EA Business Value Metrics You Must Have Today

23 January 2013 ID:G00247593
Analyst(s): Betsy Burton

VIEW SUMMARY

A top challenge for EA practitioners is demonstrating the business value of enterprise architecture, but less than 44% of EA practitioners have any defined metrics. Here, we explore how to determine the business impacts driving EA efforts, and how to use them to demonstrate the business value of EA.

Overview

Key Findings

  • No single business value statement or calculation will work for all organizations, but metrics can be developed for any organization.
  • Leading enterprise architecture (EA) programs measure EA in terms of business outcomes.
  • Lagging EA programs must move from thinking of "business value" in terms of EA activities to measuring value in terms of business outcomes.

Recommendations

EA practitioners:

  • Focus business value metrics on EA's short-term impact on the ability to run the business, and EA's long-term effect on the ability to grow and transform the business.
  • Develop metrics that: (1) reflect the business strategy and direction; (2) resonate with senior management; and (3) show a line of sight between business vision and change.
  • Work with other strategic planning efforts (including performance management) to determine, and approve, key business value metrics.

Table of Contents

Analysis

EA practitioners must communicate and demonstrate the value of EA by focusing on the metrics that matter to senior executives. This means focusing on how EA enables the organization to meet business outcomes — not by focusing on EA activities. Therefore, architects must focus their EA efforts, deliverables and investments on key strategic business initiatives and business outcomes.

Most organizations are focused more than ever on ensuring that any investment expenditure is delivering business value, including enterprise architecture. In a Gartner survey, 48% of EA practitioners1 stated that one of their top three challenges is "How do EA practitioners engage upper management to support/continue supporting the EA program in order to achieve the full value from the program and deliver this value to all stakeholders?"

The issue, however, is that many organizations approach assessing and assigning "value" to EA as if it were a project, such as data center consolidation, virtualization or IT modernization. As a result, they mistakenly look for a calculation of project return on investment (ROI), or look at it as a technology investment, using the total cost of ownership (TCO).

Although some of these practices can be employed for specific activities within EA, they are less appropriate for assessing the long-term value and impact from EA as a strategic-planning and business change discipline. As a result, many organizations do not understand the business value of EA efforts and investments, and senior executives may even come to view EA efforts as a "discretionary" discipline (see "Architects Must Proactively Manage Stakeholders' Perceptions of Enterprise Architecture").

Today, less than 44% of organizations2 are defining key metrics associated with their EA efforts. So, how should enterprise architects determine and clearly communicate the business value of EA? EA practitioners must focus on and communicate the business value of EA, based on the bottom-line impact to the business, not on the operations or activities of "doing EA."

Determining the Business Value of EA

No single business value statement or calculation will work for all organizations. Enterprise architecture is about ensuring that the organization is supporting the right IT and business investments to respond to business disruptions and evolve toward a future-state vision. For EA practitioners to communicate the business value of EA to senior executives, they must focus on how EA efforts impact the business (that is, reduce risk and increase business revenue, quality of service, responsiveness and business opportunity — see "Guide for Determining EA Business Value"). EA practitioners must figure out how to align EA to strategic business initiatives, and how EA helps to run, grow and transform the business (see Figure 1).

Figure 1. Aligning EA to Strategic Business Initiatives
Figure 1.Aligning EA to Strategic Business Initiatives

Source: Gartner (January 2013)

However, several aspects highly depend on the business strategy, which architects should consider when mapping or linking EA to business outcomes. These include:

  1. The relative focus on strategic business initiatives — that is, the degree to which the business is focused on running, growing and/or transforming
  2. The capabilities of EA, given the business strategy, future vision and maturity
  3. The business outcome and value statements that reflect the business's direction and strategy
  4. Potential metrics (target results) that are derived from business key performance indicators

For their own knowledge, EA practitioners must track and measure their own activities (EA maturity assessments, stakeholder surveys, projects and deliverables) to ensure that they are progressing EA. However, these metrics mean little to senior executives. When communicating the value of EA to senior executives, EA practitioners must focus on how they have contributed to business outcomes that senior executives care about.

Understanding the Impact of EA on Business Value

Here, we provide examples of how organizations can define metrics that directly link to strategic business initiatives, EA deliverables, business value and metrics. Many of these metrics come from the Gartner Business Value Model (see "The Gartner Business Value Model: A Framework for Measuring Business Performance"), which is designed to enable executives to discuss and agree on an appropriate set of metrics to show how performance of different operational areas impacts the different business goals and, ultimately, financial performance.

