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Enabling the Extended Enterprise May 2003 Authors Derek Sappenfield Dr. Craig Miller Contributor Ettienne Reinecke

Executive Summary An extended enterprise is an organization which has located business-critical operations outside its direct control through outsourcing, alliances, licensing or other arrangements. The extended enterprise is a powerful emerging business model that allows a company to focus on its core operations while leveraging the market presence and insight, customer relationships, and financial and intellectual resources of its partners to their mutual benefit. The extended enterprise can achieve greater scope, agility, and efficiency than any single company. Becoming an extended enterprise, however, involves much more than developing alliances and outsourcing. True extension can only be achieved when partners expose and integrate their business processes and systems to allow for rapid and accurate flow of information. This is the foundation that allows a group of organizations, with complementary capabilities, to act as a unified whole. As with any significant opportunity, the challenge and risks should not be underestimated. Implementation and management of the extended enterprise can be expensive and disruptive, and may require new skills and attitudes. Planning for and managing the interdependencies between business relationships, information, and the supporting information technology infrastructure requires significant effort. These factors must be understood and then carefully communicated and managed by the highest levels of the organization. This paper proposes the roadmap which should be followed to become an extended enterprise, with a particular emphasis on developing the supporting IT infrastructure and services of the extended enterprise.

• We introduce the Application Network, a technical reference model that addresses a shared organization IT infrastructure, based on open technology and process standards, in support of its business relationships. The Application Network provides organizations with a framework for developing and managing an IT infrastructure and services that optimizes costs while providing the flexibility, resiliency, manageability, security, and quality of service required to become an extended enterprise.

• We provide a roadmap to get firms on their way, or back on track, and suggest several opportunities that may make sense for your IT infrastructure right now.

Critical success factors to achieving the extended enterprise include: Management Buy-in, Policies and Governance It is vital that management make clear its intent to take a more comprehensive planning perspective to becoming an extended enterprise and developing its supporting IT infrastructure. To ensure this approach gains traction within the organization, policies must be established which prohibit (or make very financially unattractive) any investments in proprietary (or closed) technologies unless absolutely necessary. Relationships and Trust Any organization interested in becoming an extended enterprise must realize that this is not about technology; it is about sharing processes and information with other organizations. Many efforts of the late 1990s failed or had limited success due to the people and processes being subordinated to the technology. The technology is simply an enabler which decreases costs and cycle times while facilitating interaction. High Quality Information The amount of data available to an organization has increased enormously over the last decade as a result of the internet, data warehousing initiatives and an increasing number of external stakeholders. However, information stored in business unit (and even desktop) silos, redundant information stored across the organization and the questionable nature of data provided by external parties has worked against most companies trying to improve their business intelligence. All of this complexity has rendered most business intelligence tools completely inadequate. Organizations

must consider how information is used to support business processes in the organization and design a data architecture to support them. Flexible IT Infrastructure There is neither time nor funding to re-build the IT infrastructure from the ground up so organizations must take a holistic architecture perspective and balance their long term vision with specific short term initiatives which will move them closer to that vision while providing measurable benefit now. Business processes must be designed to support the extended enterprise strategy and underlying IT infrastructure must support the inter-organizational nature of these processes. This requires focus on open standards and an underlying shared services infrastructure which provides ease of modification. A shift from this data-centric to a process-centric approach and systems will allow IT systems to more accurately reflect the dynamic nature of business. It is critical that the IT organization work collaboratively with the business owners to ensure alignment of purpose and efficiencies. Historically, this has been a great challenge in many organizations. The Application Network reference model is an appropriate framework to guide you. Building the Extended Enterprise IT Infrastructure Forward-thinking extended enterprises, and other organizations for that matter, are beginning to take a fresh, holistic approach to managing their processes and systems environment. As we have mentioned, open technology and process standards are necessary to realizing the extended enterprise. These help reduce the costs and time related to establish, execute and manage relationships and transactions with other organizations. The organization service bus, an open standards-based transportation and transformation system facilitating communication between disparate systems, will be the highway, roadmap and traffic lights of the extended enterprise. An organization with an open, flexible IT infrastructure simply has more strategic options available to it than an organization that takes a proprietary approach. In the short run, a proprietary approach may appear to deliver a degree of stakeholder lock-in but over time your competitors will develop approaches which allow them to pivot and partner much more quickly and cheaply. It will also reduce the risk of vendor lock-in. Taking this approach will improve the probability that the organization will be ready for future changes in the environment or capable of making strategic changes Although developing the IT infrastructure to support the extended enterprise is a monumental task it can be and must be broken down into manageable projects that will deliver short term value as well as long term strategic benefits. The necessary steps involved are:

• Develop an extended enterprise strategy. • Define existing business processes and group them based upon whether they are customer-

facing, partner/supplier-facing or internal facing. • Based upon business processes and business unit needs, define an optimal balance

between a centralized, shared IT infrastructure and business unit freedom • Balance short- and long-term objectives and projects and develop a portfolio of IT

infrastructure projects and a strategic IT infrastructure roadmap to deliver on objectives and strategy

• Re-align strategy based on IT infrastructure capabilities and limitations • Implement, test and manage the initiatives • Measure success of your program

Although deciding where to start is highly dependent on your industry and where you reside in the value chain there are a number of areas that are ripe for most organizations to start. • Apply storage virtualization technology to better utilize your storage assets • Consider enterprise-wide identity management. The cost of multiple network and application logins

is enormous from a provisioning, maintenance and user perspective.

• Improve your data quality now. The benefits of improved data quality include the availability of accurate information for decision-making, a reduced risk of transmitting poor quality data to external stakeholders, consolidation of some data repositories and decreased complexity of systems integration.

• Implement and enforce policies around the use of web services in virtually all systems integration efforts. Pilot web services in relatively low-risk projects now.

• Consider portals as a relatively low-cost and short-term means of presenting a comprehensive view of personalized, contextual corporate information to internal and external stakeholders while consolidating the massive waste and confusion caused by your myriad websites

• Policy-based network resource management is another short-term alternative which can be addressed. Too many organizations just load on more bandwidth to deal with their network issues rather than focusing on the uneven quality of service required by different applications.

