The Value of Enterprise Architecture
Abstract This work aims to demonstrate that Enterprise Architecture (EA) offers the Enterprise the edge needed to beat the increasing pace of competition and growing complexity, through Enterprise streamlining, integration, standardization and enhanced agility, aligning its technology to business operation and goals and roadmapping the Enterprise to last. The EA business case and the Value it returns, can be measured by evaluating the key benefits indicators proposed in this paper. Thus EA becomes a major asset in the Enterprise survival race.
The Enterprise Problem Enterprises met many challenges in arriving at their current state. Many have been through a rapid customer increase which fuelled an organic growth, based often on expedient oneoff, point solutions. Shortening timelines for new products, and immediate priorities to minimize CAPEX and OPEX, resulted in a silo culture where, quite often, each part of an organization cares only for its own products, budgets and technology. The Enterprise, as a result, is made of patched legacy with multiple and various solutions for same or similar capabilities. Quite often, units of the same company compete with each other and do not share good practices, processes, applications and strategies. Also, the divide between business and IT departments is frequently deep since there is no common vocabulary, skills to facilitate communication and shared objectives to align efforts. Business understands processes, rules, markets and products. IT people specialize in IT support, maintenance, helpdesk and software development. The current state of the Enterprise as seen by Zachman: “Enterprises have a large inventory of current systems built out-of-context, not integrated, not supporting the Enterprise, that are consuming enormous amounts of resources for maintenance and are far too costly to replace; as a matter of fact, the inventory of existing systems has come to be referred to as ‘the legacy’”. From a business perspective, the Enterprise problem is the inflexibility, slow change and high costs of IT. From an IT perspective, it is the lack of business process and requirements clarity, inherited obsolete technologies and the tangled IT spaghetti architecture. To make things worse, the next decade is characterized by an ever increasing trend in speed of change, complexity, amount of information and customer expectations, industry consolidation and reducing product life cycles. The soaring pace of competition demands reduced Time to Market and increased agility. The problem is the today's unresponding and undocumented Enterprise in a world of growing complexity and change. Due to the growing complexity of technology, the daily increase in the amount of information and the ever fastening pace of competition, the very existence of many
Enterprises will be challenged in the next few years. Ray Kurzweil states that every ten years the rate of change doubles; in the next hundred years we may experience the same amount of change as in the past 20,000 years
.
At today’s pace of change, to conquer the soaring complexity, to deliver faster and better and be sustainable the Enterprise has to be: A. Streamlined: integrated, simplified to minimize unjustified variety, reduce unnecessary complexity, remove silos and improve focus, B. Aligned: technology (IT) and people (organization) resources aligned to business processes and strategy to achieve the firm objectives C. Agile: modular, layered, standardized, technology independent, built out of services, quickly to adapt to change through SOA, Merger & Acquisitions and Outsourcing and Cloud Computing D. Built to last: strategically planned according to business and technology trends and business vision E. Documented for ease of change: a blueprint to document the current and target architecture to enhance comprehension and management of its performance.
The Enterprise Architecture Solution How can the Enterprise be streamlined, built to last‌ How can it operate in a reliable, predictable, and planned manner? How can you prepare it for quick change to respond to risks, threats and opportunities? How do you reconcile the business imperatives and IT interests in the Enterprise? Every Enterprise has a structure, an architecture. The structure though is often not the outcome of a deliberate process but the result of an anarchic growth. Enterprises have organically grown into systems, sometimes reminding us of jigsaw puzzles, the result of years of patching and point solutions. Sometimes one feels the desire to scrap everything and start from scratch. But then again, the situation repeats itself. But how can you control your Enterprise without a blueprint? Without the synoptic view of an EA, the Enterprise is marred by duplication in platforms, projects, roles, data, applications and even products. It is not rare that the Enterprise blueprint is little known, not documented but partially and inconsistently, with different tools and various aims in mind, by many groups. Currently, in an Enterprise, there are so many plans, designs and architectures. Everybody has a drawing: the Supply Chain, the Customer Services department or the IT. They do not look alike, they have different vocabularies, entities, conventions and levels of detail, they are drawn with various tools as Word, Visio, Power Point‌ and they sit everywhere and nowhere when you need them. The Enterprise management team looks at a jigsaw puzzle, without the benefit of the assembly picture. In fact, there was never a complete Enterprise picture. It is high time to provide the Enterprise Architecture, the picture of the Enterprise jigsaw puzzle. If organizations are to become more agile and effective at leveraging their technology investments and managing their own processes, they must develop and maintain an Enterprise blueprint first. Each and every stakeholder would contribute the EA blueprint by documenting the systems, information and operation in own domain of concern.
