Times are tough. So tough, many are slashing important spending in Enterprise Architecture. For example, treating IT as a cost center managed in a cost-containment mode means for most they will overlook the truly significant opportunities to improve profitability, leadership, and ultimately brand share that may not come around again. Depending on who you believe, the average company IT spend is anywhere from 5% – 12% (financial services) percent of operating expense or 95% to 87% percent of operating expense that isn’t in IT. I think Howard Rubin’s organization (the benchmark guys) have found organization’s that treat IT spend as an investment and true enabler rather than cost is probably worth anywhere from 2 to 5 percentage points in gross profit depending on the nature and intensity of IT in the business. Furthermore, I remember reading Empirimetric’s analysis during the last recession of 3,000 business units from more than 300 corporations found that operating effectiveness contributes to a company’s financial performance just slightly more than pure dumb luck and random events. A fresh perspective? Maybe; In fact if memory serves me the study revealed that profitability is directly and indirectly influenced by:
– Strategic moves initiated by the business: 10%
– Luck and random events: 10%
– Operating Expense Reductions: 15%
– Market Awareness, Competitive position, Customer Intimacy: 65%
So without sounding a little self-serving, you have to wonder what most of the leadership across industries (and the VC community as well – industry has no monopoly on being clueless) is thinking. Has the “paradox of thrift” or the hollow promises of “financial engineering” permeated everyone’s thinking? What can we do as pragmatic enterprise architects to help? And reinforce our true value proposition when the financial engineers begin slashing and burning? Maybe a good place to start is to begin thinking in business terms about some very real challenges our peers are addressing right now. For example, others have demonstrated:
– Up to 50% of existing customer relationships are not profitable.
– A 5% increase in retention can increase profits 60-100%.
– It costs 7-10 times as much to acquire a new customer as it does to retain existing customers.
– Long-term customers buy more, take less of a company’s time, and are less sensitive to price.
– Fortune 500 companies typically turn over (lose) over 50% of their customers every 5 years
– The average company communicates 4 times per year with its customers and 6 times per year with its prospects (you have to love this one <g>).
As architects we can add real value to solve for these issues by gaining an acute understanding of what it takes to enable actionable results – beginning with key organizing principals (framework) to guide decisions from funding to widespread adoption. For example,
– We can identify unprofitable customers, products, segments through robust analytics
– Improve delivery capacity (utilization, planned vs. unplanned) by enabling a more effective understanding of the portfolio of goods and services as delivered across organization boundaries
– Help the business adopt Time Driven Activity Based Costing to quickly gather and model findings
– Enable operating model optimization – shift to more value-added work. Use analytics or MDM to identify opportunities to automate or replace low value-added essential activity (e.g.; hunting and gathering data points, duplicate validation and verification of data values) and measure progress to plan as action is taken.
– Improve Process cycle velocity. Identify unnecessary latency, waste, rework in work streams and reengineer or eliminate altogether.
These are a few examples where the applied architecture makes sense; business sense. For those of us in architecture management we have a responsibility in our role is to ensure technology investment and widespread adoption within the organization occurs because:
– The investment has value,
– The program (projects) will be properly managed,
– The organization has the capability to deliver the benefits,
– Dedicated resources are working on the highest value opportunities,
– Projects with inter-dependencies are undertaken in the optimum sequence.
Will explore some real world examples in the coming weeks, and welcome your thoughts and comments on this important and urgent need.