While the potential benefits of becoming an extended enterprise are massive, the only way to ensure success is to approach its development in a methodical, project-based fashion. This requires an upfront understanding of the strategy and related processes followed by management commitment, the development and management of appropriate external relationships, ensuring information quality and developing a flexible IT infrastructure. The sequence is critical. The extended enterprise is not about technology. It is about developing an IT infrastructure that supports the extended enterprise strategy and business processes to meets the needs of the employees and external stakeholders. Your IT infrastructure must be viewed as a critical strategic asset and is one of the major components of your foundation for growth.

Enabling the Extended Enterprise: The Application Network The extended enterprise is a powerful emerging business model that allows a company to focus on its core operations while leveraging the market presence and insight, customer relationships, and financial and intellectual resources of its partners to their mutual benefit. The extended enterprise can achieve greater scope, agility, and efficiency than any single company. The extraordinary value creation that can be achieved through the extended enterprise represents an enormous opportunity for businesses. Becoming an extended enterprise, however, involves much more than developing alliances and outsourcing. True extension can only be achieved when partners expose and integrate their business processes and systems to allow for rapid and accurate flow of information. This is the foundation that allows a group of organizations, with complementary capabilities, to act as a unified whole. However, as with any significant opportunity, the challenge and risks should not be underestimated. Implementation and management of the extended enterprise can be expensive and disruptive, and may require new skills and attitudes. Planning for and managing the interdependencies between business relationships, information, and the supporting information technology infrastructure requires significant effort. These factors must be understood and then carefully communicated and managed by the highest levels of the organization. This paper proposes the roadmap which should be followed to become an extended enterprise, with a particular emphasis on developing the supporting IT infrastructure and services of the extended enterprise. We introduce the Application Network, a technical reference model that addresses a shared organization IT infrastructure, based on open technology and process standards, in support of its business relationships. The Application Network provides organizations with a framework for developing and managing an IT infrastructure and services that optimizes costs while providing the flexibility, resiliency, manageability, security, and quality of service required to become an extended enterprise. We provide a roadmap to get firms on their way, or back on track, and suggest several opportunities that may make sense for your IT infrastructure right now. What is an extended enterprise, and what forces are driving its development? Our definition is as follows:

There are three general categories of interaction expected between an extended enterprise and external stakeholders. • A transaction involves the exchange of a product, service, information or currency between two or

more parties. Transactions tend to be finite and are relatively easy to measure. Many organizations today have used the Internet to create some capability supporting electronic inter-organization transactions.

• Process management is the inter-organizational sharing, coordination and synchronization of business processes to achieve mutual objectives. Standards are emerging that will allow inter-organization process management to become more highly automated and flexible over the coming years.

• Collaboration is the project-based exchange of information between parties within and across organizations to achieve mutual objectives. Collaboration most often follows the path of innovation through development to commercialization and it can be challenging to quantify its impact. Today, collaboration across enterprises tends to leverage a combination of manual processes and IT platforms.

An extended enterprise is an organization which has located business-critical operations outside its direct control through outsourcing, alliances, licensing or other arrangements.

Internal and Environmental Drivers of the Extended Enterprise Organizational interest in becoming an extended enterprise is not new. For decades, organizations have partnered, unbundled operations and outsourced processes to other organizations for strategic, operational and financial reasons. The impetuses generally fall into two basic categories: internal drivers and environmental drivers. Internal Drivers The basic principle behind the extended enterprise is to build on the different capabilities and expertise of the constituent organizations to create a new, virtual entity, in which each organization concentrates on its core, doing what it does best, while the whole can offer a broader range of services, achieve economies of scale in operations, respond with more agility to changing market conditions, and align more closely with the customer. Strategic agility is reflected in an organization through its ability to develop and execute on strategic options in a timely and nimble fashion. The options can include adding or removing partners, suppliers or customers. In order to be strategically agile the enterprise must have the right information available for timely decision-making and must have an ability to add or delete connections between these stakeholders in a rapid fashion that does not require significant incremental funding or other resources. The extended enterprise provides the organization with an ability to focus on core operations, outsourcing non-core functions to other organizations. Many organizations have attempted but few have been successful at vertical integration and as a result many have instead chosen to focus on core competencies and collaborate with partners for other non-core activities. This results in reduced capital and operational investments. Outsourcing leads to opportunities for greater customization since each of the parties in the value chain can focus on improving operations and stakeholder experience in their area of expertise. Typical organization-extending opportunities include new product development, procurement, advanced planning and scheduling, and customer relationship management. Another expected benefit of the extended enterprise is reduced transaction costs due to established relationships with other organizations. These established relationships take the form of technical compatibility, aligned processes and trust between the two entities. Another objective is to focus on core competencies for operational efficiency reasons. Process cycle time compression is one of the other benefits of these relationships. Customer focus is another important factor driving organizations toward the extended enterprise. Enhanced customer service and satisfaction are a frequent objective of the extended enterprise. Technology has shifted the power toward the customer and only those enterprises providing the best value win. This requires being able to partner with other organizations that may have greater expertise and/or economies around certain activities that are not your core competencies. An extended enterprise is capable of accessing and exploiting new market opportunities through the leverage of its external stakeholder relationships. This can come in the form of new geographies, new customer segments, and product/service extensions. An extended enterprise will take advantage of these new market opportunities at a significantly reduced risk compared to going it alone. This risk reduction translates to less capital and resource investment as well as an improved ability to exit from the market. Lastly, increased innovation is the direct result of collaboration within an organization and between the organization and its external stakeholders. The ability to share information across corporate boundaries is a basic requirement of collaboration but many enterprises are incapable of effectively executing this seemingly trivial activity. The reason for this failure is rooted partly in the slowly emerging

awareness of the advantages of extending the enterprise and the growing imperative to do so. It is, however, equally rooted in the historical technical difficulty of integration. It seems trivial, but it isn’t.

