Enterprise Architecture as Strategy

Chief Architects Forum

January 8, 2007

Jeanne W. Ross
Center for Information Systems Research (CISR)
MIT Sloan School of Management
Phone: (617) 253-2348, Fax: (617) 253-4424
jross@mit.edu http://mitsloan.mit.edu/cisr/

This research was made possible by the support of CISR sponsors and patrons. The research
team included Peter Weill, David Robertson (IMD), George Westerman, Nils Fonstad, Lenny
Zeltser, Charles Zedlewski, Niraj Kumar (MIT), and Mingdi Xin (New York University).

Center for Information Systems Research

© 2006 MIT Sloan CISR – Ross
MIT Sloan Center for Information Systems Research (CISR)
CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors
 CISR Research Patrons CISR’s Mission
– Boston Consulting Group – Hewlett-Packard Co. • Founded in 1974; CISR has a strong track record of
– BT Group – IBM Corporation practice-based research on how firms manage &
– DiamondCluster – Microsoft Corporation generate business value from IT
International, Inc. – Tata Consultancy • Research is disseminated via electronic research
– Gartner Services—America briefings, working papers, research workshops & exec.
ed. programs including
http://mitsloan.mit.edu/cisr/education.php
 CISR Sponsors
– Aetna Inc. – MetLife
CISR Research Portfolio 2002–2006
– Allstate Insurance Co. – Mohegan Sun
Managing the IT Resource
– American Express Corp. – News Corporation
• Effective IT Oversight
– AstraZeneca Pharmaceuticals, LP – Nissan North America, Inc. • The Future of the IT Organization
– Banco ABN Amro Real S.A. – Nomura Research Institute, • IT Governance in Top Performing Firms
– Biogen Idec Ltd. (Japan) • Enterprise Architecture as Strategy
– Campbell Soup Co. – Northrop Grumman Corp. • IT Portfolio Investment Benchmarks & Links to Firm Performance
– CareFirst BlueCross BlueShield – Owens Corning • Reducing IT-Related Risk
– Care USA – PepsiAmericas, Inc. IT and Business Strategy
– Celanese – Pfizer Inc. • An IT Manifesto for Business Agility
– Chevron Corp. – PFPC, Inc. • Business Models and IT Investment and Capabilities
– Quest Diagnostics
• IT-Enabling Business Innovation and Transformation
– Det Norske Veritas (Norway)
Managing Across Boundaries
– Direct Energy – Raytheon Company
• Effective Governance of Outsourcing
– eFunds Corp. – State Street Corp. • IT Engagement Models and Business Performance
– EMC Corp. – TD Banknorth
– Guardian Life Insurance Co. – Telenor ASA (Norway)
of America – Time Warner Cable Contact Information:
3 Cambridge Center, NE20-336
– Information Services – Trinity Health
Cambridge, MA 02142 07/01/2006
International – TRW Automotive, Inc. Ph. 617-253-2348, Fax 617-253-4424
– ING Groep N.V (Netherlands) – Unibanco S/A E-mail cisr@mit.edu;
– Intel Corporation – United Nations – DESA http://mitsloan.mit.edu/cisr/
– Center for Information
International Finance Corp. Systems–Research
US Federal Aviation Admin. Center for Information Systems Research
– Merrill Lynch & Co.,
© 2006 MITInc. – Walt Disney Company
Sloan CISR – Ross © 2006 MIT Sloan CISR
 Agenda

„ Why Architecture Matters

„ Envisioning a Foundation for Execution
„ The Operating Model as Business Vision
– Declaring requirements for integration and standardization
– Identifying “the essence of the business”
„ The Enterprise Architecture Journey
– IT investment patterns and capabilities
– Strategic implications of IT
– Organizational learning about IT
„ Critical Management Practices
„ Key Lessons on Enterprise Architecture

Center for Information Systems Research

© 2006 MIT Sloan CISR – Ross
The IT-Business Alignment Problem

Data
Business Solution
Applications
Strategy Lag Design Lag
Infrastructure

New idea
So we started working on understanding the business strategy, and what we discovered in
that process is, they really didn't have a business strategy. What they had were a lot of
promises. We are going to grow. We are going to use branding. We are going to run our
plants more effectively. We are going to increase our volume, but they hadn't figured out
exactly how they were going to do it. And what I said was: it is very difficult for me to write an
IT strategy to support your business strategy when you don't have that defined.
—IT Architect, Global Manufacturing Firm
Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 The Result of Traditional Approaches
to IT-Business Alignment

Corporate Data

Data

Applications

Technology
Platforms

Corporate Networks &

Infrastructure Services

Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 Two Key Concepts

„ Operating Model: The desired level of business

process integration and business process
standardization for delivering goods and services to
customers.

