Business Architecture by The Ken Orr Institute

Enterprise Architecture Vol. 10, No. 2

Business Architecture: Linking Business, Data, and Technology by Ken Orr, Fellow, Cutter Business Technology Council

Business architecture is now on the front burner in many organizations. And it is the link between business and technology â&#x20AC;&#x201D; current and future, especially future. This Executive Report offers the latest thinking about the structure, methods, and modeling approaches involved in business architecture. The report discusses the major phases of business architecture: strategic intention discovery; business context modeling; business value chain modeling; business value stream modeling; and business process modeling.

Cutter Business Technology Council Rob Austin

Tom DeMarco

Christine Davis

Access to the

Experts

Lynne Ellyn

Jim Highsmith

Tim Lister

Ken Orr

Lou Mazzucchelli

Ed Yourdon

About Cutter Consortium Cutter Consortium is a unique IT advisory firm, comprising a group of more than 150 internationally recognized experts who have come together to offer content, consulting, and training to our clients. These experts are committed to delivering top-level, critical, and objective advice. They have done, and are doing, groundbreaking work in organizations worldwide, helping companies deal with issues in the core areas of software development and agile project management, enterprise architecture, business technology trends and strategies, enterprise risk management, business intelligence, metrics, and sourcing. Cutter delivers what no other IT research firm can: We give you Access to the Experts. You get practitioners’ points of view, derived from hands-on experience with the same critical issues you are facing, not the perspective of a desk-bound analyst who can only make predictions and observations on what’s happening in the marketplace. With Cutter Consortium, you get the best practices and lessons learned from the world’s leading experts, experts who are implementing these techniques at companies like yours right now. Cutter’s clients are able to tap into its expertise in a variety of formats including print and online advisory services and journals, mentoring, workshops, training, and consulting. And by customizing our information products and training/consulting services, you get the solutions you need, while staying within your budget. Cutter Consortium’s philosophy is that there is no single right solution for all enterprises, or all departments within one enterprise, or even all projects within a department. Cutter believes that the complexity of the business technology issues confronting corporations today demands multiple detailed perspectives from which a company can view its opportunities and risks in order to make the right strategic and tactical decisions. The simplistic pronouncements other analyst firms make do not take into account the unique situation of each organization. This is another reason to present the several sides to each issue: to enable clients to determine the course of action that best fits their unique situation. For more information, contact Cutter Consortium at +1 781 648 8700 or sales@cutter.com.

Business Architecture:

Linking Business, Data, and Technology ENTERPRISE ARCHITECTURE ADVISORY SERVICE Executive Report, Vol. 10, No. 2

by Ken Orr, Fellow, Cutter Business Technology Council Business architecture is a key link, perhaps the key link, between the enterprise and technology. This link has been presumed to work from “the business” down to “the technology” (aligning the technology to the business’ problems), but the argument is equally valid that the business is also constantly pushed by technology to leverage new business opportunities (aligning the business with the technological opportunities). The tempo of this business-technology dance has been increasing for as long as anyone can remember and shows no signs of slowing down.

architecture works in multiple time dimensions: short-range, to meet today’s business demands, medium-range, to push planned products into the marketplace, and long-range, to build a flexible organization to adapt to unanticipated demands on the horizon.

Business architecture seeks to provide both structure and flexibility (agility) for our businesses. It provides a link to business strategy and the other major architectures: data (information), application, technology, and security. Business

The Business Enterprise Architecture Modeling (BEAM)1 framework, which I developed, provides a way to separate the business architectural issues from the rest of the enterprise so that the focus is on business value

Business architects are translators; they translate technology for the businesspeople and business for the technology folks. The nature of the job requires people who understand (and are interested in) both business and technology developments and trends.

and business process. BEAM involves five major phases: strategic intentions; business architecture; data/information/content architecture; application architecture; and technology architecture. This Executive Report discusses the major subcomponents of the business architecture phase. The underpinning of the BEAM approach is based on an urban planning model, which has more in common with a “living systems” approach to business architecture than it does with building architecture (the source of the Zachman Framework2), for unlike buildings, urban areas are constantly evolving and changing: new areas are developed, old areas decay, and areas are torn down and rebuilt. (See sidebar “Purpose of a Business Architecture.”) This architecture model, unlike the

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more traditional, static way of looking at enterprise architecture (EA), provides a useful mechanism for considering the value, cost, and impact that business and technology have on each other. In recent years, various leadingedge companies like Walt Disney

and Microsoft have adopted urban planning models as the basic model for EA because they better represent the emerging, dynamic aspect of enterprise architecture. Walt Disney talks about the dual role of the enterprise architect: master planner and building inspector. The

former concentrates on the big picture, and the latter concentrates on ensuring that the architectural standards are followed. Business architects must be able to look into the future and to review the past at the same time. Because of the considerable time

PURPOSE OF A BUSINESS ARCHITECTURE The following is an excerpt from D.W. McDavid’s “A Standard for Business Architecture Description” (IBM Systems Journal, Vol. 38, No. 1, 1999): A valid question may be raised as to why we should be concerned with an architecture of business concepts, in the context of building software systems. After all, IT architects do not create businesses; they create technology-based information systems. However, the systems that they create do have a fundamental impact on businesses. In addition to purely technical issues, information systems architects need to be concerned with the content and usage of the systems that are built. An analogy is often drawn between the architecture of buildings and the architecture of software systems.1 One lesson from that analogy is that architects of buildings start with a fundamental understanding of the purposes to be served by those buildings. Architects of suburban homes need to understand something about the behavior patterns of young, growing families. Architects of manufacturing plants need to understand patterns of configurable assembly lines. Architects of high-rise office towers and architects of mini-malls need to understand patterns of business behavior in core business districts and outlying areas, respectively. In a similar fashion, architects of enterprise systems need to understand patterns of business behavior and patterns of technology and how they work together to enable businesses to achieve their strategic and tactical goals. The building analogy only goes so far in understanding business and its IT support. Another perspective on business enterprises is to think of them as living systems, undergoing an ongoing process of evolution. This analogy helps us to understand the relationship between businesses and information systems technology. Evolution is the result of two basic conditions. One is a source of novelty,2 and the other is an opportunity to expand into unoccupied environments.3 Today the use of information technology is creating both the necessary source of novelty and the expansive environment that is driving the rapid evolution of business. 1A

reference to Christopher Alexander in this regard may be found in P.T.L. Lloyd and G.M. Galambos, “Technical Reference Architectures,” IBM Systems Journal 38, No. 1, 51-75 (1999, this issue).

2Biological

evolution is driven by changes in DNA produced by mutation, bacterial recombination, and symbiogenesis. Symbiogenesis is the process whereby, long ago, bacteria formed such inextricable associations with each other that they created whole new life forms. Every cell in every plant and every animal on earth contains myriad independently reproducing mitochondria, each with its own DNA and RNA, that are the living descendants of these symbiotic relationships. Lynn Margulis refers to our cells as “cellular corporations.” See L. Margulis and D. Sagan, Microcosmos, University of California Press, Berkeley, CA (1997).

3Species

tend to emerge to fill empty eco-niches. Generally this follows catastrophic events, such as asteroid collisions or the oxygen crisis. Occasionally, it is the result of new environments being created. An example of noncatastrophic opportunism is the existence of some 170 species of fish of the same genus found only in Lake Victoria in East Africa. They evolved from a river-dwelling ancestor when earth movement suddenly created one of the largest bodies of fresh water on the planet. See M. Rothschild, Bionomics: Economy as Ecosystem, Henry Holt & Co., New York (1990).

