isrc architectingfor agility j.ross

© 2008 MIT Sloan CISR – Ross

Center for Information Systems Research

Jeanne W. Ross Center for Information Systems Research

(CISR) MIT Sloan School of Management

Phone: (617) 253-2348, Fax: (617) 253-4424

[email protected] http://mitsloan.mit.edu/cisr/

University of Houston ISRCFebruary 21, 2008

Architecting AgilityArchitecting Agility

This research was made possible by the support of CISR sponsors and patrons. The research team included Cynthia Beath (University of Texas) and Donna Pitteri and Stephanie Woerner (CISR).



CISR’s Mission• Founded in 1974; CISR has a strong track record

of practice-based research on how firms manage & generate business value from IT

• Research is disseminated via electronic research briefings, working papers, research workshops & exec. ed. programs including http:/ /mitsloan.mit.edu/cisr/education.php

2008 CISR Research ProjectsIT and Business Strategy:

• Achieving Superior Business Value from IT—A Single Framework of What Matters

• Managing IT for Efficiency and Growth• Benchmarking and Building Risk Management

Capabilities*• Business Models*

The Digitized Business:• Distributed Collaboration• Building Innovative Capabilities through IT• Building a Platform for Agility• Enterprise Architecture as Strategy*• IT-Enabled Business Change*

IT Governance and Leadership• Maturing and Globalizing IT Governance• Redefining the CIO; Introducing the SEO• Enhancing Engagement• IT Portfolio Investment Benchmarks, IT Savvy &

Links to Firm Performance*• Strategic Outsourcing*

* Projects previously conducted by MIT CISR that are regularly updated to include new data and publications.

– Boston Consulting Group– BT Group– Diamond Management &

Technology Consultants– Gartner

Contact Information:3 Cambridge Center, NE20-336

Cambridge, MA 02142Ph. 617-253-2348; Fax 617-253-4424

E-mail [email protected]; http://mitsloan.mit.edu/cisr/CISR gratefully acknowledges the support and contributions of its Research Patrons and Sponsors.

MIT

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– Aetna Inc.– Allstate Insurance Co.– AstraZeneca

Pharmaceuticals, LP– BancoABN Amro Real

S.A. (Brazil)– Banco ItaúS.A. (Brazil)– Biogen Idec– BP– Campbell Soup Co.– CareFirst BlueCross

BlueShield– Care USA– Caterpillar, Inc.– Celanese– Chevron Corp.– Chubb & Son– Commonwealth Bank

of Australia– Credit Suisse

(Switzerland)– Det Norske Veritas

(Norway)– Direct Energy – EFD

– Embraer– EmpresaBrasileirade AeronauticaS.A. (Brazil)

– EMC Corp.– ExxonMobil Global

Services Co.– Family Dollar Stores,– Guardian Life

Insurance Co. of America

– HBOS Australia– Hartford Life, Inc.– ING GroepN.V

(Netherlands)– Intel Corporation– Int’l Finance Corp.– Liberty Mutual Group– Marathon Oil Corp.– Mars, Incorporated– Merrill Lynch & Co.,

Inc.– MetLife– Mohegan Sun– News Corporation

– Nissan North America– Nomura Research

Institute, Ltd. (Japan)– PepsiAmericas, Inc.– PepsiCo International– Pfizer Inc.– PFPC, Inc.– Procter & Gamble Co.– Quest Diagnostics– Raytheon Company– Renault (France)– Standard & Poor’s– State Street Corp.– TD Banknorth– Time Warner Cable– Trinity Health– TRW Automotive, Inc.– UnibancoS.A. (Brazil)– United Nations–DESA– VF Corporation– World Bank

– IBM Corporation– Microsoft Corporation– Tata Consultancy Services

Research Patrons

2/15/2008

© 2008 MIT Sloan CISR


Research Sponsors



Definition: the use of existing IT and business process capabilities to rapidly generate new business value while limiting costs and risks.

Agility is the “respond” in “sense and respond.” The key to agility is reuse. Agility leads to profitable growth. The Agility Paradox: more digitized and standardized

business processes and platforms tend to make a company more agile.

