valueformulaThere is a lot said about the value of architecture to an organization but very little that is concrete. Most blogs, books and resources focus on esoteric concepts such as ease of communication, faster delivery, business and IT alignment, business facilitation, etc. I have always found these measures to be incomplete and difficult to understand, and I believe the difficulties architects have in communicating their value to an organization to be proof of that. What we need are direct measurable and tangible outcomes that impact the operating and financial measures of an organization and that can be directly attributed to the architect team. While this sounds like a tall order, it is really not so difficult as you might think. It does, however, require a significant change in the way your architects approach their jobs and the skills they have. For it to work well over the long term it will also require some organizational changes, first in the architecture team, then in the organization itself.

First, before you can employ architecture value management techniques, you will need to commit to changing AS A TEAM to creating a value culture and to managing your engagement model objectively (see post on building a steering committee). The team should define effective goals for the architects in the next 12 mo. These must be SMART goals and should be focused on positive business growth over cost savings or operating efficiency, though those are useful measures as well. The single best goal (though not always achievable out of the gate) is something like, “The architect team will increase revenue in X customer segments by 10% within 12 mo”. This is measurable, it is about growth and about a critical success metric (revenue). Of course not all projects, programs or opportunities exist immediately for that kind of impact, but I have yet to meet an architect team or company where a great architect couldn’t come in and find 2 or 3 of these ideas hanging around. But the sole purpose of this change is to get the architects speaking in business metrics and not just technology metrics.

There are a number of ways architects can directly derive their value to the company as a team. Some are simply modifications of existing means of ascribing credit within business units that collaborate on programs and projects. For example, sales and marketing both play integral roles which are somewhat hard to untangle when it comes to overall sales performance. Was it the salesperson who closed the deal or the qualification of the lead? Business units have adapted to this by sharing credit or claiming credit for ownership of success and responsibility for failure, and the architect team can do the same. Here are four strategies your team can employ to come to a direct, measurable success figure for their business contributions.

Remember this question and you will be fine: If the CEO were to pay you on commission, how much would you make this year, and how would it be calculated?

  1. Direct innovation and business case ownership – If your architecture team isn’t submitting business cases well you are only doing a quarter to a half of your job. All business functions are required to reduce cost and drive efficiency, the business units that come up with ideas that turn into programs are the ones truly growing the enterprise. If you are submitting business cases for project initiation and have an embedded culture of innovation, then you have your first set of calculable value calculations. Take the estimated returns from all the business cases your team originate and that were funded, add the numbers together and estimate your teams commission! Realistically, technologists and architects MUST begin to claim the value they create through innovation. So step 1, start having ideas as a team. Step 2, submit those ideas to the project evaluation process in a business case. Step 3, deliver the projects. Step 4, calculate the value created from the projects. Step 5, claim your value to all business owners and ask for that amount in direct budget. (ok be really careful about that last one as it doesnt really work that way and you need to be extra careful about politics the first go around). Either way, if you are a business innovation team you will NOT be treated as a cost center.
  2. Percent value creation/contribution – This method is the most common and most immediately accessible to most architecture teams I have seen. Each project we work on has a significant number of decisions both technical and business driven that provide opportunity to add value and innovation to the delivery. In fact, in every case I have seen, a professional and skilled architect assigned to a project will deliver much more value than originally identified in the business case. However, almost none of these architects a) run accurate valuations on their decisions or b) communicate those contributions outside of the project team. Every architect in the field should understand their contribution to project success as measured by business operational metrics. As an additional means of calculating this as a measurable contribution, you may use a percent contribution unit based primarily on technology contribution to the business case. Admittedly, this success metric should be allocated to the entire technology team. To do this consider the percentage of automation or ‘enablement’ that technology brings to the project success. For example, if we have completely automated our supply chain to the extent that no human being ever touches it (which is far fetched of course) then the automation contribution of technology would be 100%. Therefore the cost savings, new revenue, gross margin contributions and other measurements would all be assigned to the technology group as opposed to, say, the operations group. If the contribution of automation was closer to say 60% (much more realistic), then the value creation from technology would be 60% of whatever value measurement is listed in the business case. Yes part of this looks like creative accounting, but then so does the value ownership from the sales and marketing scenario listed above. IT has to start acting like a business unit to be treated like one.
  3. Value metrics comparison – The third method you should evaluate is, simply, to begin measuring value creation from projects year on year. Did the mobile platform project actually deliver the ROI the business unit claimed? Did the business process improvement actually reduce cost and increase efficiencies? Most companies currently use business cases but do not review the success of the delivery of those cases on a 6, 12, and 18 mo calendar and are therefore completely unaware of their success. As an architect team if you begin measuring these things then you may also measure the delta between programs and projects that have architects versus those that do not.
  4. Cost and risk avoidance – Cost and risk avoidance are excellent measures of architecture success though, again, they do not have the WOW factor of business growth measures. Still, in many organizations, this is exactly the function of the architecture team. Ask yourself, if every significant purchase decision in your company had a reasonable CBA and risk assessment (cost benefit analysis) attached, how much cost and risk avoidance would you accumulate in a single year? It is quite significant I assure you. Plus, these measures are at least significantly more important than project budget and timeline measures in point 5 below. However, keep in mind this measurement system will put architects in a governance stance and not an innovation and business leadership role. To understand how to calculate this success contribution consider the following scenario. I recently met with a enterprise security architect in healthcare. He had just come from a series of meetings where he had to delay the launch of a particular project due to serious security issues. The project would have exposed unecrypted patient records by the thousands to the world. It was a strategic project but had it gone live and someone found these records and exposed the company they would have suffered tens of millions of dollars if not much more in fines and lawsuits. Their stock would have taken a massive beating. All told, this one architect saved the company from risk exposure to the tune of 200-400 million or more. Any other business unit would be running victory laps around the headquarters. He had neither done the full calculation of risk mitigation, nor had he planned on communicating that as an architect win. These are the opportunities for your team to understand it’s value and communicate it effectively.
  5. Increase project efficiencies – I put this last because it is my least favorite method of evaluating success. Still, as a first step, it may be just the thing you need to establish the success of the architect team. This measurement approach includes on time, on budget and meets expectations (requirements) measures. Project teams with a qualified architect almost always deliver more successfully (currently based on anecdotal evidence) than ones without an architect. Please note, I said qualified architect which excludes those who cannot pass an experience based certification held by their peers. If you begin measuring project success in this fashion your team may be able to establish the toe-hold you need to move to a more business benefits based goals and measures approach.

Using the above measures is not a guaranteed way of being known as a business innovation unit. That will require appropriate human dynamics (politics, communication and leadership) skills. But, if you don’t know your value, then your team will never have a chance to be seen as valuable.