! The Value of Enterprise Architecture RMIT Masters in Enterprise Architecture

2010/05/12

© Peter Evans-Greenwood 2011. All rights reserved.

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Slide 1. Title Page

© Peter Evans-Greenwood 2011. All rights reserved.

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Slide 2. Is Enterprise IT is in danger of becoming irrelevant?

“why should business bother with enterprise architecture”

• some companies are already “doing without” EA

• enterprise architecture does not directly generate value

• put aside arguments on “the importantce of IT is modern business”

• what value does EA bring?

• EA is an IT planning function. It’s overhead on an enabler.

EA has a proud history, stretching back ~30 years, but developments in the technology market are making the old ways of doing things irrelevant.

A good example of the potential impact is to look at CRM (Customer Relationship Management) rollouts over the last few years

• Siebel has been the gold standard for a long time

• Typical engagements are 2-4 years, ~$50 million

In the last few years we’ve seen the emergence of software-as-a-service CRM

• Salesforce.com is now considered “best of breed”

• Some features are considered market leading

• Salesforce.com crowd sourcing was used by Barak Obama as part of change.gov

• A typical SaaS CRM engagement is 9 months, ~$5 million

To a first approximation, the IT services industry will shrink 90%

Analogy: The role of scribes in the 1400s during the emergence of moveable type.

• Hand rendering books

• Most of the effort was in copying, not original works

• Overnight, the invention of moveable type slash the cost of production ~95%

• Very similar to IT and SaaS

• In 1492, Johannes Trithemius, the Abbot of Sponheim, published De Laude Scriptorum (in praise of scribes)

• He argued that writing had a higher benefit than simply copying book, and should be preserved

• His pamphlet was published on movable type, of course

• Despite his and others best efforts, they could not preserve their profession

• Scribes soon became irrelevant other than as a hobby

There are changes in the IT environment which will have a similar impact on us

• How do we keep ourselves relevant?

© Peter Evans-Greenwood 2011. All rights reserved.

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Slide 3. Session structureStructure• The old rules no longer apply

• The rise of unbusiness

• Some new rules to live by

Tigers & AardvarksThis is a very acronym rich area, so feel free to put a hand up if I start spouting unknown 3LAs

HousekeepingWhen do we want questions?

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Slide 4. AssumptionsIT is founded on a rather large assumption:

• Enterprise IT applications provide businesses with a competitive advantage.

IT strategy is typically an application strategy.

We’ve used this assumption to build IT organizations with are very efficient application delivery engines.

• This made sense since if applications drive competitive advantage.

• Our job is the delivery of new applications into the IT estate.

This has worked well for us till now.

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Slide 5. Lyon’s electronic officeSeptember 1951 as the probable birth of business computing

Lyons (the owner of a chain of tea shops in Britain) first ran their Bakeries Valuations application on a home-brewed computer, LEO (the Lyons Electronic Office).

This was the culmination of a journey started in 1947 when Thomas Thompson and Oliver Standingford, two managers with wide experience of clerical procedures, returned from a trip to America.

A report they produced for the Lyons board summarized what they had learnt on their trip, and concluded that electronic computers held the key to office efficiency.

Thompson and Sandingford suggested that for £100,000, Lyons could build a computer themselves that would deliver operational savings of £50,000 per year.

Calculating pay went from 8 minutes to 1.5 seconds

This was the template going forward.

Walmart built a data warehouse in the early 80s:

• Completely customer solution

• Multi-year project (2-3)

• Cost ~100 million US (1.[234] billion in today’s money)

This application provided a competitive advantage

• populate with supply chain operational data

• analysis the data to identify bottlenecks etc

• use the analysis to statically optimize the supply chain

• result was the lowest cost supply chain in the world

• 1/2 the saving were past to customers: every day low prices

• 1/2 went to the bottom line

The rest is history.

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Slide 6. Applications are commodities

IT strategy for Walmart—in this case—meant application strategy:

• Applications were assumed to deliver competitive advantage

• IT strategy was the challenge of identifying which applications to field

• Execution involved the delivery of large applications into the IT estate

We built our IT departments/methods to support this:

• IT departments are built as application factories

• IT strategy frameworks (Zachman, TOGAF, et al) are designed to feed the application factory

Let’s pick out the assumptions that this approach relies on.

• To provide a unique capability application must be rare.

• To provide a barrier to competition development must be expensive (in time or money).

• To provide a barrier to competition integration must be expensive (in time or money).

• To align business and IT, the rules of engagement, the business cycle must be similar to the application delivery cycle.

That was 20 years ago, and the technology world has come quite a long way.

• these assumptions no longer hold

Lets attack them in order.