A platform for agility (reflected in a mature enterprise architecture) simultaneously enhances a firm’s ability to launch new products, increase efficiency, redesign a business model, and span boundaries.

IT-Enabled Business AgilityIT-Enabled Business AgilityIT-Enabled Business AgilityIT-Enabled Business Agility



How IT Enables (or Inhibits) Business Agility– Limitations of existing IT capabilities– Platforms for agility

The Enterprise Architecture Journey– Four stages of architecture maturity– A case study of Swiss Re– How to increase enterprise architecture maturity—

and agility

The Evolving Role of IT—Meet the SEO Agility Challenges

AgendaAgendaAgendaAgenda



Traditional IT and Process SilosTraditional IT and Process SilosTraditional IT and Process SilosTraditional IT and Process Silos

Technology Platforms

Applications

Data

Corporate DataCorporate Data

Corporate Networks &Infrastructure ServicesCorporate Networks &Infrastructure Services

A Core Process



Technology Platforms

Applications

Data

Corporate Data

Corporate Data

Corporate Networks &Corporate Networks &Infrastructure ServicesInfrastructure ServicesCorporate Networks &Corporate Networks &Infrastructure ServicesInfrastructure Services

Corporate Data

Corporate Data

What IT Looks Like in an Agile FirmWhat IT Looks Like in an Agile FirmWhat IT Looks Like in an Agile FirmWhat IT Looks Like in an Agile Firm

A Core Process



Agility PlatformsAgility PlatformsAgility PlatformsAgility Platforms

Sources of Agility

What’s

Reused

Motivated Experts

Empowered Decision Makers Digitized

Processes

The expertise and commitment of good people

Access to transparent, granular transaction data

Disciplined, IT-enabled process platform



Business Silos

StandardizedTechnology

OptimizedCore

BusinessModularity

StrategicBusinessValue

12% 48% 34% 6% % of Firms

Four Stages of Architecture MaturityFour Stages of Architecture MaturityFour Stages of Architecture MaturityFour Stages of Architecture Maturity

Standardized Enterprise

Processes/Data

StandardInterfaces

and BusinessComponentizatio

n

Enterprise-Wide Technology Standards

Locally Optimal Business Solutions

Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.



Background– Founded in 1863 in Zurich, Switzerland– Business model involves assuming the risks of its key customers

(insurance companies and large corporations) and insuring large assets (bridges, buildings) against catastrophes

– Operates in 90 countries; 95% of 2006 revenues earned outside Switzerland

– Huge losses due to 2001 terrorist attacks, Asian tsunami, Hurricane Katrina resulted in diminished S&P and Moody’s ratings

– Company hires very smart people who enjoy intellectual challenges Needs agility to

– Fully comprehend global risk positions (business model change)– Invest for profitability (demands 13% ROI) with sufficient liquidity

to cover claims (efficiency)– Price contracts based on customer profitability (business model

change)– Respond quickly to new product opportunities (new product)– Enable easy integration of acquisitions (boundary spanning)

The Agility Journey at Swiss ReThe Agility Journey at Swiss ReThe Agility Journey at Swiss ReThe Agility Journey at Swiss Re

Source: “Information and Transformation at Swiss Re: Maximizing Economic Value”, C. Beath and J. Ross, MIT Sloan CISR Working Paper No. 373, Dec. 2007.



How Swiss Re is Building AgilityHow Swiss Re is Building AgilityHow Swiss Re is Building AgilityHow Swiss Re is Building Agility

1990–1995 Introduced technology standardization in North America

1995–1999 Implemented technology standardization globally

1999–2003 Implemented common processes and tools for underwriting and pricing of each product category; changed pricing and underwriting processes

2005–2007 Adopted a global business model standardizing decision criteria for pricing and investing; allowed local decision makers freedom to invest assets or negotiate with customers with clear metric to assess performance

Outcomes to date Improved ratings (S&P, Moody’s) relative to other reinsurers Absorbed GE Insurance Solutions (more than 10% of total business) within a year Adopted global business model without changing any code Achieved internal metric (expected to be reflected in market value long-term) of

outperforming the market on the differential between the market value of assets

and the market value of liabilities

Source: “Information and Transformation at Swiss Re: Maximizing Economic Value”, C. Beath and J. Ross, MIT Sloan CISR Working Paper No. 373, Dec. 2007.



