Enterprise Architecture as Strategy Chief Architects Forum January 8, 2007
Jeanne W. Ross Center for Information Information Systems Research (CISR) (CISR) MIT Sloan School of Management Phone: (617) 253-2348, Fax: (617) 253-4424
[email protected] [email protected] du http://mitsl http://mitsloan.m oan.mit.edu it.edu/cisr/ /cisr/ This research was made possible by the support of CISR sponsors and patrons. The research team included Peter Weill, David Robertson (IMD), George Westerman, Nils Fonstad, Lenny Zeltser, Zeltser, Charles Charles Zedlewski, Zedlewski, Niraj Niraj Kumar Kumar (MIT), (MIT), and Mingdi Mingdi Xin (New York York University) University).. Center for Information Systems Research © 2006 2006 MIT Sloan Sloan CISR CISR – Ross Ross
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– – – –
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CISR Research Portfolio 2002 – 2006 2006 • • • • • •
Effective IT Oversight
• • •
An IT Manifesto for Business Agility Agility
• •
Effective Governance of Outsourcing
The Future of the IT Organization IT Governance in Top Performing Firms Enterprise Architecture as Strategy IT Portfolio Investment Benchmarks & Links to Firm Performance Reducing IT-Related Risk
Business Models and IT Investment and Capabilities IT-Enabling Business Innovation and Transformation
IT Engagement Models and Business Performance
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07/01/2006
Agenda
Why Architecture Matters
Envisioning a Foundation for Execution
The Operating Model as Business Vision – Declaring requirements for integration and standardization – Identifying “the essence of the business”
The Enterprise Architecture Journey – IT investment patterns and capabilities – Strategic implications of IT – Organizational learning about IT
Critical Management Practices
Key Lessons on Enterprise Architecture
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
The IT-Business Alignment Problem Data Business Strategy
Lag
Solution Design
Lag
Applications Infrastructure
New idea So we started working on understanding the business strategy, and what we discovered in that process is, they really didn't have a business strategy. What they had were a lot of promises. We are going to grow. We are going to use branding. We are going to run our plants more effectively. We are going to increase our volume, but they hadn't figured out exactly how they were going to do it. And what I said was: it is very difficult for me to write an IT strategy to support your business strategy when you don't have that defined. —IT Architect, Global Manufacturing Firm Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
The Result of Traditional Approaches to IT-Business Alignment
Corporate Data
Data
Applications Technology Platforms
Corporate Networks & Infrastructure Services Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Two Key Concepts
Operating Model: The desired level of business
process integration and business process standardization for delivering goods and services to customers.
Enterprise Architecture: The organizing logic for
business process and IT infrastructure capabilities reflecting the integration and standardization requirements of the firm’s operating model.
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Designing a Foundation for Execution
Strategic Initiative
Strategic Initiative
Operating Model Learning and exploitation
Defines integration & standardization requirements
Strategic Initiative
Strategic Initiative
Defines strategic limits Establishes priorities
Enterprise Architecture Defines core capabilities
Foundation for execution •
Core Business Processes • IT Infrastructure Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
The Foundation for Execution at UPS Flex Global View Package Tracking
Learning and exploitation
Online Tools
Mail Innovations
Industrial Engineering Model High degree of integration & standardization across businesses
UPS Trade Direct
Defines strategic limits
Enterprise Architecture
From reliability to accessibility to agility
Defines core capabilities
Redundant operations Global communications network
Single package database Standard interfaces
Standard infrastructure Customer information database Product development process Customer relationship process Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Washington, D.C.’s Foundation for Execution Administrative Services Modernization Program Human Services Modernization Program
ESMP CSMP
PSMP
MSMP
TSMP
Benign Service Model Ideas on ways to use infrastructure services
Process standardization across programs; Integration within and among programs
E-government applications DCStat Program
Defines strategic limits
Defines core capabilities
Projects focused on stabilizing customer services and enabling inter- agency sharing
Sounds of silence operations IT development standards Wide area and wireless networks Data warehouse Procurement processes Web portal Human resource processes Geographic information system Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Four Operating Models Unification
Coordination n o i t a r g e t n I s s e c o r P s s e n i s u B
Unique business units with a need to know each other’s transactions Examples: Scotland Yard, Toyota Motor Marketing Europe, MetLife Key IT capability: access to shared data, through standard technology interfaces
High
Low
Independent business units with different customers and expertise Examples: Johnson & Johnson, Carlson Companies, GE Key IT capability: provide economies of scale without limiting independence
Low
Single business with global process standards and global data access Examples: Delta Air Lines, Dow Chemical, Washington, DC Government Key IT capability: enterprise systems reinforcing standard processes and providing global data access
Replication
Diversification
Independent but similar business units Examples: Marriott, CEMEX, ING DIRECT, UNICEF Key IT capability: provide standard infrastructure and application components for global efficiencies
High
Business Process Standardization Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, and D. Robertson, Harvard Business School Press, June 2006.