It is important to recognize the role of EA is to provide guidance and advice to change projects, but the business outcomes are achieved by the change projects rather than by EA. Enterprise architects must position their impact on the business outcomes in terms of their influence on which change projects are initiated, and how change projects are directed. The impact of EA on business outcomes is indirect, and to take direct credit for positive outcomes would be to misrepresent the role of EA. The critical aspect here is to communicate and articulate EA in terms that senior managers will understand and appreciate (for example, performance metrics for business outcomes). We've categorized these examples as running, growing or transforming the business.

Run the Business

1. Maximize the Efficiency and Effectiveness of Business Operations

In addition to supporting short- and long-term business strategies, EA efforts should be used on a regular basis to inform and support tactical business operations. This does not mean that EA practitioners should be refocused on these tactical operations. In fact, chief architects need to ensure that EA efforts are primarily focused on leading business and IT transformation toward a future state and addressing the disruptions (positive and negative) that are affecting the business (see "Toolkit: Determine Your Business Vision for EA"). However, in this process of doing EA well, architects will create enabling, diagnostic and actionable deliverables that should be socialized and available across the organization and should be used by others to support operational architecture, program architecture and project architecture decisions. This guidance and deliverables enable the organization to lower the risk and shorten the time required to execute the business strategy, while responding to tactical and opportunistic events.

For example, we spoke with a regional government organization in Canada that was facing short-term cost-cutting and cost optimization issues. It used the EA guidance (diagnostic and actionable deliverables) to help the business make critical operational decisions, while still evolving toward a future state (see "Use EA Business-Outcome-Driven Analysis to Identify Cost Optimization Opportunities"). In this case, the business value of EA is that it empowered business and IT leaders to work together to make short-term decisions about standardizing on common business processes and reducing redundant document management systems, while still understanding how the future-state vision will need to change, given operational changes.

Metrics: Metrics may include reduced operating costs, increased process efficiency or reduced event response index (a measurement of the time it takes for the business to respond to a given event or opportunity).

2. Reduce Business Operating Risks by Facilitating Business and IT Alignment

In our surveys at conferences and our discussions with clients, less than 33% of organizations have a clear understanding of their business strategies.3 Based on client inquiries, we believe this is because the business strategy has not been clearly defined by senior management, and/or because the business strategy has not been well-communicated across and throughout the organization. EA often becomes the catalyst and process for clearly documenting the business strategy within the enterprise context (see "EA Must Include Defining Your Enterprise Context").

We spoke with a large pharmaceutical organization that had completed a series of acquisitions. It struggled to determine how the business should operate globally in the future and, in turn, how business processes should change, which applications should be standardized and how critical customer information should be shared. The EA team articulated the business strategy as stated by the senior executives, and worked with business and IT leaders to detail the implications, constraints, risks and interdependencies of the high-level management statements. This work was then used to create diagnostic and actionable deliverables to guide decision making and, ultimately, initiate business and IT projects that were in direct support of the business strategy and direction.

Metrics: The operational metrics used to demonstrate the business value of EA in this case would be highly dependent on the business strategy. However, as an example, they could be R&D projects initiated, customer order fill rates or cash-to-cash cycle times.

3. Increase the Ability to Identify Business Opportunities With Maximum Impact

One of the most common questions and issues that we hear from business and IT leaders is, "How can we better align business and IT?" In reality, this question is missing the point, because it reflects a focus on aligning two independent efforts or groups. The real issue is, "How can organizations break down the barrier between the business and IT so that they can work together toward common strategic and operational goals?" Because EA is about leading strategic business and IT change, it can become the ideal process for increasing business and IT collaboration.

By creating teams from the business, IT and EA to work on different EA efforts, organizations can start to achieve collaboration, with clear business-driven goals and outcomes. In most successful EA efforts (see "Enterprise Architecture Leaders Focus on Business Impact"), EA practitioners typically consist of business and IT people working together on virtual and formal teams. These teams may work together on the creation of specific EA deliverables and on idea generation, including brainstorming sessions, interviews, scenario planning, and identification of risks and opportunities. This collaboration, focused on a strategic future-state business vision, can result in improved strategic planning, as well as have a profound impact on employee morale and on building cross-organizational social networks and relationships that may affect projects into the future (see "The Future of EA in 2020; EA Is Integral to Strategic Planning").

