The $3,9 Trillion Dollar Challenge: How Enterprise Architecture Improves the Quality of IT Investment Decisions
$3,9 Trillion dollar. That’s an enormous amount of money. You might wonder where all this money goes? This is the amount that companies and consumers worldwide expect to spend on IT in 2020, according to research firm Gartner. However, companies do not spend this money just like that. Before they do that, they make decisions about what they spend, why, when and how. Let me give you some examples of IT decisions: are we going to invest in digitizing our customer service? When are we going to replace our logistics system and what investment is needed? What projects are needed in the context of our digital transformation? Where do we want to apply artificial intelligence?
An important decision is whether or not to start a large IT project. Before the management of a company approves such a project, it wants to know what the project will cost, what it will deliver, when it will be ready, etcetera. Such an IT investment decision is difficult and risky. IT projects regularly fail. Look at the headlines.
According to the Standish group, which is a research firm that researches IT projects, in 2017 only 33% of the projects were successful, 19% failed and 48% were challenged, which means that there was something wrong with these projects in terms of time, money or customer satisfaction. For all these projects a decision was made to start them. The question is what we can do to improve these IT investment decisions, so that we get more successful projects.
In my case, I investigated how enterprise architecture (EA) can help. My research question is: how can enterprise architecture be used as an instrument to improve IT decisions?
But you will probably wonder: what is EA? I’m going to try to explain it by drawing a parallel with urban planning. What you see on the figure is the so-called Merwedekanaal area in Utrecht, the Netherlands, and my hometown.
This is a former defence site, once used by the Dutch army. There are now plans to redevelop the area from a vision of healthy, urban living. Together with other disciplines and interested parties, urban planners developed concepts and designs. You can imagine that when redeveloping such an area, many choices have to be made, such as the destination, how to finance the development, how to connect to the infrastructural facilities of the city, how to connect to all other plans of the municipality of Utrecht, etcetera. Various plans have been made for this purpose, such as an environmental vision, a zoning plan and an urban development plan. These plans make it possible to make well-considered investment decisions about the development of this area. Urban planning is an indispensable discipline in this respect. An urban planner carries out research into the existing and new urban areas, designs the public space, and draws up principles and rules for building. It is unthinkable that such an area could be redeveloped without the involvement of the urban planner. Surely it would be crazy to simply start building a shopping centre anywhere in this area?
You can compare the redevelopment of the Merwedekanaal area with a change in the strategy of a company. Let me give you an example: a bank wants to proactively make offers to its customers on the basis of their payment behaviour. It would be crazy to just start building an IT system. A plan is needed for the management of this bank to make a well-considered decision about this change of strategy. This plan should make clear what the bank wants to achieve with the strategy change, how to finance this change, which changes in processes and IT systems are needed, which organisational changes are needed, what the privacy consequences are etcetera. EA, just like urban planning, should be an indispensable discipline when drawing up such a plan. After all, enterprise architects such as myself, do research into existing and new processes and IT systems, design them and draw up principles and rules for their construction. Enterprise architects are therefore a kind of urban planners of their company.
Unlike urban planning, EA is not yet generally accepted as a discipline that is indispensable in large transformations. One explanation is that the profession is not that mature compared to urban planning, and that enterprise architects are not always seen as advisors to management. Another explanation is that it is not so easy to translate principles and diagrams into useful insights for decision-makers. That is the reason I started to research how EA can improve IT decisions, and in particular IT investment decisions. In 2019 I received my PhD based on this research.
One the most interesting results of my research is published in the JSS article. In this study I wanted to find out how EA can improve the quality of IT investment decisions. A quantitative research approach was chosen, in which data were collected from a survey of 142 participants. These data were used to perform a comparative analysis between top and bottom quartile organizations on 1) the EA maturity, 2) the use of EA artifacts in the preparation of IT investments, and 3) the key insights that EA provides in preparation of IT investments.
The study reveals that top quartile organizations (organizations with the highest quality outcomes of their IT investment decisions) apply EA differently compared to bottom quartile organizations (organizations with the smallest quality outcomes of their IT investment decisions). What distinguishes these former organizations from the latter, is a higher EA maturity on all EA maturity areas. Furthermore, top quartile organizations make more use of EA artifacts in the preparation of IT investment decisions, in particular heat maps, policies, roadmaps, business capability models and landscape diagrams. In these organizations EA artifacts are not limited to artifacts that only provide insight and oversight but have evolved to more diagnostic and actionable EA artifacts. Heatmaps and roadmaps are typical examples of diagnostic respectively actionable EA artifacts. A heatmap shows which business capabilities need to be redesigned by means of colours. A roadmap shows which steps need to be taken to realize a design. The figure (taken from the JSS article) shows the differences between top and bottom quartile organizations with regard to the EA artifacts that these organizations use in the preparation of IT investment decision
It is also in the top quartile organizations where the EA function provides more strategic insights during the preparation of IT investment decisions, especially whether IT investments fit with the business strategy, the relationship with future and past investments and the risks of IT investments.
These findings are important given the large amounts invested in IT and the risks associated with these investments. The right EA approach can help organizations to become more successful in their IT investments. With my research, I wish to help enterprise architects get more and better involved in IT investment decisions, resulting in more successful IT projects. So that in the end the 3,9 trillion dollars is better spent.
Read the full paper at the Journal of Systems and Software.