First, applications are now considered commodities

• Vendors provide solutions to a number of clients

• They use this to drive cost savings

• We use vendors because its cheaper than doing it ourselves

• Multiple solutions are available from a range of vendors• the market will offer you a

solution to meet the vast majority of your needs

• competition between vendors pushes prices down further

• we know this for fact, as the market for enterprise applications has been growing exponentially for some years• the following is a chart from

INPUT• INPUT tracks market

demographics for the US government

• this shows the exponential growth

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Slide 7. Growth of the US enterprise application market in billions

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Slide 8. Integration is a commoditySo, we can see that for the vast majority of business needs, someone will provide a solution that should provide best practice.

• Applications are therefore common and cheap: commodities

The other factoring the commoditization of applications is the cost of integration

• Bespoke development makes integration part of the solutioning processes

• You build the solution to match your integration situation/requirements

• One of the effects of adopting COTS solutions was a significant increase in the cost of integration

• Applications are not commodities if we can’t mix-and-match

The cost of integration needed to fall

• The rise of application suites (integrated at the database) was a partial solution

• Tooling helped

• But neither was enough, either along or in combination

The solution was standards based integration

• Providing a common interface minimized effort

• Combined with suites and tooling, we were able to slash the costs of individual integration

• The explosive growth of web standards ensured that integration points where covered to enable mix-and-match

The next chart is my attempt to plot this growth

• You can see the explosive growth of standards from an initial foundation (SALT et al) through to the current raft of semantic/industry specific solutions

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Slide 9. Growth of open standards

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Slide 10. Disconnect between business and IT cycles

Together commodity applications and commodity applications have transformed the assumptions

• applications are not longer scarce

• provisioning is not expensive

The final factor was the alignment of the business and application cycles

Business IT alignment has two factors

• budget alignment--for value

• cycle alignment--for agility

Back in the LEO and Walmart examples business IT moved at roughly the same pace.

• markets and products developed slowly

• communication was expensive

It’s like watching Life on Mars

• a cop from the 80s goes back to the 70s

• everything is manual

• even simple things take a long time

The business has been working hard since then, transforming itself

• LEAN & Six Sigma

• Global sourcing and the world is flat

• technology and the productivity gains it can bring

Business has changed radically

• It has accelerated radically in recent years

• What took years now takes months, or even weeks

While at the same time we’re still working under the same rules

• We are seeing is a disconnect between IT and business cycles

To make this real I’ve been showing the a figure to the CIOs and strategy people I talk to

• It’s simple and geeky, but captures the impact well.

• It’s two wavy lines: one for business, and one for IT.

• The IT line shows the steady sine curve of the IT application investment cycle: 4 years, $50 million

• The business curve show show investment decreasing and the peaks coming closer together as the competition forces the business to react to shorter and more transient opportunities

We can see that the disconnect between the two has grown over time.

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Slide 11. Disconnect between business and IT cycles

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Slide 12. The older rules not longer applySo we started with three assumptions:

• Applications are rare—to provide advantage

• Development and integration are expensive—to protect it

• The IT and business cycles are similar—to provide alignment

None of this is true any more:

• Applications are freely available

• Development and integration are cheap

• Business has accelerated

Buy building our profession around application delivery we’ve tied ourselves to the application cycle.

• As the business has move on, we’ve stayed still

• We’re not longer responsive and aligned with the business

Walmart has recognized this.

• In 2007 the data warehouse was replaced with an off the shelf solution

• Cheaper to maintain

• Better than the bespoke

Walmart still has one of the best supply chains in the world.

What are we to do if the application centric model we built our organizations on doesn’t work anymore?

There are three big trends we’re seeing:

• Mass -> Acceleration

• Computing -> Connections

• Data -> Decisions

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Slide 13. The new relationship between business and technology

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Slide 14. The need for business-technology

Differentiation is now driven by our ability to integrate technology & business

We’ve seen a new raft of technologies emerge in recent years

• Web 2.0: Wikis & blogs

• SaaS & Cloud Computing

Some of the are already having a dramatic impact on our industry

• Siebel -> Saleforce : 50M 2y -> 5M 9 months

• NY Times: digitize a few terabytes of paper images for $250, rather than 250,000

Companies are already starting to emerge that that use technology in

different ways to create organizations that out perform the market.

Craigs List

• Started as a hobby ~10 years ago

• Now the largest classified ad company in the US

• 30 people in a shed in SF

• 100M revenue

• 10M cost

• 90M ebit

• 90% margin

There’s been a shift in how we view technology in the last decade• From mass to acceleration• From computing to connections• From data to decisions

So how does this deliver a sustainable competitive advantage?

