Why does enterprise architecture have to be so complex?

Why does enterprise architecture have to be so complex?

This is simply because most enterprises are themselves inherently complex, and this unavoidable reality needs to be reflected in their business operating models. As we have explained in a recent blog, (Oversimplification: The Hidden Risk in Enterprise Architecture Communication), oversimplification of business models can lead to poor decision making. Several factors contribute to organisational complexity, and as part of our series of blogs on complexity, we will discuss these factors and explore possible ways of dealing with them.

Causes of Organisational Complexity

The first major cause of complexity is the fragmented nature of most modern organisations, a consequence of what we term the service-based economy. To understand this problem, let’s consider the traditional view of a manufacturing business that is encapsulated in the high level value chain diagram first described by Harvard Professor Michael E Porter in his 1985 book “Competitive Advantage: Creating and Sustaining Superior Performance”:

 

The way this business model is typically reflected in the design of an enterprise resource planning (ERP) system assumes that the management board has direct control of the entire value chain. All too often this is not the case, as the following example illustrates.

Case Study

Many years ago, as management consultants, we were asked to help a chemical company design and implement a linked set of sales order processing, product distribution and accounts receivable processes supported by modules of a well-known ERP package solution. The benefits of having a fully integrated system were evident: clear view of the progress of a customer order from its arrival through to its fulfilment, zero chance of errors in data transmission from one business process to another, and consistent and reliable information for reporting purposes across the relevant business functions.

Unfortunately, at an advanced stage of the project the firm’s executive board announced a decision to outsource all of the distribution and warehousing activities to an external logistics company in order to reduce costs. In terms of direct control, a hole had appeared in the Porter diagram. At a stroke the benefits of vertical integration had been lost. It was now necessary to agree data standards and design interfaces with the logistics company to handle operational data flowing to and from the outsourcer’s business. We also had to negotiate the provision of timely information to enable order tracking and management reporting. This inevitably involved compromises, because the logistics firm had existing service obligations to its other customers.

The Service-Based Economy

In reality, we were having to cope with the impacts of what has become a common feature of organisational development: the move to a service-based economy. Functions that organisations traditionally managed in house are increasingly handled by external specialised companies. As our example shows, a trend that began a long time ago with peripheral activities such as staff catering services and office cleaning, and then moved on to outsourced IT support, now increasingly encompasses core business functions.

Within the service-based economy the control of an enterprise involves the coordination of business activities, the direct management of which is dispersed. This can only be achieved by the partner organisations having strong, joint governance mechanisms and an agreed sharing of critical information on both the state and the performance of the operating model of the wider enterprise. Effective operation of such businesses thus requires a coordination process, achieved not through a single management structure and the use of an integrated, enterprise-wide system, but by strong, joint governance mechanisms backed up with reliable, shared information.

Why Enterprise Architecture is Crucial

Operational performance data is obviously needed to support such governance mechanisms, but crucial information will also be the shared knowledge of the enterprise architecture that defines the structure, processes and supporting systems of the combined business operation. Access to the details of this architecture will be particularly valuable if, at some future date, a company wishes to transfer a set of outsourced services to another supplier, or if it decides to bring those services back in house. Failure to retain and maintain this information could prove very costly in the longer term.

Useful Links

Oversimplification: The Hidden Risk in Enterprise Architecture Communication

How Essential helps Enterprise Architects avoid the Oversimplification Trap

The importance of modelling business functions and capabilities, not just business processes

Why Qualitative Enterprise Architecture Data Really Matters

Why Enterprise Architects should guide IT Rationalisation Programmes

Applications to Business Capabilities – Why Essential models via Process