IBM-MIT Sloan CISR Senior Executive Program: IT for New Business Value

Lima, Peru — August 23-25, 2010

Enterprise Architecture:
Linking Business Operations and Technology

Nils Olaya Fonstad

Cyrus F. (Chuck) Gibson
George Westerman

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
MIT CISR gratefully acknowledges the support
& contributions of its Research Patrons and Sponsors.
Research Patrons CISR’s Mission
CISR’s
•• Founded
Founded in in 1974;
1974; CISR
CISR has
has aa strong
strong track
track
record
record of practice-based research on
of practice-based research on how
how
firms
firms manage
manage & & generate
generate business
business value
value
from
from IT
IT
Research Sponsors •• Research is
Research is disseminated
disseminated via
via electronic
electronic
research
research briefings, working papers, research
briefings, working papers, research
workshops
workshops & & exec.
exec. ed.
ed. programs
programs
2010 CISR Research Projects
•• Agile
Agile IT
Nils Olaya Fonstad
IT Decision-Making
Decision-Making with
with Accountability
Accountability
•• Adopting
Adopting Business Applications in
Business Applications in the
the Cloud
Cloud
•• Cyrus F. (Chuck) Gibson
IT’s New Look
IT’s New Look
•• Innovating
Innovating the
the Future
Future of
of the
the Enterprise
Enterprise

•• BuildingGeorge Westerman
Building the
the Information-based
Information-based Organization
Organization
•• Digital
Digital Intelligence:
Intelligence: Capturing
Capturing the
the Value
Value of
of
Unstructured
Unstructured Data
Data
•• Collaboration
Collaboration Platforms:
Platforms: Managing
Managing the
the
Opportunities
Opportunities of of Web-based
Web-based
Business
Business Practices
Practices
•• Increasing
Increasing Reuse
Reuse to to Improve
Improve Enterprise
Enterprise
Performance
Performance

•• The
The MIT
MIT CISR
CISR Value
Value Framework—How
Framework—How
Firms
Firms Achieve Superior Business
Achieve Superior Business Value
Value
from IT
from IT
•• Transparency:
Transparency: A A Critical
Critical IT
IT Management
Management
Competency
Competency
•• What
What we
we Measure
Measure Matters:
Matters: Key
Key Measures
Measures
for Digitization
for Digitization

Contact Information:
5 Cambridge Center, NE25, 7th Floor
Cambridge, MA 02142
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Ph. 617-253-2348; Fax 617-253-4424
"
"## cisr@mit.edu; http://cisr.mit.edu
Agenda
Designing the foundation for business execution
Enterprise architecture maturity
– $
– %
– & % '
Critical management practices
Evolution of management practices by architecture stage
Key lessons on enterprise architecture

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
3.2
Traditional approach to systems implementation

(
%
Lag Lag )
$ ( %

New Idea

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.3
Traditional system implementation approaches typically lead
to costly infrastructure spaghetti

Corporate Data
IT costs that exceed the
benefit they deliver
Rising IT costs without
Data increasing benefits
One or more major
Applications project failures
Long delays in the
Technology delivery of new systems
Platforms Fractious relationships
between IT and
business leaders
System disasters
Difficulty recruiting and
retaining top IT talent

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.4
A digitized platform: the desired result of a firm’s systems
implementations

Data
Warehouse

Data

Applications

Technology
Platforms

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
3.5
Innovation and agility present tradeoffs
The Digitized Platform
Architecture

Innovation )
*
"
%"
"
Agility

) % $
% % +
, %

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
3.6
Different operating models require different IT capabilities

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.7
Delta’s unification operating model
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

! % & &
$

#
Delta Nervous System
#
Electronic Events

Business Employee Relationship

Reflexes Management

Nine Core Databases

! !"

"

Travel Ticket Crown

Skylinks Skymiles Reservations Skycap Boarding Inflight Baggage
Agent Counter Room

Personalization Digital Relationships Loyalty Programs

Customer Experience

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Adapted from Delta Air Lines documents. Used with permission.
3.8
Carlson’s diversification operating model

'
Business Initiatives
$ % & . (

Enterprise Portal
Business Process

IT Resilience
Application
Security

Data Trust
Common Infrastructure

Middleware

Data Object

Platform

Network

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) -
3.9
3.9
Procter & Gamble’s diversification model
250 Brands • Brand marketing
• Product and service innovation
• Service delivery

• Employee services (pay, benefits, policies)