The requirements can be stated quickly, but building the supporting systems has been one of the great “heavy lifts” in IT execution. This is changing. Environmental Drivers The environmental drivers behind the extended enterprise serve both to demand extension and to make it possible. Integration of business systems has historically been hard work, but the business value has been clear. In the early 1970’s for example, United States Steel Corporation (USS) installed systems at major U.S. automobile manufactures that allowed them to order steel on line using a dedicated terminal, through systems that could provide insight into USS’s production scheduling capabilities. These systems were custom and complex, but provided USS with a business advantage. The technology for business systems integration has come a long way in the past 30 years. While the progress is characterized by fits and starts, many dead-ends and abandoned technology, and some

Customer Focus: Strengthening Partnerships in the Delivery of Patient Care Business Challenge One of the largest publicly traded managed health care companies in the U.S. today, serving more than 7.9 million medical members and more than 40 million specialty members nationally, wanted to enhance its competitive position in the highly competitive managed care market. To accomplish this, the health plan decided to reach out to a key constituent group, healthcare providers such as doctors, hospitals and clinics, and offer them an extensive set of web-based tools and content through a customized extranet portal. This portal automates processes for the provider community including verification of member eligibility, claims tracking, and online content viewing and downloading. Providers prefer to associate with health plans that offer streamlined processes for interaction and information delivery. By developing tools that respond to these preferences, health plans enable providers to devote more time to delivering care and reaching more patients. Solution This health plan partnered with Dimension Data to build a custom provider portal based on a content management framework. By providing a customized solution (versus an out-of-the-box application) Dimension Data was able to incorporate unique functionality and streamline back-end integration. Dimension Data has also adapted certain methodologies and practices to jibe with technology standards that the health plan’s Strategic Enterprise Architecture (SEA) group had established. The development of security, LDAP, object and technical designs were all affected to some degree by existing protocols. Dimension Data also used visual prototyping to demonstrate important concepts, in keeping with the established style. Results The portal addresses the needs of a key constituent group whose services directly impact customer choice in the marketplace. The portal sets new standards for how healthcare front offices deal with insurers. By giving providers better tools for obtaining information and interacting with the company, the health plan reinforces its status as a preferred business partner and drives the most cost-efficient delivery of care. Functionality within the portal allows providers to compare themselves to others and better understand the company’s incentive schedules. This transparency fosters greater trust, enhancing the relationships.

rapid leaps forward, one underlying trend has been apparent – a relentless drive to standards for the exchange of information between organizations and for integration of application components. EDI standards, XML as a message syntax, ebXML integrating the power of the XML syntax with the business knowledge imbedded in EDI, and the foundation routing and messaging standards (extending to Simple Object Access Protocol, or SOAP), all building on the ubiquitous connectivity of the Internet, have changed business integration in a fundamental way. No longer is it necessary to develop expensive, custom, 1:1 connections. Using the standards, companies can integrate with relative ease and impressive speed. What was once very difficult is now easier and as more tools built on the emerging standards come to market and mature, inter-enterprise integration will become routine. Standards are emerging to enable systems to connect their core systems, promoting better production scheduling, logistics management, joint CRM, collaborative product planning, and many other types of coordination that allow the extended enterprise to work faster and smarter than the unconnected competitors. Improving technology has made the modern extended enterprise possible, and simply because it is possible, it is necessary unless you are ready to give way to more agile competitors. A challenging economic environment is another relevant driver since organizations will frequently cut back to their core operations in times of financial crisis. When executed properly, the extended enterprise allows them to share investment and operational costs with external parties that likely have cost economies in other areas. Risks Beyond the financial investment concerns of most organizations there are a number of other risks which must be identified and addressed. The extended enterprise requires a flexible infrastructure which must be tolerant of input from and outputs to other entities. One downside of extending the organization is the dependence this now creates between the organizations. Additionally, while sharing information across other organizations further widens your innovation horizons, it also exposes you to the risk of intellectual capital leakage. Along the same lines, your organizational flaws become exposed when you share information or processes with other organizations. The processes and systems of most organizations are highly complex, presenting significant operational challenges. Processes must be flexible enough to allow the addition or removal of a stakeholder or modifications or improvements to the existing workflow. They must also be able to interact with other processes. There is a strong need for an organization which desires to become an extended enterprise to simplify, automate, and integrate these systems and processes to reduce total cost of ownership, enhance operational efficiency, and improve the stakeholder experience and service levels. These risks can be mitigated with a strong partner evaluation and governance process and a well-architected IT infrastructure and security policy. Organizations must decide on the areas where the greatest opportunity resides and then go through a rigorous yet rapid process of evaluating opportunities. Having these processes in place is a critical aspect of deriving value from the extended enterprise. A Bit of History Traditional extended enterprise efforts focused on the use of point to point connections leveraging EDI (electronic data interchange) and, in some cases, EAI (enterprise application integration). Well-documented disadvantages of EDI include huge startup costs, high transaction costs, high skills and maintenance costs, batch processing, and the inability to embed business rules.

These made sense when competition was limited and the customer had few vendor choices. However, the lack of a standard connections and messaging does present a number of problems: • Proprietary connections do not promote flexibility and agility. Setting up these connections does not

encourage fast-moving, innovative relationships or offerings. In fact, it inhibits flexibility, leaving companies burdened with huge, siloed IT investments and a need to build the same connections with any new partners.

• These connections are particularly difficult and expensive for small and mid-size companies- to the point where they are cost-prohibitive. This is a shame for both these organizations and the larger ones who might benefit from partnering with them. In cases where small/medium organizations choose to participate in relationships with larger organizations they often opt for manual reentry to compensate for their lack of infrastructure and funding. These costs make it unlikely that an organization will invest in non-strategic partners in their extended enterprise strategy. The disadvantage is that these are stakeholders who could help innovate and drive growth.

• Proprietary networks become exponentially more complex and expensive to maintain and manage as more organizations are added.

