Although the concept of strategy in warfare can be traced back to ancient times, its application in business is surprisingly recent. Multiple theories and definitions regarding business strategy has emerged since the 1960s, but to this day little consensus exists on the meaning or importance of strategy in a business context.
Business strategy, technology strategy, and enterprise architecture are highly amorphous fields. Consequently, there is a need for narrowing the subject. One can distinguish between at least two approaches to enterprise architecture:
A: A design school which tries to influence the structure of the organization and the design of its capabilities with special emphasis on its information-based capabilities in order to better support strategic behaviors that align with its objectives and its competitive and political environment.
B: A learning school which redesigns business processes and the firm’s structures as a series of smaller steps where each step is an adjustment to an overall guidance or strategic path as well as a response to changes that occur in the external environment and where each step builds on the results from earlier steps.
While early approaches to strategy were structured and design-oriented, newer forms of strategy are more dynamic and learning-oriented, and they force enterprise architecture to be approached differently to be effective.
As strategy has become an increasingly eclectic field of practice, most large and complex organizations today apply several different approaches to strategies: traditional diversification and partitioning may be applied at a corporate level, dynamic capabilities may be central to how the organization’s web channel operates, and certain parts of its product strategy may adhere to strategy as ecology. Consequently, enterprise architecture must be able to reflect and respond to not just one but typically a set of strategies before it is possible to claim that it operates on a strategic level.
This two-part article explores how enterprise architecture could or should look under a set of different strategies as they have emerged from the 1950s up to current times. In doing so, it provides a guide to how to express the benefit of enterprise architecture and to recognize the different forms enterprise architecture often must take to respond to the full set of strategies selected by an organization.
The article will be organized by a set of strategies starting with strategy as structure and design in the 1950s and up to more contemporary forms such as dynamic capabilities and strategy as ecology in the 2000s. In this first part, the emphasis is on classical forms of strategy from the 1950s up to and including the 1990s, while the second part considers the modern forms of strategy from the 1990s and up to current time. The second part concludes with an overview of a set of common themes that enterprise architecture seems to address irrespective of the specific strategies selected by the firm.
STRUCTURE AND DESIGN (1950-1960)
Strategy as a deliberate managerial discipline dates back to the 1950s where Harvard professors developed the design-based approach to business strategy, which remains highly influential today. Strategic choices are based on an interdependent analysis of the external environment of the firm and the firm’s internal distinctive assets, practices, processes, and resources. Successful strategies are those that achieve a two-way strategic fit between the environmental opportunities and threats that exist and the resources possessed by the firm.
The general idea of reflecting external and internal factors in the strategy is distilled in the popular SWOT framework, which continues to be used by firms and consultants alike.
Igor Ansoff specified two basic strategic questions for driving the strategic agenda of the organization, namely:
- “Which business are we in and what business should we be in?”—in essence, what is the purpose of the organization?
- “How should we compete in these businesses?”— i.e., the choice of appropriate strategic agendas in the chosen business areas.
Ansoff proposed to compare the different growth trajectories of the organization based on options for developing new products and serving new markets. The “Ansoff matrix” with its four product-market strategies (market penetration, product development, market development, and diversification) describes different strategic options that must be fitted to the different stages of the organization’s life cycle.
It was especially the early management consulting firms such as the Boston Consulting Group that began to analytically address competitive advantage with the concept of the “experience curve.” The rationale for the experience curve was that for cumulative doubling of experience (e.g., calculated as units produced and sold) the average total unit cost would fall 20–30 percent. The reduction in unit costs could be attributed to organizational learning and technological improvements in the manufacturing and distribution apparatus, and economies of scale.
The strategic role of technology scale benefits and organizational (competence) learning was thus established as important levers for seeking competitive advantages and became linked to economical rational theory.
The environmental conditions for strategy were characterized by: (a) low organizational, product, and process clock speeds; (b) low information density, which only allowed products to serve mass markets; (c) functional, hierarchical, and stable organizational forms; and (d) a strategic thinking that focused on cost advantages and internal fits with relatively stable external conditions.
