Building Value Through Enterprise Architecture

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  1. Perspective Peter Burns Michael Neutens Daniel Newman Tim Power Building Value through Enterprise Architecture A Global Study 2. Contact Information Beirut Ramez…
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  • 1. Perspective Peter Burns Michael Neutens Daniel Newman Tim Power Building Value through Enterprise Architecture A Global Study
  • 2. Contact Information Beirut Ramez Shehadi Homayoun Dayani-fard Partner Senior Associate +961-1-336-433 +44-20-7393-3509 ramez.shehadi@booz.com homayoun.dayani-fard@booz.com Raymond Makhoul Tim Power Senior Associate Associate +961-1-336-433 +44-20-7393-3725 raymond.makhoul@booz.com tim.power@booz.com Canberra Munich Andrew Johnstone-Burt Johannes Bussmann Partner Partner +61-2-6279-1965 +49-89-54525-535 andrew.johnstone-burt@booz.com johannes.bussmann@booz.com Daniel Newman Jörg Sandrock Senior Associate Senior Associate +61-2-6279-1962 +49-89-54525-656 daniel.newman@booz.com joerg.sandrock@booz.com London New York Greg Baxter John Plansky Partner Partner +44-20-7393-3795 +1-212-551-6492 greg.baxter@booz.com john.plansky@booz.com Hugo Trepant Jamie Solomon Partner Principal +44-20-7393-3230 +1-212-551-6709 hugo.trepant@booz.com jamie.solomon@booz.com Michael Neutens Sydney Principal Peter Burns +44-20-7393-3215 Partner michael.neutens@booz.com +61-2-9321-1974 peter.burns@booz.com Hugo Trepant and Homayoun Dayani-fard also contributed to this Perspective. Booz & Company
  • 3. EXECUTIVE The economic crisis has taught organisations a critical lesson: Only by focusing on long-term value can they ensure their SUMMARY survival during difficult times—and be ready to change when the opportunity or the need arises. Among the capabilities required to create value now and in the long term is mastery of enterprise architecture (EA)—the effort to align an enterprise’s operations, including business functions, processes, and information systems, with its business goals and strategic direction. To determine how much value EA can contribute to the business, Booz & Company recently surveyed executives across a mix of financial services and government organisations. The results are revealing. • Respondents across the board viewed EA as a key capability for building long-term business value, and are making significant investments in advancing their EA capabilities. • EA maturity levels vary greatly among the organisations surveyed. • The amount of value captured through EA was clearly linked to EA maturity level. Companies looking to improve their EA maturity must work to develop their capabilities in five critical areas: strategic alignment, staff competency, performance measurement, organisational structure, and formal EA processes. That can be difficult for any organisation, but the rewards are clear: better value from investment decisions and improved strategic advantage, now and in the future. Booz & Company 1
  • 4. WHY ENTERPRISE Business lessons learned during recessions are often learned painfully. services and government sectors, it is becoming increasingly evident ARCHITECTURE Organisations that had focused that maturity of an organisation’s MATTERS their planning efforts and capital deployment on short-term indicators, EA efforts can have a significant positive impact on business value in appealing to the psychology of market several areas, including decreased speculation, learned that survival operating costs, improved speed-to- depended on short-term actions— market, reduction of complexity and across-the-board budget cuts, massive risk, and greater overall technology layoffs, reduced capital investment— effectiveness. that set them back as they reentered the growth cycle. Only by building We are aware that many the right capabilities for generating organisations have questions about lasting, long-term value can the value of EA: Does investment organisations survive, and even thrive, in EA really deliver value to the during the inevitable downturn, and business? If so, what types of be agile enough to benefit from new value are being realised? What are market opportunities as they arise. successful organisations doing to capture value from EA, and what are Now is the time, we believe, to make the greatest challenges to attaining the shift from speculation to real, an effective EA? What actions are long-term investment in the enterprise. most important for companies in Service-oriented organisations in developing their EA capabilities? particular must create value across the And how can EA be used in the short entire enterprise, from front-office, term and the longer term, given the customer-facing activities through challenges in the economic climate? business operations and processes to the underlying technology. To answer these questions, Booz & Company recently completed A critical element in the process of a global enterprise architecture study. creating value involves enterprise As part of the study, we surveyed architecture (EA), the effort to EA practitioners and key business align an enterprise’s operations—its representatives at more than 60 core business functions, processes, organisations in the financial services information systems, and services— and government sectors around with its business goals and strategic the globe, then gained additional direction (see Appendix 1 for a more understanding through one-on-one complete definition of enterprise interviews with C-level executives, architecture). For service-oriented including CIOs, COOs, and heads of organisations throughout the financial strategy and planning. 2 Booz & Company
