Building Value through Enterprise Architecture: A Global Study

The economic crisis has taught organisations a critical lesson: Only by focusing on long-term value can they ensure their 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, we believe, is Enterprise Architecture (EA)—the process of aligning an enterprise’s structure and operations, including business functions, processes, and information systems, with its business goals and strategic direction.

Yet questions remain concerning the value of EA: Does investment in EA really deliver value to the business? If so, what types of value are being realized? What are successful organizations doing to capture value from EA, and what are the greatest challenges to an effective EA? What are the most important actions that companies should take to develop their EA capabilities? And how can EA be used in the short term and the longer term, given the challenges in the economic climate?

To answer these questions, Booz & Company recently completed a global Enterprise Architecture study, in which we surveyed EA practitioners and key business representatives at more than 60 organizations in the financial services and government sectors around the globe. The results are revealing: No matter how mature their EA efforts were, respondents at every organization we surveyed saw EA as a key capability for building long-term business value, and all of them are continuing to invest in EA. Furthermore, we found a strong correlation between the maturity of a company’s EA efforts and the amount of value captured through the process.

EA and the Link to Value

As Exhibit 1 indicates, EA has already become a critical element in creating business value, though most organizations still have much work to do to fully realize its benefits. Every organization we surveyed fell into the “emerging,” “standardized,” or “operationalized” maturity level, and more than 80 percent of them fell within either the “standardized” or “operationalized” category. The exhibit also demonstrates that, by and large, the financial services firms we surveyed scored higher than the government agencies, a difference that may be due to the fact that the public sector has more complex business models that have evolved sometimes inconsistently over time.

Our efforts to establish a link between EA maturity and value focused on four critical areas of business value: decreased cost, reduced complexity, reduced risk, and increased agility. And that link is clear: Respondents from 60 percent of the top third of organizations on the maturity scale reported having realized all four sources of business value. The very few organizations reporting that their EA efforts had reaped little or no value were all at the “emerging” level of EA maturity, and in every case, EA was still limited to IT and not yet engaged with the business.

As Exhibit 2 indicates, respondents from close to 90 percent of the top third of organizations reported that they had achieved cost reductions because of their EA efforts. As part of the study, we looked in detail at an Australian bank that had realized more than AU$200 million (US$159 million) in cost savings as part of a two-year EA effort that placed it among the top third of organizations in the study. The savings—primarily achieved through the consolidation, sharing, and reuse of the bank’s technology assets—would not have been possible without the integration of EA deep in its operations. That, in turn, involved ensuring that strategic planning efforts included input from the EA program and building a federated EA model with a central EA practice supporting domain experts in each business unit. (For more on this and other case studies, please download the complete study.)

Creating Value Through EA

Our study indicates that if organizations want to boost their level of EA maturity, they must work to develop five critical capabilities:

• Strategic alignment: The extent to which the EA function is involved in both business and technology strategic planning and how well EA engages with the wider organization
• Staff competency: The level of competency of EA’s leaders and practitioners and how well EA is recognized and fostered as a career path
• Performance measurement: How well EA’s success is defined, measured, and improved with formal metrics
• Organizational structure: The extent to which the EA function is formally structured and governed, the seniority of EA’s practitioners, and the level of recognition of EA throughout the business
• Formal EA processes: The extent to which formalized frameworks, methodologies, and supporting technologies are utilized within the EA function and the breadth of the adoption of EA standards across the orgnization

As vital as all of these capabilities are to the ultimate success of EA, they vary significantly in how strongly they are linked to the value created through EA—and in how difficult they are to attain.

Respondents agreed, for instance, that strategic alignment—the degree to which EA is integrated into the business and the strategic planning process—is the most critical driver in achieving business value; after all, every EA effort must be focused on actual business results. Typically, organizations with mature EA capabilities make a point of including EA in both technology and business strategic planning processes. At the same time, however, most respondents agreed that linking the two is the most difficult of the five elements to achieve, especially if the wider organization has only a limited understanding of EA and why it matters.

Respondents cited access to highly skilled resources as another top challenge in creating a successful EA program. In a related case study, we looked at a European bank that was working to expand its EA capabilities to ensure that a variety of recently outsourced IT services were successfully integrated into all its business lines. Successful as the effort has been, the bank is still working to address “the lack of skilled [employees] who are able to speak both business process and technology language,” as one of the bank’s lead architects puts it. Plans to remedy the problem include strengthening internal training, development, and research capabilities.

EA in the Short and Long Terms

The long-term benefits of EA are many: lower costs, increased efficiency, better risk management, less complexity, and greater agility. Yet companies are finding it more and more important to be able to respond quickly and effectively to every market situation. Under such conditions, a mature EA program can also support prudent near-term planning and decision making by increasing transparency, sharpening business processes, and connecting long-term strategy more closely with quarter-to-quarter tactics. Among the short-term benefits of EA are better cost and budget control, better management of the extended enterprise, the ability to find sources of capital when needed, and greater clarity in managing regulatory and stakeholder demands.

The goal of EA is to establish, improve, and measure the connection between an organization’s structure and operations and its overall strategic goals, and thus to create value in both the short and long terms. We hope that by guiding organizations to a better understanding of the critical elements of EA and the challenges they face in improving their EA efforts, our study will help them grow more agile, become more able to adapt and to change—and ultimately generate greater business value.

For a more detailed analysis of the relationship between EA and business value, please download the full study, which includes a more thorough examination of the elements of EA, the drivers of EA maturity, the best practices of organizations that have achieved high levels of EA maturity, and the challenges they face in building their EA capabilities. The full study also includes four case studies that analyze in greater detail three organizations whose EA efforts have brought them real quantifiable business benefits.

Download Building Value through Enterprise Architecture A Global Study, (2mb)

Source: Booz