Business demands are driving the evolution of Global ITBusiness demands are driving the evolution of Global IT

Building the Technology Foundation

Harmonization of Business and

Information Solutions

Integration and Unification of Global Operating Platform

Global technology standards

Consolidated data centers

Group-wide knowledge and email platform

Business driven IT governance

Translation of Swiss Re business model into core processes

Delivery of group-wide solutions and information

Transition from legacy processes and legacy systems towards one process/one solution

Availability of integrated operating platform

Scalable and harmonized core processes

Flexible application landscape

Information delivery supporting new business demands

Source: “Growth in the Insurance Industry: A Reinsurer’s Prospective,” Swiss Re Future Focus 2007 Presentation, Y. Zaytsev, September 23-25 2007. Used with permission.

1997

1999

2000

2004

2005 Now



Business Silos


OptimizedCore

BusinessModularity

Architecture Maturity Shifts AgilityArchitecture Maturity Shifts AgilityArchitecture Maturity Shifts AgilityArchitecture Maturity Shifts Agility

GlobalAgility

LocalAgility




Learning Requirements of the Architecture Learning Requirements of the Architecture StagesStagesLearning Requirements of the Architecture Learning Requirements of the Architecture StagesStages

BusinessSilos

Standardized Technology

OptimizedCore

Business Modularity

IT Capability

Local IT applications

Shared technical platforms

Enterprise-wide hardwired processes or databases

Plug & play business process modules

Business Objectives

ROI of local business initiatives

Reduced IT costsCost and quality of business operations

Speed to market; strategic agility

Funding Priorities

Individual applications

Shared infrastructure services

Enterprise applications and data stores

Reusable business process components

Key Management Capability

Technology-enabled change management

Design and update of standards; funding shared services

Core enterprise process definition and measurement

Management of reusable business processes

Who Defines Applications

Local business leaders

IT & business unit leaders

Senior management and process leaders

IT, business and industry leaders

Key IT Governance Issues

Measure and communicate value

Establish local/ regional/global responsibilities

Align project priorities with architecture objectives

Define, source & fund business modules




Architecture Planning and Design Senior executive oversight Enterprise architecture guiding principles Enterprise architecture graphic Process owners Full-time enterprise architecture team

Standards Management Architects on project teams Technology research & adoption process Architecture exception process Formal compliance process Centralized standards team

IT Funding Business cases Centralized funding of enterprise

apps Infrastructure renewal process IT Steering Committee

Project Management Project methodology Post-implementation assessment IT program managers Business leadership of project teams

Enterprise Architecture Management Enterprise Architecture Management CompetenciesCompetenciesEnterprise Architecture Management Enterprise Architecture Management CompetenciesCompetencies

Management practices within each practice set are statistically significantly correlated with each other. All four competencies are significantly correlated with architecture benefits.



Building Competencies in StagesBuilding Competencies in StagesBuilding Competencies in StagesBuilding Competencies in StagesBusiness

SilosStandardizedTechnology

OptimizedCore

BusinessModularity

Business Cases Project Methodology

Architects on Project Teams IT Steering Committee Architecture Exception

Process* Formal Compliance Process* Infrastructure Renewal

Process* Centralized Funding of

Enterprise Applications* Centralized Standards Team

Process Owners* Enterprise Architecture

Guiding Principles* Business Leadership of

Project Teams* Senior Executive Oversight* IT Program Managers

Enterprise Architecture Graphic*

Post-Implementation Assessment*

Technology Research and Adoption Process*

Full-time Enterprise Architecture Team

Architecture Maturity

Legend

Architecture Planning & DesignProject ManagementIT Funding Standards Management

* Items are statistically significantly related to architecture maturity—they are associated with greater value in later stages.

Legend

Architecture Planning & DesignProject ManagementIT Funding Standards Management

* Items are statistically significantly related to architecture maturity—they are associated with greater value in later stages.