The Enterprise Architecture Advisory Service Executive Report is published by Cutter Consortium, 37 Broadway, Suite 1, Arlington, MA 02474-5552, USA. Tel: +1 781 641 9876 or, within North America, +1 800 492 1650; Fax: +1 781 648 1950 or, within North America, +1 800 888 1816; E-mail: service@cutter.com; Web site: www.cutter.com. Group Publisher: Kara Letourneau, E-mail: kletourneau@cutter.com. Managing Editor: Cindy Swain, E-mail: cswain@cutter.com. ISSN: 1530-3462. ©2007 by Cutter Consortium. All rights reserved. Unauthorized reproduction in any form, including photocopying, faxing, image scanning, and downloading electronic copies, is against the law. For information about reprints and/or back issues of Cutter Consortium publications, call +1 781 648 8700 or e-mail service@cutter.com.

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EXECUTIVE REPORT it takes to plan, acquire, and install new technologies and new systems, they must look at the major competitive forces/ technologies at work and how these forces/technologies may affect their organization’s strategies, markets, and products well into the future. At the same time, they must be able to look at their current architecture and legacy environments to ensure that new initiatives cause a minimum of disruption. A recent article in the Wall Street Journal3 discussed how CIO jobs are changing focus with more and more attention being paid to strategy and transformation. While they are still charged with driving out costs wherever possible, their bigger task is to provide the “business architecture” between business strategy and the systems and infrastructure that allows the organization to turn on a dime. This Executive Report offers the latest thinking about the structure, methods, and modeling approaches involved in business architecture. The report discusses the following five major phases of business architecture (see Figure 1): 1. Strategic intention discovery 2. Business context modeling 3. Business value chain modeling

The report also examines the role of business architecture in the realtime enterprise, business architecture modeling and tools, and business architecture governance. STRATEGIC INTENTIONS: COMPETING IN THE 21ST CENTURY If business architecture is to assist business and technology managers in considering their major options, it has to have a serious interface with the enterprise’s strategic, tactical, and operational planning processes. This component of business architecture is called “strategic intentions.”4 Strategic intentions are a way of looking at the enterprise’s future as well as the past. The past must be understood in terms of providing the existing platform on which the current business operates; the future must be anticipated if the organization is to prosper and survive. In one respect, strategic intentions are what we can see of the

enterprise’s strategic vision from what appears above the organizational waterline. Most business architects are not privy to all the strategic thinking behind the enterprise’s strategic vision. Oftentimes, an enterprise’s medium-term strategies (for example, mergers, partnerships, and divestitures) cannot be shared with the organization’s middle managers and business architects for legal and regulatory reasons. As a result, business architects have to find ways to elicit the strategic intentions of the organization from other sources, including their own research and thinking on the enterprise, its products, and its markets. The primary sources involve studying a number of key issues including: Competitive advantage Market positioning Technology roadmapping Let’s review each area.

Strategic Intentions

Business Context

Business Value Chain Business Value Streams

4. Business value stream modeling 5. Business process modeling

Business Processes

Figure 1 — Business architecture phases.

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ENTERPRISE ARCHITECTURE ADVISORY SERVICE framework for the discussion of strategic intentions. In Competitive Advantage, Porter defines competitive advantage as anything that allows an organization to dominate an industry or market segment for a long period of time. The billionaire investor Warren Buffet says what he is looking for in all of his investments is a “durable competitive advantage.” Since all companies are interested in competitive advantage but only a few manage to achieve it, business architecture needs to focus on how systems and technology can help the organization constantly strive for this advantage.

Competitive Advantage

Being “all things to all people”is a recipe for strategic mediocrity and belowaverage performance, because it often means that a firm has no competitive advantage at all. — Michael Porter, Competitive Strategy5 Just last week (February 20th 2007) a Wall Street Journal article suggested that the remit of CIOs had changed. CEOs now want CIOs to focus on IT for strategic competitive advantage, rather than managing IT technical support. — Gerry Brown, IT director6

In the 1980s, Michael Porter wrote two books: Competitive Strategy and Competitive Advantage.7 The ideas in these two books, which have become classics, provide a

Barriers to Entry

In Competitive Strategy, Porter identifies five major competitive forces at work in the marketplace: (1) rivalry among existing firms; (2) bargaining power of buyers; (3) bargaining power of suppliers;

Potential Entrants

Threat of new entrants

Bargaining power of suppliers

Industry Competitors

Rivalry Determinants

Bargaining power of buyers Buyers

Suppliers Rivalry among existing firms

Determinants of Supplier Power Threat of substitute products or services

Substitutes

Determinants of Substitution Power

Figure 2 — Michael Porter’s five competitive forces.

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Determinants of Buyer Power

(4) threat of new entrants; and (5) threat of substitute products or services (see Figure 2). These competitive forces create a dynamic environment in which organizations must constantly respond. Overall, Porter considers two major strategies for achieving competitive advantage: operational effectiveness and strategic positioning. Operational effectiveness involves performing specific processes better than competitors, while strategic positioning involves doing the same processes differently or combining processes differently. For Porter, competitive advantages boils down to strategic decisions with respect to cost, differentiation, and focus (more on this later). Today, there is a great deal of talk about business processes, individual activities, benchmarking, and best practices, but Porter cautions that in the long run, “few companies have competed successfully on the basis of operational effectiveness over an extended period, and staying ahead of rivals gets harder every day.” One of the reasons that operational effectiveness is so hard to leverage is that everyone else is working from the same playbook. You lower your costs, they lower theirs; you respond a little faster, they get faster as well. In the end, everybody gets cheaper and faster, everybody has less profit, and the market positions are about the same.

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Dell is (or until recently was) the poster child for the make-to-order business process model. Like a lot of business process innovations, Dell didn’t get into the make-toorder business on purpose; it just didn’t have the money to follow a make-to-inventory model. In its early days, Dell had to wait until its customers sent in their checks before it could buy the parts it needed to make its products. As Dell got bigger, even as its competitors were using more traditional models, it stuck with its low-cost, make-to-order processes. As it turned out, the model did wonders for Dell’s strategic positioning. Building to order on a massive scale meant Dell had to automate its assembly line and fine-tune its vendor (supply chain) relationships. As a result, Dell was able to save money on inventory and at the same time have the latest components in its computers. Because it didn’t have big investments in inventory, when Intel (or AMD) came out with a new,

cheaper, more powerful chip, Dell could respond before its competitors. Dell became the benchmark for a great many industry practices. But despite all of the analysis about industry best practice, it turned out that other PC manufacturers who came from traditional make-to-inventory material requirements planning (MRP)– style manufacturing never seemed to be able to emulate Dell’s integrated business processes. Dell’s durable competitive advantage was its entire business process, not just a set of independent activities. This happens over and over again: overall business processes (value streams) are hard to emulate or change. Another way Porter suggests organizations look at competitive advantage is to think in terms of competitive advantage versus competitive scope (see Figure 3). Here, Porter lays out four basic competitive strategies. If you have

a “broad target” and “lower cost” strategy, for example, then your strategy is “cost leadership,” whereas if you have a “broad target” and “differentiation,” then your strategy is “differentiation.” If, on the other hand, you have a narrow target and your competitive advantage is “lower cost,” then your strategy is “cost focus.” If you have a narrow target and your competitive advantage is “differentiation,” then your advantage is “differentiation focus.” Cost and differentiation in Porter’s world are the two royal roads to competitive advantage. From a business architecture standpoint, coming up with the enterprise’s strategic intentions involves keeping a close eye on management’s competitive strategy. The good news is that such strategies don’t change all that often. The bad news is that the competitive pressures are constantly increasing. These pressures, often associated with

Competitive Advantage

Competitive Scope

Porter believes, as do most students of strategic planning, that strategic positioning provides a more difficult but more secure approach to gaining competitive advantage. Having a different business model, especially a business model where all (or most) of the key business processes are integrated under a unified business model, makes it difficult for others to respond. Dell is an interesting recent example of this notion.

