The Changing Role of IT Strategy: Enterprise Architecture Strategies

The integration of business and IT strategies is driving the enterprise architecture planning process.
Posted January 1, 2001

Bjorn Tuft

META Trend: Through 2005, the primary justification for enterprise architecture will be the business value derived from integration of separate business and IT planning processes into a unified enterprise architecture planning and execution function. Business value sourcing will replace traditional ROI and TCO measures as the primary metric for measuring the success of the enterprise architecture.

By 2004, 80% of Global 2000 enterprises will have failed in merging their IT and business strategies. Only 20% will have succeeded in creating a unified business/IT strategy and establishing an architecture process that addresses the enterprise's key business, information, application, and technology strategies, along with their impact on business functions and processes. These 20% will replace the traditional static and discrete yearly planning process with a continuous improvement strategy and architecture process.

IT Organization Is the Business

When IT is the core business, as in finance, insurance, and e-commerce, a standalone business strategy that does not take into account the impact of IT will fail. Effective use of IT is a competitive differentiator and must be considered during the business strategy planning process. All major business initiatives should articulate the matching IT capabilities; they are operational only when the corresponding IT solutions have been implemented. However, in such a situation the development of an IT strategy can introduce a separate planning process, with the risk that IT processes may no longer be fully synchronized with the business strategy. Particularly in federated, decentralized organizations, there is a high risk of introducing two conflicting strategies.

To develop a comprehensive vision of the company direction, the traditional strategic planning process must be enhanced with a concomitant digital planning process, outlining potential business scenarios, their business processes, and technical requirements. Once the integrated business strategy has been defined, the recommended next step is to develop a common requirements vision. These requirements link the strategy with the enterprise architecture and enable more detailed architecture modeling, and more defining of the business processes and IT infrastructure components.

IT Organization Supports the Business

In companies where the IT organization is supporting the business, there is insufficient room for an IT strategy. A strategy provides principles and vision; it defines major initiatives. A department with a supportive function has inadequate scope and autonomy to develop an IT strategy and has to concentrate on creating an IT plan that executes the business strategy, optimizing the use of existing resources. In this case, the IT planning is defined by the initiatives and funding of the business units and is largely project-driven. Business requirements are then "thrown over the wall." Even the mapping to a corporate business strategy is mostly lacking, and the IT staff is struggling to create and fund a common, shared infrastructure. IT groups lack brand recognition and credibility, and are not asked to participate in business planning activities. Under such circumstances, IT organizations struggle to define themselves as a service utility, providing a commodity at a competitive cost, and are often perceived to be a candidate for outsourcing. An IT strategy does not add value in such a context.

In this scenario, the enterprise architecture process is used to create an enterprisewide technical architecture (EWTA), and IT professionals initiate the architecture effort with little to no active business participation. The focus of EWTA should be to break the mold of a project-driven IT group and to transition toward a holistic EWTA that enables flexibility and change. Overcoming the lack of business participation becomes a critical goal. The organization structures have to be adapted to create corporate governance of business processes and IT solutions, and a formal enterprise architecture process must be established. The CRV will then lead into a more comprehensive architecture modeling, as in the previous scenario.

IT Organization Acts Like a Business

When the IT organization is acting like a business, a stable, well-defined relationship between the IT entity, the lines of business (LOBs), and third-party service providers becomes critical. The IT organization needs to achieve operational excellence in providing a portfolio of productized services to the LOBs and manage the introduction of major application and infrastructure solutions. Technology-focused service-level agreements (SLAs) and account management must be developed, along with end-to-end processes spanning multiple technology domains. An IT strategy derived from the business strategy then becomes a useful activity. It defines and documents the direction and the major initiatives of the IT organization. It becomes an important element of the business-to-IT communication, describing the interface and "contract" with the business units and setting the right expectations.

In this context, the IT strategy defines the necessary autonomy that enables an identification of common processes and technology. The creation of a common infrastructure and shared business components lowers costs, reduces the risk of redundant functionality, and increases flexibility. However, it also creates a distance to the IT organization, or the "customer." By defining a stable interface and clear "contact points" and products, it sends the message that the IT organization is a "business within the business" and it does not participate in the new, innovative, risk-taking, less-defined activities of the company. The approach is therefore suitable mostly for IT services that are not company-specific. These services do not provide a competitive strategic advantage. The paradox is that an IT strategy is particularly suitable for services that are not strategic to the business.

In addition, when the IT department is run like a business, it also makes sense to create the appropriate organizational structure. The IT department is increasingly spun off as a separate legal entity, mostly as a wholly owned subsidiary. Companies are also creating collaborative clusters, with multiple IT departments separated out and grouped together in a different company, with the "founding" companies being the dominant shareholders and customers. In most cases, the founding companies do not plan to relinquish control.

From an architecture point of view, the federated business/IT architecture is the appropriate approach.

Business Impact: An integrated dynamic business strategy process must be established to digest the rapid IT changes. The business strategy must be linked with an architecture process to be executable.

Bottom Line: Companies must introduce three changes to the way they define their business strategy. First, they must replace their traditional static and discrete yearly strategy planning process with a continuous business strategy process, including digital planning. Second, they must include the IT dimension in the business strategy. Third, they must create an ongoing link with the enterprise architecture process.

Copyright )2000 META Group Inc. ENTERPRISE ARCHITECTURE STRATEGIES is published by META Group Inc., 208 Harbor Drive, P.O. Box 1200061, Stamford, CT 06912-0061. Web: Telephone: (203) 973-6700. Fax: (203) 359-8066. This publication may not be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without prior written permission. All rights reserved. Reprints are available.
EAS 19 December 2000.104

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