The Internet, specifically the World Wide Web, has also had a significant impact on the ability of companies to connect and share information and processes with external parties, although it has fallen short in that human integration is a critical requirement. As you will read later, web services is changing that. To enable extended enterprise business processes, you must increase electronic interaction among all IT systems within your organization and those relevant systems at other organizations. This interaction includes exchange of data among systems, sharing of common services, application-level connections among disparate systems, and visibility of end-to-end processes. The typical IT infrastructure unfortunately reflects little understanding of the inherent dynamics of business processes. Rather, it tends to focus on static representations of processes through packaged applications for ERP, supply chain management (SCM), and customer relationship management (CRM). Real businesses are dynamic – creating and merging business units, acquiring other companies or being acquired, starting new product lines and closing others, addressing new regulations, and making myriad other changes. From an architectural perspective, however, major corporate IT systems have been built as if the requirements were static. Each project is conceived and executed to address an immediate need. What is typically neglected is building a flexible network, information, and application connectivity infrastructure that can survive in an environment of continually changing requirements. In one extreme case, the architectural diagram of a major US corporation literally shows several thousand discrete applications and data stores, connected in several thousand pathways, covering an entire long wall. This is referred to as “spaghetti architecture” in reference to the many connections running between components. It is essentially impossible to get the diagram of a large spaghetti architecture right because the architecture is too complex and it will certainly change in the time it requires to prepare the diagram. More important than the difficulty of maintaining the picture of the architecture is the difficulty of maintaining the architecture itself. Any change to an application or a data store may impact several or many other components in the system, sometimes in ways that are discovered only after the change is made. Spaghetti architectures are very expensive and difficult to maintain even within the bounds of the corporation, but as a foundation for the extended enterprise they are a nightmare. Imagine two companies each with 1000+ applications and data stores – how many points on connection are necessary to achieve a truly fluid flow of information? Certainly some basic, transactional integration can be achieved through technologies akin to EDI or EDI-like information encoded in ebXML and sent in a SOAP wrapper, but this is far from the level needed to achieve high-level extended enterprise functionality like joint account planning or CRM.

Driven by market imperatives and the pressure of competition, firms are moving to extend their enterprise using “edge” technologies. These technologies work on the edge of the enterprise rather than reaching down into and being integrated with their core systems. Simultaneously, the more forward-looking companies are working to build sounder, more flexible IT architectures within their enterprises. The advanced architectures are “flatter” in sense that they eschew the many layers of point-to-point connection between applications and data stores but rather are built around a connectivity infrastructure or bus and rooted in standards. While this move to advanced architectures is driven by basic internal business requirements, their emergence will greatly accelerate the development and scope of the extended enterprises. Inter-enterprise connectivity is much simpler, quicker, and cheaper when the partners have their houses in order and their bus provides the single point of connection. Experience shows that certain industries, particularly the automotive industry and financial services, are leading in the development of bus-oriented architectures. This is not surprising given the large scale of the IT operations in these industries, the relatively high level of internal IT skills, and, in the case of the auto industry, the complex and highly automated supply chain. Understanding the thinking behind the extended enterprise, and successfully enacting an extended enterprise strategy, are two different things. Success rests on a number of critical factors. Critical Success Factors Management Buy-in, Policies and Governance It is vital that management make clear its intent to take a more comprehensive planning perspective to becoming an extended enterprise and developing its supporting IT infrastructure. To ensure this approach gains traction within the organization, policies must be established which prohibit (or make very financially unattractive) any investments in proprietary (or closed) technologies unless absolutely necessary. The sharing of processes, systems and information between organizations can be very uncomfortable at first and the perceived risks may outweigh the benefits. This is where the organization security strategy and governance policies must weigh heavily. They must include:

• intellectual capital preservation • scheduled, periodic communications to the organization • rules for structuring external relationships • guidelines for managing the overall program • standardized and widely accepted IT investment evaluation processes

Relationships and Trust Any organization interested in becoming an extended enterprise must realize that this is not about technology; it is about sharing processes and information with other organizations. Many efforts of the late 1990s failed or had limited success due to the people and processes being subordinated to the technology. The technology is simply an enabler which decreases costs and cycle times while facilitating interaction. If the sides do not trust each other enough to collaborate, the benefits will reflect that. Trust is critical in becoming an extended enterprise. Key governance policies include:

• rules and criteria for evaluating each external relationship • contractually-binding service level agreements between parties • rules for structuring relationships • assignment of partner management responsibility • criteria for measuring success

High Quality Information The amount of data available to an organization has increased enormously over the last decade as a result of the internet, data warehousing initiatives and an increasing number of external stakeholders. However, information stored in business unit (and even desktop) silos,

redundant information stored across the organization and the questionable nature of data provided by external parties has worked against most companies trying to improve their business intelligence. All of this complexity has rendered most business intelligence tools completely inadequate. Organizations must consider how information is used to support business processes in the organization and design a data architecture to support them. The development of metadata is frequently a critical step in this process, especially when the organization intends to share information with external parties who may not have context for that information. When internal data is combined with external data it helps to provide appropriate context for decision-making. Assessing and maintaining a well-designed information architecture and high quality information is a critical element for any organization interested in understanding its operations and customers. Beyond a good information architecture, it is necessary to have programs and policies directed at maintaining the quality of the data. Too many databases, particularly those related to customers, are riddled with inaccurate and outdated information. Practice has shown that the only effective strategy to maintain data quality is to combine a central point of accountability with enablement of individuals at the edge where the data is collected and it is easier to recognize and correct faulty information. Just as it is essential to build architectures not to address immediate requirements but to provide a platform to address changing requirements on a continuing basis, it is essential not to focus on getting the data right once, but keeping the data stores accurate on an ongoing basis. When you are trying to become an extended enterprise, the data issues grow exponentially. External parties quickly learn whose information they can trust and shy away from relationships with those with error-prone information. High quality, highly available information is also a key for channel integration and developing and maintaining a single view of the customer. Many business units keep their customer information to themselves when the organization would benefit greatly from a cross-business unit view of all interaction. Flexible IT Infrastructure. There is neither time nor funding to re-build the IT infrastructure from the ground up so organizations must take a holistic architecture perspective and balance their long term vision with specific short-term initiatives which will move them closer to that vision while providing measurable benefit now. Business processes must be designed to support the extended enterprise strategy and underlying IT infrastructure must support the inter-organizational nature of these processes. This requires focus on open standards and an underlying shared services infrastructure which provides ease of modification. A shift from this data-centric to a process-centric approach and systems will allow IT systems to more accurately reflect the dynamic nature of business. It is critical that the IT organization work collaboratively with the business owners to ensure alignment of purpose and efficiencies. Historically, this has been a great challenge in many organizations. The Application Network reference model is an appropriate framework to guide you. The Application Network Forward-thinking extended enterprises, and other organizations for that matter, are beginning to take a fresh, holistic approach to managing their processes and systems environment. As we have mentioned, open technology and process standards are necessary to realizing the extended enterprise. These help reduce the costs and time related to establish, execute and manage relationships and transactions with other organizations. Organization service buses coupled with process management will be the highways, roadmaps and traffic lights of the extended enterprise. An organization with an open, flexible IT infrastructure simply has more strategic options available to it than an organization that takes a proprietary approach. In the short run, a proprietary approach may appear to deliver a degree of stakeholder lock-in but over time your competitors will develop