Lower Cost

Differentiation

Broad Target

Cost leadership

Differentiation

Narrow Target

Cost focus

Differentiation focus

Figure 3 — Competitive advantage vs. competitive scope. (Source: Michael Porter’s Competitive Strategy.)

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6 technology change, technology obsolescence, and technology opportunities, frequently occur with new entrants and substitutes, as discussed below with regard to disruptive technologies and the long tail phenomenon. Disruptive Technologies

About a decade after Porter published his major works, another professor at Harvard, Clayton Christensen, coauthored an extremely interesting paper with Joseph Bower, under the provocative title “Disruptive Technologies: Catching the Wave,”8 stemming from Christensen’s doctoral thesis. The question that Christensen set out to address in his thesis was: Why did the dominant manufacturers of 5¼-inch disk drives not become the dominant players in the 3½-inch market? What Christensen discovered was confusing to business management gurus. It was not that the 5¼-inch manufacturers were unaware of the 3½-inch technology; indeed, their research labs had invented the new form factor. What Christensen found was that the new form factor didn’t make sense in these manufacturers’ business models. When the new disks came out, the 5¼-inch disk manufacturers were building 100 megabyte disks, and their customers (the manufacturers of desktop computers) wanted 200 megabyte disks (sound familiar?). The existing customer base wasn’t

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ENTERPRISE ARCHITECTURE ADVISORY SERVICE all that interested in these new smaller disks. Moreover, these new disks didn’t represent a big enough avenue for growth for 5¼-inch builders. The biggest of these companies were already US $1 billion firms that needed to grow at 20% to be attractive to their investors. Finally, from a financial standpoint, the 3½-inch disks didn’t provide a good enough margin. It wasn’t that the 5¼-inch disk manufacturers were not well-run businesses; in fact, they were very well run. But their business model didn’t see the new form factor as an opportunity. What happened then was that a number of engineers and others saw an opportunity with these new, smaller, lighter disks and started new businesses that specialized in these form factor disks. To be successful, they had to be able to operate on smaller margins and smaller initial growth, and, perhaps most importantly, they had to find a new set of clients. They found that new set of clients among the newly emerging laptop manufacturers. Over time, these new kids on the block caught up with their bigger brothers and passed them in terms of both growth and megabytes. By that time, however, the old order couldn’t adapt to the new business model. In the last decade, Christensen has shown similar patterns in other businesses such as discount department stores and steel minimills. What he and his

collaborators have shown is that there is a pattern in “overserved” markets where new entrants (or substitute products) appear and the market leaders cede to the low end of their market and keep getting pushed further and further out on the sustaining technology curve. Often when this happens, the existing dominant player first moves up the cost curve toward higher-priced, higher-technology products with higher margins. This happened in computers and, over the last three decades, in automobiles. But newer, lower-cost products come along, providing lower-cost options that then slowly move up the cost curve. PCs first pushed out minicomputers and then mainframes. Auto companies let the low-end sedans go and moved up to minivans, SUVs, and really big trucks. Japanese carmakers got their foot in the door of the North American auto market during the 1970 oil crisis, and then the Big Three automakers moved to high-priced, high-consumption SUVs and trucks with higher margins. As long as the North American market embraced these new macho products, everything was OK, but when the next oil crisis hit, the foreign car manufacturers’ small and midsized sedans and minivans began to quickly edge out domestic versions. Not only that, but during this same period, Japanese automakers also pioneered highmileage hybrid cars and brought out increasingly attractive SUVs

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The Long Tail

Another technology-enabled competitive strategy that runs against traditional management doctrine is called the long tail. For a very long time, Pareto’s principle has been one of the things that everyone in the business world can agree on: 20% of the products ©2007 CUTTER CONSORTIUM

But the Internet has made it possible to aggregate demand, not just over millions of customers but over hundreds of millions (or billions) of customers. Now even a small demand for a very rare product is enough to turn a profit. Through Internet marketing and advanced Web-based systems, organizations can make money on even rare items. Take the following example: A couple of months ago, I was working with a colleague to redevelop a technology that we

Historically, finished goods inventory costs (and distribution costs) determined just how much

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In the 1970s and 1980s, the semiconductor manufacturers learned to deal with disruptive technologies by “eating their own young” (that is, by constantly bringing out new products that ate away at the market, price, and margins of their own existing products). Moore’s Law provided a template based on the idea that every 18 months the price of chips would be cut in half while their power would double. In a market where the underlying product development cycle is fundamentally disruptive, organizations have to develop management and infrastructure environments that can attack their most profitable products. The nature of rapid change forces the competitors in the marketplace to adapt and actually work down the chain to make sure they can sell enough to justify the volumes that keep them competitive. For your own organization, you should consider the following question: How do disruptive technologies affect the IT business architecture planning?

inventory an enterprise could afford, and that, coupled with Pareto’s principle, severely limited the number of products organizations could profitably afford to keep in stock at any one time. This meant that certain products with reasonable but small demand could not be profitably stocked.

provide 80% of the sales; 20% of our customers provide 80% of our profit; and so on. However, with the Internet and the Web and the increasing substitution of bits for atoms, organizations in a number of different fields have begun to challenge this truism. Web-based companies like Amazon, Netflix, Rhapsody, and eBay have discovered that electronic (digital) operations make it possible to make money even in the face of Pareto’s principle. The theory of the long tail, popularized by Wired editor in chief Chris Anderson, is that “our culture and economy is increasingly shifting away from a focus on a relatively small number of ‘hits’ (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail.”9

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and really big trucks as well. Figure 4 shows how firms leveraging disruptive strategies tend to change existing markets.

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Figure 4 — How disruptive technologies gain market share from the bottom. (Source: Modified from Wikipedia entry on disruptive technologies [http://en.wikipedia.org/wiki/Disruptive_technology].)

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had both worked on in the 1980s. The only book ever written on the subject was long out of print, and neither of us could find our copies. Finally, I gave up, logged onto Amazon, and found four used copies of the book. I ordered three copies by express mail and had them in two days. In this case, Amazon didn’t even have those four copies in its inventory. It simply acted as middleman by interfacing me with a used bookstore and taking care of the electronic logistics and billing. Amazon didn’t even have to store a single copy of the book in its inventory. eBay has taken this process even further, acting simply as the world’s largest flea market. By doing so, it has created thousands of new Internet businesses for markets too small to be attractive in the past. A bricks-and-mortar book and music retailer like Barnes & Noble only carries about 130,000 books and CDs in its entire inventory for

all its stores, and it makes most of its revenue from just a small percentage of those items. Amazon, on the other hand, carries nearly 20 times as many items and makes most of its revenue from the long tail (see Figure 5). The long tail phenomenon is now being used to do product planning in media areas such as broadband distribution, multimedia content devices, digital photos, and content management on the Web. In a sense, disruptive technologies and the long tail are both operational effectiveness strategies. They simply allow organizations to utilize new technological innovations to turn the tables on the big entrenched market leaders and provide things that the big guys can’t offer or a substitute product at less cost. Unfortunately, HP eventually catches up with Dell; Blockbuster sees Netflix and adopts a hybrid, mail-based DVD strategy where it can leverage its existing stores as well as the mail.

Figure 5 — The long tail. (Source: IDFuel.)

