Top 10 Leadership Principles for Enterprise Architecture

Enterprise architecture is the organizing logic for IT and business processes reflecting the integration and standardization requirements of a firm's operating model. This definition of enterprise architecture recognizes that IT is tightly embedded in organizational processes and that the critical role of architecture is to ensure the desired level of business process integration (sharing of data across business units) and business process standardization (implementation of the same business processes across business units). Enterprise architecture adds value to a company only if it provides a roadmap for gradually enabling a company to change from current operations to the way it wants to do business going forward.

Enterprise architecture thus maps a journey. As a company progresses on this journey, it builds critical IT-enabled capabilities that it reuses to address new market opportunities. From studying and working with hundreds of companies we have distilled the lessons from many outstanding executives into ten leadership principles for enterprise architecture. We intend these to provide a succinct summary of our book and a primer, refresher or checklist for all leaders.

1. Commit to the foundation.
Every company has a set of capabilities that can be digitized to ensure reliability, high quality, low cost, and timeliness. By digitizing those capabilities most critical to the company's vision of how it expects to operate, a company builds a foundation for execution. Rather than designing strategies that simply react to customer demands and competitor initiatives, a company with a foundation will base its strategies on identifying opportunities to leverage its capabilities. Management literature has long preached that companies must develop and apply unique capabilities in order to succeed in global markets. The foundation for execution framework provides an orderly view of how to plan, implement, and leverage a coherent set of capabilities.

Companies must exercise strong organizational discipline to build and leverage a foundation. First, a company must embrace the discipline to declare an operating model and implement the required standardization of processes, data and technology. Second, management must embrace the discipline to pursue those strategic opportunities that leverage its foundation - and not force opportunities that don't fit. For example, ING DIRECT follows its established formula for success by introducing a narrow set of standard products into new banks in new countries. In doing so, it is bucking the trend toward full service financial institutions. Its success reflects discipline in both its business processes and its strategic decisions.

2. Initiate change from the top and remove barriers.
Building a foundation for execution is central to a company's ability to execute its strategies. As such it needs the attention and dedication of senior management. Left to their own devices, most people in a company attempt to do what they think is right. But without clear direction, some of their actions will do as much harm as good. Senior management needs to drive the choice of the operating model and be involved in the articulation of the enterprise architecture. And senior managers should take responsibility for converting an architecture into a foundation for execution.

The need for senior management leadership and funding is visible in the leader-follower dilemma. Building out the foundation for execution requires investments in IT infrastructure, but as companies build out their foundations one project at a time, funding mechanisms often limit important investments in infrastructure. For example, the securities trading business unit in a multi-business unit financial services company was the first to identify a valuable customer service using wireless technologies. The company's funding mechanisms required the innovating business unit to pay for the entire wireless infrastructure, even though the company had identified wireless technologies as important to its future. Faced with paying the full infrastructure cost, the business unit leader was motivated to create a silo of technology because an enterprise-wide solution would cost more and take longer to integrate into the foundation. There are many solutions to this dilemma. For example, corporate can underwrite a percentage of the cost of the infrastructure. Alternatively, the business leading the investment can receive a dividend from business unit followers as a reward for taking the lead and the risk. In any case, senior management cannot simply decide how the company will operate - it must rectify all the forces working against its vision. Senior management must create the climate for success.

3. Feed the Core - Experiment.
While companies are pursuing profitable growth by building and leveraging a foundation for execution, they will certainly encounter promising strategic opportunities that don't leverage their foundation. When market synergies argue for strategic bets that cannot leverage an existing foundation, companies should pursue them separately from the core business. For example, when Schneider National, a large trucking company, introduced a logistics business, management quickly recognized that, despite the market synergies, the core processes of the two businesses had little in common. Trying to leverage the technologies and digitized processes of the trucking business would have unnecessarily limited the flexibility of the logistics business, so the logistics business instituted a separate IT unit with different technologies, applications, and data. Building the logistics business separately allowed the company to rapidly experiment with a synergistic business that could feed the core.

A strong foundation for execution prepares the company for unknown future customer demands. A stream of small, focused experiments apart from the core helps a company learn about emerging businesses and the capabilities of new technologies. Because these ventures do not leverage the company's foundation, they involve higher risk and slower profitability. By acknowledging that they are experiments and not part of the core business, companies can establish a budget for experiments, design distinct metrics for assessing the success of each experiment, and allow a realistic amount of time for the most promising experiments to achieve profitability.