Target Enterprise
Current Enterprise
Payroll
IT
Marketing Help
EA/picture
Brand
HR Operations
Finance ERP
Distribution
SCM CRM
The Enterprise Architecture, the picture assembling the pieces of the Enterprise Puzzle Figure 1. Enterprise Architecture, the Solution to the Enterprise Puzzle
The Enterprise Architecture Key Benefits EA, like any architecture, represents the structure of an Enterprise and its documentation describing how the Enterprise operates. The better the architecture, the better the outcome, i.e. the returned value. A good architecture structure reduces duplications and overlays in processes, platforms, projects and sometimes people and it consolidates the many interconnections. Once implemented, EA simplifies the structure and confers modularity and IT alignment to your Enterprise. It also provides the blueprint of the Enterprise, associating process, technology and organization and the strategic transformation roadmap. The key benefit indicators may be grouped in a few categories: •
Operational (those enhancing the operation and products and service delivery)
•
Governance (enabling coordination and decision making in the organization)
•
Strategic, enabling effective execution of business vision and strategy
•
Communications and Collaboration, Enterprise wide
Due to all these EA related improvements (Enterprise clear structure, alignment, factual decision making, documentation, roadmap and EA project portfolio…), EA will ultimately offer, compared to the no EA case, cost savings from lower operational expenditure (OPEX), elimination of unnecessary investments (CAPEX) and more profit from agility enabling early presence on the market. As such, EA prepares the ground for a reduction in all future Enterprise expenditure in •
Operations (OPEX) expenditure, from simplification, optimization, lower costs
•
Capital investment (CAPEX), from re-use, minimized duplication, IT alignment
•
Time To Market (T2M), from diminished "Time to …" make decisions, design, deploy…, for all future projects delivering new features, products, capabilities.
How to Estimate and Measure the Value of EA The Enterprise Architecture delivers value, as soon as it is designed and implemented. In fact, it does that, gradually, while it is implemented by increasing the effectiveness and efficiency of your Enterprise. Ultimately, the EA ROI is achieved from cost savings of the new streamlined structure, IT alignment and improved planning of the Enterprise. I proposed a number of key EA benefits indicators, consolidated in a table that contains columns to explain why and how the benefit indicator works, what financial indicator is affected and by how much. The Capital (CAPEX) and operational expenditure (OPEX), the time to market (T2M) of a standard product or the capability development lifecycle are such financial indicators used in project management and in this evaluation. A % column is included for quantifying the impact on the financial indicator in a practical case. You may fill in the percentage for each benefit row with figures specific to your development, to come up with the overall EA gain. The project justification is done at Business Case time, before the start of the development, by enumerating and estimating a number of key benefits as sampled in the table. These initial benefits should be tracked and measured at implementation time to prove the delivery of promises. Each EA implementation iteration should consider the practical improvements produced by that phase to estimate the gain in Value. The table should be to evaluate and compare to estimates, the earned value at important milestones of the EA transformation program. Still, EA definitions vary and their scope is wildly different for each development. What is EA? Is it an IT only architecture? Then you are looking only at the benefits of standardizing technology and integrating applications. With business and people architecture the picture changes significantly. The Business, Organization and IT alignment with ensuing benefits can only be achieved if you include in scope a Business Architecture. As such, the EA value return should be •
measured against the listed benefits and deliverables in scope rather than against an abstract EA that does not have an agreed definition, but promises a lot, in vague terms. The EA scope definition is key, since quite often the EA team promise benefits not delivered in the scope of their EA. Iterations may add scope though and as such, new value.
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evaluated at each iteration in terms of… customers’ satisfaction to specific deliveries; if specific stakeholders do not perceive value, how can EA be successful?
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weighted against the EA implementation project progress; after all, EA cannot deliver value if the project is not delivering a fit for purpose EA
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gauged against EA maturity measured in exploitation phases, in terms of compliance to established EA practices such as defined EA processes, business participation and EA adoption... If the EA utilization process is not embedded in the organization, how can EA be used to deliver value?