Focus of Standardization Differs by Operating Model n o i t a r g e t n I s s e c o r P s s e n i s u B
Unification Coordination High
Customer and Product Data, Technology (Shared Services)
Technology, Customer and Product Data, Shared Services, Operations, Customer Service, Logistics (R&D, Marketing/Sales)
Replication Diversification Low
Technology (Shared Services)
Low
Technology, Operations, Customer Services, Logistics, R&D, Marketing/Sales, Shared Services
High
Business Process Standardization
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, and D. Robertson, Harvard Business School Press, June 2006.
Delta Air Lines’ Enterprise Architecture Operational Pipeline Allocate Resources
Prepare for Flight Departure
Flight Departure and Closeout
Load Aircraft
Voice
Hand Helds
Electronic Events
Video Location
Equip.
Schedule
Flight
Employee
Aircraft
Maint.
Customer
Ticket
Employee Relationship Management
Nine core databases
Cell Phones
PDAs
Desktops Laptops
Skylinks
Clean/ Service Aircraft
Unload Aircraft
E V Gate E Kiosks N Readers T S Delta Nervous System
Pagers
Business Reflexes
Flight Arrival and Closeout
Monitor Flight
P R O F I L E
Scanners
Ticket Skymiles Reservations Travel Skycap Counter Agent Personalization Digital Relationships
Crown Room
Reservation Systems
Boarding
Inflight
Baggage
Loyalty Programs
Customer Experience Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Adapted from Delta Air Lines documents – used with permission.
Enterprise Architecture for Carlson’s Diversification Operating Model Customer Requirements Business Initiatives Travel Management
Loyalty
Hotel Distribution
CRM
Enterprise Portal s s e c o r P s s e n i s u B
Presentation
y t i r u c e S
e r u t c u r t s a r f n I n o m m o C
Application Data Trust
e c n e i l i s e R T I
Middleware Data Object Platform Network Source: Carlson Company
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Enterprise Architecture for MetLife’s Coordination Model Security & Entitlements
Licensing Rates & Calcs
Suitability
Forms & Requirements
Customer
Sign-on Producer
Sales Office
Marketing
Navigation
Illustrations
Search
Order Entry
Sessions
ACORD JLife
Underwriting
ACORD XML
Billing/Payment Underwriter
Business Rules
Party Management
Integration Hub
Service Underwriting & Issue
L M X D R O C A
Eligibility Call Center
Operational Data Store
Claims
Product Admin Partner Portals
Service Provider
Events
Workflow Service Recording
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Adapted from MetLife documents – used with permission.
Enterprise Architecture for ING DIRECT’s Replication Model External Services Prospect Fulfillment
Statement Fulfillment
Payments
Checks
Customer Relationship Services
Reports Local/HQ/Tax
Core Banking Services
CIF
CRM
Mutual Funds
Brokerage
Contact History
Product Info
Banking Engine
Credit Score
Common Business Services Transactions
Customers
Products
Services
Channel Services IVR/CTI server
Imaging server Customer Contact: Call Center, IVR, E-mail, Direct mail
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
E-mail server
Web server
Gateway server
Self-Service: Internet, MinTel, ATM, WAP, (WebTV)
Source: Robertson, D. “ING DIRECT: The IT Challenge (B)”, 2003, IMD-3-1345. Used with permission.