approaches which allow them to pivot and partner much more quickly and cheaply. It will also reduce the risk of vendor lock-in. Taking this approach will improve the probability that the organization will be ready for future changes in the environment or capable of making strategic changes The essence of the next generation architectures is their flatness – replacing thousand of point-to-point connections between data stores and applications with connections through a robust connectivity infrastructure we term the “Application Network”. The Application Network is not just the physical network, but a bus that layers message, data conversion, metadata, security, failover, disaster recovery, and other capabilities onto the network. This concept of the Application Network is relatively new, but it is a logical, evolutionary extension of the basic problem of IT – integrating applications. The challenge of moving data between applications (programs) and, at a higher level, integrating application components has been central to IT from early days, probably from the time the second program was written at the University of Pennsylvania. What has changed over time is our approach. Initially, we took the simple approach. When two programs needed to exchange information we manually drafted the file formats for data interchange. When two programs needed to interoperate, we coded the calls from one to the other. Typical large enterprise architectures now have hundreds or thousands of these point-to-point connections, which, as noted before are fragile and difficult to maintain.

Accessing real-time information Business Challenge A global asset management company with more than $300 billion under management, needed to streamline the process of gathering information for its portfolio managers. The portfolio managers were gathering the information they needed to perform analyses and make daily decisions from a large number of disparate internal and external information sources. These sources included Oracle Databases, proprietary news feeds, and external information sources that were only available through dedicated terminals. In an industry where speed is critical, inefficiencies negatively impact analysis, decision-making, and service delivery. Solution Dimension Data re-architected the asset manager’s data infrastructure by creating a more flexible messaging, data conversion and security bus. This enabled easier integration of back-end data, internal and external market data, recommendations and research into a centralized market data resource. This information, pulled from more than 15 data feeds and internal applications, was presented through a highly customizable, personalized intranet portal. Results By creating an infrastructure that was more open and flat, Dimension Data was able to enhance the asset manager’s first-mover advantage by giving the company’s portfolio managers an integrated, real-time information resource with all the features necessary to support efficient, high-quality analysis, decision-making and service delivery. Quantitative benefits include cost savings that resulted from the consolidation of licensed news feeds and external sources. By combining disparate user groups under single licensing arrangements, the firm was able to achieve economies of scale. In addition, consolidated access to information resources via the portal enables the company to better monitor the number of licensed services users. While difficult to quantify, managers also save considerable time in gathering the information that is critical to their jobs. This translates into higher productivity. Centralized administration of user data also reduces operational costs.

These complex architectures are obsolete for two reasons – first, they lack the critical simplification that comes from abstracting the problem of connectivity (data store to data store, application to data store, and application to application) from the design of the applications and data stores themselves. Thus, each application developer designs an idiosyncratic connection. The Application Network architecture addresses this shortcoming. The second critical problem with the older architectures is that they are grounded in the first stage of software maturity. Dimension Data uses a four-stage model to evaluate the maturity of software and architectures:

Stage 1: Do it Yourself, which includes developing significant custom code. Integration is largely “DIY”: Any modification or new development requires more custom code, and the risks are high due to the number of connections, siloing of system knowledge across the organization, and difficulty in maintaining current documentation. Stage 2: Package Based Solution As demand for a particular service increases, packages emerge to fulfill this function. As companies move from custom applications to packages, their costs generally decline and reliability and functionality increase. The proliferation of databases in the 1980s was a huge improvement over maintenance of data in thousands of files, as was common practice in the 1970s. Stage 3: Standards based solutions All organizations follow the migration from custom code to package solutions, but most organizations, and particularly large ones find themselves working with multiple packages for the same function, whether through different business units making different IT decisions or as a consequence of mergers and acquisitions. Every organization strives to minimize the number of technology options, but reducing the choices to one in a category has largely proven to be an unattainable holy grail. Recognizing this, successful software products tend to embrace standards as they mature so that they can interoperate effectively. The emergence of SQL, XQuery, ODBC, and JDBC has made database products interoperable. The emergence of web-services standards is extending the principle of standards-based integration into the application layer. Stage 4: Invisible The ideal software is largely invisible. That is, it does its job with little or no attention, working quietly and reliably. It becomes part of the infrastructure. Certainly network software has reached this point. Typical users do not know the names of the standard used at the networking layer or the languages used to program network components. Instead, a relatively small number of specialists keep everything running well; meeting high service level agreements and others can focus on adding value to the organization. In building the extended enterprise we moved to Stage 3 (standards based solutions) quickly with EDI, but this technology was still expensive and difficult to master, the standards were not mature, and the solution did not recognize the Internet. Using IP technology, we move from Stage 1 (DIY integration) to Stage 2 (Packages) very quickly with tools like I2, Manugistics, Ariba, and Commerce One in just 5 years. We are just now beginning the step to Stage 3 with the emergence of ebXML and Web Services standards. We are at a critical point in the maturation of this technology when what was only recently difficult will become much simpler. Companies that fail to recognize what this new technology can achieve will lose ground to their more agile competition. We are still some time from reaching the final stage, in which interoperability is boringly simply and reliable. The emergence of standards such as IP, XML, SOAP, UDDI, and Business Process Execution Language for Web Services (BPEL4WS) has had, and will continue to have, an exponentially decreasing effect on the implementation and maintenance costs of collaborative processes and systems. An efficient and effective IT infrastructure in support of an extended enterprise can now be achieved through the use of an Application Network reference model. This approach also provides a flexible, scalable foundation for strategic partner collaboration in the future.