EA Benefits
What EA does
How it benefits
p %
Financial Indicator
Enables Business Modeling (G)
EA is a framework for change impact, cost analysis, business modeling
Reduces risks, and costs of improper investments
CAPEX
Improves Decision Making (G)
Clarifies context, pinpoints to all affected components & projects
Fast decision & action based on the entire Enterprise context
Time to Decision [TDecision]
Aligns Technology to Business Processes and Goals (G)
Business Strategy always cascaded to applications & technology
Fast business change, reduced risks
Time To Market
Enables Agility, Faster Business Change (G)
Increases modularity delivers SOA
Technology, location transparency, lego like structure
Revenue
Enhances Project Planning and Prioritization Accuracy (G)
Aligns projects to EA; Projects objects can be pinpointed to components on the blueprint
Enables Enterprise Project Portfolio Management, projects on time and cost
OPEX, Mean Delay of Delivery [TDelay]
Maximizes reuse of existing assets (O)
Reuse, reduced infrastructure/ assets duplication
Reduced fixed costs; Increased Return on Assets
CAPEX
Simplifies the Enterprise Operation (O)
Reduces # of types, parts & connections, duplication & variety of solutions
Lower support, maintenance, training & real estate costs
OPEX
Aligns Organization to Enterprise Operation (O)
Aligns organization to processes and objectives, provides clarity of roles
Clear governance, effective workforce, reduced costs & decision making time
OPEX
Improves Operating Procedures (O)
Provides scalability, maintainability, availability, improved business processes
Reduced cost of operation, better quality control
OPEX
Enhances Enterprise Processes (O)
BPR, BPI, BPM, BPMS, Process Improvement, automation, orchestration
Reduced costs, Improved reliability ,
OPEX, Cust Satisfaction
CAPEX
Enables Activity Based Costing (O)
Enables cost evaluation and benchmarking per Function, process, unit
Reduces costs to competition levels
OPEX
Enables Faster New Product introduction (O)
Common functions, interfaces, components, standardization,
Reduced time to design, overall context for new capabilities
Time To Design [Tdesign, Tintegrate)
Exploits synergies between similar operations (O)
Design Once, Deploy Many times
Reduces supply chain costs, development costs, # assets
CAPEX,
Maps Roadmaps to architecture
Infrastructure in place prior to needs (planned as To-Be), alignment of EA components to objectives, roadmaps
Products fit in Architecture; Built to last according to vision
Time To Deploy [TDeploy]
Facilitates Vendor Products Roadmaps Alignment to EA (S)
Share functionality and interface roadmaps with vendors
Vendor products in time and specification
CAPEX
Provides agility to business change (S)
Provides modular architecture/SOA
Ready for quick business change saves costs and increases revenue
OPEX,
Build to Last (S)
Blueprint support outsourcing and mergers & acquisitions
OPEX
Time to Market
Enables Outsourcing, and Mergers & Acquisitions (S)
Blueprint support outsourcing and mergers & acquisitions
Fastens & enables outsourcing and M&A
OPEX,
Improves Risk Management (S)
Readiness to respond to risk Enables rapid deployment of new technologies products, strategies
Reduces risk, attracts more investment
CAPEX,
Improves Stakeholders' Understanding and Communication (C )
Single point of reference, common language, common repository
Business requirements correctly translated to technology
Time To Specify [TSpecify]
Enhanced collaboration with partners and suppliers (C )
Standard specifications, procedures and interfaces; aligns roadmaps with vendors
Parts delivered to specification in time and lower cost
CAPEX Time To Integrate [TIntegrate]
Makes possible Regulatory compliance (C)
Supplies process and document and record management architecture for audits
Enables compliance through financial and privacy data controls in processes
OPEX, Regulatory, Compliance
Figure 2. The EA Key Benefits Indicators Table
Time to Market
Time to Market Owner value
Return on EA (RoEA) “Architecture is an asset. You invest in assets in order to enable you to do something you otherwise are unable to do. Assets are reusable infrastructure. What makes an asset any different than an expense (a consumable)? It depends on how many times you want to use it. If you want to use it once, it is an expense. If you want to use it more than once, it is an asset. Architecture is an asset, infrastructure, an investment, not an expense”. (Zachman). What is the Return On Enterprise Architecture or better yet, what is the Return on the EA asset (RoEA)? Once designed, the EA becomes an important asset of your Enterprise. The RoEA should be calculate relative to the non-EA architecture baseline, the "do nothing" case, to avoid the need for absolute numbers which are so variable depending on industry, company and the maturity of the implemented EA. The EA must cover the whole Enterprise, rather than the IT space, to bring efficiencies in all departments of the Enterprise through rationalised assets, reduced duplications, more efficient projects and processes, minimised time-to-market… Presuming to simplify the though process that all key benefits indicators in the table contribute equally i.e. a percentage "p" to cost reduction and "p1" more profit from EA) the Return on the EA asset (RoEA) is calculated relative to the non EA case, (i.e. doing nothing), then Cost after EA
= Cost before EA * (1 – p%),
less cost by p%
Revenue after EA = Revenue before EA * (1 + p1%), increased by p1%
RoEA
=
RoEA
=
Revenuearch /Costsarch Revenuenoarch /Costsnoarch
1 + p1 1-p
Also, introducing the initial Investment and the transition costs you may calculate the NPV and Payback your management needs.
