Case Study: Danforth Manufacturing Company

Scene 1: Possible Need for an EA Program

The Danforth Manufacturing Company (DMC) develops, produces, and sells several lines of photovoltaic storage cells (solar-powered batteries) for use in various consumer, business, and aerospace products. Robert Danforth, the President and Chief Executive Officer (CEO) of DMC, has called a meeting of the Executive Committee to review several recent capital investment requests. The largest two of these was a request by Kate Jarvis, the Chief Operating Officer (COO), for a new sales and inventory tracking system and a request by Jim Gorman, the Chief Financial Officer (CFO) to invest in a new cost accounting system. Also invited to the meeting were Sam Young, the companys first Chief Information Officer (CIO) who joined the company two weeks before, and Gerald Montes, the companys Chief Counsel.

Robert Danforth was the last one to enter the executive boardroom. He smiled at his top management team and said, Thank you all for coming by to talk a bit more about several investment requests that came out of our annual planning meeting last month. Sam, you hadnt joined the company yet, so Im particularly interested in your thoughts today. Mainly, I want to better understand from the group why our current capabilities are insufficient and how these new systems will help bottom-line performance. Kate, why dont you go first and then well hear from Jim.

Kate rose and walked to an easel that held several charts and diagrams. Gentlemen, as mentioned at the planning meeting, my request for a new Sales and Inventory Tracking System (SITS) is based on an insufficient current ability to match inventory and production information with customer orders. We are also experiencing excessive turnaround time for orders in the industrial product lines, as compared to our competition. Our sales representatives in the field are beginning to lose orders. They cant provide on-the-spot quotes based on real-time checks of available inventory and current pricing. The same goes for our representatives. They are not able to see when the custom and small job production runs are being scheduled. This would help sales in this high-profit area which we will be expanding. Our major competitor fielded this information capability almost a year ago. While I was skeptical at the time about the impact it would have on their sales, I now believe that its a successful model for them and therefore is going to make or break us in the industrial product line.

Robert leaned forward. Kate, this sounds quite serious. Even so, from a cost perspective I am concerned about the return on investment (Ra I) for SITS. Last month you stated that initial cost estimate for the development of SITS was over three million dollars. We have tight budgets for the next two years have you looked at Ra!? Yes, responded Kate. These charts show the level of investment and payback period for SITS, which I estimate to be two years, depending on how quickly and thoroughly the sales force adopts it. The lifecycle for SITS should be seven years, with positive ROI seen in years three through seven, and an average of about twelve percent per year.

Robert turned to Sam, What do you think Sam? Isnt part of the problem here that many of our information systems dont talk to each other? Sam grimaced slightly and said, I think youre right, from what Ive seen in my initial survey of information technology (IT) capabilities, a lot of our systems were built as individual projects based on what then were unique requirements. We now have some duplication of functionality and evidence of inefficient support for evolving business processes. Robert responded quickly, Isnt the SITS proposal just more of the same? Perhaps said Sam, Im hearing that Kate wants to integrate information exchanges across the sales, inventory, and production lines of business. This represents a somewhat higher-level approach to meeting several business requirements.

Robert turned to Jim, What do you think about Kates problem? Jim answered with a pensive look, Well, I agree that we need to address our competitions capability. While our aerospace product line is the most profitable, the industrial product line brings in the most revenue, so there would be a significant impact on the entire company if we lose market share in the industrial product area. Robert then turned to Gerald, So what does the Chief Counsel think? Gerald paused for a moment and then said, I think that we must act decisively to protect market share in the industrial product line, but Im not sure that SITS is the answer. You might be right Robert, the proposal that Kate is making might be more of the same type of technology solution that Sam says got us in this situation.

Robert leaned back in his chair and said, Before going further on this proposal, lets talk about Jims investment request. I wonder if there are any parallels. Jim activated the conference rooms projector and brought up a set of briefing slides. My request is for a cost accounting system that would replace the current accounting system. As Robert mentioned, there are tight budgets the next two years, and having the ability to more readily see spending and profit generation within each line of business will help us to manage the budget more effectively. This system is one module of WELLCO a proven commercial enterprise resource planning (ERP) product. We can utilize this product by expanding it if other back office requirements emerge. The cost of the investment is just under $600,000. According to the vendor, the historical payback period for this cost accounting module is eighteen months, with an average annual ROI of sixteen percent during the subsequent years.

Jim, can this new accounting capability support what Kate is looking for? said Gerald. Jim responded, The WELLCO module can handle some of the things Kate is probably looking for, including price and volume information in sales, inventory, and production activities, but this module is not configured to specifically support all of the information I believe she will need. Can it be modified? Interjected Robert. Possibly so, said Jim, and if not, I would think that other modules of WELLCO could handle it. Sam, help me out with this one if you can. Sam responded, I know that WELLCO is one of the leading ERP products designed to support many front and back office functions. It might be possible to get enough functionality to support both Jims and Kates requirements. I am concerned that we are still looking at requirements from a program-level and systems-level viewpoint. .. essentially bottom-up planning. Wouldnt the company benefit more from a more strategic approach that evaluates requirements and proposed solutions across the entire enterprise in the context of our strategic goals?