Architecture Maturity Stages Yield Increasing Value from IT Business Silos
Standardized Technology
Optimized Core
Business Modularity
Strategic Business Value Standard interfaces and business componentization Enterprise-wide technology standards
Standardized enterprise processes/data
Locally optimal business solutions
12%
48%
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
34%
6%
% of Firms
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Architecture Maturity Shifts Flexibility Business Silos
Standardized Technology
Optimized Core
Business Modularity
Global Flexibility
Local Flexibility
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Implications of Architecture Maturity Stages Strategic Implications of IT Local/Functional Optimization
IT Efficiency
Operational Efficiency
Strategic Agility
16%
15%
Local Applications
32%
34%
21%
Enterprise Systems
40%
35%
33%
Shared Infrastructure
11%
14%
17%
18%
Shared Data
Business Silos
Standardized Technology
25%
36% t n e m t s e v n I T I f o e g a t n e c r e P
18%
35%
Optimized Core
Business Modularity
Architecture Maturity IT Budget
100%
85%
75%
120%
IT budgets from 103 firms are corrected for industry differences with Business silos as the baseline Only five firms in stage four reported their IT budgets so data is not reliable.
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Enterprise Architecture Benefits by Stages 5 4.5 4 3.5 g n i t a R O I C
IT Responsiveness (1)
3
Risk Management (2)
2.5
Managerial Satisfaction (3)
2
Strategic Business Impacts (4)
1.5 1 0.5 0 Business Silos
Standardized Technology
Optimized Core
Architecture Stage
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Business Modularity (1) Development time. (2) Business risk, security breaches and disaster tolerance. (3) Senior management and business unit management satisfaction. (4) Operational excellence, customer intimacy, product leadership and strategic agility. Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Learning Requirements of the Architecture Stages Stage Name IT Capability
Business Silos
Standardized Technology
Optimized Core
Business Modularity
Local IT applications
Shared technical platforms
Enterprise-wide hardwired processes or databases
Plug & play business process modules
ROI of local business initiatives
Reduced IT costs
Cost and quality of business operations
Speed to market; Strategic agility
Individual applications
Shared infrastructure services
Enterprise applications and data stores
Reusable business process components
Technologyenabled change management
Design and update of standards; funding shared services
Core enterprise process definition and measurement
Management of reusable business processes
Who Defines Applications
Local business leaders
IT & business unit leaders
Senior management and process leaders
IT, business and industry leaders
Key IT Governance Issues
Measure and communicate value
Establish local/ regional/global responsibilities
Align project priorities with architecture objectives
Define, source & fund business modules
Business Objectives Funding Priorities
Key Management Capability
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Management/Governance Practices to Formalize Learning Business Silos
Standardized Technology
Optimized Core
Business Modularity
Business cases Project methodology Architects on project teams IT Steering Committee Architecture exception process* Formal compliance process* Infrastructure renewal process* Centralized funding of enterprise applications* Centralized standards team Process owners* Enterprise architecture guiding principles* Business leadership of project teams* Senior executive oversight* IT Program Managers* Enterprise architecture graphic* Post-implementation assessment* Technology research and adoption process* Full-time Enterprise Architecture team
Architecture Maturity
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
* Reported value of asterisked items is statistically significantly related to architecture maturity stage. Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Architecture Lessons From Top Performing Companies Characteristic Senior management involvement Senior management explicitly defined architecture requirements Senior management oversees architecture initiatives Percentage of senior managers who can describe high level architecture Architecture built into project methodology Percentage of project teams with architects assigned Percentage of projects subjected to architecture compliance review Median Architecture Maturity stage 1–4
Low strategic effectiveness (n=78 firms)
High strategic effectiveness (n=25 firms)
25% (of firms)
44% (of firms)
45% (of firms)
60% (of firms)
19% (of mgrs)
39% (of mgrs)
49% (of projects)
81% (of projects)
60% (of projects)
80% (of projects)
2
3
* Statistically significant difference between the responses of top 25% of firms on strategic effectiveness. Strategic effectiveness is measured as strategic outcomes (operational excellence, customer intimacy, product innovation, and strategic agility) of architecture initiatives weighted by their relative importance to each firm. The top 25% of firms on strategic effectiveness reported significantly higher profitability which correlated with industry adjusted measures of firm-wide profitability.
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
Source: Architecture as Strategy: Creating a Foundation for Business Execution , J. Ross,P. Weill, D. Robertson, HBS Press, June 2006.
Key Findings on Enterprise Architecture
Build capabilities not solutions. This is the only way to avoid silos and create a powerful foundation for execution.
Do not skip stages. Generating value from architecture investments is a learning process. Aggressive investment in IT capabilities can be slow to generate a return.
Capture learning in management and governance practices. Management requirements are more complex in later stages.
Persist in involving senior business managers. Firms getting strategic business benefits from an operating model have senior business leaders who are actively involved in its design, management and implementation.
Center for Information Systems Research © 2006 MIT Sloan CISR – Ross