The IT infrastructure should provide options to the business and help to reduce costs. • Organizations which achieve this will find that the costs and time required to add or remove a

partner, supplier or customer decrease significantly, providing them with many more options and lower overall risk of establishing external relationships.

• Organizations will be able to modify internal operations without requiring changes at the edge or with partners, suppliers and customers.

Abstractions, nothing new to CIOs, allow information technology to be assessed, implemented and managed in a more generalized, standardized, cost effective fashion. An abstraction provides a reference model for others to execute in a similar, reusable manner which ensures ongoing flexibility and extendibility.

Platform The platform layer includes computer and storage infrastructure as well as application platforms. It is usually filled with multiple vendor products and older technologies, which tend to be highly underutilized. However, recent advances in server technology have enabled multiple applications to run on a single processing platform. This development in turn has had an impact on storage as well as software and application licensing. Standard technology and protocols have allowed IT to re-design these functions, generating substantial efficiencies and savings in cases where each application has its own server, storage, and application platform. Better utilization of storage and servers translates to lower incremental costs of adding new stakeholders since business units can rely on using a shared infrastructure that is optimized, rather than simply adding capacity. The cost of provisioning and managing new and terminated employees also decreases through the use of available tools that can significantly reduce cycle time around highly manual processes. Connectivity Although many organizations believe they appropriately manage their physical networks, a significant need still exists to optimize the flow of network traffic. The logical architecture must differentiate between traffic types, application or service types – and, most important for inter-organization collaboration, must manage quality-of-service. Most networks still do not adequately support business processes. Implementation of dynamic bandwidth management mechanisms and quality of service controls will allow IT departments to do more with less bandwidth, as the networks are aligned to business priorities and integrated with application functionality. Quality of service and service level agreements must be established in order to ensure that the connectivity services supports the other services and applications dependent on it.

Integration Systems integration is fundamental for linking multiple business systems. An information bus or middleware architecture is capable of resolving many internal corporate integration challenges.

However, in the past they could not facilitate the integration across organizations because of the lack of industry standards stipulating how applications communicate -- including messaging formats, session management, and data exchange. Previous attempts to integrate applications have either been too proprietary or too complex for widespread adoption and true interoperability. But, as you read this, services-based architectures developed around Web services are making making inter-organization systems integration a reality. The rapidly maturing suite of XML-based standards that form the Web services stack have the potential to become as pervasive as the Internet itself, demolishing the barriers to entry for all parties. The costs and time required to add, delete or modify stakeholder relationships is greatly reduced through these approaches. Data Management Real-time information must be available to stakeholders and systems when they need it so that effective decisions can be made. Most information loses its strategic and operational value over time. In order to convert data into business intelligence it is vital to structure, process, analyze, and report on corporate data promptly. Unfortunately, most organizations have disparate data repositories, multiple data formats, and multiple data management and analysis tools. This condition makes consolidated views and intelligence an increasingly difficult and costly goal. To address that business intelligence challenge, companies must create a data architecture that most or all systems can be mapped to, although not necessarily a single schema or model to which all systems migrate. The handling and management of unstructured data -- including workflows for their creation and approval and their integration with structured data -- has also become critical. Data structures also need to evolve along with business needs. Data models in traditional applications are relatively static, changing only when a new release is available. Applications also overwrite data, destroying the ability to evaluate the past and forecast the future. Going forward, standard protocols will define how these services (or applications) can be registered and located, and how sessions will be invoked and which standards have to be adhered to. The result will be a truly distributed processing environment that overcomes the challenge of inter-organization network integration. This architecture will serve as the roadmap for how stakeholders and systems conduct electronic interaction in the future. Information quality management is critical to ensuring that accurate, complete, timely, consistent and relevant information is delivered to authorized users and systems for efficient transaction processing and decision-making. Identification Concerns about security and trust have made many organizations migrate toward EDI and other proprietary and exclusive standards. However, standards-based technology makes it possible to extract identity management from the disparate systems that currently reside in the organization and manage it from a single, consolidated perspective. Identity management enables a user’s identity and profile to be created and managed in one system that interacts with all other business systems. Imagine the simplicity and related savings associated with unified identity management across enterprise systems; these savings are augmented when opening up systems to external stakeholders. Identity management provides a set of processes and underlying infrastructure to support the creation and maintenance of digital identity including user attributes, entitlements, and credentials. These services allow centralized, delegated, and self-service administration, combined with workflow, to ensure that information is accurate and accessible from authoritative sources. Presentation The presentation layer manages human-machine and human-human interactions, selecting the appropriate channels, and presenting the information in a manner appropriate to that

channel. Portal technology, for example, provides a personalized human interface to multiple systems. Technologies and standards such as portals and business process modelling notation give employees, customers, suppliers, and partners a single user interface for accessing and integrating processes, information, applications, and services. These user interfaces rely on standard protocols to provide a screen display that extracts relevant user information from different systems and presents it all as a single, integrated view to the user. They are most effective when they provide a single user interface to multiple business units and/or applications across the enterprise. Dependencies The Application Network, however, involves more than just the evolution of a services-oriented architecture. In addition to making common infrastructure functions operate as network-accessible services, the model is one in which the components are mutually aware. Rather than optimizing each component in a vacuum, resulting in an overall sub-optimal system, all elements of the IT infrastructure are designed to work together to support the business. For example, what is the sense of a highly prioritized application running on an inadequate network or a Quality of Service-aware network supporting applications that cannot take advantage of it? The remainder of this paper will focus on the proposed roadmap for the extended enterprise IT infrastructure and the improvement of information quality. Building the Extended Enterprise IT Infrastructure Although developing the IT infrastructure to support the extended enterprise is a monumental task it can be and must be broken down into manageable projects that will deliver short term value as well as long term strategic benefits. The necessary steps involved are:

I. Develop an extended enterprise strategy. II. Define existing business processes and group them based upon whether they are customer-

facing, partner/supplier-facing or internal facing. III. Based upon business processes and business unit needs, define an optimal balance between a

centralized, shared IT infrastructure and business unit freedom. IV. Balance short and long term objectives and projects and develop a portfolio of IT infrastructure

projects and a strategic IT infrastructure roadmap to deliver on objectives and strategy. V. Re-align strategy based on IT infrastructure capabilities and limitations.

