What value proposition does enterprise architecture provide? Three short years ago, the demand for Enterprise Architects was on the decline - leaving many to believe that the days of Enterprise Architecture were over. Currently, digital transformation has uncovered the true value of Enterprise Architecture. With correct Enterprise Architecture Management in place, organizations can build a holistic view of their strategy, processes, information, and IT assets to support the most efficient and secure IT environment.
The KPMG 2017 CIO survey results show that Enterprise Architecture has become the fastest growing, in-demand skill set in technology - up 26% from previous years. This blog series will explain the three areas where Enterprise Architects add value and explore the nine commonly solved use cases.
Enterprise Architects add value in three specific areas: enabling growth, ensuring compliance, and reducing complexity. Companies need to innovate rapidly to stay competitive. Many organizations struggle to adopt key IT trends that carry the potential to increase their market share, including options like microservices, IoT, and cloud migration. These trends can bring considerable value by speeding up times to market, creating new streams of revenue, cutting hardware costs, and reducing costly complexity.
Enterprise Architects are in the best position to help their companies navigate digital transformation – which, if done correctly, could enable their organizations to reduce cost and realize immense profits. Enterprise Architects can place their companies on track to ensure compliance. Take, for example, the European Union General Data Protection Regulation (EU GDPR).
This regulation imposes unprecedented rules on the management of the personal data of the end user. The EU GDPR proposes severe penalties for noncompliance – up to €20 million or 4% of the global annual turnover for the preceding financial year. Enterprise Architects can set the basis for clearly demonstrating GDPR compliance by ensuring all pertinent data is gathered and presented in a well-organized manner.
Finally, IT landscapes often grow uncontrolled. This uninhibited growth results in duplicated systems, generating inconsistent data, over-complexity, and relying on makeshift integrations. Enterprise Architects can tackle these issues head-on by providing a roadmap for managing and reducing complexity, which contributes directly to reducing cost.
Figure 1: The nine key use cases for Enterprise Architects.
Overview of use case
Corporate and private equity executives foresee an acceleration of merger and acquisition (M&A) activity in 2018, both in the number of deals and the size of the transactions. If Mergers & Acquisitions remain on-trend, close to $5 trillion will be invested worldwide.
Research by Deloitte shows that almost 30% of post-merger integrations did not have the expected success. M&As often fail because the organizations involved are incapable of successfully integrating with each other, or are unable to realize the anticipated synergies. IT integrations fail for a wide range of reasons. The challenges for a successful IT integration following a merger are vast: two companies have to unify and transform their IT while keeping the business running. Varying technology objects, technology standards, and processes must be unified.
How EA and LeanIX can help
Mergers have different initial situations. Sometimes, a large company swallows a smaller one; sometimes the merger takes place between equals. The aim can be to conquer new geographic markets or gain technical capabilities. In each of the aforementioned scenarios, Enterprise Architecture can play a crucial role in making the IT integration successful. Enterprise Architecture helps consolidate locations, helps rationalize applications, and provides the basis to select the best applications for a shared target IT landscape. This allows organizations to utilize synergies, realize savings, and strategically align their business going forward. Creating synergy between two IT departments contributes to the long-term success of a merger.
Business capabilities and user groups
One of the core views of Enterprise Architecture is a business capability matrix. Business capabilities are core elements that structure a company according to its activities. During a merger, capability maps can help define activities that need to be fulfilled independently of processes and organizations. Capability maps assign applications to user groups and business capabilities even if the organizational structures and procedures of the two companies are very different from each other, which is very beneficial in organizing M&As. This overarching view of applications and their contributing business value makes it possible to assess redundancies and gaps in IT support in both dimensions - functional and usage.
Record initial state of IT Landscapes
During an M&A, recording the initial state of both IT landscapes is critical. LeanIX helps you to answer essential structural questions, including the following:
• What systems of record does each company have?
• Where are which master data stored?
• What are the locations of each supporting data center?