The group was silent for a moment, and then Gerald spoke. Our annual planning retreat is where most of the companys strategic planning happens. We look at our current strategic goals and initiatives. We look at what changes are needed to keep us competitive. As you saw from the meeting last month, new proposals are also surfaced during the retreat and then followed-up on. That is to say if they merit consideration for funding and implementation. Sam asked, Is there some model of the enterprise that is used to support these discussions? Well, if you mean our annual business plan, we have that said Jim. More than that said Sam, A model of strategy, business, and technology that enables you to see what we have now and what is planned for the future. Something that gives us the ability to play with the model to see what other future investment and operating scenarios would look like. We dont have anything as fancy as that said Kate, Though a model like that would have helped me analyze what we could do to help the field.

Robert stood up and walked to the window. Sam, you are new to the team, but sometimes a fresh look at a situation can provide valuable insights. What I believe you are telling us is that we lack a true top-down, strategy-driven capability to surface requirements and solutions is that right? Yes responded Sam. DMC is not alone. Many companies have the same problem because they still support program-level decisionmaking. We tend to let it occur in a relative vacuum with few overarching goals and standards to guide analysis, planning, documentation, and decision-making. I am going to propose that both Kates and Jims proposals be reviewed through a different lens, that of an enterprise-wide architecture. If we had this type of model, we could see current capabilities, future requirements, and gaps in our ability to meet those requirements. We could also see duplicative current capabilities and future solutions. From what I have heard at this meeting we may have some overlapping requirements which probably should not be met with separate solutions if we are to optimize our financial and technology resources.

Interesting said Robert. Sounds like a silver bullet, and I am wary of those said Gerald. Robert spoke again, Sam, would an enterprise-wide architecture really help us? If it is doable, thats great, but why havent we heard about it before? I know there are no free lunches and where is the ROI in such an architecture? Kate added While I appreciate the idea, I dont have time to wait for the entire company to be modeled, I need a new capability now.

Well, said Sam. You are right, establishing an enterprise architecture will not be free and it will take time. Fortunately there are approaches being used by the public and private sector that support the modeling of requirements and solutions in a standardized way between multiple lines of .business, which are referred to as architecture segments. So, as each segment is completed it adds to the architecture as a whole. By treating Jims area as the companys financial segment, and Kates area as the production segment, we can just address these areas first, thereby reducing the time for completion of the architecture part of the larger project that may implement a combined solution. We can do this by modeling only those strategic drivers, business services, and technology solutions that apply to those two segments. Eventually though, for the architecture to be the most valuable to DMC, the entire company should be modeled in its current state, and several possible future states.

As far as ROI, continued Sam, that is more difficult to pinpoint since the cost of doing the analysis and mode ling depends on the amount of existing information and the degree of cooperation that is achieved with stakeholders. By the way, these stakeholders include our executives, managers, and support staff. But lets say that a top-down architectural analysis reveals that there are common requirements between Kate and Jim, and we can meet those requirements either through adding functionality to SITS or by buying several more modules of the commercial WELLCO product, and doing some customization. We potentially could save several hundred thousand dollars, or perhaps millions of dollars compared to doing SITS and WELLCO separately all of which become ROI from the architecture effort. You probably havent heard about enterprise architecture because when a company is doing it well, it can become a strategic asset that makes the company more efficient and agile. That type of capability is normally not broadcasted.

So whats the downside? asked Gerald. Enterprise architecture tends to be viewed as a hostile takeover by program managers and executives who have previously had a lot of independence in developing solutions for their own requirements said Sam. Also, architecture brings a new language and planning processes, which like any type of change can be seen as threatening to those involved and therefore may be resisted. Strong executive sponsorship and stakeholder involvement can overcome much of this.

Sam, the architecture approach seems to make sense, but I am not completely sold yet said Richard. Lets do a pilot project. I want you to work with Kate and Jim and bring me a plan and business case within two weeks to develop the part of an architecture for DMC that addresses their current capabilities and stated future requirements. Well use this as the test for whether we want to go forward with an enterprise-wide architecture. Thank you all for your time today, see you in two weeks.

Consider DMCs problem situation and write about the current state of the DMC enterprise for three (3) Lines of Business (LOBs) and their associated challenges, threats, and risks. Briefly discuss the EA business case and possible duplications and synergies within the DMC Enterprise. What value opportunities do you see for DMC as an architected enterprise? Identify a minimum of five (5) major stakeholders and briefly discuss how their perspectives align or differ. What capability gap(s) can you identify at this early stage?