Enterprise Systems and Integration Ronan Bradley

2 The aims of this module “This module covers the range of enterprise architectures and enterprise application systems that are used within organisations. The module aims to provide the student with a basic understanding and knowledge of the enterprise computing techniques used in industry and to provide hands-on experience using leading industry-standard software.”

3 Learning Outcomes I Concepts of enterprise wide IT systems. Understand the principles of enterprise IT management Understand how business strategy impacts and drives IT strategy. Understand how the organization and roles within IT organisations. Understand the role of CIOs and architects Understand the various processes within the organisation supported by Enterprise systems.

4 Learning Outcomes II Demonstrate a clear understanding of the requirement for component based systems for software reuse and system integration in the enterprise. Develop applications using a selection of enterprise level technologies such as those in the J2EE suite. Describe and demonstrate a thorough appreciation of the fundamental technical and theoretical issues involved in distributed system design and implementation. Select, evaluate, compare and contrast a variety of approaches to developing distributed applications and systems.

5 Learning Outcomes II Explain enterprise integration concepts and architectures. Analyse and evaluate enterprise integration development/practices strategies. Analyse and compare major enterprise integration technologies including Web Services, Enterprise Application Integration and Service Oriented Architecture Concepts Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM) systems. Benefits and drawbacks of ERP, CRM, SCM. Knowledge of ERP techniques and tools.

Learning outcome III Understand the reason why Understand underlying concepts and trends – not just details. You can buy a book if you need the details. Understand how enterprise systems support business objectives and how business objectives drive how enterprise systems are developed. Be equipped to learn more about any individual topic if required. 6

7 General Enterprise IT reading list… The best information for this module is on the web: Management perspectives: Industry trends: Architects: Architects & Developers: Find web-sites which suit your background and style of learning.

8 Examination Written Examination60% Continuous Assessment40%

The world of enterprise IT Dealing with complexity and legacy within a business environment

What is Enterprise IT? Enterprise IT is an engineering discipline. Not a science. Engineering is the discipline of acquiring and applying knowledge of design, analysis, and/or construction of works for practical purposes. Enterprise IT is as much about business and people as about technology 10

What is an enterprise? A larger business or organisation. Sometimes used in contrast to a SME (Small to Medium Enterprise) In the UK, SME means <250 employees In the USA, SME means <500 employees An Enterprise’s IT requirements are more complex and they will typically have internal IT staff capable of developing and deploying systems. This course will focus primarily on open/standards based software. Microsoft solves the problems within its own technology world. 11

Understanding the enterprise IT environment Decision making in enterprise IT is driven by the need to balance a number of different factors apart from technical feasibility. The way that these are balanced is sometimes called IT governance Processes designed to ensure the right decisions are made and that all stakeholders, including senior management, internal customers, and departments such as finance, have the necessary input into the decision making process. There are 5 main factors which impact the decision. 12

Understanding the enterprise IT environment There are five primary drivers for IT decisions 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves and how the IT industry evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 13

Understanding the enterprise IT environment There are five primary drivers 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves and how the IT industry evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 14

The technical skills pyramid Highly skilled systems software developers are rare. Therefore, they must be used to solve exclusively technical issues. The solutions of the higher groups in the pyramid are used to developers lower down the pyramid. 15 Rare: Systems software developers Common: Assemblers and configurers Medium availability: Application developers

Specialisation of skills Most staff will either have be predominantly technically skilled or business skilled – even in IT departments. Attempting to use technically focused staff on business focused problems will result in poor solutions and vice versa. Therefore, the way we develop software should attempt to allow separation of roles between the two. 16 Technical skills Business skills Combination

Dealing with the skills challenge Goal 1: Reduce the technical skills requirement and allow more staff to participate in any software development process Solution: Rely on products instead of custom coded solutions; Reduce the difficulty in the code itself by moving as much of the difficult code into the products you buy Use tools to make both development easier and the process of development easier (e.g. Visual C++ or eclipse or Business Process Modelling tools) 17

