Architecture As Strategy

Architecture as Strategy
Professor David Robertson IMD International 6 November 2007

david.robertson@imd.ch
2007 IMD International. Not be used or reproduced without permission.
The Architecture and Strategy Study
Joint effort between IMD and MIT Interviewed or surveyed over 150 organizations in 7 countries in the US and Europe Quantitative survey of 103 organizations in US and Europe Book published in June 2006
IMD 2007
Outline
What is architecture? Why dont organizations have the right architecture? Why does aligning IT with strategy make things worse? What decisions do organizations have to make? How do you transform your architecture (and legacy systems)?
IMD 2007 3
The architecture of an organization is like the structure of a car
IMD 2007
Just like a car, an organization has a structure

Inside any organization is a base foundation of work processes and IT systems that processes thousands of daily transactions
Enterprise architecture is the organizing logic for the work processes and IT systems in an organization
IMD 2007
An organizations architecture lets it execute some initiatives well but not others Johnson & Johnson: Over 200 operating units $47B in annual revenues Sales increases and double-digit earnings increases every year for 20 years J&Js Management: Autonomous management of each unit Different systems and processes in each unit Great local flexibility and fast response to changing market needs
IMD 2007 6
Liverpool City Councils Challenge

The Situation in 1999: 9 silos of services, each grown organically over years Information captured on paper many times, with each incident or transaction creating many forms 10 HR organizations, 5 IT groups, 2 different email protocols The Result: Call center could not answer more than 4% of calls Revenues (tax collection) had backlog of 60,000 queries Overall service quality 423rd out of 426 UK local authorities
Social Services Request
IMD 2007
European Products Producer

Branded products producer: 19 different country business units, each independently managed, with separate systems, processes, and staff The Problems: Slow to change Expensive to run Global customers took advantage
BU 1 BU 2 BU 3 BU 19
Customer Group 1
IMD 2007
Customer Group 2
Customer Group 3
Customer Group 19
8
Why dont organizations have the right architecture?
Change in Environment
M&A, or other strategic actions
Architectural Entropy
No Plan
IMD 2007
How do architectures get designed?
IMD 2007
10
Without a plan, IT becomes project- and costfocused, leading to a siloed architecture
Corporate Data
Data Applications Platforms

Corporate Networks & Infrastructure Services
IMD 2007
Redundancy Lack of integration Lack of standardization
11
Siloed architectures and a short-term cost focus lead to long-term cost increases
IT Budget
New Capability Maintenance and Repair
63%
Time
IMD 2007
12
IMD 2007
13
Outline
IMD 2007 14
How alignment should work

Senior managers define strategic priorities
Organization Leadership
Drives direction
Strategic Initiative
Strategic Initiative Builds foundation
Project teams identify and implement business changes and IT support
Organization Foundation
Core work processes and IT Systems
The resulting ITsupported processes help the organization achieve its strategic objectives
Source: Enterprise Architecture as Strategy: Creating a Foundation for Execution, by J Ross, P Weill and D Robertson, Harvard Business School Press, 2006 IMD 2007
15
ABC Company strategy statement
ABC Company aims to build and consolidate leadership positions in its chosen markets, forging profitable growth opportunities by coordinating a strategic, synthesized approach to achieve maximum returns for our stakeholders.
Source: Adapted from Company, by Max Barry IMD 2007
16
How alignment really works

Strategic statements are often promises (get closer to our customers) or operational directives (enter Chinese market) Strategy provides little information on long-term direction of organization By the time IT finishes its work, the strategy has changed The resulting IT legacy makes the organization less flexible in the future
Reduced flexibility Strategic Initiative Provides only vague direction
Strategic Initiative Reduces future agility
Core Business Processes and IT Systems
17
Outline
IMD 2007 18
Building capabilities
IMD 2007
19
Building capabilities
IMD 2007
20
10
To achieve greatness requires learning basic skills so well that they become second nature
IMD 2007
21
Managers need to focus on high-value activities, not routine everyday tasks
Collecting taxes,paying benefits, delivering services

IMD 2007
Answering calls, processing payroll, managing pensions

22
11
In many organizations managers spend too much time on basic tasks not focusing on higher-value activities
Understanding
constituent needs
IMD 2007

23
Getting the architecture right for basic tasks gives you a platform for innovation Developing innovative new services
Understanding
constituent needs
IMD 2007

24
12
To support your strategy, define your operating model The operating model is your answer to two questions: 1) What are the core activities in your organization? o What activities do you want to perform repeatably, flawlessly, and efficiently? o What activities did you perform yesterday, and will you perform today and tomorrow? 2) How standardized and integrated do they need to be? The operating model: Focuses on the sacred transactions of the organization the core activities that should be second nature Provides a stable view of the organization Is more useful for guiding IT efforts
IMD 2007 25
Standardization (without integration)