Use LeanIX workflows, such as the Survey Add-on, to gather all of this information and save it in the LeanIX repository. LeanIX’ software serves as a strong, referenceable, accessible single repository of truth. Assess different target application landscapes Enterprise Architects help to plan the optimum target landscape. Should one IT landscape be absorbed? Should we cherry-pick the top-performing applications of both companies’ IT landscapes? To support this decision, Enterprise Architects may use LeanIX’ software to run an elaborate analysis of the functional and technical fit of each application and to propose a solution from concrete data.
LeanIX customer Helvetia was able to reduce redundancies and realize substantial savings in the merger with Nationale Swiss. In its half-year report, Helvetia reported IT as a major contributor to these savings. The establishment of transparency was a crucial first step toward doing so. Today, the established LeanIX inventory serves as the single source of truth that strategic IT management decisions are based upon. The following illustration shows an exemplary overview of a target portfolio.
Figure 2: LeanIX Application Portfolio Report
As the business side primarily focuses on driving economic growth, it often overlooks the need to align the supporting IT landscape. Consequently, various applications are often introduced at different points in time when requested by different teams. What the business side fails to notice is that having an IT landscape full of applications with overlapping functionality, different lifecycles, and redundant technologies often results in significant integration issues and business-wide inefficiencies. Running a complex, rigid IT ecosystem increases IT spend by hundreds of millions of dollars, while directly decreasing the quality of service and satisfaction of those who rely on it.
LeanIX internal research indicates that large enterprises (with >€1 billion annual revenue) have an average of 650 applications deployed at one time. The 10% of largest companies have a staggering average of 3400 applications deployed simultaneously. Currently, 75- 80% of IT budgets are spent on operating legacy systems and managing applications.
Not all of these applications are mission-critical. To stay abreast of current innovative trends, provide first-class customer service, reduce cost, and scale globally, enterprises benefit from having a thoroughly rationalized application landscape. While application rationalization endeavors require an initial investment, the savings greatly outweigh the initial investment. Infosys reports that application rationalization can lead to the cost-saving of more than US $2 million in a single enterprise.
According to a study by Capgemini, 48% of CIOs believe that there are more applications in their portfolio than the business actually requires. While the business side approves the purchase of applications left and right, Enterprise Architects can embark upon optimizing the application portfolio.
First, Enterprise Architects can capture all key information about all deployed applications and load them into the LeanIX software. From this organized view of the entire inventory of applications and their direct business value, Enterprise Architects can set the scope of the application rationalization project and prioritize it, e.g., starting with a specific core process or one entire business unit, depending upon the operating model of their company.
From there, Enterprise Architects can use the application matrix and application rationalization surveys from LeanIX software to quickly assess the usefulness of applications and make data-driven recommendations on which applications to tolerate, invest in, migrate, or eliminate (TIME method).
Finally, Enterprise Architects will have the information to plan a roadmap to implement the rationalization project through consecutive decommissioning projects. This roadmap can also be used as a future standard to use as a bargaining tool to decide whether new applications are necessary or not.
Fast facts about potential savings from application rationalization:
• License optimization results in 30% savings on licensing costs.
• Over 20% of applications are unused and can be retired.
• At least 10% of IT project cost can be avoided by project rationalization.
• Operational support cost can be reduced by 20%.
• Vendor consolidation can reduce the TCO of applications by 22-28%.
Case Study: Over the years, NORMA Group, a recognized leader in engineered joining technology solutions, has acquired more than 13 companies with no standard IT integration plan for their IT landscape. As a result, their application landscape grew more complex and redundant. In 2014, the management board of NRMA Group decided to harmonize business and technology on a global scale to prepare for further growth. After loading all of their information into LeanIX software, NORMA realized that they had incredible redundancies on their IT landscape.
NORMA is now in the process of moving to a standardized global portfolio and has consolidated ERP solutions. Application rationalization has uncovered an enormous saving potential. NORMA Group credits their quick results to the ease of use and guided implementation from LeanIX. The below report shows the LeanIX Application Matrix, a great way to start any redundancy analysis.
Read the full Success Story here »