Dealing with the skills challenge Goal 2: Reduce the amount of code that needs to be written. Allow developers to focus on writing business logic that is specific to the problem at hand, not infrastructure code which is generic Maximise the amount of reuse of existing systems, codes, designs etc Reducing the amount of code written also reduces the cost of maintenance 18

Understanding the enterprise IT environment There are five primary drivers 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 19

The IT life-cycle is driven by many factors The IT industry itself Technology innovation The business environment New customer demand eCommerce in 1990s Investment from VCs Economic cycle Competition among end-users Inhibited by the lifespan of IT systems What is the average lifespan of an enterprise IT system? 20

A naïve view of enterprise IT life-cycle Evolution is the survival of the fittest. Each stage dies out as the next on is better. IT evolution consists of technological progress which replace previous waves of technology 21 © Korn

IT systems don’t evolve – new systems get deployed Systems are only decommissioned when there is a compelling business need. Enterprise systems are typically used for 7+ years. Only sometimes is that it is too old to maintain The reality of enterprise IT life-cycles 22 © Korn CICS IMS Client/ server CORBA J2EE Web Services SOA

Understanding the enterprise IT environment There are five primary drivers 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves and how the IT industry evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 23

24 IT and Business Strategy Any investment within an enterprise will be evaluated in the context of whether it fits into the overall business strategy. “A strategy is a long term plan of action designed to achieve a particular goal.” “A company's strategy is its overall plan of development. Corporate strategy can be more formally defined as a comprehensive plan or action orientation that identifies the critical direction and guides the allocation of resources of an entire organization.“

25 Role of IT is pivotal in supporting business strategy Contribute to the achievement of business goals. Launch of new product M&A Entry to new market Deliver objectives in a manner which is: Cost effective Timely Flexible Over 50% of US corporate capital investment is IT related

26 IT Strategy The plan an organisation uses in providing information services. IT allows business to implement its business strategy. IT helps determine the company’s capabilities. IT Strategy must make sense in the context of the organisational structure and approach Four key IT infrastructure components are key to IT strategy: Hardware, software, networking, data These key components are sufficient to allow the general manager to assess critical IT issues.

27 Core Competency The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals. Building a business strategy Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage. Business Level Strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets. Leads to

28 Core Competency The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals. Building a business strategy Strategy An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage. Business Level Strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets. Leads to Exercise: For a chosen business or organisation analyse: What is its core competencies? How does that fit with its business strategy? How does it fit with its business level strategy? How does it fit with its technology strategy?

29 Generic Business Level Strategies CostUniqueness Source of Competitive Advantage Differentiation Cost Leadership Relatively standardised products Features acceptable to many customers Lowest competitive price Value provided by unique features and value characteristics and command premium price High customer service Quality, prestige or exclusivity Rapid innovation

Understanding the enterprise IT environment There are five primary drivers 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves and how the IT industry evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 30

31 Eight Core Activities of IT department What are they? What is not part of IT’s purpose?

32 What IT Does Not Do Does not perform core business functions such as: Selling Manufacturing Accounting. Does not set business strategy. General managers must not delegate critical technology decisions. In most cases, IT is a service to the rest of the business. In some cases, IT is seen as a cost of doing business.

33 Eight Core Activities of IT department IT is responsible for the delivery of new solutions and maintenance of existing solutions. Apart from project specific requirements, it has 8 core activities Anticipating new technologies. IT must keep an eye on emerging technologies. Work closely with management to make appropriate decisions. Weigh risks and benefits of new technologies. Strategic direction. IS can act as consultants to management. Educate managers about current technologies/trends. Process innovation. Review business processes to innovate. Survey best practices.

34 Eight Core Activities (continued) Supplier management. Carefully manage outsourced IT. Architecture and standards. Be aware of incompatibilities. Inconsistent data undermines integrity. Security Important to all general managers. Much more than a technical problem. Business continuity planning Disaster recovery. “What if” scenarios. Human resource management. Hiring, firing, training, outsourcing, etc.