We need to use technology to amplify IP and solve client problems

• All the value is now in how our knowledge workers solve problems

• Knowledge creation, not use.• Example: supply chain exception

management

Differentiation comes from the IP our knowledge workers create and use

• Integrate Web 2.0 / Enterprise 2.0 and transactional systems to provide knowledge workers with joined up work surface and remove the friction from their jobs

• Capture the common patterns knowledge workers use to solve problems in tools like BPM and rules engines to create time and space

• Use this time and space to drive costs down, or to invest in the creation of better IP

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Slide 15. Rolls-Royce

From The Economist article on Rolls-Royce.

Was in trouble in the 1960s/70s:

• 10% market share.

• Rising labour costs

• Fierce competition from the US market• No patients• Military contracts• Large domestic market

Roll-Royce chose to try and be smarter than the competition:

• Rather than focus on incremental development, it designed a completely new engine

• Carbon composite blades & a completely new engine architecture (3 shafts rather than 2)

• More complex to design, build & maintain

• Also a lot more fuel efficient

• And a lot more scalable to different aircraft sizes

Most of the margin for jet engines is in maintenance though:

• Rolls-Royce used this as a lever to get into the maintenance business

• Focused on selling razor blades, rather then razors

The next step was to integrate the expertise from the two businesses:

• Operations centers where they monitor engines in real time• 3500 jet engines around the world• Real time telemetry

• Just in time maintenance

• Less maintenance and more operating hours

• Spotting problems earlier also helps in the design in business

Rolls-Royce no longer sells engines

• It sells hot air out the back of engines

• Completely transforming business its model

• Qantas is more like a butcher

Rolls-Royce is a great example of business-technology

• Differentiation is driven by the IP its knowledge workers create

• IT provides a joined up knowledge worker and delivery environment

If you want to catch Rolls-Royce, then you need to clone it’s infrastructure and recreate the IP

• Rolls-Royce is still capturing / developing its IP

• You can’t catch up

• A sustainable competitive advantage.

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Slide 16. The impact

So business and technology are driving a number of changes in IT

• The increase reliance on partners, the broader partner ecosystem this implies, and an increasingly global approach to business will create more complex operational environments, increasing the importance of planning the IT estate and steering a company’s IT in the right direction.

• The need to reduce leverage, and free up working capital, is pushing companies toward BPO and SaaS solutions, rather than the traditional on-premisses solutions, where the solution provider is paid per-seat, or might even be only paid a success fee.

• The need for rapid project turn-around is pushing us toward running large portfolios of small projects, rather than a small number of large projects.

• A lot of the admin work we used to do is now baked into web delivered solutions (BaseCamp et al).

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Slide 17. Kogan

A glimpse of where this might be going.

• Started in 2006 by Ruslan Kogan with a credit card• He discovered that the

components in flat panel televisions were made by just a handful of manufacturers

• Cost driven business, using offshore manufacturing to sell cheap goods direct in the Australian market.

• At first glance this is not much different from Chevy in the USA, where a Korean product is sold with GM branding.

• The difference is in execution

From that standing start:

• 3.7M$ by 2007-2008 Kogan

• Four full-time staff and nine part timers

• No real asset of it’s own

• The business is built around its ability mobilize both customers and suppliers.

Since then

• The business has grown to roughly $18M in 2009-2010

• Expanded into the United Kingdom

• Still has only thirty people in the Melbourne based business.

The business continues to build knowledge:

• LivePrice

• Applying yield management ideas to fund their manufacturing process.

• Customers who are willing to pay earlier in the manufacturing process – effectively providing Kogan with the working capital it needs – can access a lower price.

A knowledge creation business

• The core team invests their time in steering the business

• Looking externally to understand what features customers are asking for

• Creating product to suit

• Finding the best way to get the products into the customer hands.

• This has broadened the range of products to include DVD players, ebook readers, PVRs and set top boxes GPS and Internet radios.

• In some cases this also means bundling products that a more conventional company would prefer to sell as separate items, such as televisions and personal video recorders (PVRs).

The company’s differentiation rests in the intellectual property

• The techniques the company has created around selecting the right product configurations, and production and logistics providers.

• The networks and relationships required to deliver the products.

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Slide 18. The changing face of the IT department1

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Slide 19. If we want to be relevantWe need to change our relationship with the business.

If we want enterprise IT/architecture to be relevant going forward

• We need to stop thinking about IT assets and roadmaps of major projects

• We need to think in terms of business capabilities and outcomes.

