Use EA to identify hidden costs in outsourcing

Why do we need enterprise-architecture in a business? And why does that EA need to be broader than just IT, often all the way out to a true enterprise-wide scope?

One reason is implied this Tweet by Belgian consultant Patrick Van Renterghem:

itworks: Big discussion now about what happens when cloud vendors go bankrupt or out-of-service. Should [be] in the contract… #BAEA

“Should be in the contract…”: yes, indeed – but what should be in that contract? And why?

Without an enterprise-architecture that covers a broader scope than just the bare IT-transactions, we have no way to know what actually needs to be in that contract – and also in the parts that can’t be covered by contract, and that really do depend on relationships and trust. Which could be a serious problem from a business perspective. Hmm…

I’ve covered a fair bit of the detail of this in other posts here, such as ‘Enterprise-architecture and the Cloud‘. Some people seem to have misunderstood the questions there as somehow being ‘anti-Cloud’, or even ‘anti-IT’: it’s not. It’s about really looking at the whole context – about the whole ‘market-cycle’, about understanding the full implications of a customer-centric view, about maintaining consistency of service across all in-source and out-source relationships, and so on. And we do need to do that: because if we don’t, it can get really expensive.

Yet cloud-outsourcing is only one small example. As enterprise-architects, we also need to be able to extend out to a much broader business-picture, as Steve Denning describes in his Forbes post, ‘Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy

when a firm calculates the rate of return on a proposal to outsource manufacturing overseas, it typically does not include:

  • The cost of the knowledge that is being lost, possibly forever.
  • The cost of being unable to innovate in future, because critical knowledge has been lost.
  • The consequent cost of its current business being destroyed by competitors emerging who can make a better product at lower cost.
  • The missed opportunity of profits that could be made from innovations based on that knowledge that is being lost.

Failure to apply a proper enterprise-scope architecture-assessment of such themes can be more serious than merely expensive: mistakes at that level can easily kill a corporation. In short, it matters.

That kind of in-depth EA assessment might at first seem pernickety and pedantic, especially to those who just want to get moving. But as John Seddon warns, most of the ‘conventional’ methods to save money and effort usually end up costing far, far more: if we do need to cut costs, for example, we need to take more systemic, whole-of-context view in order to find the real places where those costs can be cut back. And the reality is that often they’re not where we’d expect them to be: hence, again, the need for a true enterprise-scope architecture.

Cloud-IT and other forms of outsourcing often look like the quickest, easiest and most practical way to cut costs. But Steve Denning quotes John Maynard Keynes to warn:

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Most often, those ‘defunct economists’ have failed to account for the hidden costs of a context – particularly the real human costs, which can be ignored only at our peril, especially in the longer term. There are good reasons why those ideas became ‘defunct’: but unfortunately, it seems each new generation has to re-learn those reasons time and time again…

In our domains, those forgotten lessons are reflected in IT-centrism and the like, and the over-simplification of otherwise-valuable ideas such as ‘scientific management’ and ‘business process reengineering’, and, now, cloud-based IT-services. A key role of a whole-of-enterprise architecture, here in the context of outsourcing, is to remind us of why those lessons about the real complexities of outsourcing and the like are so important, and what they mean in real-world practice to Keynes’ ‘practical men’.

In short, use enterprise-architecture to help identify the real hidden-costs of outsourcing – so that your business doesn’t get hit by the bill when those hidden-costs come back to bite…

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