35 IT Organisational structures Centralised – bring together all staff, hardware, software, data, and processing into a single location. Decentralised – the components in the centralised structure are scattered in different locations to address local business needs. Federalism – a combination of centralised and decentralised structures.

36 Federalism Most companies would like to achieve the advantages derived from both centralised and decentralised organisational paradigms.

37 Impact of technical evolution on IT organisations Sometimes the technology drives the organisation of IT, sometimes the other way around s - mainframes dictated a centralised approach s - remained centralised due in part to the constraints of mainframe computing s - advent of the PC and decentralsation s - the Web, with its ubiquitous presence and fast network speeds, shifted some businesses back to a more centralised approach the increasingly global nature of many businesses makes complete centralisation impossible

38 How IT organises

39 CIO The CIO (Chief Information Officer) is the head of the IS organisation. CIO’s primary goal is to manage IT resources to implement enterprise strategy. Provide technology vision and leadership for developing and implementing IT initiatives to help the enterprise maintain a competitive advantage. As the importance of technology has increased so has the position of the CIO. Sometimes reports directly to the CEO. Otherwise COO or CFO

40 CTO and other senior roles The CIO, particularly in larger organisations, cannot guide the enterprise toward the future alone. Other strategic areas require more focused guidance. Often supplemented by a Chief Technology Officer Track emerging technologies Advise on technology adoption Design and manage IT architecture to insure consistency and compliance Some organisations have other senior positions Chief Security Officer Chief Knowledge Officer

Understanding the enterprise IT environment There are five primary drivers 1. Skills: Costs and availability 2. Technology life-cycle: How enterprise IT evolves and how the IT industry evolves 3. Business requirements: how IT supports business strategy 4. IT organisation: how IT is itself organised, the roles in an IT department 5. How investment and benefit can be measured 41

42 Funding the IT department In order to determine how much funding is given to the IT department, there needs to be understanding of how that budget will be spent How are costs associated with designing, developing, delivering and maintaining IT systems recovered? Particularly if the system is used by multiple departments. There are three main methods for measuring where funding is spent: Chargeback Allocation Corporate budget The first two are done for management reasons, while the latter recovers costs using corporate coffers

43 Chargeback IT costs are recovered by charging individuals, departments, or business units Rates for usage are calculated based on the actual cost to the IT group to run the system and billed out on a regular basis They are popular because they are viewed as the most equitable way to recover IT costs However, creating and managing a chargeback system is a costly endeavor

44 Allocation Recovers costs based on something other than usage, such as revenues, log-in accounts, or number of employees Its primary advantage is that it is simpler to implement and apply True-up process is needed where total IT expenses are compared to total IT funds recovered from the business units. There are two major problems: The 'free rider' problem Deciding the basis for charging out the costs

45 Corporate Budget Here the costs fall to the corporate P&L, rather than levying charges on specific users or business units In this case there is no requirement to calculate prices of the IT systems and hence no financial concern raised monthly by the business managers. However, this creates a disconnect between the cost and the benefits of IT investment.

46 Funding Method DescriptionWhy do it?Why not do it? ChargebackCharges are calculated based on actual usage Fairest method for recovering costs since it is based on actual usage Must collect details on usage; often expensive and difficult AllocationExpenditures are divided by non- usage basis Less bookkeeping for IT IT department must defend allocation rates Corporate Budget Corporate allocates funds to IT in annual budget No billing to the businesses. Good for encouraging use of new technologies. Have to compete with all other budgeted items for funds Comparing funding methods

47 Calculating the cost of IT projects The most basic method of determining costs is to add up all of the hardware, software, network, and people involved in IS. Real cost is not as easy to determine. Most companies continue to use the over-simplistic view of determining cost and never really know the real cost.