In this case, the business value of EA can be harder to quantify using traditional accounting metrics (which are lagging indicators), because this affects the degree of collaboration and communication. However, one international construction company we spoke with leveraged its EA work to understand how different groups of people worked (that is, their social networks, collaboration styles, and undocumented and dynamic business processes) to create new workplace tools that increased the quality of their work and decreased project times.

Metrics: Depending on the scope of EA (as driven by the business vision), metrics could include the results of collaborative efforts, such as a time-to-market index, product quality index or customer satisfaction index. In addition, it is important to consider doing surveys with business and IT people, regarding each team's responsiveness, understanding and cooperation.

Grow the Business

1. Maximize Business Impact and Reduce Risk From Investments

The increased use of new processes and technologies by business groups and individuals may introduce great opportunities for innovation and increased efficiencies. However, it may also increase the risk of technologies running amok, incongruent processes, security issues and additional management costs. Clearly, the growth in consumer technologies, software as a service (SaaS) and increased user skills are among the big factors that have led to increased diversity of processes and technologies in the business. The reality is that architecture teams cannot expect that they can just direct or control business and IT users or teams, but rather, these users must be "engaged" and "supported."

One healthcare provider is using EA diagnostic and actionable deliverables to provide guidance to the business to choose technologies, information, people and processes to support its needs, while also enabling the business overall to continue to focus on business outcomes and the business future state. The chief architect leads a business and IT innovation team that is focused on enabling the organization to maximize the impact of the business and individuals by enabling them to use the processes and technologies they need, while also managing any risks associated with security, unmanaged systems and incompatibility.

Metrics: Depending on the scope and focus of EA, metrics (from the Gartner Business Value Model) could include response-time index, client or patient care index, and sales opportunity index. As we mentioned above, this could also benefit from surveys of business leaders and users.

2. Maximize Business Growth Resulting From Strategic Business Change

For both strategic and tactical decisions, EA delivers the actionable and diagnostic deliverables (business, people, processes, information and technology) to understand the ripple effect of potential and actual changes, and helps to identify the diversity of areas that should be considered. Too often, during business changes (through partnerships, acquisitions or organic growth), organizations focus on just one aspect of the business (for example, technology or process) and don't consider the other architectural perspectives and areas that may have an effect and may be impacted by changes.

We recently spoke with a financial services organization that had gone through a workforce reduction but had not taken some of the critical steps to reduce infrastructure (telecommunications and software license fees) that would enable it to reap the full monetary impact of these changes. In this case, the business value of EA can be measured as the influencing factor that led to investments saved.

In another case, we worked with a large manufacturing organization that was focused on growing its business by investing in several new products and services, while also not eroding its current business. The company leveraged EA deliverables (such as business capability models) to understand the potential residual costs (such as reduced efficiency, decreased product quality and degraded customer service) that would result from changes to business processes. It knew that it had no choice but to go ahead and make decisions out of business survival; however, the value of EA is that the impact of these decisions can be understood, and either managed or mitigated.

In this case, the business value of EA is measured by its ability to help the organization to understand the diversity of areas (for example, business, people, processes, information and technology) when making a change, and to understand and respond to the ripple effects of change decisions on these diverse areas.

Metrics: Metrics could include asset utilization, conversion cost index and cash-to-cash cycle time.

3. Maximize Capital Efficiency and Effectiveness by Reducing Evaluation Processes

One of the most time-consuming parts of delivering any project, whether business or IT, is narrowing down from a plethora of options (products, processes, technologies and information). This part of a project may include testing different applications or technologies, assessing vendor demonstrations, exploring different sets of information, and so on. Today, we find EA practitioners have a significant impact on technology decisions, particularly for emerging technologies, applications and services (see "EA Practitioners Have Significant Influence on $1.1 Trillion in Enterprise IT Spend").

EA can help to simplify the decision-making process by narrowing down the diversity of options with business and IT teams, based on a longer-term strategic view and a focus on business outcomes. In many cases, this should not be EA practitioners dictating standards, but rather, EA practitioners providing diagnostic deliverables to shortlist options, based on support for the future-state vision (technologies, services, processes and people).

Even for projects and efforts outside the scope of an EA effort, EA can provide reference models that different parts of the business can use. In this case, the business value of EA is that it can help shorten evaluation cycles, which can be measured based on saved resources (for example, people's salaries, focus, travel and time), as well as reduce the risk.

Metrics: Metrics may include evaluations of supplier on-time delivery, agreement effectiveness or new-project index.