  • 5. INVESTING IN The results of the study were revealing. First, every organisation of EA across both business and IT, or ‘institutionalised.’ More than 80 EA MATURITY we surveyed is making significant percent of organisations fell within investments in its EA capability, either the ‘standardised’ (level 3) and sees it as a continuing priority. or the ‘operationalised’ (level 4) Furthermore, more than 60 percent categories, indicating that EA is of the executives interviewed say they gaining traction as a value lever view investing in their EA capabilities across the business (see Exhibit 1, as a top-five priority for executing page 4). For those that fell within their strategy in the coming year. the ‘emerging’ and ‘standardised’ categories, however, EA remains At the same time, however, the study limited primarily to the IT function. revealed a wide range of maturity None of the organisations we levels across organisations. On the surveyed were rated either ‘none’ or basis of their responses, we assigned ‘institutionalised,’ indicating that organisations a number from 1 to 5 every organisation is investing in EA on an EA maturity index that reflected to some degree, but there is still much a range between no investment in ground to be gained to reach the EA, or ‘none,’ and full integration highest level of maturity. “Maturing our EA capabilities is a top-three priority this year. We will be using EA as the basis to re-scope and prioritise our multibillion-dollar investment program.” —CIO, government agency Booz & Company 3
  • 6. As Exhibit 1 indicates, by and large, evolved sometimes inconsistently cant architectural challenges confront- the financial services firms surveyed over time. With the exception of one ing public-sector organisations, which scored higher than the government small agency, government organisa- are often complex and interlinked agencies, a difference that may be tions all displayed either ‘emerging’ or with other organisations through due to the public sector having more ‘standardised’ EA capabilities. These cross-department portfolios. complex business models that have capability levels indicate the signifi- Exhibit 1 The EA Maturity Index and Survey Results LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5 NONE EMERGING STANDARDISED OPERATIONALISED INSTITUTIONALISED - Little or no EA maturity - Emerging but limited and - Capability is becoming - Capability is operationalised - Capability is institutionalised within the organisation ad-hoc capability within the standardised, yet is not fully and operates as an effective and is critical in delivering - EA is not formally supported organisation effective or consistently core function innovation, agility, and or executed within the - Limited by lack of alignment followed throughout the - Effectively aligns business strategic advantage, and organisation to business and IT, organisation and IT through governance, enabling key outcomes of - No formal investment governance and - Typically limited to the IT communication, and the organisation planning commitment domain only engagement - Operates across the breadth of the organisation and at its most senior levels Financial Services Government EA Maturity Index EA Maturity Group Key Value Type Key Lowest index Least mature third of organisations Median index Middle third of organisations Upper index Most mature third of organisations Source: Booz & Company Enterprise Architecture Maturity Model 4 Booz & Company
  • 7. Case Example: Cutting Costs Over the course of a two-year EA program, a leading Australian bank realised cost savings of more than AU$200 million (US$161 million), or about 1.4 percent of total operating expenses—primarily through consolidation, sharing, and reuse of technology assets. The bank’s EA maturity score placed it in the top third of organisations surveyed. The bank integrated EA deeply into its operations, an effort that has been fundamental to its success. Bank executives point to three key mechanisms in pursuing that integration: • Ensuring that the strategic planning process includes input from the EA program, particularly where investment decisions are required. • Securing EA input into other governance processes, such as project planning, which in turn has steadily increased EA’s profile across the organisation. • Building a federated EA model with a central EA practice supporting domain experts in each business unit. This enabled the delivery of business-specific information underpinned by consistent frameworks. The proven value of EA has only whetted the bank’s appetite for expanding its EA capability. “There is sufficient feedback,” the bank’s head of enterprise architecture noted, “to suggest that senior management expects EA to step up to the next level to set the strategic agenda.” For that to happen, however, the bank must develop the hybrid business and technology skills enterprise architects need. Doing so means creating more attractive career paths for enterprise architects to ensure that their skills are retained. Booz & Company 5