48 IT Investment Monitoring “If you can’t measure it, you can’t manage it”. Management needs to make sure that money spent on IT results in organisational benefit. Must agree upon a set of metrics for monitoring IT investments. Often financial in nature (ROI, NPV, etc.).

49 Valuation MethodDescription Return on Investment (ROI)ROI= (Estimated lifetime benefits- Estimated lifetime costs)/Estimated lifetime costs Payback AnalysisTime that will lapse before accrued benefits overtake accrued and continuing costs. Net Present Value (NPV)Calculated by discounting the costs and benefits for each year of system’s lifetime using present value Economic Value Added (EVA)EVA = net operating profit after taxes Internal Rate of Return (IRR)Return that the IT investment is compared to the corporate policy on rate of return Weighted Scoring MethodsCosts and revenues/savings are weighted based on their strategic importance, etc PrototypingA scaled-down version of a system is tested for its costs and benefits Some approaches to measuring cost These are some of the approaches and elements used in cost calculation. They address different aspects of the problem.

50 Internal rate of return Commercial organisations are judged by the owners on the basis of profit (and sometimes revenue). In order to deliver any profit target, the organisation will set a rate of return it expects from any existing or new business. Building in evaluation of the riskiness of the business. This internal benchmark is called the Internal Rate of Return.

51 Total Cost of Ownership Total Cost of Ownership (TCO) is fast becoming the industry standard It looks beyond initial capital investments to include costs associated with technical support, administration, and training. This technique estimates annual costs per user for each potential infrastructure choice; these costs are then totaled. Careful estimates of TCO provide the best investment numbers to compare with financial return numbers when analyzing the net returns on various IT options

52 TCO Component Breakdown For shared components like servers and printers, TCO estimates should be computed per component and then divided among all users who access them For more complex situations, such as when only certain groups of users possess certain components, it is wise to segment the hardware analysis by platform Soft costs, such as technical support, administration, and training are easier to estimate than they may first appear

53 Valuing IT Investments Soft benefits, such as the ability to make future decisions, make it difficult to measure the payback of IT investment IT can be a significant part of the annual budget, thus under close scrutiny. The systems themselves are complex, and calculating the costs is an art, not a science. Because many IT investments are for infrastructure, the payback period is much longer than other types of capital investments. Many times the payback cannot be calculated because the investment is a necessity rather than a choice, and there is no tangible payback. IT has been oversold in the past and too many high-profile failures are well known!

54 Return on Investment calculation Calculate the lifetime costs of the project (normally set to 3 or 5 years depending on the organisation) Initial equipment and software costs Staff costs including salary, benefits, recruitment and training costs for development and roll-out phase. Staff costs (as above) for each year the system is maintained. Software, hardware and network maintenance costs. Calculate the lifetime benefit of the project. Return on investment = (Benefit – Cost)/Cost RoI < 0 means the investment is never covered RoI > 0 means the investment is covered. It must then be compared to other potential investments to see which is the best. Payback anaylsis identifies how long it will take before RoI>1

55 IT Investment monitoring: A hard job CIO Insight 2006: e2/0,1540, ,00.asp IT investments can be hard to measures. 40% of companies do not measure IT investments. And IT investments do not have to be financially justified but lack of justification makes investment harder.

Conclusions: The ideal of the enterprise IT 56 Decisions made for the ‘correct’ technical reasons Modern technologies updated regularly. Built by the best with the latest equipment and skills A consistent architecture ensures everything fits well together Sleek and efficient supported by a single agenda Capable of supporting business change for years to come Swiss RE Building in London

57 Conclusions: The reality of enterprise IT is closer to… Combined pressures of new technology and business results in almost chaos. 38 years of construction – 147 builders 0 architects 160 rooms – 40 bedrooms, 6 kitchens, 2 basements, 950 doors 65 doors to blank walls, 13 staircases abandoned, 24 skylights in floors No architectural blueprint exists The Winchester “Mystery” House