Business Unit 1
Customer Customer Group A Group A

Business Unit 2
Customer Customer Group B Group B

Business Unit 3
Customer Customer Group C Group C Examples: Marriott Hotels

IMD 2007 26
13
How much standardization do you need? (Or: how much standardization can you live with?) Standardization: Simplifies operations, reduces costs, and increases efficiency Allows measurement, comparison, and improvement Can accelerate innovation
IMD 2007
27
How much standardization do you need? (Or: how much standardization can you live with?) Standardization: Simplifies operations, reduces costs, and increases efficiency Allows measurement, comparison, and improvement Can accelerate innovation BUT: Can limit local flexibility May require that local units replace perfectly good systems and processes with new standards May be politically difficult to implement
IMD 2007
28
14
The challenge of standardizing Performance

Performance of new standard
Country Business Units
IMD 2007
29
Integration (without standardization)

Business Unit 1
Business Unit 2
Customers Customers
Business Unit 3
Examples: MetLife, Liverpool City Council
IMD 2007
30
15
How much integration do you need? (How much can you live with?) Integration: Links efforts through shared data Provides transparency across the organization, and the seamless flow of information across activities Allows an organization to present a single face to a customer, supplier, or partner
IMD 2007
31
How much integration do you need? (How much can you live with?) Integration: Links efforts through shared data Provides transparency across the organization, and the seamless flow of information across activities Allows an organization to present a single face to a customer, supplier, or partner BUT: Requires common data definitions Can be time-consuming and difficult to implement Unnecessary if units are organized around unique customer groups
IMD 2007
32
16
The Operating Model

Coordination Unification
Business Process Integration
Business Unit 1
High
Business Unit 2 Customers Customers Business Unit 3
All Business Units

Customers Customers
Diversification
Business Unit 1
Replication
Business Unit 1
Low
Business Unit 2
Business Unit 2
Business Unit 3
Customer Customer Group C Group C
Business Unit 3
Low
High
Business Process Standardization

33
Where is your organization?

Process 12 Process 7 Process 10 Process 2 Process 13 Process 8 Process 6
High
Process 11 Process 4 Process 5
Process 3
Process 14
Low
Process 1 Process 9 Process 15
Low
High

Source: Enterprise Architecture as Strategy: Creating a Foundation for Execution, by J Ross, P Weill and D Robertson, Harvard Business School Press, 2006 IMD 2007 34
17
ING DIRECT
High
Business Unit 1
Business Unit 2
Low
Business Unit 3
Low
High

ING DIRECT
Simple products, mostly savings and simple loans No current account, no cash, no ATMs No bank branches: internet and call centers only Copy best practices between country business units Shared IT architecture and applications
ING DIRECT Operational Costs as Percent of Assets (Basis Points)

300
Average Branch Bank cost: 250 bps
250 250 200 150 100 50 0

1999 2000 2001 2002 2003 2004 2005 Branch
142 123 96 59 49 44
43
IMD 2007
36
18
ING DIRECT Architecture Description
External Services
Prospect Fulfillment
Connectivity & Integration Statement Payment Checks Fulfillment

CRM Product Info Mutual Funds Banking Engine
Reports local/HQ/Tax
Customer Relationship Services

CIF Contact History
Core Banking Services

Brokerage Credit Score
Common Business Services

Transactions Customers Products Services
Channel Services
IVR/CTI server Imaging server E-mail server Web server Gateway server
Customer-Contact:
Call Center, IVR, E-mail, Direct Mail
Self-Service:
Internet, MinTel, ATM, WAP, (WebTV)
37
Unification example: Delta Airlines

All Business Units
High
Customers Customers
Low
Low
High

19
Deltas Enterprise Architecture Requirements

Operational Pipeline
Allocate Resources Prepare for Flight Departure Load Aircraft Flight Departure and Closeout Monitor Flight Flight Arrival and Closeout Unload Aircraft Clean/ Service Aircraft
Pagers Voice Video
Gate Readers
E V E Kiosks N T S Delta Nervous System
Hand Helds
Electronic Events
Location Flight Schedule Maint.
Business Reflexes
Cell Phones Desktops
Equip.
Employee
Aircraft
Customer
Ticket
Employee Relationship Management

PDAs
Nine core databases

P R O F I L E Skycap
Laptops
Scanners
Reservation Systems
Skylinks
Skymiles Reservations Personalization
Travel Agent
Ticket Counter
Crown Room
Boarding
Inflight
Baggage
Customer Experience
Digital Relationships
Loyalty Programs
IMD 2007
Source: Adapted from Delta Air Lines documents used with permission
39
Integration example: MetLife