The Value EA delivers to critical business endeavours Apart from the general case of EA implementation, there are quite a few special cases where EA delivers value by providing a blueprint for: •
SOA service based architecture and web services to Increase agility enabling a quick response to market changes
•
Mergers and Acquisitions: it is hard to understand how it is done without a common blueprint. The current best practice is to solely to align the organization charts and strategies. EA provides a tick list and the blueprints for the alignment of two firms.
•
Outsourcing and Cloud Computing by showing the context, functions and connections of the outsourced systems
•
Establishing Quality frameworks (Six Sigma, CMMI) and new regulatory compliance (SOX, Basel II, HIPAA…) demanding documented and auditable structures and processes Six Sigma, Capability Maturity Model (CMM) and recent regulations and auditing procedures as Sarbanes-Oxley, Basel II … demand a structured, well understood, managed business process and data architecture, security and privacy controls, accompanied by proper document and financial management systems, all in the scope of an Enterprise Architecture. The business process and information flows modeling
offer a framework for auditing and compliance to regulatory requirements like Sarbanes-Oxley You may always compare the costs of such an endeavour to the case of non-EA, considering the basic deliveries of an EA: the Enterprise blueprint, business flows, business models, operating models, strategies…
EA provides a competitive edge to the Enterprise What will be the role of the Enterprise Architecture (EA) in the Enterprise evolution in the decade to come? How can an Enterprise operate in a predictable manner, change fast enough to lead or at least swiftly follow the market and offer high quality products at the same time, without the modular structure and blueprint of an Enterprise Architecture? For the next decade, there is little chance for a legacy Enterprise to survive the accelerating change, the ever reducing time to market, increasing customer expectations, the industry consolidation and outsourcing trends without a clean, streamlined, optimized and documented operation. An EA will integrate in a single effort many fragmented or loose coupled Enterprise developments such as SOA, IT Architecture, Application Integration (EAI), ITIL efforts and many independently performed activities such as Enterprise alignment to Business Strategy and Objectives, Enterprise Simplification, Compliance to Regulation Frameworks, Business Process Improvement, Six/Lean Sigma, Business Performance Management, Mergers and Acquisitions, Integration and outsourcing (such as BPO, SaaS…). The EA is an asset which, once in place and properly maintained, will return value for many years (RoEA) since the investment in EA can be leveraged over and over again to pay back dividends. EA is the knowledge database of your Enterprise. The EA asset promises you a Competitive Advantage by streamlining your Enterprise, enabling faster product delivery at lower costs, handling the exploding amount of information and providing greater Enterprise agility to cope with change. Conservative quotes from different industries vary between 10-30% reduction in cost and time to market due to EA. The US now requires government departments to provide their Enterprise Architecture to justify investments: the Clinger-Cohen Act of 1996 for Federal Agencies mandates the EA. Your firm’s shareholders will demand the EA soon enough, in order to increase the guarantees for their Return of Investment The hypothesis and conclusion of this work is that the EA will offer the Enterprise the edge needed in the survival race through blueprinting, streamlining, roadmapping and agility. The Value can be measured by evaluating key benefits indicators proposed here.
References 1. “An Enterprise Architecture Development Framework”, by Adrian Grigoriu available on Amazon , Trafford… 2. http://www.enterprise-architecture-matters.co.uk 3. http://it.toolbox.com/blogs/ea-matters/