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For your own organization, you should consider the following questions: Are there disruptive technologies that are likely to affect your organization’s competitive position? Could your organization utilize long tail thinking in its mainline business? What kinds of changes to your IT systems would be involved? How fast can your IT organization respond to disruptive change? Differentiation

If sustainable competitive advantage through organizational effectiveness is difficult to achieve and maintain, then what about differentiation? How is it that organizations differentiate their products or offerings to the point that people will pay a premium to possess, let’s say, a Bang & Olufsen product? This section addresses the idea of differentiation. Extreme Differentiation

Probably no one in the world, certainly no one in the consumer technology world, is as influential or recognized as Apple CEO Steve Jobs. Microsoft’s Bill Gates and investor Warren Buffet are richer, but Steve Jobs is known for innovation. Over a period of three decades now, Jobs has been able to come up with unique technology mashups that change the entire technology landscape. He did it for the personal computer (the Apple II); he did it for user interfaces (the Mac); he did it for personal music devices (the iPod); and now he is attempting www.cutter.com

EXECUTIVE REPORT to do the same for the smart cellular phone (the iPhone). In each of these cases, Jobs has focused on packaging existing technologies with slick design and even slicker user interfaces. Jobs has stressed that everything that Apple makes must fit with everything else that Apple makes seamlessly, and because of the focus on integration, other organizations have to adhere to Apple standards rather than industry ones. Jobs is also not interested in playing “follow the leader.” Apple strives to be the leader in the markets it plays in — even if the market is small. Indeed, Apple strives to be an industry innovator. In recent years, with the introduction of the iPod and iTunes, Apple has once again focused on new products that integrate with other Apple products and that create new markets. Today, Apple dominates the personal music player field and has roughly 80% of the legal music download market.10 Not everybody can be a Steve Jobs, but, increasingly, organizations are getting into the innovation business. In a world of globalization, low cost is an issue of survival but not competitive advantage. Differentiation allows organizations to charge more and control the marketing agenda. At the January 2007 International Consumer Electronics Show in Las Vegas, thousands of vendors and thousands of products were displayed, but the buzz was all about the iPhone and Apple.

Firms like Mercedes-Benz and Bang & Olufsen have been leaders in the development and delivery of innovative, highly differentiated products for a very long time — a very tough job. Questions to ask yourself include: What kinds of systems do innovative firms use to support extreme differentiation strategies? What kinds of business processes will bring advanced products to the market faster than your competitors? Delayed Differentiation

In the early part of the 20th century, Henry Ford used scientific management, the assembly line, and vertical integration to revolutionize the manufacturing of automobiles. His theory, which made him the world’s first billionaire, was that the way to drive cost down was to build a massive production facility making one product at very high speed. To Ford, variety was the enemy. Whether he actually uttered the phrase is unclear, but still the “Any customer can have a car painted any color that he wants so long as it is black” quote captured Ford’s attitude. But Ford’s failure to recognize the importance of variety allowed other manufacturers like General Motors to ultimately assume leadership in the automobile industry. By the end of the 20th century, variety went from being something to be avoided to being an essential strategy. Product introductions soared, while product cycles became shorter and

shorter. Department store and grocery store shelves exploded. Manufacturers learned to build plants that could turn out a variety of new and existing products based on demand. As a result, the concept of “delayed differentiation” has become more and more important. Delayed differentiation is pretty much what it sounds like. Delayed differentiation involves “architecting products” so that decisions about the exact configuration of the product can be postponed until the last minute. An example of this is United Colors of Benetton. Benetton, being in the clothing business, discovered many years ago that the key to sales was not so much style as it was color. Determining style proved easier than choosing the “in” color of the season. As a result, Benetton developed a delayed differentiation strategy by making many of its products in what is referred to in the apparel industry as “grey goods.” Grey goods are sweaters, skirts, pants, and so on made of a noncolored (light grey) material. These products are then stockpiled at manufacturing sites. As feedback about the season’s hot colors comes in from stores and market intelligence, Benetton then dyes and ships the up-to-date products to catch the current wave. Another approach to delayed differentiation is through product architecture. Businesses like Black & Decker, which makes a large VOL. 10, NO. 2

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variety of electric hand tools, invest heavily in modular product architecture, where a number of different products in a given product family (for example, drills) share common components. Process engineers then work to set up a flexible assembly line where different products can be assembled depending upon the actual product forecasts. As discussed earlier, Dell has made delayed differentiation its core business strategy. Driven by the make-to-order (“pull”) business model, Dell also puts significant effort in a modular product architecture and a flexible assembly line. Questions to ask yourself include: What is your organization’s differentiation strategy? What kind of systems changes would be required to support delayed differentiation? Market Positioning

It doesn’t matter what business you think you’re in, what matters is what business your customers think you’re in. — Paraphrased from Al Ries and Jack Trout, Positioning: The Battle for Your Mind11 1. Stand for something different; 2. Make your pitch simple so people can understand it; 3. Deliver on what you promise. — Allen Adamson, BrandSimple12

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from marketing — positioning. Differentiation is not just a product strategy; it is also a marketing strategy. From a marketing perspective, positioning is about how a company is seen by the marketplace. Ries and Trout, like Porter, discuss durable competitive advantage but as a matter of “mind share.” The steel that goes into a Volkswagen and a Porsche costs about the same, but the price that people are willing to pay for the two brands is vastly different. As with Apple, people pay for something intangible — for image. Those organizations that are market leaders, Ries and Trout maintain, are generally those that get to the market first and acquire a distinct position in the customer’s mind. These organizations may not be the ones that invented the principal product, but they are often in the group of early entrants. During the early days in an industry, there is often a period when market share is determined. When this happens, the winner often dominates the market for decades. But once an organization has positioned itself in the market, it must be very careful not to destroy that marketing position in an attempt to expand. Ries and Trout argue that “brand extension” tends to destroy the mind share of the original product. Marketing positioning is a deep, semiotic version of the “elevator speech” that every novice entrepreneur is coached to develop.

Technology Roadmapping

One of the most difficult parts of business-IT management is trying to deal with the constant change in both the business and technology domains, what Richard D’Aveni calls “hypercompetition.”13 In the world of hypercompetition, “there” doesn’t exist. Globalization, optimization, outsourcing, insourcing, business process renovation, and so on, are creating a world with less and less stability and more and more risk. Like the deer in the proverbial headlights, top managers in modern businesses are often petrified by their options. Technology roadmapping is a planning technique developed to address just the kind of environment in which business-IT planners find themselves. Initially conceived at Motorola in the 1970s, technology roadmapping has spread to a great many high-tech manufacturers and industries. I first learned about roadmapping from Cutter Fellow Robert Phaal of the University of Cambridge (UK). Phaal directs a program that sets up technology roadmapping activities. In this job, Phaal has developed technology roadmaps for more than 80 different organizations. Technology roadmapping works in a backward fashion by having you look out some number of years (in the case of Figure 6, four) and ask, based on competitive factors, what markets does the business want to be in? This www.cutter.com

EXECUTIVE REPORT could be based on, for example, how fast the market is growing, strategic alignment, technologies in the pipeline, and so on. Based on the markets, the planning process works backward to define what products the business wants to have in place in year three in order to begin to compete in year four. Based on that, what systems need to be in place in year two to make it possible to support the product and marketing plans? Finally, in year one, what kind of research or technology needs to be installed to make it possible to build the systems, manufacture the products, and support the marketing plans? Roadmapping defines the approach as being driven by “marketing pull” and “technology push.” Using this approach, organizations all over the world have done their outyear planning. One of the great advantages of this approach is that the business and technology managers make all the critical decisions, and by the time they are done, everyone involved in the process knows why the plan contains all the elements that it does. BUSINESS CONTEXT Every enterprise has a context. There is an external context and an internal one. The external context describes those external entities (actors) with which the enterprise deals (communicates). The internal context describes how the communication takes

Y4 Market/ Outcomes

Products/ Services

sh pu

o ol

l pu

c Te

Systems

Design Execution

Research

$ Resources

Figure 6 — Technology roadmap.

place between internal entities (actors again) and external entities. There are two aspects of business context modeling: (1) modeling the business context as it is now, and (2) modeling the business context as it will be at some future time. From the vantage point of business architecture, it is important to understand the business context in terms of the major messages (or things) that move about the organization — and not necessarily all of the detailed ones. What the business architect is trying to understand is the general information context within the enterprise in order to be able to: Define the business semantics Map the business value chain and value streams

Identify the major data (information) categories and relationships This section discusses the business context diagram and business semantics. Business Context Diagram

The business context diagram is the most valuable tool that a business architect has at his or her disposal. It allows the business architect to communicate with others both inside and outside the organization, to learn about parts of the business that the architect doesn’t understand or are new, and to get managers and subject matter experts to recognize just how complicated the current business environment really is.