Transform the Business

1. Maximize the Revenue and Impact, Based on Business Goals and Objectives

The core business value of supporting EA is to help the organization transform its business toward a future-state business direction and strategy. This means focusing on and measuring the impact on achievable business goals, which may be part of a longer-term business evolution. For most companies that have any vision to grow or transform the business, this is one of the most critical business value areas.

For example, one regional insurance provider we worked with was being affected by economic pressures. As a result, it was faced with transforming its business strategy from expanding into new markets, to focusing on increasing revenue from its current customer base. The company's goal was to increase product sales by 5% by selling a broader product portfolio into the existing customer base. This means that the business must focus on developing deeper, more-profitable relationships with customers and offering products that are attractive to that customer base. The business outcomes that the EA efforts may focus on would be:

  • Increasing the quality of customer data by 15% in three months
  • Increasing access to product specification, collateral and pricing information by 50% across the business within six months
  • Improving the quality of customer care by 10% with improved customer service training, and increased response times of customer-facing applications

EA efforts must be focused and scoped to help this company reach its goal by increasing customer intimacy. EA enables the business and IT to evolve their people, processes, investments, information and technologies to:

  • Increase the accessibility and shareability of customer data across all lines of business, regardless of the product relationship to the customer
  • Increase the consistency and level of customer responsiveness of any business processes that directly touch or are used by customers
  • Develop the skills and rewards to encourage any employees and partners who serve customers to focus on customer service and sell deeper into the customer base
  • Provide new applications, tools and technologies that are focused on improving customer service and relationships, and helping to sell

EA, in conjunction with solid business and IT strategies, can be used to demonstrate a direct line of sight between business strategy and direction and specific change requirements, and have the appropriate requirements, principles and models (see Figure 2).

With this type of mapping, senior executives can define EA performance metrics that demonstrate the impact and value that EA provides.

Figure 2. Example Line of Sight Between Business Strategies and Requirements
Figure 2.Example Line of Sight Between Business Strategies and Requirements

Source: Gartner (January 2013)

Metrics: For example, in the case shown in Figure 2, a company leader might track a "customer retention index" or "average customer adoption of product portfolio index" (see the Gartner Business Value Model), as well as a "customer information quality index" (for example, the measure of accurate, accessible and usable customer data). Clearly, many other factors influence some of these metrics, such as product marketing, sales investments and market trends. However, by looking at the relationship between business-level metrics and EA-specific metrics, senior executives can get a better understanding of the impact and value of investments in EA.

2. Maximize Long-Term Business Growth by Supporting Scenario Planning

EA provides a foundation for exploring different business scenarios. By defining your enterprise context, including future-state anchor models, senior managers can use EA diagnostic deliverables to explore different business models and strategies (see "Eight Business Capability Modeling Best Practices Enhance Business and IT Collaboration"). In addition, EA practitioners can enable business and IT leaders to understand and explore the ripple effects of these scenarios on business, information, solution and technology perspectives.

We worked with a large nonprofit that was changing its strategy and operations to fight poverty through economic means, as well as through providing resources (food, water and shelter). In this case, the business value of EA was realized in its ability to explore business options and understand the potential impact of these changes on its business operations. The value of EA can be measured, in part, based on its success in positively impacting economies, as well as on improving its ability to provide resources to communities in need.

Metrics: Depending on the focus and scope of EA, metrics may include the transformation ratio, local economic growth rates or poverty index.

Bottom Line

  • EA practitioners must realize that no single business value statement or calculation will work for all organizations. Moreover, they must realize that the most effective metrics are those that: (1) reflect the business strategy and direction; (2) resonate with senior management; and (3) show a line of sight between business vision and change.
  • EA practitioners must demonstrate the value of EA, based on delivery of business outcomes focused on running, growing and/or transforming the business.
  • EA practitioners must also work with other strategic planning efforts (including performance management) to determine correlating metrics.

Evidence

1 Gartner conducted this survey in May and July 2012 of 134 attendees of Gartner's EA Summits in London and the U.S., as well as attendees of Gartner's webinar on EA best practices, which asked, "What are the top three challenges your organization has had with EA over the past year?"

2 Gartner conducted this survey in August 2011 with 360 participants, which asked, "Does your organization currently have a formal EA measurement program in place?"

3 Gartner conducted this survey in August 2011 with 360 participants, which asked, "Which of the following best describes your organization's business strategy?"