From Enterprise Architecture to IT Governance – Elements of Effective IT Management

(Editor's Note: What follows is an excerpt from Chapter 3 of Klaus D. Niemann’s book From Enterprise Architecture to IT Governance–Elements of Effective IT Management. Niemann is the Managing Director of act! Consulting GmbH (http://www.act-consulting.de/), which specializes in enterprise architecture and IT governance. Niemann has more than 20 years of first-hand experience in this area. His book can be purchased at Amazon.com. The following chapter addresses, among other things, “Optimizing IT Effectiveness.”)

IT effectiveness stands for business alignment, or the lining up of IT to the task of meeting business needs, i.e. its concentration on the right projects, the right application systems, and the right infrastructure in a way that generates maximum utility. Those projects are to be carried out that allow one to achieve the greatest utility for the economic and strategic goals of the enterprise. Those applications systems that are to be optimized are most important for enabling one to reach one’s business goals. Those infrastructure components are to be purchased and maintained that support the business processes that ensure the greatest creation of value. Optimizing IT with the help of EA entails the following:

• Ensuring goals conformity: Are all IT investments optimally oriented to the economic and strategic goals of the enterprise? Are those projects given priority that exhibit the best cost-benefit ratio? Are exactly those maintenance measures placed up front and center that promise to optimize the application systems with the greatest utility for the business? Do operations units focus their service quality on those areas that are the most valuable for the business?
   
• Securing strategy and resources conformity: Do one’s IT measures and projects converge with one’s business strategy? Are the resources that are necessary for the implementation of the strategy provided in a timely manner and according to the budget?
   
• Placing results orientation in focus: Does one primarily harvest the low hanging fruits? Is one at all times focused on those measures that exhibit the best cost-benefit effects? Has the utility for one’s business aims been sufficiently precisely operationalized?
   
• Ensuring deadline orientation: Are checks run for all measures, projects and line activities to determine what sequence will create the earliest gains? Is there a sufficient focus on the quick wins? As we all know, the early bird gets the worm!

There are many reports available which have been published by organizations that have gathered considerable EA experience. Obligated by law to introduce EA and architecture management processes, many U.S.-American agencies and public organizations belong among the pioneers in this area.

In its Final Report on EA (FET1999), the Federal Energy Technology Center (FETC) describes the benefits of EA as follows:

• “Provides a structure in which FETC can manage its information and processes.
• Ensures that our information and technology support the business.
• Focuses systems development toward organizational needs, not individual desires.
• Leads to improved information quality.
• Leads to more efficient and effective information system development.”

The following assessment of the benefits of EA appears in the Executive Overview issued by the initiators of The Open Group Architecture Framework (TOGAF):1

“It is much easier to ensure access to integrated information across the enterprise: maximum flexibility for business growth and restructuring, real savings when re-engineering business processes following internal consolidations, mergers, and acquisitions, an IT infrastructure much better equipped to support the rapid deployment of mission-critical business applications. Faster time-to-market for new products and services, leading to increased growth and profitability. In short, an effective IT architecture can make the difference between business success and failure. By investing in IT architecture, you are investing in: business success, independence from suppliers, and control over your own destiny.”

Time-to-market, support of business aims, IT alignment, flexibility–these are the frequently recurring themes. Many readers may think: difficult to conceive, not really graspable, complex.

If the transparency-creating EA that we have introduced helps us to avoid unnecessary heterogeneity, reduce complexity and thereby secure or increase efficiency, then we have accomplished a lot. But how can we be sure that we are also using the newly acquired efficient means for the right measures? How can we be sure that we are not driving our ultimate efficiency machine at full speed in the wrong direction?

Is portfolio management the answer? My response is that it is necessary, but not sufficient! How does your portfolio management work? Your department clients outline their projects in the context of an annual plan. All of these projects are evaluated in terms of their strategic and economic significance, the result is pressed into a portfolio, and then a red line is drawn that is derived from the available IT budget. The same old story. Perhaps the IT division is able to define a few of its own indispensable projects (e.g. network expansion). Perhaps, in addition to this, dependencies between projects are analyzed. Perhaps the departments will be given a budget corridor in advance. In the end, we are always left with the image of the portfolio with the red line in which you can identify all of the projects that are to be carried out in the next year.