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12 Context diagrams define the “actors” and “messages” that are active within the specific context. These diagrams have a number of significant advantages: 1. They are easy to use. 2. They identify the major actors. 3. They identify the major messages (communications) that go from one actor to another. 4. They set the stage for the other phases of business architecture that follow (business semantics, value chain, value streams, business process, data architecture). These diagrams can be developed from a standing start, and business managers and subject matter experts can grasp them very quickly.14 Because of their simplicity, context diagrams scale. One of the reasons for this is that context diagrams are additive: if you take two diagrams done separately with careful definition of the actors and messages involved, you can add those diagrams together to create even larger, more expansive diagrams. Because of their structure, you can also hide (and show) details by combining any number of actors within higher-level actors. It is possible, for example, to create individual context diagrams based on interviews with multiple individuals (or groups) and then add those individual context diagrams together to create a master VOL. 10, NO. 2

ENTERPRISE ARCHITECTURE ADVISORY SERVICE (enterprise) diagram. Context diagrams can be arbitrarily large, and there are automated tools for specific forms of context diagrams that allow the rapid manipulation of very large diagrams. Figure 7 is a context diagram of Acme Printing Co. The diagram is the earliest example of a business context diagram in my files. In fact, this diagram was developed in the 1970s when I was a consultant in Chicago. The diagramming technique itself goes back to at least the 1930s and 1940s. What we now call business context diagrams have many other names: entity diagrams (pre-ERD), actor-message diagrams, operational node connectivity diagrams (DoDAF), and value networks.15 I am sure that there are dozens, perhaps hundreds of others. In BEAM, context diagrams provide a communication vehicle for talking about the explicit communication that exists (or is planned). It also is the springboard for business semantics, discussed in the next section. Business Semantics

The importance of business context modeling is that it provides clues to developing a business semantic model that defines the major categories of data that form the framework for our data architecture as well as providing basic information for developing the business value chain and value streams/high-level business

processes. This is described at length in my earlier Cutter report on business semantics.16 Business semantics identifies the following major categories of data/information: Actors Messages Objects Events Locations Roles Relationships Business exchanges Business relationships While business context diagrams only explicitly describe actors and messages, all of the other categories are implied in some way. The importance of business semantics in developing a solid business architecture cannot be overemphasized. In recent years, terms like “semantics,” “ontology,” and “taxonomy” have begun to pop up increasingly in systems literature. Indeed, the Semantic Web and Web 2.0 are built on these concepts. But semantics (the study of meaning), ontology (the study of the real world), and the companion term “epistemology” (the study of how we learn) are as old as philosophy itself. The great leap that the Greeks made in learning stemmed in no small part from their understanding of these key concepts. Business semantics www.cutter.com

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Figure 7 — Enterprise context diagram of Acme Printing Co.

brings these concepts to bear on the problem of improving our understanding of our enterprises and their relationships at a much higher level. The better we understand the real world that our businesses operate in, the better we will be able to build systems and databases that allow us to achieve/sustain competitive advantage for our enterprises. BUSINESS VALUE CHAINS AND VALUE STREAMS This section discusses the third and fourth phases of the business architecture: value chains and value streams. ©2007 CUTTER CONSORTIUM

Business Value Chains

Porter’s Value Chain

One of the major goals of enterprise architecture is to help both business and technology managers and professionals to think “broader and longer.” To do that, we need tools (diagrams, pictures, tables, and so on) that allow us to develop better high-level visualizations of the enterprise as a whole. This is a major challenge since many of our traditional tools were developed for low-level program and systems design and coming up with the appropriate high-level diagrams is particularly important.

In addition to his analysis of competitive advantage, Michael Porter’s idea of the business value chain is also important for business architecture. In his initial work, Porter proposed the value chain diagram (see Figure 8). It is hard to overestimate the importance of the value chain in business and systems thinking. Business process expert Paul Harmon, for example, suggests that Porter’s value chain marked the beginning of the business process era.

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ENTERPRISE ARCHITECTURE ADVISORY SERVICE these two forms of enterprise diagrams has allowed us to create a template for developing value chains and integrating them with a balanced scorecard and management strategies (see Figure 10).18

Firm Infrastructure HR Management

Supporting Activities

R&D

Service

Marketing and Sales

Outbound Logistics

Operations

Inbound Logistics

Procurement

Products/ Services

Resources

Primary Activities

Figure 8 — Porter’s value chain (with resource → product/services arrow added by the author).

The basic idea behind Porter’s value chain is that there are two basic forms of activity: 1. Primary activities — the means by which the enterprise adds value and creates products/services to the marketplace 2. Supporting activities — the means of providing resources and management control Now at one level, there is nothing new in dividing activities into major classes. In classic organizational theory, for example, there is the distinction between “line” (primary operations) and “staff ” (supporting operations). This distinction is embedded in management accounting as well (for example, “direct costs” and “overhead costs”). What Porter did was to provide an elegantly simple picture that highlighted the sequence of primary activities in a form that could be used to describe the enterprise as a high-level business VOL. 10, NO. 2

process (note that I added the arrow in Figure 8). While Porter initially used these diagrams to describe manufacturing firms, they have been used in all manner of other organizations, both public and private. These value chain diagrams were adapted in the 1980s and 1990s to apply to enterprise architecture. In the process, we developed a template that allowed us to support a more elaborate systems feedback model of an enterprise, such as the one in Figure 9).17 This model provides a context for the value chain (which replaces Porter’s activities with the enterprise box). It too shows resources (inputs) and products/ services (outputs), but it also shows product usage (outcomes) by the market/customer. This model allows us to address product quality and customer quality explicitly in business architecture. Combining the information from

One of the great advantages of this extended form of the value chain is that it allows organizations to integrate their highestlevel business processes with their highest-level management feedback and control mechanisms (for example, the balanced scorecards and management strategy reporting). What we have found in using business value chains is that good value chains usually track the life history of either the product/service or the customer. Business Value Streams

A value stream is an end-toend set of activities which collectively create value for a customer. — James Martin, The Great Transition19

Having introduced the concept of business context and business value chains, the next major component (phase) of business architecture is value streams. While the sequence of primary (value-adding) activities in the value chain is useful in describing the enterprise at the highest level, it is too high to represent the major (core) business processes; however, value streams identify clearly those core processes.

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Enterprise

Sources (Business Partners)

Market (Customers) product usage (outcomes)

products/ services (outputs)

resources (inputs)

product feedback customer feedback

Figure 9 — An extended systems feedback model. Feedback Information

Management Strategies

Balanced Scorecard

Transportation Value Chain Administration Management Management Administration

Supporting Activities

Supporting Processes

Financial Financial Management Management

Support Asset Info Process Management

Primary Activities

Management ITITManagement HRManagement Management HR

Core Business Process

Supporting (Financial, (Financial, HR, etc. Supporting HR,IT,IT, …)) Assets Assets

Program / Project/ Contract Management Program/Project/Contract Management

PreReal-time PreReal-Time Construction Construction Maintenance Maintenance Operations Construction Construction Operations

highways

ansportation Transportation Planning Planning

public transit, aviation, etc.