VI. Implement, test and manage the initiatives. VII. Measure success of your program.

Develop extended enterprise strategy The 5-7 year approach to extended enterprise strategy should identify the high level inter-company relationships you currently have and would like to add for transactions, business process management and collaboration. Obviously this should also address the enterprise’s core competencies and focus on whether they intend to differentiate on operational excellence and being the low cost provider, optimizing the value of customer relationships, or being an industry innovator. Your choice of relationships must assist in those objectives. As with any new undertaking it is critical to identify technical and business risks up front and address those explicitly. Also, when becoming an extended enterprise, an organization quickly realizes that it may play various roles in the value chain with other organizations. In some cases it may be the supplier or partner; in others it may be the customer. This will require coordination skills that many organizations currently lack. Identify and Group Your Current and Future Processes The next step is to take a cross-business unit snapshot of your current and planned processes to uncover opportunities that transcend business units. You may find that multiple business units are considering an e-procurement application for buying commodities or office products, storage capacity is being added to support multiple initiatives in an uncoordinated fashion, network bandwidth requirements are growing but utilization continues to be low, for example. These should be addressed in concert rather than allowing each of the business units to approach these projects individually. One key activity in this stage of the process is to understand the business and user requirements which need to be fulfilled. This requires an in-depth understanding of their existing processes and how those might change in order to fulfill the extended enterprise strategy. This is where a fundamental understanding of how processes can be redesigned to leverage the existing technology is critical. Those processes that do not impact the core business can likely be relatively easily addressed through

off–the-shelf “packages’ but those that are strategic must be examined very seriously to determine whether existing “packages” will actually meet the enterprise needs. Shared Service vs. Business Unit-Specific Infrastructure Every multi-business unit organization faces the conflict between giving the business units freedom to build their own infrastructure and the need to achieve some economies of scale on cross-business unit investment. The human resources, finance, accounting and other support functions are perfect examples of services shared across business units. The IT infrastructure needs to be viewed in the same way and, where appropriate, built as a foundation to support the multiple business units’ operations. However, many business units may view shared infrastructure, policies and standards as restrictive, impacting their ability to meet their stakeholders’ needs in a cost-effective manner. The key is to focus on the parts of the business that will receive the most benefit Organizations must invest in shared IT infrastructure based on objectives such as removing redundancy across business units to reduce costs, creating holistic views of the customer, and the creation of strategic options. The alternative is to disregard the identification and funding of these opportunities and allow all business units to develop and manage their own IT infrastructure. This will severely limit the agility of the enterprise. Identifying these opportunities can be a political exercise as much as a business and technical one but the financial and operations benefits are well worth it in most organizations. A shared infrastructure can address issues such as common enterprise data standards, enterprise-wide quality of service, and enterprise security which all represent huge risks and costs to the business if not addressed holistically. At a bare minimum, standards around each of these must be established and enforced. One guideline is that the further up the technology stack (Application Network) you go toward the supported business processes, the more likely it is that there will be unique business unit requirements for different business units. This is where policies and standards are more appropriate than a shared IT service. Mandated open standards components (e.g. web services) and an organization-wide information quality management policy are terrific examples of this. Supplier-facing initiatives that may be currently addressed at the business unit level, such as e-procurement, advanced planning and scheduling, product lifecycle management, and supply chain optimization, should be grouped together and assessed across the enterprise. If there are similar initiatives across the business units they should be examined for common business requirements to see if there is an opportunity for leverage. Customer facing initiatives can include sales force automation, channel integration, customer analytics, user experience, contact centers. Again, these should be examined across business units to see if there would be value in approaching these in a consolidated fashion. This is highly likely since most organizations can benefit from a single view of the customer, which has been demonstrated to increase customer lifetime value through retention and cross-selling opportunities. Internal initiatives include training, HR, organization resource planning, knowledge management. Examine internal processes that may have repeated instances across your organization. This may be your best opportunity for consolidation and making this a shared service to the business units. Employee-facing initiatives can be the best initial opportunities, in that your risk can be limited to your organization. You may also consider outsourcing some of these functions to external providers that adhere to the open connection standards you are promulgating. Balance Short and Long Term Objectives Projects must be mapped to short-term and long-term objectives. In order to plan and rationalize your portfolio of projects it is essential to identify your short- and long-term objectives which will be used as

the lens to measure success at a high level. These objectives should in turn map to your overall strategy. Examples of long-term objectives include becoming more customer intimate or innovative. Short-term objectives may include generating better return on assets and only investing on projects with a 12-month payback.

Project Portfolio and Program Roadmap Once opportunities have been identified it is critical to deal with the portfolio of projects as a holistic program that will require tracking and potential modification as the environment or strategic intent changes. Taking the perspective that this is a set of real options allows you to identify overlaps between projects, ensure alignment between efforts, create hedges reducing risk, and improve the overall benefit to the organization. Each project should have a business case which outlines its operational, strategic and financial impacts. Projects must be broken up into micro-projects or phases which can deliver demonstrable results. These need not be financial benefits at the most granular level but the overall project must deliver financial or strategic value to the organization. For example, if your medium-term objective is to build a single sign-on capability to your systems, you must divide the work efforts into micro-projects which can be tested along the way for quality and impact. In this case, you would need to segment the larger effort into ones addressing the directories, metadirectories, integration, access, authorization and portal implementations into smaller efforts that can be managed and modified. Implement, Test and Manage the Program Once discrete projects have been defined it is critical to phase each of those projects into relatively short-term efforts which can be mapped to a specific timeline and business benefits. This allows you to