  • 8. CoNNECTING Booz & Company experience and initial interviews with executives The few organisations reporting that their EA efforts have reaped little or MATURITY indicated these four areas were no value are all at the ‘emerging’ level ANd VAlUE the most common benefits being achieved by EA capabilities. Of the of EA maturity. In each of these cases, EA is restricted to the IT function, one-third of organisations with the with no clear engagement with the highest EA maturity ratings, more business—in sharp contrast to those than 60 percent reported having higher on the maturity scale. In our efforts to establish the link realised all four sources of business between EA maturity and value, value. Those organisations are also Our study further suggests that there we looked at four critical areas continuing to invest in EA, indicating is an order to the sources of value of business value: decreased cost, that they believe there is still value delivered via EA. As organisations reduced complexity, reduced risk, to be captured by pushing their EA mature, they capture cost savings and increased agility (see Exhibit 2). maturity further. and operational risk reduction Exhibit 2 The Relationship between EA Maturity and Value Least mature third Middle third of Most mature third of organisations organisations of organisations 100 Proportion of Organisations Reporting Value (% per group) EA Maturity Group Key 90 Lower 80 Median Reported value 70 increases with Upper EA maturity 60 Value Type Key 50 Cost 40 Agility 30 Complexity 20 Risk 10 0 1.0 2.0 3.0 4.0 5.0 NONE EMERGING STANDARDISED OPERATIONALISED INSTITUTIONALISED EA Maturity Index Source: Booz & Company analysis 6 Booz & Company
  • 9. earliest, whereas reduced complexity • As with cost benefits, organisations sectors indicate that standardisation and increased agility become more realised the benefits of reduced risk across the IT function is the key apparent as their EA maturity relatively early in their maturity factor in reducing complexity. increases. As companies reach higher efforts. That, we believe, can be levels of maturity, value tends to be attributed to EA’s ability to provide • Organisations found that realised across all four of the sources an enterprise-wide view of planned agility—a combination of the identified. investments, and thus to limit the flexibility needed to create new problems that can arise through business products and the speed • Virtually every organisation we misaligned programs. at which they can be brought to surveyed cited cost reduction as one market—is the most challenging of the most commonly captured • Managing complexity remains source of value to capture. For sources of value. Yet those with a challenge for organisations many organisations, only strong the highest levels of maturity that have yet to reach at least a architectural alignment between reported significantly greater cost ‘standardised’ level of EA maturity. business and technology could savings, implying that the tighter Many organisations in both the enable the nimbleness needed the alignment between business financial services and government for effective change, such as and technology, the greater the cost advantage. “The bank has leveraged EA to manage the governance and complexity of its channels, processes, and systems, resulting in increased customer satisfaction and growth in key customer segments.” —Executive VP, financial services organisation Booz & Company 7
  • 10. Case Example: Improving Efficiency and Customer Service As part of a government mandate, a large U.K. government agency embarked on a transformation to improve its efficiency and customer service. The agency had been largely paper-based, with separate business processes for the various benefits it administered. Fragmented workflow processes and outdated IT systems had adversely affected customer service, efficiency, and staff morale. The use of EA was a key enabler in the transformation, which resulted in a reduction of the average time it took to process claims by more than 70 percent, from more than four weeks to just five days, and reduced the number of processing centres by 60 percent, from 25 to 10. Among the benefits of the agency’s EA efforts: • EA provided clarity for the agency’s vision and helped it facilitate the transition from its paper-based processes to modern CRM-based