Local Support (Public Transit, Transit, Aviation, Other) Local Support (Public Aviation, other)

Quality Management Product Information

Research and and Laboratory Research Laboratory

Safety Safety Transportation Infrastructure Transportation InfrastructureAssets Assets

Figure 10 — Integrated business value chain model.

Value Streams á la James Martin

One of the major problems with business process management has always been the level of the

process being considered. When many people refer to business processes, it is often unclear whether they are referring to a “lowercase” business process

(bp) or an “uppercase” business process (BP). Lowercase bp involves small but significant business processes (for example, “travel advance,” “travel expense VOL. 10, NO. 2

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routing”), whereas uppercase BP deals with larger end-to-end processes (for instance, “concept through project initiation,” “market to collection”). Now, thanks to James Martin and to Ralph Whittle and Conrad B. Myrick,20 we have a term for talking about those uppercase business processes — the value stream. Value streams represent the very high-level business processes (BPs), and they provide a framework (mental model) for continuous business process reinvention, renovation, and renewal.21 I first encountered value streams as a concept when I was working as a consultant for Xerox in the mid1990s. At that time, Xerox was in the process of implementing its Xerox 2000 initiative using a framework called the Xerox Business Architecture (XBA).22 Within this umbrella, Xerox had

Inventing

Developing

defined four primary activities in its value chain: 1. Inventing 2. Developing 3. Acquiring and delivering 4. Marketing, selling, and servicing It also defined four value streams: 1. Time to market 2. Integrated supply chain 3. Market to collection 4. Customer services Today, organizations everywhere are becoming more and more engaged in integrating and improving their business processes as a way of achieving competitive advantage. But this is a tall order. Most organizations have literally thousands of business processes that have evolved over decades. One of the problems

Acquiring and Delivering

Marketing, Selling, and Servicing

Time to Market

Integrated Supply Chain

Market to Collection

Customer Services

Figure 11 — Xerox 2000 value chain and value streams.

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organizations have is integrating these business processes to eliminate redundancy, waste, and time. Often the result is suboptimization — individual processes are streamlined but they don’t play well with each other. Business architecture uses value streams (uppercase business processes) as a way to provide an overall framework for the detail, lowercase business processes. Perhaps the most important part that value streams play in business architecture is to provide goals, a focus, and names for the set of high-level business processes that are most critical to the enterprise. In the case of Xerox, for example, it allowed the company to not only lay out its overall value chain, but also to show on that value chain the most important processes, those processes that it most wanted to control and improve (see Figure 11). For quite some time, my colleagues and I have been using business exchanges/major business processes as a way to help define uppercase business processes. The idea of business exchange harkens back to the earliest form of commerce — the barter. In a barter transaction, two parties (actors) exchange something of value: for example, you give me a chicken, I give you some salt. Over time, direct barter arrangements were mediated through the introduction of money (I get the chicken, you get

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EXECUTIVE REPORT money), but the basic concept is the same. This exchange may involve multiple business messages (transactions). In a normal business exchange like market to collection (or order to collection), there are four business messages (transactions): order

(“contract”); shipment (“customer shipment”); bill (“invoice”); and payment (“customer payment”) — see Figure 12. These four would make up the external business transactions in a modern marketto-collection business value stream/ business exchange. (Note: there

may be hundreds of internal business transactions to actually accomplish what seems from the outside to be a straightforward exchange. At the time I was working with Xerox, the Xerox marketto-collection value stream involved more than 1,500 applications.)

Figure 12 — A market-to-collection value stream context.

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In other value streams — for example, “time to market,” which involves bringing a new product to market and begins at the point a new product concept is available and continues to the point that the product is ready for production — the business exchange or value stream is somewhat harder to define since the “customers” in this case are internal; however, the same idea holds. Martin talks about “value stream reinvention”: Value-stream invention asks several basic questions: What are the value

streams of the enterprise?

Who are the customers

of each value stream?

What are the customers’

needs and desires? What would delight the customer?

How can the value stream

be reinvented to meet customer desires as simply and directly as possible, using the most appropriate technology and information systems, and minimizing the costs of doing so?23

With the right tools, context diagrams can be used to provide a context for creating value stream business processes. The most evident thing about a value stream like market to collection is that it covers a large portion of the context “map” of the information flow within and without. One advantage of this value VOL. 10, NO. 2

stream is that the ultimate customer is clear. Value Stream Mapping á la Ohno and Shingo

The basis of the Toyota Production System is the absolute elimination of waste. — Taiichi Ohno, Toyota Production System24

As appealing as James Martin’s idea of value streams is, it is not the only game in town. Indeed, if you look up “value stream” on the Internet, you are much more likely to find references to “value stream mapping” and to the names Ohno and Shigeo Shingo (the same fellows famous for being the leaders in implementing just-in-time [JIT] lean manufacturing at Toyota starting in the 1950s). Value stream mapping was developed not just to model business processes but to model all forms of resource usage and especially to track waste. Often overlooked, the emphasis on the elimination of all forms of waste has been a major part of the lean manufacturing movement and the Toyota production system since its inception. Value stream maps were designed to track key resources (time, material, water, manpower, and so on) in a single consistent framework (see Figure 13).25 Value Streams, Business Processes, and Assembly Lines

In a factory for a complex product, rather than one

assembly line, there may be many auxiliary assembly lines feeding sub-assemblies (i.e. car engines or seats) to a backbone “main” assembly line. A diagram of a typical mass-production factory looks more like the skeleton of a fish than a single line. — Wikipedia26

The assembly line is a concept that has driven manufacturing for the last century. As a result, it is a concept that has played a big part in a great many enterprises. Assembly lines are everywhere, driving productivity in every form of product business. Unfortunately, assembly line thinking has not worked its way yet into much of mainstream business process thinking. There are two major strategies in developing business processes: a “push” strategy and a “pull” strategy. In large part, this is because most business process thinking uses push strategies that start at the beginning (the inputs) and work forward, rather than a pull strategy that starts at the end (final result) and works backward. The result of this is that organizations, especially manufacturing organizations, that embark on simultaneous “business process renovation” and “Lean Six Sigma” projects often find themselves having difficulty communicating. The “lean” in the lean manufacturing context is largely synonymous with “just in time,” and JIT reverses the way that traditional www.cutter.com

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Figure 13 — Value stream map.

assembly lines, especially the inventories associated with assembly lines, actually work. Mass production factories were designed so that the “machine” never stopped. Each workstation had to have enough inventory so that the line never slowed down. The advantage was that parts and products could be built at a maximum rate, which meant that products could be built at a rate that would justify the huge invention in tooling and operation. To balance out the inventory so that it was not excessive, push systems developed a strategy called material requirements planning (known as MRP).

Lean manufacturing uses an assembly line model, but turns it on its head. Rather than maximizing production, lean manufacturing seeks to minimize waste. Instead of enough inventory no matter what, lean manufacturing is based on the idea of a JIT inventory system that would provide just the inventory that was needed just the instant before it was needed. The initial model for this was the so-called Kanban card system, whereby as products or parts are produced, a card requesting replacement is created and sent back up the assembly line to trigger the next part. This is the essence of a pull system.

Today, pull systems are largely based on sophisticated computer systems that implement a Kanban strategy. Because of the long history of assembly lines and the increasing focus on JIT, manufacturing systems are finely tuned. Through the use of value stream mapping such systems are also sparing in their use of resources and the production of wastes. Business processes in other organizational areas are not so advanced, but the attempt to apply lean thinking to nonmanufacturing business areas is likely to be the next major breakthrough area in business process thinking.

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BUSINESS PROCESSES

of individual actions or a “subprocess” (which is yet another business process description).

processes. Other processes produce products that are invisible to the external customer but essential to the effective management of the business. We call these support processes.