„ Enterprise Architecture: The organizing logic for

business process and IT infrastructure capabilities
reflecting the integration and standardization
requirements of the firm’s operating model.

Center for Information Systems Research

© 2006 MIT Sloan CISR – Ross
 Designing a Foundation for Execution

Strategic
Strategic Strategic Strategic
Initiative
Initiative Initiative Initiative

Defines
strategic limits
Operating Model Establishes
Defines priorities
Learning
and integration & Enterprise Architecture
exploitation standardization
requirements
Defines
core
capabilities

Foundation for execution

• Core Business Processes
• IT Infrastructure
Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 The Foundation for Execution at UPS

Flex Global View UPS

Package Online Trade
Tracking Tools Mail Innovations Direct

Defines
strategic limits
Industrial Engineering From
Model reliability to
Learning accessibility
High degree of
and
integration &
Enterprise Architecture to agility
exploitation
standardization
across businesses Defines
core
capabilities
Redundant operations Single package database
Global communications network Standard interfaces
Standard infrastructure Customer information database
Product development process Customer relationship process
Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 Washington, D.C.’s Foundation for Execution

Administrative Services ESMP E-government applications

Modernization Program
CSMP PSMP DCStat
Human Services
Modernization Program MSMP TSMP Program

Defines
strategic limits Projects
Benign Service Model focused on
stabilizing
Ideas on
ways to use Process customer
infrastructure standardization Enterprise Architecture services and
across programs; enabling inter-
services
agency
Integration within
and among programs Defines sharing
core
capabilities
Sounds of silence operations IT development standards
Wide area and wireless networks Data warehouse
Procurement processes Web portal
Human resource processes Geographic information system
Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 Four Operating Models
Coordination
„ Unique business units with a need
to know each other’s transactions
Business Process Integration
Unification
„ Single business with global process
standards and global data access

„ Examples: Scotland Yard, Toyota „ Examples: Delta Air Lines, Dow

High Motor Marketing Europe, MetLife
„ Key IT capability: access to shared
data, through standard technology
interfaces
Diversification
„ Independent business units with
different customers and expertise
„ Examples: Johnson & Johnson,
Low Carlson Companies, GE
„ Key IT capability: provide
economies of scale without
limiting independence
Chemical, Washington, DC
Government
„ Key IT capability: enterprise systems
reinforcing standard processes and
providing global data access
Replication
„ Independent but similar business
units
„ Examples: Marriott, CEMEX, ING
DIRECT, UNICEF
„ Key IT capability: provide standard
infrastructure and application
components for global efficiencies

Low High
Business Process Standardization
Center for Information Systems Research Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, and D. Robertson, Harvard Business School Press, June 2006.
© 2006 MIT Sloan CISR – Ross
 Focus of Standardization Differs
by Operating Model

Unification
Business Process Integration

Coordination Technology, Customer and

Customer and Product Product Data, Shared
High
Data, Technology Services, Operations,
(Shared Services) Customer Service, Logistics
(R&D, Marketing/Sales)
Replication
Technology, Operations,
Diversification
Customer Services,
Low Technology
Logistics, R&D,
(Shared Services)
Marketing/Sales,
Shared Services
Low High
Business Process Standardization

Center for Information Systems Research Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, and D. Robertson, Harvard Business School Press, June 2006.
© 2006 MIT Sloan CISR – Ross
Delta Air Lines’ Enterprise Architecture
Operational Pipeline
Prepare Flight Flight Clean/
Allocate Load Monitor Unload
for Flight Departure Arrival and Service
Resources Aircraft Flight Aircraft
Departure and Closeout Closeout Aircraft

E
V
Gate E
Pagers Kiosks Hand
Readers N
T Helds
Voice S
Delta Nervous System
Video Electronic Events

Location Flight Schedule Maint.

