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Digital technologies have raised customer expectations for responsive, seamless online services and information-enriched products. Many companies are struggling to meet those expectations and will continue to struggle unless they embrace enterprise architecture.
We define enterprise architecture as the holistic design of people, processes, and technology to execute digitally inspired strategic goals. Every negative customer interaction via a company app, website, telephone call, or service provider exposes your architectural inadequacies. Left unresolved, these issues will destroy formerly great organizations.
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One common architectural problem: Many businesses are designed around product verticals. Those verticals optimize profits and define a customer experience for that specific product independently of the rest of the organization. The digital economy, however, rewards integrated solutions, which require that people work across product lines. To meet these demands, companies must rethink how work gets done and how that work relies on people, processes, and technology.
Although the need for radical redesign is urgent, we don’t recommend that you run out and hire an enterprise architect to identify the gaps in your operations. Unless you have fewer than, say, 50 people in your business, you cannot simply redraw the organizational chart. You will need to evolve into a digital company, addressing the experience challenge without compromising product excellence and innovation. To take advantage of new technologies, you’ll need to become flatter, more evidence-based, more automated, and more digitally aligned both vertically and horizontally. These design changes will allow you to respond faster to both operational problems and new business opportunities.
Three Principles for Organizational Redesign
Enterprise architecture provides a road map for organizational redesign. This will be a long, never-ending ride, so you should get started now. Adopting three enterprise architecture principles — breaking key outcomes into components with designated accountability, empowering cross-functional teams, and allowing business design to influence strategy — will help you embark on your journey.
Principle 1: Enterprise architecture breaks processes and products into components. At the beginning of the current millennium, developing an enterprise architecture meant designing enterprisewide systems and processes. Enterprise architects — often based in IT units — helped executives articulate a target state for the execution of transactions and core business processes. This is a value-adding exercise, but it is no longer enough.
Today, enterprise architecture involves componentizing a company’s key outcomes — products, customer experiences, and core enterprise processes — and assigning clear accountability for each component. In other words, the enterprise architecture designs an organization’s critical people-process-technology bundles in a way that facilitates both operational excellence and adaptability to change.
For example, in many companies, payment processing is built into many different products. Instead of designing payments into each product separately, a single team could design the technology and processes required for payment processing for all products. That turns payment processing into one of these people-process-technology bundles, which is a reusable component. Staff members can continually improve processes and technologies in response to the changing needs of the customers and product owners who are the components’ stakeholders. The component becomes a living asset in the company.
Early research findings indicate that componentization helps organizations use data more effectively and respond to business opportunities faster. Decomposing a business into components, however, is not easy. It’s a very different way of thinking about how work gets done. In addition, extracting reusable components from existing processes is a delicate operation.
The long time horizon should not be discouraging, however. Each new component adds value when implemented. Companies can stage the development of new components when it’s clear that they will create value.
Principle 2: Empowered cross-functional teams implement enterprise architecture. Creating people-process-technology bundles represents a dramatic shift from traditional management approaches in which IT people design and manage systems, functional leaders design and manage processes, and business unit managers design roles and manage people. For this new model to work, employees must be empowered with responsibility for the processes and technology within each component.
The leadership task becomes one of formulating teams and then coaching team members to help clarify their missions, establish meaningful metrics, and design experiments to test innovations. Team members define their goals. Leaders hold teams accountable for meeting those goals and, just as important, grant them the autonomy to do so.
To fulfill their missions, component teams usually need diverse talent. The enterprise architecture effort thus requires not only componentizing the business but also assigning cross-functional teams of experts to each unit. Staff members need to understand the component’s process and technology requirements, so most teams will need product experts, software developers, and user design specialists. They might also need data scientists, lawyers, finance people, or other specialists. Over time, teams will articulate their own resource requirements.
Principle 3: Enterprise architecture influences strategy. In responding to customer demands, empowered teams naturally identify new opportunities inspired by the capabilities of digital technologies. This creates the third essential principle of enterprise architecture: As component teams address strategic objectives, they simultaneously reformulate strategy based on continuous learning about what customers want and what digital technologies make possible.
In this context, strategy becomes both a top-down and bottom-up exercise. Leaders create new teams (or pivot existing teams) to seize emerging opportunities. When companies fund teams rather than strategic initiatives or systems development projects, those groups can respond almost instantaneously to what digital music service Spotify, for one, refers to as the company’s “bets.” Meanwhile, component teams can restate goals aimed at implementing high-level strategy.
How Enterprise Architecture Guides CarMax
Enterprise architecture charts a path for gradually increasing componentization. Although the process is evolutionary, it can be immediately effective. CarMax offers an example of a company on this journey.
Founded in 1993, CarMax is a $20 billion business created to deliver an exceptional customer experience in an industry known for terrible ones. It is the largest used-car dealer in the U.S., with over 200 stores in 41 states. CarMax’s vision calls for combining online, in-store, and at-home service offerings to ensure a convenient, personalized car-buying experience.
Customer data is CarMax’s business engine, and the implementation of an enterprisewide customer relationship management system to componentize, capture, and manage that data was a major architectural effort. Another key architectural effort was the introduction of empowered product teams. The company introduced its first three teams around 2015 to address what management viewed as an urgent need to improve its online customer experience.
Each of those first teams owned responsibility for one of three missions: descriptions and pictures representing each individual car, online display of those pictures and descriptions, and underlying infrastructure supporting the website. When leaders were able to document the positive results of the efforts of the first three teams, they started identifying additional components and forming other accountable teams.
Today, CarMax has more than 30 empowered teams with accountability for specified components of an omnichannel business model. These teams stick together and pivot (rather than disband) if strategic objectives change. Each team of around seven members includes a product owner, lead developer, and user designer. These cross-functional teams report into CarMax’s two-in-a-box management design, which refers to joint ownership by a product manager and a technology manager for forming, developing, and overseeing the teams. This model extends all the way up to a box shared by the chief marketing officer and CIO.
Senior leaders own responsibility for CarMax’s enterprise architecture, but enterprise architecture thinking permeates the company. During annual and quarterly strategic planning processes, leaders articulate business priorities. Team missions are adapted — and new teams formed — in response to changes in strategy.
Based on the company’s strategic priorities, teams develop quarterly objectives and biweekly goals. CarMax tracks teams’ alignment and progress in biweekly open houses. At these meetings, teams share their objectives and key results in 15-minute time slots and receive feedback from one another and interested leaders. In fulfilling their missions, teams develop insights that influence the strategic planning process. In fact, the company’s embrace of an omnichannel vision was triggered by insights generated by one of the teams. That strategic shift led it to redefine the missions of four teams.
This top-down and bottom-up approach to strategy and strategy execution has not only helped the company formulate an omnichannel vision. It also enabled the business to respond rapidly to the demands of the COVID-19 pandemic: Leveraging its componentized architecture, the company needed just two weeks to roll out CarMax Curbside, a contactless buying experience.
Start Small but Get Started
CarMax’s product teams represent a small percentage of its more than 27,000 employees, and it has no plans to transition the entire company to a component-based business architecture. After all, some end-to-end processes are well suited to top-down process optimization, and some people prefer to execute delegated tasks rather than own a problem. Component teams, however, are at the heart of the company’s enterprise architecture and increasing componentization.
Other businesses need to begin following a similar model. Leaders who don’t start exploring radical redesign for their increasingly digital companies are at risk of committing managerial malpractice. You — whoever you are, and whatever role you fill — need enterprise architecture to guide you through that radical redesign.