4. Use architecture as a compass and communication tool.
Jim Crookes, Chief Architect at BT has observed, “Companies get the systems they deserve. A company's systems estate is a result of its culture, organizational history, and its funding structures. Coherent, well-integrated systems will only ever exist in companies that value coherence and integrated service.”

Enterprise architecture should guide companies to greater coherence. An enterprise architecture should identify the small set of key IT-related capabilities (IT-enabled processes, shared databases, standardized platforms) that are most critical to the company's operations. The architecture can then act as a compass accessed by managers to resolve differences of opinion about next steps in building organizational capabilities. The objective of the enterprise architecture is not so much to achieve a particular end state as to serve as a blueprint for the company's direction. It's easy for companies to become enamored with the next big project or new strategic opportunity. But that kind of enthusiasm creates a rush to the next project without ensuring that employees are deriving the benefits from the last project. Enterprise architecture maps a path in which a company incrementally builds and then leverages capabilities. The company becomes smarter-and more successful.

5. Don't skip stages.
Unlike the architecture of a building which presents a complete picture of a building that then can be erected, enterprise architecture is a journey. A company embarks on the architecture journey by incrementally building needed capabilities, while also adapting to the organizational changes inherent in building and using new capabilities (e.g. sharing data, standardizing processes globally). Any time a senior management team defines a new vision for operating a company, the company would ideally implement the new technologies, processes, and decision making capabilities very rapidly. But legacies-management processes as well as technology-take time to dismantle. Thus, we have found that companies must implement change incrementally in order to avoid massive implementations that are never fully absorbed into a company's culture.

We have identified four stages, each involving a business transformation. Skipping stages leads to either failures or delayed benefits by taking on more organizational change than a company's people can handle. Each stage has very different learning requirements. Companies yield huge benefits by driving the value from their current stage. For example Guardian Life cut IT costs 30% between 2000 and 2003 by consolidating servers, renegotiating contracts, introducing offshore outsourcing, and installing financial discipline in moving from stage 1 to stage 2. That kind of benefit has an immediate impact on the company's bottom line, while positioning the company for even more powerful business benefits in later stages.

6. Implement the foundation one project at a time.
Some executives are tempted to solve all problems with a single huge effort. Unless a company is on the verge of bankruptcy, however, the “big bang” approach is almost never a good idea. Implementing a foundation, one project at a time, uses the momentum of current business needs to create the foundation. In the process the most important elements of the architecture get implemented first.

Every business has critical strategic initiatives to execute. These initiatives can be implemented quickly with no thought to their long term impact on the efficiency and flexibility of the business, or they can help implement the foundation for execution. Implementing a foundation one project at a time gives the entire company time to absorb new capabilities and recalibrate its next steps.

7. Don't do it alone - Outsource.
Defining an operating model, designing an enterprise architecture, and building the foundation for execution are all major undertakings. Every company needs to take control of setting the direction, but it makes sense to get help with the implementation. Over time many of the processes a company standardizes will be candidates for outsourcing. Certainly, some standardized processes will be unique to a company. But whenever world class providers can find enough customers desiring the same process, companies will have no reason to retain processes internally.

Outsourcing those capabilities that don't distinguish you competitively frees up management attention to focus on those activities that will differentiate your company and help you grow profitably. Companies will have to postpone some outsourcing while waiting for an external market to develop, but ultimately outsourced processes will constitute part of most companies' foundation for execution.

8. Invest in your people.
Automating core activities and providing useful data can release the creativity of the company's people. A foundation for execution presents both an opportunity and a requirement to develop and capitalize on the capabilities of people. Most companies woefully under invest in IT education and training - on average about 2% of the typical IT budget. Worse still, when an economic downturn occurs, training and travel are the first areas to be cut.

Many companies also miss out on the important opportunity for learning that a project post-implementation review offers. Growing numbers of companies now include in their project budgets an allocation for development of people that includes education, training and post-implementation review. Professional development helps companies generate the expected benefits of new systems - it is also important for motivating and energizing the company's key asset, its people. Post-implementation reviews provide critical feedback into the next round of project justification with data on risk, performance and resource needs. Leading firms are linking their regular post-implementation reviews to individual performance assessments and incentives.