• People management (compensation, relocation)
• Facilities (office moves, mail, fitness centers)
• Meetings (rooms, technology support)
• Travel (booking, expense accounting, credit
cards)
• Purchasing (strategic sourcing, supplier
relations)
• Financial Services (purchase-to-payment,
financial reporting)
• Consumer Solutions (prime prospect research,
CRM systems)
• Customer Solutions (shopper intelligence, in-
GBS Shared Solutions store action planning)
• Initiative management (technical package and
materials design, package artwork process
Source: "Governance of Global Shared Solutions at Procter & Gamble," P. Weill, C.
Soh, S. Kien Sia, MIT Sloan CISR Research Briefing, Vol. VII, No. 3A, December 2007;
P&G 2006 Annual Report and interviews of P&G executives in Asia and the U.S. by C.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Soh, S. Kien Sia (Nanyang Technological University—NTU),
P. Weill. 3.10
MetLife’s coordination operating model
Application Presentation Tier Application Business Logic and Data Tier

Security & Licensing Rates & Suitability

Portal:
Portal: Forms &
Presentation
Presentation Entitlements Calcs
Requirements
Customer Integration
Integration Screen Entry
& Validation

Sign-On Marketing
Marketing
Operational Business
Producer Illustrations ACORD
ACORD JLife
JLife
Navigation Illustrations Data Store Rules

Search Order
Order Entry
Entry

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

Underwriter Service
Service
Underwriting
ML
L
XXM

Eligibility
Eligibility & Issue
RDD
OOR
AACC

Call Center Claims

Claims
Product Admin
Partner
Service
Portals Events Service Workflow
Provider
Recording

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Adapted from MetLife documents. Used with permission.
3.11
Cemex’s replication operating model

Commercial
& " !
Ready-Mix Concrete
" & '!
Operations
%
Planning
$ !
Controllership
$
Procurement
"" "

Human Resources
# " ! "
Finance
! "

Information Technology

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Corporate Dealmaker, February 15, 2004.
3.12
Different operating models have different standardization
requirements

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.13
Enterprise architecture builds agility over time
Business Standardized Optimized Business
Silos Technology Core Modularity
Strategic
Business
Value

Standard
Interfaces
and Business
Componentization

Enterprise-Wide
Technology Standardized
Standards Enterprise
Processes/Data

Locally Optimal
Business Solutions

01 231 41 1 1
Source: Enterprise Architecture as Strategy: Creating a Foundation for Business
Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Percentage of firms in each stage updated based on a survey of 1508 IT
executives. 3.14
 IT spending changes as architecture matures
Strategic Implications of IT
Local/Functional IT Operational Strategic
Optimization Efficiency Efficiency Choices
100%
Local
25% 16% 15% Applications
36%
Percentage of IT Investment

32% Enterprise
34% Systems
21%
18%

Shared
Infrastructure
35% 40% 35% 33%

Shared
11% 14% 17% 18% Data
0%
Business Standardized Optimized Business
Silos Technology Core Modularity
Architecture Maturity
100% 84% 92% 145%
IT Budget
IT budgets are based on surveys of 103 firms and corrected for industry differences. Business silos 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.
Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Source: Enterprise Architecture as Strategy: Creating a Foundation for Business
Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006. 3.15
At what stage is your organization?
Business Standardized Optimized Business
Silos Technology Core Modularity

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.16
Architecture maturity is a learning process
Business Standardized Optimized Business
Silos Technology Core Modularity
& 5 /%
IT Capability

Business 6 ' +7
% %
Objectives
$

Funding $ 5
Priorities $

Who Defines & % "

Applications

( % ( %* ( "
$
Leadership $
Tasks )% 8
& % ,
8 $

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.17
Firms build competencies in stages
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
Legend Teams*
Architecture Planning & Design Senior Executive Oversight*
Project Management IT Program Managers
IT Funding
Enterprise Architecture Graphic*
Standards Management
Post-Implementation
9 $ : , $ "
Assessment*
% Technology Research and
;
Adoption Process*
% $ % ! Full-time Enterprise Architecture
Team

Architecture Maturity

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR) Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.
3.18
What to do to succeed with enterprise architecture
Build platforms not solutions.
$ , !

Do not skip stages.

< %$ $ % !
)%% $
$ % !

Outsource strategically.
) !
) % $ $ $
% $ % % * !

Capture learning in management and governance practices.

% ' , % !

Lead the architecture effort.

% % % % $
$ $$ %" %
!

Center
Center for
for Information
Information Systems
Systems Research
Research (CISR)
(CISR)
3.19