One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.

Business processes are the key link between business and strategy. Organizations today are constantly working to improve their business processes. Business process can be implemented manually or in an automated fashion. Figure 14 is what is called a “swim lane diagram” in general parlance or an “activity diagram” in UML. These diagrams provide the information to run automated workflow systems.

— Geary Rummler and Alan Brache, Improving Performance28

The idea of a business process is obviously not new. Adam Smith wrote that one of the reasons for the success of the new wealth in 18th-century England was largely the result of dividing work into small, repeatable activities (division of labor). And 100-plus years later, management scientists like Frederick Taylor and Frank Gilbreth saw the importance of business process at the detail level. By the 1980s, Porter was able to envision business processes in an entirely new way.

— Adam Smith, The Wealth of Nations27 A business process is a series of steps designed to produce a product or service. Most processes ... are cross-functional, spanning the “white space” between the boxes on the organization chart. Some processes result in a product or service that is received by an organization’s external customer. We call these primary

Base-level activities — that is, those activities that either do something manually or interface with some computerized interface (screen, voice recognition, and so forth) — provide a key interface to data and application architectures. If you know what data and data structure each activity requires, then you have much of the information to help you design the enterprise data (database) architecture. If you know what

A business process describes the sequence of activities by which work gets done and the decisions that are made in determining the sequence. Activities can be a list

C ustom er

P roposal

Enter Order

custom er shipm ent

Submit Order

job receipt

Receive Job

invoice

Pay Bill

S ales entered order

estim ate

Review Job

Prepare Proposal

contract Submit Order

and Forecast

E stim ating job spec

P roduction Schedul ing

P roduction

Estimate Job

contract forecast

Prepare Schedule

production schedule

Run Job

custom ershipm ent

Prepare Production Report

B illing

production report

A /R & S ales A ccounti ng

Bill Customer

custom er paym ent

Process Customer Payment

G /L S ystem

Figure 14 — Market-to-collection business process.

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EXECUTIVE REPORT data and data structure each activity requires and you know the data (database) architecture, then you know how to build the “data adapter” services that provide the layer between the business layer and the application layer. If you know the swim lanes for a set of business processes, then you have the workflow implementation. As I said at the beginning of this report, the business architecture is the key link between the business and the data/application/ technology.

(enabled) any number of new (or radically improved) business models. Those new business models have enabled whole new marketplaces to emerge while undermining others. Digital photography, which had been predicted for two decades, emerged in the mid-1990s and within less than a decade had swept the underpinnings from the film camera business. Cellular phones have done the same thing, undercutting the landline business dramatically.

THE ROLE OF BUSINESS ARCHITECTURE IN THE REAL-TIME ENTERPRISE

Business architects must also be politicians, for their job demands that they work with top business management and top technology management. Their job is to understand and predict the business and technological future in terms that both the business managers and the technology managers can understand and accept, without getting run over or isolated from the mainstream. By its very nature, this work is, to say the least, challenging, and it is compounded by all the contrary views that top business and technology management constantly receive from vendors and the media. Business architects must be able to counsel management on the importance of long-range planning and flexibility and shortterm adaptability.

The XBA model defines what we do. It identifies the core processes we want to manage and establishes boundaries for the company. It’s the context by which Xerox works together to collaborate and works independently in harmony: the design and the intent. It’s designed to be customerdriven and cross-functional value-based, from outside in. It’s documented, and it’s managed on a crossfunctional basis by a process owner. The architecture forms the basis for understanding the whole, management for a systematic breakthrough and improvement effort. It forms the context for empowerment. — Bill Kane, XBA manager29

The real-time enterprise is already here. All big organizations today are already “technology-enabled.” None of them could compete without computers, high-speed communications, and sophisticated

systems that offload more and more of the routine tasks and, increasingly, more of the heavy lifting as well. The problem is that as our core systems get bigger and more complex, they also become more difficult to modify. As things progress, more and more time and the majority of our budgets go into simply keeping these core systems running. Like an ancient automobile that is paid for but so old that replacement parts and experienced mechanics who know how to fix it are hard to come by, many of our legacy systems don’t drive the enterprise forward — they act as ever-larger anchors! Business architecture is involved in studying the core business, the core value chain, the core value streams, and the core business processes. Through studying the enterprise’s strategic intentions and competitive strategies, business architecture counsels the business and technology managers and planners about the key decisions that need to be made and how they affect the entire enterprise, not just the pieces. BUSINESS ARCHITECTURE MODELING AND TOOLS In doing business architecture, it is very important to remember that it is mostly about communicating with nontechnical (that is, nonprogramming) people. For this reason, it is critical to use the simplest communication tools and diagrams possible, meaning modeling forms (diagrams) that derive from business process analysis VOL. 10, NO. 2

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(context diagrams, value chain diagrams, and swim lane diagrams) rather than ones developed primarily for programmers (use case diagrams,30 sequence diagrams, and object-class diagrams). While UML diagrams have the advantage of being based on international standards, my experience is that they don’t communicate as well with businesspeople. On the matter of automated business architecture tools, my preference leans toward tools that come out of the business process modeling world. Finally, because business architecture is still in a relatively early stage of development, my preference is toward tools that can be easily customized to define custom diagrams and custom processes for doing business architecture. BUSINESS ARCHITECTURE GOVERNANCE: THE SEARCH FOR THE “EAST POLE” Put a good performer in a bad system (the Human Performance System), and the system will win every time. — Geary Rummler, Serious Performance Consulting31 The interesting point in Dr. Deming’s teaching is that since defects are system induced, it can be corrected by making improvements in the system.… This means that by having a proper system in place and by training those who manage or supervise, it is possible to solve 85 percent of the problems. — Dr. M.V. John32

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The most significant problem in establishing a strong business architecture is governance. For more than two decades, organizations all over the world have come to understand how different managing major business processes (value streams) is from managing traditional organizations. Traditionally, organizations have been organized around the principle of “divide and conquer” (for example, hierarchies based on functional organizations), but thinking about business processes and lean manufacturing has made organizations work increasingly to think about how you organize and about organizing horizontally instead of vertically.

based on functional specialization. But in product businesses, quality is managed horizontally along the business process.

When we first take a job in a large organization, we are taught to “look up the organization chart.” I call this the North-South (vertical) orientation. I report to my manager, and my manager reports to a division manager, and the division manager reports to a vice president, and so forth. Each person does the job assigned without looking either to the left or to the right. Information flows down the hierarchy, and some small amount flows up. This is the way it has always been.

One of the best models for business architecture governance again comes from the approach that Xerox used on its Xerox 2000 project (see Figure 15).33 Here, Xerox had a business process board of top executives and “process champions” to whom the value stream teams reported. Something similar to this approach has to be in place if major changes are going to deliver a “durable competitive advantage.”

But business processes don’t run North and South, they run West to East. They face the customer, not the CEO. Their job is to provide value for the customer by producing/providing the very best product or service possible. Classical vertical management is

Because business architecture focuses on the horizontal dimension of the enterprise (business value chain, value streams, and business processes), to succeed, it must help the organization find better and better ways to manage horizontally. In lean manufacturing, it involves control flowing right to left (East to West) while product flows in an assembly line tree left to right (West to East). At some level, all business process– oriented management is about the search for the East Pole.

CONCLUSION Business architecture is an extremely important activity. It is most important to those organizations whose business models are in the most flux; with the advent of globalization and technological and business change, organizations fitting the “in the most flux” www.cutter.com

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Figure 15 — Xerox 2000’s governance structure.

description include an ever-larger percentage of enterprises. The resulting business landscape, which business architecture maps out, is always the result of insight, hard work, and some degree of luck. Being the first to hit upon a new technology, market, or trend often bestows good fortune and market dominance. However, even the best-managed companies encounter rough times. Computers and communications have made it possible for organizations to become more agile, ©2007 CUTTER CONSORTIUM

but systems that were new and innovative on mainframes or minicomputers 15 or 20 years ago have trouble competing with the Internet-based, wireless systems of today. In the same way that organizations are learning to build adaptable, agile factories that can quickly change the mix, or even the type, of product that they produce, state-of-the-art business architecture allows organizations to build adaptable, agile systems that can quickly change the mix and type of the organization’s business mission.