Projects? Yes, projects are listed here. But who is to take care of the applications, the infrastructure, and the existing landscape. In other words, who is to do the housekeeping? While you may indeed introduce your own IT issues, where are these to come from? Out of the blue? Are they independent of the virtuosity with which you run your business? Do you identify IT projects, the necessary establishment of infrastructure, the smart renovation of existing systems, the optimization of interfaces and the integration of systems by taking a careful look? Do you carry out regular checks of the quality of your applications and infrastructure landscape? Are you continuously on the uptake for development gaps, redundancies, and heterogeneity?

In the end, the housekeeping is even more important than drafting new projects for the portfolio: development accounts for only 20 percent of the accumulated costs of the average IT application at the end of its service life, the remaining 80 percent is accounted for by integration and operating costs (PRA2002). These costs must be converted into value-creating investments.

Portfolio management and architecture management are complementary. One is responsible for the optimal allocation of resources for the new, and the other is responsible for the optimal maintenance of the existing. Why build a new bathroom when the only thing the existing one lacks is a fresh coat of paint?

A simple applications portfolio of the sort developed in some portfolio management procedures is of little help here. While such a portfolio will show us the strategic and economic significance of existing application systems, and may even contain figures on operating, maintenance and production costs, it will offer no basis for a technical analysis.

Portfolio management alone will not permit one to identify all of the important factors. Indeed, identifying the measures that are necessary and that will lead to increased efficiency requires that one take a holistic approach, an approach that includes both the planning of new components and the optimization of existing components. The identification of ways of optimizing the existing landscape should not be left to chance and should not be entirely dependent on the discerning eye of those involved. While this area deserves greater attention and support than portfolio management, it should also be part of an established procedure and anchored in architecture management as a counterpart to portfolio management. The alignment of the project portfolio to the development plan adds an element of security to investment planning, i.e. it will ensure that resources are not invested in the wrong areas.

The establishment of a connection between architecture management and portfolio management represents a prerequisite for doing the right things. This means using portfolio management to select exactly those projects and optimization measures for the applications environment that will bring the greatest utility for the enterprise. The significance of EA management is growing. Applications and infrastructure are becoming ever more important–more important than projects.

This is so because the production factor capital is becoming more important than work: “The world’s markets are currently subject to an immense shifting in the significance of the production factors work and capital. In the meantime, entire regions of the world [. . .] have reached a level of development that permits hundreds of millions of people to offer their labor services on the global market from these regions. This coincides with a high demand for capital throughout the world. An increasing supply of labor tied to an increasing demand for capital? It follows that the cost of labor will decline while that of capital will rise.” (MUL2005)

The consequence: capital must create value, and return on assets has become crucial. Gartner draws comparisons here to production (LOP2002). While the declining number of employees in the manufacturing sector in the United States was initially tied to the transfer of production facilities to low-wage countries, one was forced in the end to recognize that the manufacturing sector’s share of the gross national product remained constant with fewer employees and constant value creation. Gartner explains this in terms of increasing returns on assets and draws a comparison to IT:

“Using manufacturing as a guide, the case for investment in enterprise architecture now rather than later is based on two points:

• Return on assets. IT infrastructure is the platform for long-run productivity. The right planning now will assure the opportunity to see improved operating results in the long-term. Growth in ROA is a metric that can be used to justify a growing market capitalization.

• Return on opportunity. While not a formal financial metric, return on opportunity describes the impact an investment has on the business. The process of taking a new business concept–such as a new business model, product, market or process–must overcome constraints that are built into today’s business structures.” (LOP2002)

It follows that IT applications and infrastructure represent the assets of one’s IT division that are gaining in significance compared to project investments. Housekeeping (i.e., the maintenance and optimization of applications and infrastructure) is the task of the day.

by Klaus D. Niemann