processes. The transition plan allowed for the coexistence of old and new processes, while targeting quality assurance on activities in critical areas. This helped reduce reengineering an existing product operational risk while the transformation was taking place. to respond to market changes • EA drove the alignment of business and IT objectives by following focused quickly. Furthermore, they found principles and discipline. It enabled the use of common software packages that the business must lead the with minimal customisation, for example, and the implementation of a CRM effort to identify and coordinate system in a “wrapper” pattern to cut costs and minimise the new system’s the various enterprise functions impact on legacy systems. needed to enhance speed-to-market. • EA encouraged the reevaluation of a number of third-party contracts; Organisations in both the financial subsequent renegotiations resulted in a reduction of 25 percent on the services and government sectors agency’s end-to-end IT systems integrator contracts, for a total savings gain business value as their EA estimated at £10 million (US$14 million). maturity improves. Yet the study indicates that the two sectors vary By providing an integrated view of its business and IT architectures, EA was significantly in how they use EA, and instrumental in helping the agency meet its transformation objectives, while in their expectations for the kinds managing operational risk along the way. The agency had initially outsourced of value they might get out of it. its EA efforts to external professionals, but by adopting a systematic approach Financial services companies typically to capturing the knowledge gained, it now has the expertise to continue with focus on using EA to help guide minimal external support. organisation-wide strategies such as cost control, pre-merger and post- merger integration, infrastructure consolidation, and the delivery of new products. They see EA as a tool for gaining competitive advantage. Government-sector organisations, on the other hand, see EA as a tool to enhance internal collaboration, interoperability, and the ability to share information among different departments and agencies. By focusing their EA efforts on standardising government services, these organisations aim to manage their portfolios of resources more effectively, particularly for the implementation of large programs. 8 Booz & Company
  • 11. dRIVING VAlUE explain, however, what it takes to reach the higher levels of maturity. Furthermore, those elements with the greatest link between maturity and Achieving EA maturity involves five value are also the ones respondents critical elements: strategic alignment, viewed as the biggest challenges (see staff competence, performance Exhibit 3). Unsurprisingly, there is measurement, organisational structure, no free lunch, but those who can The connection between EA maturity and formal processes. Each is vital to overcome the most significant EA and business value is clear—the value the success of every EA effort, yet they challenges will reap the rewards. captured is directly correlated with vary significantly in their link to the the level of maturity. That doesn’t value created through EA. Exhibit 3 The Five Elements of EA Maturity MATURITY ELEMENT ELEMENT DESCRIPTION LINK TO VALUE CHALLENGES Relative difference in element Respondents noting the maturity maturity between organisations that element as a key challenge to did and did not report value(1) maturing EA(2) The extent to which the EA function is involved STRATEGIC in both business and technology strategic planning and how well EA engages with the 1.7 40% ALIGNMENT wider organisation The level of competency of EA’s leaders and STAFF practitioners and how well EA is recognised and 1.6 40% COMPETENCE fostered as a career path PERFORMANCE How well EA’s success is defined, measured, and improved with formal metrics 1.5 24% MEASUREMENT The extent to which the EA function is formally ORGANISATIONAL structured and governed, the seniority of EA’s practitioners, and the level of recognition of EA 1.1 18% STRUCTURE throughout the business The extent to which formalised frameworks, FORMAL methodologies, and supporting technologies PROCESSES are used within the EA function and the breadth 1.0 7% of the adoption of EA standards firm-wide 1 The average difference in maturity scores between organisations that did and did not report value was calculated for each maturity element. The differences displayed are normalised to the lowest difference, which is set to 1.0 (i.e., on the formal processes maturity element). 2 Percentage of respondents noting the maturity element as a key challenge to maturing an EA capability. Source: Booz & Company analysis Booz & Company 9
  • 12. The use of EA to aid in the alignment across the organisation. However, One could argue that the success of between an organisation’s operations a large percentage of respondents every service firm reli
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