Enterprise architecture focused on building and sustaining a production apparatus (process) for serving mass markets and on designing the organizational structure and its capabilities so it maximized scale benefits (experience curve). Technology became an integral part of the manufacturing process, and its key contributions were toward process automation, waste reduction, and manufacturing asset utilization.
EXAMPLE: Enterprise Resource Planning (ERP) systems are a significant example of this thinking. Another example is often referred to as global single instance architecture (GSIA) where global applications serve an organization’s functions on a global scale. Strategic enterprise architecture will often focus on the analysis and modelling of business activities across organizational units that is required to implement GSIAs or global ERP packages.
DIVERSIFICATION AND PARTITIONING (1960-1970s)
During the 1960s and 1970s, organizations were diversifying away from their original core businesses. The Boston Consulting Group’s growth-share matrix provided an analytical framework for a balanced portfolio view of the firm. With time, the portfolio view led to the strategic specialization of firms into multi-business organizational forms consisting of strategic business areas being served by strategic business units.
Diversification and decentralization led to a situation where strategic business units, rather than the corporation, became semi-autonomous profit centers and the units of strategic planning. Strategic planning increasingly became focused on the resources and capabilities of the individual business units, and enterprise architecture became a matter of building and sustaining manufacturing technology with a strategic fit to the business areas in which the units competed.
In diversified and decentralized organizations, enterprise architecture fluctuates between a central and a decentralized orientation depending on whether the organization sustains high growth or low growth/economic subtraction. In high growth situations, enterprise architecture becomes decidedly decentralized and focused on the business units, while low growth situations called for scale benefits and reduced technology (process) unit costs and therefore for technology asset efficiency and sharing of core product and process assets across the strategic business areas.
Many private and public sector organizations still maintain a diversified and decentralized structure, and today enterprise architecture is concerned with creating cohesion and collaboration among the different business units that often operate with different IT governance and investment schemes. The main objective is to improve scale benefits across the business units by fostering better resource and knowledge sharing. Enterprise architecture is about how to organize, govern, and utilize common process and product platforms while still allowing business units or departments to maintain some autonomy.
EXAMPLE: In diversification and partitioning, enterprise architecture often focuses on creating “globalized” capabilities—i.e., global information-based capabilities or platforms that can be modified or enhanced by local units to meet their local objectives.
An example is online collaboration centers for upstream oil and gas. Such cross-disciplinary problem-solving centers are becoming commonplace in upstream oil exploration and bring together petrochemical engineers, geophysicists, drilling engineers, and geologists in a cross-disciplinary process supported by online information-sharing technologies that operate on a global scale. The global scale is important because upstream oil and gas increasingly diversifies its operations across tar sands, fracking, deep sea drilling, and onshore drilling and must draw on the collective experience of scientists that operate from widely different locations in the world. The local scope is important because the online information-sharing platform must be able to adapt to local specific problems.
COMPETITIVE POSITIONING (1980-1990)
In the perspective of industrial economics and competitive positioning, which was most clearly described by Michael Porter, strategy is about comparing the attractiveness of different markets and then selecting strategies in each of these chosen markets, which would create defendable positions for the firm’s strategic business units.
Two important characteristics that lend themselves well to enterprise architecture are the value chain and the ability to share resources across business units. The value chain is an analytical framework that allows the enterprise architect to focus on core activities and strengthen these through automation, by linking them up to create straight pass-through capabilities where data can be passed between process steps without human intervention, and where new information-based products can be configured within the activities offered by the value chain.
The ability to share resources is considered a way to make the organization more resource efficient. Especially in terms of knowledge and information-based business models, information sharing can be enhanced and automated by information technology. Supply chain management is an example of a process that cuts across both the value chain and the ability to share resources among business units, even extending beyond the boundaries of the organization to its suppliers, partners, and customers.
EXAMPLE: Two general examples of enterprise architecture are business process re-engineering (BPR)—an attempt to optimize the firm’s value chain and create defensible industry positions through differentiation in how activities were performed—and the creation of common information-sharing platforms that allowed business units to collaborate (for instance, on R&D activities) and join up their respective value chains.