Building the Application Network: A Structured Approach Business Challenge Premier Farnell specializes in the time critical distribution of electronic components and industrial products. Despite its already strong reputation with customers, Premier Farnell was not satisfied with maintaining the status quo. In order to achieve and sustain true market leadership, Premier wanted to transform itself into a true customer-focused organization. To accomplish this, Premier Farnell approached Dimension Data to create a customer interaction and central reading platform that could handle and harvest previously uncaptured customer information and turn it into powerful business advantage. Solution Dimension Data recommended our framework Application Network architecture that helped identify the commonality between back-office and front-office systems and unified the company by eliminating duplication and establishing common data structures and communication backbones across North America and the UK, with customer and product database conformity and business rules compliance. Dimension Data implemented a very powerful, highly integrated solution covering the principle North America and UK operations of Premier Farnell. It comprises a solution that is fully integrated into back office, sales ordering, inventory and customer billing systems to facilitate customer trading. Results Today, Premier Farnell is seeing marketshare growth and has benefited from new customers switching to its proactive value-added services, wide choice of products and expansive e-commerce capabilities. 8% of Premier Farnell’s Marketing and Distribution Division worldwide sales are now generated from the Internet and other forms of electronic trading.

measure effectiveness while at the same time taking a low-risk, flexible project approach. Understanding dependencies between projects is another critical step which allow you to assign resources to critical path or risk areas which might impact the success of multiple projects. It is fundamental to this approach that you manage for high quality throughput. Identifying and measuring certain critical success factors during the execution of each project can allow you to identify problems before they become serious. An escalation process can also be useful to initiate specific activities for each of these critical success factors. Measuring Success of the Extended Enterprise IT Infrastructure A system to quantify the impact of the project and the overall program must be implemented to ensure the projects deliver as promised. Performance will be impacted in the following ways: • Improved flexibility. As stated before, one of the outcomes is reduced friction between

organizations which manifests itself in reduced relationship startup and maintenance costs as well as reduced cycle times. This will have a direct impact on the cost of sales and operations, particularly through relationship start-up cost reduction.

• Reduced costs of interaction between organizations. The costs of transaction are decreased significantly, especially if those are of a recurring nature. This will have a direct impact on the costs of managing relationships.

• Reduced IT infrastructure costs. Asset utilization can be greatly improved, freeing up additional assets for existing and new relationships. Costs of investment in new assets will be significantly reduced.

• The benefits of innovation, collaboration, and business intelligence are more challenging to translate in financial terms and may be more lagging in nature but nevertheless represent significant business impacts as well.

Continuous Improvement One theme that runs through this discussion is the imperative to focus not on projects that pertain to one point in time but on establishing business relationships, business models, and the underlying system necessary as a foundation for a continuously evolving, maturing, and improving collaboration. Three elements must be addressed in building a sustainable solution – metrics, motivation, and means. The performance of the individuals and organizations must be measured. The metrics must show whether they are delivering value to the enterprise and whether this value is growing year over year. Are we better (cheaper, faster, more compelling) now than we used to be? The individuals and organizations must also be motivated to drive for improvement. Minimally, improvement must be part of the basic performance objectives. Ideally, those who deliver increasing value should share in the return. Strong motivation engages the creativity and energy of the organization to solve problems in new and effective ways. Care must be taken in designing the incentives to build effective teams rather than driving competition that divides teams, as extending the enterprise is not an individual effort. Finally, the continuous improvement program must provide the means for improvement. Teams can improve by working harder but there are limits to this, particularly in the long term. Sustained improvement must rest on doing things differently – on finding creative ways to solve problems and increase efficiency. Extending the enterprise is precisely about doing things differently – on a large scale. The same principle must be applied to each component or element of work in building the collaboration. The design of any sustainable solution in IT, and particularly in the complex area of inter-enterprise collaboration must rest on building a system which incorporates balanced metrics, means, and motivation. A key to remember as you go through this process is to stay flexible in order to be ready to adapt to a changing environment and internal priorities. The fact that you have taken this approach will benefit

you greatly in keeping your strategic business options open. You now are on the path to an IT infrastructure which is capable of succeeding in our world of continuous change. The figure below demonstrates the outside-in process of defining strategy and appropriate processes, ending with an appropriate extended enterprise Application Network definition. This is followed by an inside-out design and implementation of the Application Network and high information quality to support those processes and strategy.

Specific Opportunities Although deciding where to start is highly dependent on your industry and where you reside in the value chain there are a number of areas that are ripe for most organizations to start. • Apply storage virtualization technology to better utilize your storage assets. Most organizations

have implemented storage in a less than planned fashion. This has resulted in average utilization rates significantly below 50% and considerable benefits that can be achieved through the use of virtualization approaches.

• Consider enterprise-wide identity management. The cost of multiple network and application logins is enormous from a provisioning, maintenance and user perspective. Identity management will address access, authentication and administration across the extended enterprise reducing costs and manpower associated with adding, deleting and modifying relevant users and profiles.

• Improve your data quality now. This requires mapping of all your data stores and how information flows through your organization to create value followed by an assessment of specific critical systems, data elements and related controls. The benefits of improved data quality include the availability of accurate information for decision-making, a reduced risk of transmitting poor quality data to external stakeholders, consolidation of some data repositories and decreased complexity of systems integration.

• Implement and enforce policies around the use of web services in virtually all systems integration efforts. Pilot web services in relatively low-risk projects now.

• Consider portals as a relatively low-cost and short term means of presenting a comprehensive view of personalized, contextual corporate information to internal and external stakeholders while using consolidation to end the massive waste and confusion caused by your myriad websites.

• Policy-based network resource management is another short-term alternative which can be addressed. Too many organizations just load on more bandwidth to deal with their network issues rather than focusing on the uneven quality of service required by different applications.

This list is not intended to be comprehensive and, as recommended above, the sequence and alignment of your approach is absolutely critical. Wise initial project selections will ensure alignment to strategy, objectives as well as short term payback. Summary and Conclusion While the potential benefits of becoming an extended enterprise are massive, the only way to ensure success is to approach its development in a methodical, project-based fashion. This requires an upfront understanding of the strategy and related processes followed by management commitment, the development and management of appropriate external relationships, ensuring information quality and developing a flexible IT infrastructure. The sequence is critical. The extended enterprise is not about technology. It is about developing an IT infrastructure that supports the extended enterprise strategy and business processes to meets the needs of the employees and external stakeholders. Your IT infrastructure must be viewed as a critical strategic asset and is one of the major components of your foundation for growth.

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