer experience; operational pipeline; business reflexes; and employee relationship management. These processes all surround the core diagram in Figure 2. The customer experience identified all of the ways in which Delta touched customers. The operational pipeline was concerned with loading, moving, unloading and maintaining planes. Business reflexes focused on how the company made money: through scheduling, pricing and financial processes. Employee relationship management included processes for scheduling, compensating and development of Delta’s highly mobile workforce.
Once the Delta management team had agreed on these core processes, they identified the data that is critical to process execution: shown central in the diagram, surrounded by the Delta nervous system. This shows the various
infrastructure devices and software that access the data for real-time updates and make it available to customers, employees and the company’s core processes on a need-to-know basis. The result is a concise one-page diagram that communicates the key focus of Delta’s Enterprise Architecture.
Each company will likely have to develop its own diagram, but if developed well, this diagram will serve to represent the overall company enterprise architecture for corporate discussion purposes. The authors give examples of typical core enterprise architecture diagrams for each of the four operating models. They discuss that IT facilitates senior management discussions, while IT leaders design the core diagram.
Figure 3 shows the Core EA diagram for ING Direct as an example of a Replication operating model. ING offers simple banking products to 13 million customers in Europe, North America and Australia and replicates its processes and systems to its banks in these countries.
Figure 3: Core Enterprise Architecture Diagram for ING Direct (Adapted from Figure 3.7 of “Enterprise Architecture as Strategy”)
The core diagram in Figure 3 shows no data because the nine country-based banks do not share data (each bank serves its own customers regardless of where they are located when they seek banking services). Instead the core diagram highlights the key processes of ING Direct, which management refers to as “services”.
In discussing the benefits of enterprise architecture the authors highlight:
- Reduced IT costs Increased IT responsiveness Improved risk management Increased management satisfaction Enhanced strategic business outcomes
They emphasize that the CIO is the key driver of enterprise architecture benefits and show how the CIO role evolves with increasing architecture maturity.
The book covers the topic of enterprise architecture for management at a very broad level. It references Steven Spewak’s 1993 book and John Zachman’s 1987 IBM Systems Reference Journal paper but provides no additional detail. If a reader wants a concise explanation of enterprise architecture that goes beyond the core EA diagrams in Figure 2 or Figure 3, this book lets the reader down somewhat. This would be a problem if it was the only book on enterprise architecture.
I reviewed another book in TEN20 that is excellent here in its explanation of EA. This covers enterprise architecture using examples from the perspective of history, to illustrate that EA is a way of thinking about the complexity of an enterprise. This book is titled: “Enterprise Architecture using the Zachman Framework”, by Carol O’Rourke, Neal Fishman and Warren Selkow, Course Technology, a division of Thomson Learning, Inc. Boston, MA (2003).
For IT readers who want to understand enterprise architecture fully, I recommend you also read the above book, then my 2006 book: “Enterprise Architecture for Integration: Rapid Delivery Methods and Technologies”, by Clive Finkelstein, Artech House, Norwood MA (March 2006), which was reviewed in TEN34. This book describes methods to identify reusable processes as standardized processes, so that enterprise architecture systems can be delivered rapidly.
The authors introduce the Four Stages of Enterprise Architecture Maturity. discussed in TEN36. based on the article of the same title in CIO Magazine in Feb 2007. The stages addressed in the book are:
- Stage 1: Business Silos Stage 2: Standardized Technology Stage 3: Optimized Core Stage 4: Business Modularity
The authors were directly involved in the research carried out from 1995 – 2006 of 456 companies in North America and Europe by the MIT Sloan Center for Information Systems Research (CISR). Since the Feb article, the authors have renamed Stage 3. It was previously called “Standardized Processes”. It is now called “Optimized Core” to refer to both standardized processes and shared data.
They use the example of Toyota Motor Marketing Europe to illustrate Toyota’s approach to continuous architecture improvement, discussing: architecture principles; project methodology; incentives; funding; enforcement authority; and initial appraisal.
Chapter 7 highlights the important role that enterprise architecture takes in managing outsourcing relationships. The authors discuss three types of outsourcing relationships: 1) strategic partnerships; 2) co-sourcing alliances; and 3) transaction relationships. Case study examples are drawn for each of these outsourcing relationships from Campbell Soup Co (1), the City of Liverpool, UK (2), and Dow Chemical (3). They discuss aligning outsourcing relationships with the architecture stages and outsourcing for architecture maturity.
They cover management practices for realizing value from architecture maturity and show how these management practices evolve for each architecture stage. They discuss the lessons from top performers:
- Greater senior management involvement. Architecture built into project methodology. Greater architecture maturity
The authors discuss profitable growth for each operating model using the example of 7-Eleven Japan, which creates more value each year from their enterprise architecture and Replication model. They cover profitable growth in a Coordination model and a Diversification model and discuss managing the architecture through Mergers and Acquisitions, drawing on case study examples of acquisitions by UPS and CEMEX, a Mexican cement manufacturer, and also 7-Eleven Japan.
At this point, the authors introduce the emergence of a fifth stage of enterprise architecture maturity, which they call: “Dynamic Venturing” and discuss how it applies to Dow Chemical. They consider how a Stage 4 company evolves beyond business modularity and prepares for Stage 5, noting that no company has yet made this transition.
In the final chapter, the authors ask – “would you like your business to have:
- Higher profitability? Faster time-to-market? More value from your IT investments? 25% lower IT costs? Better access to shared customer data? Low risk of mission-critical systems failures? 80% higher senior management satisfaction with technology?”
They provide key steps in rethinking the foundation for execution, relating each step back to the relevant chapters. They summarize six important steps for success with enterprise architecture, and then conclude the book with 10 top leadership principles.
The book provides a valuable bridge for senior management and IT, using enterprise architecture. It fills what has previously been a yawning gap of understanding. I highly recommend it to you.