Business Employee Relationship
Reflexes Management
Equip. Employee Aircraft Customer Ticket

Nine core databases

Cell Phones PDAs
P
Desktops R
O
Laptops F Scanners Reservation
I Systems
L
E
Travel Ticket Crown
Skylinks Skymiles Reservations Skycap Boarding Inflight Baggage
Agent Counter Room
Personalization Digital Relationships Loyalty Programs

Customer Experience
Center for Information Systems Research
© 2006 MIT Sloan CISR – Ross
Source: Adapted from Delta Air Lines documents – used with permission.
Enterprise Architecture for
Carlson’s Diversification Operating Model
Customer Requirements
Business Initiatives
Travel Management Loyalty Hotel Distribution CRM

Enterprise Portal
Presentation
Business Process

IT Resilience
Application
Security

Data Trust
Common Infrastructure

Middleware

Data Object

Platform

Network

Source: Carlson Company

Center for Information Systems Research
© 2006 MIT Sloan CISR – Ross
 Enterprise Architecture for
MetLife’s Coordination Model
Application Presentation Tier Application Business Logic and Data Tier

Portal –
Security & Licensing Rates & Suitability
Forms &
Presentation Entitlements Calcs
Requirements
Integration
Customer Screen Entry
& Validation
Sign-on Marketing
Operational Business
Producer ACORD JLife
Navigation Illustrations Data Store Rules

Search Order Entry

Sales Sessions Underwriting Party
Office ACORD XML Integration
Management
Hub
Billing/Payment

Underwriter Service
Underwriting
ML

Eligibility & Issue

DX
OR

Claims
AC

Call Center

Product Admin
Partner
Service
Portals Events Service Workflow
Provider
Recording

Center for Information Systems Research

© 2006 MIT Sloan CISR – Ross Source: Adapted from MetLife documents – used with permission.
Enterprise Architecture for
ING DIRECT’s Replication Model
External Services
Prospect Statement Reports
Payments Checks
Fulfillment Fulfillment Local/HQ/Tax

Customer Relationship Services Core Banking Services

Mutual Brokerage
CIF CRM Funds

Contact Product Banking Credit

History Info Engine Score

Common Business Services

Transactions Customers Products Services

Channel Services
IVR/CTI Imaging E-mail Web Gateway
server server server server server

Customer Contact: Self-Service:

Call Center, IVR, E-mail, Internet, MinTel, ATM,
Direct mail WAP, (WebTV)

Center for Information Systems Research Source: Robertson, D. “ING DIRECT: The IT Challenge (B)”, 2003, IMD-3-1345.
© 2006 MIT Sloan CISR – Ross Used with permission.
 Architecture Maturity Stages Yield Increasing
Value from IT
Business Standardized Optimized Business
Silos Technology Core Modularity
Strategic
Business
Value
Standard
interfaces
and business
componentization

Enterprise-wide Standardized
technology enterprise
standards processes/data
Locally optimal
business
solutions

% of
12% 48% 34% 6% Firms
Center for Information Systems Research Source: Enterprise Architecture as Strategy: Creating a Foundation for
© 2006 MIT Sloan CISR – Ross Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
 Architecture Maturity Shifts Flexibility
Business Standardized Optimized Business
Silos Technology Core Modularity

Global
Flexibility

Local
Flexibility

Center for Information Systems Research Source: Enterprise Architecture as Strategy: Creating a Foundation for
© 2006 MIT Sloan CISR – Ross Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
 Implications of Architecture Maturity Stages
Strategic Implications of IT
Local/Functional IT Operational Strategic
Optimization Efficiency Efficiency Agility
100% Local
25% 16% 15%
Applications
36%
Percentage of IT Investment

32% 34% Enterprise

21% Systems
18%

Shared
40% 35% 33% Infrastructure
35%

11% 14% 17% 18% Shared Data

0%
Business Standardized Optimized Business
Silos Technology Core Modularity

Architecture Maturity
IT Budget 100%
Center for Information Systems Research
© 2006 MIT Sloan CISR – Ross
85% 75% 120%
IT budgets from 103 firms are corrected for industry differences with Business silos as the
baseline Only five firms in stage four reported their IT budgets so data is not reliable.
Source: Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
 Enterprise Architecture Benefits by Stages
5

4.5

3.5

3 IT Responsiveness (1)
CIO Rating

Risk Management (2)