Business Unit 1
Business Unit 2
High
Business Unit 3
Customers Customers
Low
Low
High

20
MetLifes Enterprise Architecture Requirements

Application Presentation Tier
Portal Presentation Integration
Application Business Logic and Data Tier

Security & Licensing Rates & Entitlements Calcs Suitability Forms & Requirements
Customer
Screen Entry & Validation Marketing Illustrations Order Entry Underwriting Billing/Payment
ACORD XML ACORD JLife
Sign-on Producer Navigation Search Sales Office Sessions
Operational Data Store
Business Rules
Integration Hub
Party Management
Underwriter
Service Eligibility Underwriting & Issue

XM AC OR D L
Call Center
Claims
Product Admin Service Provider Partner Portals Events Service Workflow Recording
41
IMD 2007
Source: Adapted from MetLife documents used with permission
The problem with strategic alignment
Provides only vague direction
Strategic statements are often promises (get closer to our customers) or operational directives (enter Chinese market) Strategy provides little information on long-term direction of organization By the time IT finishes its work, the strategy has changed The resulting IT legacy makes the organization less flexible in the future
Strategic Initiative Reduces future agility
42
21
Architecture guarantees strategic alignment, and provides a foundation for innovation
Innovation (Happy Surprises) Strategic Initiative Strategic Initiative Drives direction
Defines business requirements Defines solutions Updates architecture
Operating Model
Process integration & standardization requirements
Enterprise Architecture
Builds foundation
IMD 2007 43
Outline
IMD 2007 44
22
Enterprise Architecture Maturity Stages

Enterprise Architecture is the organizing logic for work processes and IT systems in an organization
45

Business Silos
Collection of separate departments/units rather than integrated enterprise Separate choices made for each product, function, and segment Investments based on project ROI
46
23

Business Silos Standardized Technology
Centralized Collection of standardization of separate departments/units technology platforms with rather than exception integrated management enterprise Separate choices Business process and IT application made for each product, function, decisions made locally and segment Investments based on project ROI Investments based on cost reduction
47

Business Silos Standardized Technology Optimized Core
Standardization/ integration of processes and data Separation of decisions about processes, applications, data, and infrastructure Business case made on performance
48
24

Standardization/ integration of processes and data Separation of decisions about processes, applications, data, and infrastructure Business case made on performance
Business Modularity
Information and process interface standards defined Business process ownership defined Business case made on time to market, flexibility
49
Business Silos
Standardized Technology
Optimized Core
Standardization/ integration of processes and data Separation of decisions about processes, applications, data, and infrastructure Business case made on performance (34)
Business Modularity
Information and process interface standards defined Business process ownership defined Business case made on time to market, flexibility
Centralized Collection of standardization of separate departments/units technology platforms with rather than exception integrated management enterprise Separate choices Business process and IT application made for each product, function, decisions made locally and segment Investments based on project ROI (12) Investments based on cost reduction (48)
(6)
50
25
Key Findings The transition from one stage to the next is difficult and time consuming. Moving from one stage to the next requires a business transformation as well as a technical one Companies that try to skip a stage are usually unsuccessful Each stage involves a very different view of the value of IT and the role of IT in the organization The leadership challenges are very different for each transition
IMD 2007
51
The role of the CIO changes as organizations move through the stages
Stage Key Skills of the CIO: Business Silos Standardized Technology Optimized Core/ Business Modularity
Technical knowledge to help with standards decisions Ability to implement standard project methodology and oversight Ability to work with top management team to establish basic governance Ability to make business case for standardization
Detailed knowledge of how the organization functions Ability to manage large organizational change efforts Credibility with business unit or functional heads Ability to manage large central budget Understanding of architecture as a business enabler
Ability to facilitate innovation off new platform Detailed knowledge of core business - could potentially run a business unit if necessary Ability to delegate ownership of key process and data modules, while still ensuring adherence to standards Understanding of strategic benefits of architecture
CEO
Reports to: Percent of IT heads with second title:*
CEO or CFO
CEO
0%
26%
50%
* Percent of CIOs having second VP title, from sample of 26 CIOs in US and Europe Source: Enterprise Architecture as Strategy: Creating a Foundation for Execution, by J Ross, P Weill and D Robertson, Harvard Business School Press, 2006 IMD 2007
52
26
Management practices by stage

Business Silos
Business cases Project methodology
Standardized Technology
Architects on project teams IT steering committee Architecture exception process Centralized funding of enterprise applications Centralized standards team
Optimized Core
Business Modularity
Process owners Enterprise architecture guiding principles Business leadership of project teams Senior executive oversight
Enterprise arch. core diagram Post-impln assessment Full-time enterpr architecture team
53
The challenge of transformation