Enterprise Architecture Maturity Promotes Enterprise Architecture Maturity Promotes AgilityAgilityEnterprise Architecture Maturity Promotes Enterprise Architecture Maturity Promotes AgilityAgility

1

1.5

2

2.5

3

3.5

4

4.5

5

Business Silos Standardized Technology

Optimized Core Business Modularity

CIO

Rat

ing

of A

gilit

y

Architecture Stage

Business Efficiency Agility (1)

Business Model Agility (2)

New Product Agility

Boundary Spanning Agility (3)

(1) Process improvements and scalability

(2) Process change and organizational redesign

(3) Partnership and acquisition

In a survey of 65 IT executives, all four types of agility were statistically significantly correlated with enterprise architecture maturity.



Senior executive accountable for the definition, design, implementation, and, in some cases, use of a firm’s digitized process platform.

In most organizations, the CIO is assuming this role, shifting the IT organization from enabler to leader.

Definition of the Strategy Execution OfficerDefinition of the Strategy Execution OfficerDefinition of the Strategy Execution OfficerDefinition of the Strategy Execution Officer



The Role of the SEOThe Role of the SEOThe Role of the SEOThe Role of the SEO

Enterprise IT & Process

Governance

(11)

Project Design & Implementation

(10)

Ongoing Operations/ Continuous

Improvement

(4)

Designs Platform

Builds Platform Components

Leverages Platform

Numbers reflect how many of 12 SEOs we studied defined each responsibility.



Ensure clarity among senior executives about platform design.

Coordinate demands for enterprise change projects, most of which involve IT implementations.

Establish priorities for change projects based on multiple criteria:

– Organizational readiness– Contribution to platform– Ability to use platform– Expected benefits

Work with senior executive team which either makes investment decisions or approves SEO recommendations.

Responsibility 1: IT and Process GovernanceResponsibility 1: IT and Process GovernanceResponsibility 1: IT and Process GovernanceResponsibility 1: IT and Process Governance



Ensure disciplined, effective project methodology.

Engage all key stakeholders early and often. Provide expertise on process design. Provide oversight and/or support of change

management.

Responsibility 2: Project Responsibility 2: Project Design/Implementation Design/Implementation Responsibility 2: Project Responsibility 2: Project Design/Implementation Design/Implementation



Provide enterprise services, usually as a shared services organization.

Accept accountability for continuous improvement of the platform.

Ensure that the enterprise is driving value from the platform.

Responsibility 3: Ongoing Operations Responsibility 3: Ongoing Operations Responsibility 3: Ongoing Operations Responsibility 3: Ongoing Operations



Business Silos


OptimizedCore

BusinessModularity

StrategicBusinessValue

Four Stages of Architecture MaturityFour Stages of Architecture MaturityFour Stages of Architecture MaturityFour Stages of Architecture Maturity

Standardized Enterprise

Processes/Data

StandardInterfaces

and BusinessComponentizatio

n

Enterprise-Wide Technology Standards

Locally Optimal Business Solutions

Framework Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Robertson, HBS Press, 2006.



How do we structure the IT unit to support the SEO’s responsibilities?

Who should own the change resources? (Do I need an army?)

Who should fund enterprise projects? (Do I want the budget or just influence over the budget?)

How can we get buy-in to organizational change efforts?

How do we organize to sustain vertical process excellence as we increasingly focus on our horizontal processes?*

Questions SEOs Are AskingQuestions SEOs Are AskingQuestions SEOs Are AskingQuestions SEOs Are Asking

* Architecture maturity was statistically significantly related to a greater reliance on matrixed structures in a survey of 155 CIOs.



Optimizing the whole often means sub-optimizing the parts.

Building momentum requires leaders who demand change.

Building a platform requires managing horizontally as well as vertically (the SEO challenge).

Profitable growth is visible over long-term but intermediate metrics (e.g., speed to market, cost of end-to-end process) require new benchmarks.

Empowerment requires clearly articulated, centrally controlled1 decision criteria while distributing decision making at the organization’s boundaries.

Empowerment is information-dependent.

Challenges to Building Business AgilityChallenges to Building Business AgilityChallenges to Building Business AgilityChallenges to Building Business Agility

1 Centrally controlled can refer to an enterprise, business unit, geography, or function.

isrc architectingfor agility j.ross

Business

enabled business agility

agility journey

agility paradox

architecting agility

business execution

business process capabilities

new business value

switzerland business