• We need to find tools and techniques to deliver business-technology

• And we need to reorient our departments, away from application factories, and toward IT enablement

•

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Slide 20. Some new rules to live by

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Slide 21. We need to transform our organisationsWe used to build cathedrals

• Bespoke

• Unique

• Expensive to deliver• Time: generations• Money: billions• Human lives: 100s/1000s

• Expensive to maintain

Now we want to focus on prefab

• Clear overarching design

• Understanding of where to focus our investment• leverage commodity components

where appropriate• save our money for the important /

differentiating details

• Delivered in a short time frame

We need some new rules

• Focus on what really matters

• Externalize

• Reduce the cost of planning

From dogma back to doctrine.

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Slide 22. Focus on what really matters

Analogy: digging a hole:

• We’re all resource constrained

• If the whole is one foot around, then more people/money won’t help

• We need to focus on where to dig

Not all business activities / processes / rules are equal

• Applications force us to treat large areas evenly

• Long lists of requirements

• We play the prioritization game

We need to find a way to manage technology enablement in line with business role

Telco business story

• Client had two key problems• Improve time to revenue turn on• Introduce new product portfolio

• Internal IT came up with 4 years, $50million• Rip and replace all applications• New platform

• This was not acceptable to the business

• We used a business centered approach to develop a different approach• Identify the business activities in

scope• Heat map based on how to

manage each activity

• The solution was focused on addressing key business drivers• Surround and destroy to isolate the

mess• BPM to streamline time-to-

revenue-turn-on• Bespoke for product portfolio

management

• This enabled us to set aside work to do later that was not core to the problem• CRM renew• billing consolidation• …

• ~9 months and a few million

And remember that enabling knowledge creation is more important than streamlining knowledge use.

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Slide 23. Externalise

Second is to externalize

We need to consider options beyond on-premises applications:

• Business process outsourcing

• Software as a service

• Partner ecosystems

Focus on doing one thing well, and leverage other entities for supporting activities.

For areas that are not core to the business

• Push them out of the business (to the CFO)

• Create time and space for our team to focus on what really matters

Telco example: BPO rather than billing consolidation

• Rip rating out of billing• it needs to be part of product

definition management• this commoditized billing

• sell existing assets to a BPO provider• invest the money back into

developing capability

We have a wide range of tools available:

• business process out-sourcing

• software as a service

• partner ecosystems

We need to continually optimize the performance of the business

• Be externally focused

• Build a portfolio of capabilities

• Each providing different performance profiles

• Blend them to get what you want

And remember

• Knowledge creation is more important than execution

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Slide 24. Reduce the cost of planning

Third is to reduce inertia.

Our current approaches to planning are not longer appropriate

• 9 month and multi-year planning cycles don’t fit

• major engineering efforts to deliver agility

Don’t confuse agility with flexibility

• Business agility requires IT to have some flexibility

• We tend to make the mistake that we need to design for maximum flexibility

• But flexibility comes at a cost

• More moving parts to develop• Increased maintenance costs

• So we end up delivering late and paying huge maintenance costs

The business is amused when told that it’ll take a multi-year project to deliver agility

• Isn’t this a contradiction in terms

Think about F1 cars, which are incredibly agile:

• Be light: minimize inertia

• Provide flexibility where it is required.

• Be prepared to act

To be agile we need to:

• Reduce weight (what we have to build & planning overhead)

• Support change when and where required (shorten planning and delivery cycles)

Telco example

• Four week effort

• Resulting in series of ~1million$AU projects

We need to find a new place on the planning spectrum

• Bottom up doesn’t work: results in a rats nest of integrations

• Top down doesn’t work: takes so long that we need to be tactical and end up with the same rats nest

People use a different approach

• imagine how you planed to get to work

• not top down: sitting in bed with MS Project

• not bottom up: waiting for something to happen

• set long term goal

• establish where you are

• use scenarios to work toward the goal.

Our goal is plan every quarter

• clear goal

• series of small projects

• reorder / reconsider the projects

This lets us align business and IT cycle:

• another geeky graph

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Slide 25. Aligning business and ITOur goals is to continually optimize the business monocoque.

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Slide 26. ConclusionEnterprise IT is in danger of becoming irrelevant

• The application centric approach doesn’t work any more• Growth of the application market• Decrease in the cost of integration• Misalignment with the business

cycle.

The business have moved on without us

• Companies are picking out the synergies to create new businesses• Craig’s list• Nike• Rolls-Royce

• This new bread of company is nearly impossible to compete against

• We need to create a new relationship (rules) with the business.

If we want to be relevant going forward then we need to change the rules of our profession

• Focus.Work with the business to understand what matters, and what doesn’t.

• Externalize.Don’t do things that are not core to the business, pass them to partners et al.

• Inertia.Reduce the inertia in delivery and planning to provide real business agility.

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Slide 27. End title

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