9. Reward enterprise-wide thinking.
A foundation for execution can be foiled by unaligned incentives. If people are instructed to build and leverage a foundation for execution but rewarded for maximizing local performance, the company's foundation will be disregarded. In recent years State Street Corporation moved from a relatively autonomous business unit model to “One State Street.” A critical success factor was increasing the sharing and reuse across the different business units while still maintaining the innovation culture in the business units. Several factors needed to change. Consequently, a new governance model was implemented, an enterprise-wide IT budget was instituted and, more recently, the organization was restructured so that both operations and IT now report to the Executive Vice President and CIO Joe Antonellis.

To reinforce the new approach to business, the basis for incentives and bonuses was also changed. Today at State Street Corporation business unit executives typically receive annual incentives based 50% on the performance of the business unit and 50% on enterprise-wide performance such as earnings per share. All IT professionals - with their responsibility to focus on company-wide issues such as creating a common foundation for execution - are rewarded based 100% on enterprise-wide performance. This type of bonus structure helps clarify individuals' priorities.

10. Empower employees with the foundation for execution.
A foundation for execution is where people, systems, and processes converge to make companies more effective. Some companies, including Verizon Wireless, Lands End, and Nordstrom, have developed reputations for effective customer interactions. These companies empower their employees to make decisions, provide clear objectives or guidelines for their behavior, and give them powerful systems to guide those decisions. At the end of the work day, employees should find satisfaction in their accomplishments, whether that involves helping customers, designing strategic partnerships, introducing new products, or updating the accounting books. Instead, many employees regularly spend their day reworking tasks that had already been completed, fighting bureaucracy to get approvals for obvious decisions, or manipulating data on tasks that a computer could do faster, better, and cheaper. The promise of the foundation for execution is that a company's people will do more value-added work - and the company will perform far better as a result.

The Journey That Lies Ahead
Enterprise architecture in many companies refers to a detailed blueprint of IT systems, data and technology. It is now clear that enterprise architecture is instead a business vision. Enterprise architecture begins at the top - with a statement of how a company operates - and results in a foundation of IT and business process capabilities on which a company builds its competitiveness. Establishing this foundation for execution is a joint responsibility of business and IT executives - it shapes the strategic opportunities a company can respond to in the future. We believe that a number of pressures will make a foundation for execution more important in the coming years.

First, companies are increasingly facing customers demanding high service levels at low cost - and competitors are increasingly able to give those customers exactly what they are asking for. Market conditions change rapidly, sometimes shaped by customers; sometimes by competitors; but, in all cases, requiring a rapid response. Companies without a robust foundation for execution will have a tough time battling competitors who have already automated their process capabilities.

Second, companies are encountering greater technology-related risks as well as growing regulation. A well designed foundation simplifies the IT and business environment, thus reducing the risks of systems failures, security and privacy breaches, and loss of data integrity. A simplified IT and business process environment is critical to reducing a company's vulnerability to a wide range of risks. Companies do not have a choice as to whether they want to manage risk - business continuity, security, data integrity and regulatory compliance must be managed, and managed well.

Third, companies will increasingly partner to enter new markets and create new industries. Many of the most exciting strategic opportunities will require companies to quickly join forces - and just as quickly to separate again - exploiting their distinctive competences by linking modular business capabilities. These dynamic partnerships are already becoming important, even though few companies have the technology or business process infrastructure to support them. Companies whose foundation for execution can easily reach across company boundaries and “plug and play” their modular business capabilities with partners will win in this fast-paced world of global opportunities.

Fourth, vendors will increasingly provide industry standard business processes for the same or lower cost than companies can provide internally. Increased outsourcing will accelerate the architecture maturity process, so companies will develop more robust foundations. Companies that have not learned how to implement and manage standardized and integrated processes will struggle with the realities of the marketplace. Some companies will forge ahead with the help of vendors; others will struggle to make vendor relationships work.

A foundation for execution allows a company to automate predictable processes, so management can focus on higher value tasks like innovation, partnering and identifying new opportunities. The foundation empowers employees and enriches jobs by reducing redundant and tedious tasks while providing the information needed to innovate and customize. Few companies have built a foundation of digitized processes facilitating agility throughout the organization. Those that have are better positioned to take advantage of market opportunities and grow profitably. These leading companies are evidence that the enterprise architecture journey is one worth taking.

Reprinted by permission of Harvard Business School Press. Excerpted from "Enterprise Architecture as Strategy: Creating a Foundation for Business Execution". Copyright 2006 Jeanne W. Ross, Peter Weill and David C. Robertson. All rights reserved.