2.5
Managerial Satisfaction (3)
2 Strategic Business Impacts (4)

1.5

0.5

0
Business Standardized Optimized Business
Silos Technology Core Modularity
Architecture Stage (1) Development time.
(2) Business risk, security breaches and disaster tolerance.
(3) Senior management and business unit management satisfaction.
(4) Operational excellence, customer intimacy, product leadership and
strategic agility.
Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
© 2006 MIT Sloan CISR – Ross J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Learning Requirements of the Architecture Stages
Stage Business Standardized Optimized Business
Name Silos Technology Core Modularity
IT Capability Local IT Shared technical Enterprise-wide Plug & play
applications platforms hardwired processes business process
or databases modules
Business ROI of local Reduced IT costs Cost and quality of Speed to market;
Objectives business business operations Strategic agility
initiatives
Funding Individual Shared infrastructure Enterprise Reusable business
Priorities applications services applications and data process
stores components
Key Technology- Design and update of Core enterprise Management of
Management enabled change standards; funding process definition and reusable business
Capability management shared services measurement processes
Who Defines Local business IT & business unit Senior management IT, business and
Applications leaders leaders and process leaders industry leaders

Key IT Measure and Establish local/ Align project priorities Define, source &
Governance communicate regional/global with architecture fund business
Issues value responsibilities objectives modules

Center for Information Systems Research Source: Architecture as Strategy: Creating a Foundation for Business Execution,
© 2006 MIT Sloan CISR – Ross J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Management/Governance Practices to Formalize Learning
Business Standardized Optimized Business
Silos Technology Core Modularity
Business cases
Project methodology
Architects on project teams
IT Steering Committee
Architecture exception
process*
Formal compliance process*
Infrastructure renewal
process*
Centralized funding of
enterprise applications*
Centralized standards team
Process owners*
Enterprise architecture
guiding principles*
Business leadership of
project teams*
Senior executive oversight*
IT Program Managers*
Enterprise architecture
graphic*
Post-implementation
assessment*
Technology research and
adoption process*
Full-time Enterprise
Architecture team

Architecture Maturity
Center for Information Systems Research
© 2006 MIT Sloan CISR – Ross
* Reported value of asterisked items is statistically significantly related to
architecture maturity stage.
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution,
J. Ross, P. Weill, D. Robertson, HBS Press, June 2006.
Architecture Lessons
From Top Performing Companies
Low strategic High strategic
effectiveness effectiveness
Characteristic (n=78 firms) (n=25 firms)
Senior management involvement
ƒ Senior management explicitly defined 25% (of firms) 44% (of firms)
architecture requirements
ƒ Senior management oversees architecture 45% (of firms) 60% (of firms)
initiatives
ƒ Percentage of senior managers who can 19% (of mgrs) 39% (of mgrs)
describe high level architecture
Architecture built into project methodology
ƒ Percentage of project teams with architects 49% (of projects) 81% (of projects)
assigned
ƒ Percentage of projects subjected to 60% (of projects) 80% (of projects)
architecture compliance review

Median Architecture Maturity stage (1–4) 2 3

* Statistically significant difference between the responses of top 25% of firms on strategic effectiveness. Strategic effectiveness is
measured as strategic outcomes (operational excellence, customer intimacy, product innovation, and strategic agility) of architecture
initiatives weighted by their relative importance to each firm. The top 25% of firms on strategic effectiveness reported significantly higher
profitability which correlated with industry adjusted measures of firm-wide profitability.

Center for Information Systems Research

Source: Architecture as Strategy: Creating a Foundation for Business Execution,
© 2006 MIT Sloan CISR – Ross J. Ross,P. Weill, D. Robertson, HBS Press, June 2006.
Key Findings on Enterprise Architecture
„ Build capabilities not solutions.
This is the only way to avoid silos and create a powerful foundation for
execution.

„ Do not skip stages.

Generating value from architecture investments is a learning process.
Aggressive investment in IT capabilities can be slow to generate a
return.

„ Capture learning in management and governance

practices.
Management requirements are more complex in later stages.
„ Persist in involving senior business managers.
Firms getting strategic business benefits from an operating model have
senior business leaders who are actively involved in its design,
management and implementation.

Center for Information Systems Research

© 2006 MIT Sloan CISR – Ross