At a Cutter Summit conference a couple of years ago, I encountered a director of product development whose software company had developed a new and exciting product in record time, only to find its release of that product to the marketplace put on hold because the corporate billing system was so inflexible that the company could not bill for this new kind of software system that required a new kind of billing algorithm.

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24 Like an old elephant that has bred for strength and stamina, many of the current enterprise business architectures are suffering from hardening of the arteries. Systems and databases built on mass production paradigms have trouble becoming lean and agile. Disruptive technologies are becoming disruptive in an increasingly faster way. In six or seven years, Google has gone from being an interesting tool to becoming a threat to more and more information delivery organizations, and a (former) computer company (Apple) has an 80% share of the music download business. Unfortunately, though many business and technology managers have become obsessed with IT costs, the problems that they face are deeper and more significant. Costs are a trailing indicator in this case. Core systems are decades old and becoming ever harder to maintain. As the aging workforce in many regions of the world begins to leave the corporate stage, the basic systems and core business systems infrastructures that companies have depended on for decades are increasingly at risk. Business architects will be in increasing demand, I believe, as organizations wake up to the fact that not only is IT not a commodity (á la Nicholas Carr), it is, in fact, the central nervous system of the dispersed real-time enterprise.

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ENTERPRISE ARCHITECTURE ADVISORY SERVICE ENDNOTES

9See

1Orr,

10See

Ken et al. “Business Enterprise Architecture Modeling.” Cutter Consortium Enterprise Architecture Executive Report, Vol. 8, No. 3, March 2005.

2Orr,

Ken. “Extending Zachman: Enterprise Architecture and Strategic IT Planning.” Cutter Consortium Business-IT Strategies Executive Report, Vol. 7, No. 4, April 2004.

3Tam,

Pui-Wing. “CIO Jobs Morph from Tech Support into Strategy.” Wall Street Journal, 20 February 2007.

4This

term is borrowed from Robert J. Benson, Thomas L. Bugnitz, and William B. Walton’s From Business Strategy to IT Action: Right Decisions for a Better Bottom Line (Wiley, 2004). However, it is different in a number of aspects.

5Porter,

Michael E. Competitive Strategy. Free Press, 1980.

6Brown,

Gerry. “How CIOs Can Win Back the Hearts and Minds of Users.” Bloor Research, 2 March 2007 (www.it-analysis.com/ business/content.php?cid=9304).

7See

endnote 5; and Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, 1985.

8Christensen,

Clayton M., and Joseph L. Bower. “Disruptive Technologies: Catching the Wave.” Harvard Business Review, 1 January 1995.

www.longtail.com/about.html.

http://en.wikipedia.org/ wiki/ITunes_Store.

11Ries,

Al, and Jack Trout. Positioning: The Battle for Your Mind. McGraw-Hill, 2000.

12Adamson,

Allen P. BrandSimple: How the Best Brands Keep It Simple and Succeed. Palgrave Macmillan, 2006.

13D’Aveni,

Richard A. HyperCompetition: Managing the Dynamics of Strategic Maneuvering. Free Press, 2006.

14My

experience has been that the only time individuals have trouble understanding context diagrams is when they have been taught other, more complicated forms of diagramming and they read more into the diagram than is intended.

15Value

network is the name that Cutter Senior Consultant Verna Allee has given to her version of the context diagram. The major addition that Verna has made is that of “intangible messages,” which she shows as dotted arrows.

16Orr,

Ken. “Business Semantics.” Cutter Consortium Business Intelligence Executive Report, Vol. 5, No. 7, 2005.

17Modified

from Rummler, Geary A., and Alan P. Brache. Improving Performance: How to Manage the White Space in the Organization Chart. Jossey-Bass, 1995.

www.cutter.com

EXECUTIVE REPORT 18This

model is based on work with transportation (highway) departments over the last decade.

19Martin,

James. The Great Transition. American Management Association, 1995.

20Whittle,

Ralph, and Conrad B. Myrick. Enterprise Business Architecture, CRC, 2004. Whittle and Myrick’s book brings Martin’s ideas of value streams into a business architecture context.

21Martin

uses the term “reinvention.”

22In

William R. Boulton, Michael L. Gibson, and James Cross Jr.’s “Xerox 2000: Leadership through Quality.” Sponsored by the Thomas Walter Center for Technology Management, 1996 (www.duc.auburn.edu/ ~boultwr/xerox200.pdf).

23See

endnote 19.

24Ohno,

Taiichi. Toyota Production System: Beyond Large-Scale Production. Productivity Press, 1988.

25Source:

US Environmental Protection Agency (www.epa. gov/lean/toolkit/ch3.htm).

26See

http://en.wikipedia.org/ wiki/Mass_production.

27Smith,

Adam. The Wealth of Nations. Modern Library, 1994. First published in 1776.

28See

endnote 17.

29See

endnote 22.

30Use

case diagrams are a special case here. Use case diagrams and supporting documentation are currently the all-purpose requirements tool by OO developers, and they are easy to understand. The problem from a business architecture standpoint is that they tend to be isolated. My observation is that if one is not careful, you end up with hundreds of pictures of the individual leaves (activities) within the enterprise and no picture of the trees, much less the forest (the enterprise).

31Rummler,

Geary. Serious Performance Consulting. International Society for Performance Improvement, 2004.

32John,

Dr. M.V. “Total Quality Management: Is Survival Compulsory?” Quality Learning Systems (www.qlsonline.com/ page7.htm).

33Source:

See endnote 22.

ABOUT THE AUTHOR Ken Orr is a Fellow of the Cutter Business Technology Council and a Senior Consultant with Cutter Consortium’s Agile Project Management, Business Intelligence, Business-IT Strategies, and Enterprise Architecture practices. He is also a regular speaker at Cutter Summits and symposia. Mr. Orr is a Principal Researcher with the Ken Orr Institute, a business technology research organization. Previously, he was an Affiliate Professor and Director of the Center for the Innovative Application of Technology with the School of Technology and Information Management at Washington University. He is an internationally recognized expert on technology transfer, software engineering, information architecture, and data warehousing. Mr. Orr has more than 30 years’ experience in analysis, design, project management, technology planning, and management consulting. He is the author of Structured Systems Development, Structured Requirements Definition, and The One Minute Methodology. He can be reached at korr@cutter.com.

VOL. 10, NO. 2

About the Practice

Enterprise Architecture Practice Today the demands on corporate IT have never been greater. Cutting costs and accelerating time to market for individual line-of-business projects are still priorities, but even that’s not nearly enough anymore. Companies are now looking for strategies to better leverage their entire IT infrastructure. They want IT to deliver sophisticated enterprise applications that can provide value across many lines of business and provide marked differentiation from their competitors. The Enterprise Architecture Practice provides the information, analysis, and strategic advice to help organizations commit to and develop an overarching plan that ensures their whole system fits together and performs seamlessly. The Enterprise Architecture Practice offer continuous research into the latest developments in this area, including Web services, enterprise application integration, XML, security, emerging and established methodologies, Model Driven Architecture, how to build an enterprise architecture, plus unbiased reports on the vendors and products in this market. Consulting and training offerings, which are customized, can range from mapping an infrastructure architecture to transitioning to a distributed computing environment. Products and Services Available from the Enterprise Architecture Practice

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