The business: 19 different country business units, each independently managed, with separate systems and processes Business units sell approximately the same products The challenge: Slow to change Expensive to run Global customers taking advantage
BU 1 BU 2 BU 3 BU 19
Customer Group 1
Customer Group 2
Customer Group 3
Customer Group 19
IMD 2007
54
27

The business: 19 different country business units, each independently managed, with separate systems and processes Business units sell approximately the same products The Solution: Ripped out all systems in country BUs Replaced with standard system, centrally designed and controlled
Customer Group 1
Customer Group 2
Customer Group 3
Customer Group 19
IMD 2007
55

Business Silos Standardized Technology Optimized Core Business Modularity
Global Agility
Local Agility
56
28
The benefits of architecture increase as organizations move through the stages

5 4.5 4 3.5
CIO Rating
3 2.5 2 1.5 1 0.5 0

IT Responsiveness (1)
Strategic Business Impacts (2)
(1) Development (2) Operational
time. excellence, customer intimacy, product leadership and strategic agility.
Architecture Stage
The benefits of architecture increase as organizations move through the stages

5 4.5 4 3.5
CIO Rating
3 2.5 2 1.5 1 0.5 0

IT Responsiveness (1) Strategic Business Impacts (2) Managerial Satisfaction (3)
(1) Development (2) Operational
time. excellence, customer intimacy, product leadership and strategic agility. (3) Senior management and business unit management satisfaction.
Architecture Stage
29
Costs decline steadily as organizations move through the stages

Local Applications Shared IT Capability

36% 25% 18% 11% 16%
Enterprise Systems
32% 17%
21% 14%
Data Technical Infrastructure
35%
40%
35%
IT Budget:
100%
85%
75%
IT budgets are corrected for industry differences. Application silo budget is the baseline. Budgets for other stages are represented as a percentage of the baseline budget. Only five firms in stage four reported their IT budgets so data is not reliable. Source: Enterprise Architecture as Strategy: Creating a Foundation for Execution, by IMD 2007 Weill and D Robertson, Harvard Business School Press, 2006 J Ross, P 59
Summary Enterprise architecture is the organizing logic for the foundation of your organization: your work processes and IT systems In most organizations, architecture is hindering execution and preventing innovation Defining your operating model is the first step in choosing the right architecture for your organization Transforming architecture is a difficult, timeconsuming process, but the benefits begin immediately
IMD 2007 60
30

Architecture As Strategy

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Architecture As Strategy

Загружено:

Авторское право:

Доступные форматы

Architecture as Strategy

Professor David Robertson IMD International 6 November 2007

The Architecture and Strategy Study

The architecture of an organization is like the structure of a car

Just like a car, an organization has a structure

Liverpool City Councils Challenge

Social Services Request

European Products Producer

Why dont organizations have the right architecture?

M&A, or other strategic actions

How do architectures get designed?

Without a plan, IT becomes project- and costfocused, leading to a siloed architecture

Data Applications Platforms

Redundancy Lack of integration Lack of standardization

New Capability Maintenance and Repair

How alignment should work

Strategic Initiative Builds foundation

Project teams identify and implement business changes and IT support

ABC Company strategy statement

Source: Adapted from Company, by Max Barry IMD 2007

How alignment really works

Strategic Initiative Reduces future agility

Managers need to focus on high-value activities, not routine everyday tasks

Collecting taxes,paying benefits, delivering services

Answering calls, processing payroll, managing pensions

Answering calls, processing payroll, managing pensions

Answering calls, processing payroll, managing pensions

Standardization (without integration)

Customer Customer Group A Group A

Customer Customer Group B Group B

Customer Customer Group C Group C Examples: Marriott Hotels

The challenge of standardizing Performance

Country Business Units

Integration (without standardization)

Examples: MetLife, Liverpool City Council

The Operating Model

Business Process Integration

Business Unit 2 Customers Customers Business Unit 3

All Business Units

Business Process Standardization

Where is your organization?

Process 11 Process 4 Process 5

Business Process Standardization

Customer Customer Group B Group B

Customer Customer Group C Group C

Business Process Standardization

ING DIRECT Operational Costs as Percent of Assets (Basis Points)

Average Branch Bank cost: 250 bps

250 250 200 150 100 50 0

ING DIRECT Architecture Description

Connectivity & Integration Statement Payment Checks Fulfillment

Customer Relationship Services

Core Banking Services

Common Business Services

Unification example: Delta Airlines

All Business Units

Business Process Standardization

Deltas Enterprise Architecture Requirements

Pagers Voice Video

E V E Kiosks N T S Delta Nervous System

Employee Relationship Management

Nine core databases