The Economics of Integration Competency Centers

The Economics of Integration Competency Centers W H I T E PA P E R This document contains Confidential, Proprietary and Trade Secret Information (“Confidential Information”) of Informatica Corporation and may not be copied, distributed, duplicated, or otherwise reproduced in any manner without the prior written consent of Informatica. While every attempt has been made to ensure that the information in this document is accurate and complete, some typographical errors or technical inaccuracies may exist. Informatica does not accept responsibility for any kind of loss resulting from the use of information contained in this document. The information contained in this document is subject to change without notice. The incorporation of the product attributes discussed in these materials into any release or upgrade of any Informatica software product—as well as the timing of any such release or upgrade—is at the sole discretion of Informatica. Protected by one or more of the following U.S. Patents: 6,032,158; 5,794,246; 6,014,670; 6,339,775; 6,044,374; 6,208,990; 6,208,990; 6,850,947; 6,895,471; or by the following pending U.S. Patents: 09/644,280; 10/966,046; 10/727,700. This edition published April 2008 White Paper Table of Contents Foreword (by John Schmidt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 What Are Integration Competency Centers? . . . . . . . . . . . . . . . . . . . . . . . . 5 ICC Operating Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Challenges and Root Cause Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Optimizing the Whole Versus Optimizing the Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Centralization Versus Decentralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Standardization Versus Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Innovation Versus Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Economic Framework and Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Nonfinancial Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Financial Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Aligning ICC Models with the Financial Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Infrastructure Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Case Study 1: Shared Services ICC—an Executive Vision Investment Strategy . . . . . . . . 21 Case Study 2: Integration Hub Consolidation—a “Creating the Wave” Investment Strategy 23 Case Study 3: Charge-Back Model—ETL COE Production Support Chargebacks . . . . . . . 24 Case Study 4: Charge-Back Model—ETL COE Initiative-Driven Capacity Chargebacks . . . 25 The Economics of Integration Competency Centers 1 Foreword (by John Schmidt) Integration is difficult but there is tremendous value in connecting people and systems across an organization in seamless processes that optimize the business and serve the customer. These two forces—difficult to do but beneficial when done well—make integration competency centers (ICCs) such a compelling approach. There is a host of reasons why integration is important, including technology issues such as incompatible data definitions from different applications or inconsistent interfaces between vendors that make the promise of “plug and play” more like a “square peg in a round hole.” When the long list of technical reasons is exhausted, we can add political and social factors such as conflicting motivations driven by inconsistent incentives, lack of trust between organizational groups, and the “not invented here” syndrome. At the heart of the integration challenge is complexity and change. If we didn’t have layer upon layer of technology with massive amounts of data and if things just stopped changing, we wouldn’t have this problem. Out of this challenge comes an opportunity: the possibility to differentiate your business. After all, if integration were easy, if it was a commodity, everyone would do it and there would be no competitive advantage. The organizations that develop a 360-degree view of their customers and are therefore able to serve them better and sell to them more effectively will be rewarded with increased market share. Organizations that have “one version of the truth” for business operations and finances will operate more efficiently and with the right data to make wise decisions. Organizations that govern their data have an advantage in protecting their intellectual property, securing their customers’ data, and satisfying costly regulatory obligations. More than three years ago, David Lyle and I wrote the first book on this topic, Integration Competency Center: An Implementation Methodology. Since then, I have been rewarded to see it adopted by thousands of individuals and hundreds of organizations using it to help establish an ICC. The vast majority of feedback from readers is positive such as these excerpts from amazon. com reader comments: “I think this book is a fantastic help for anybody from starter to more experienced managers. It gives a very good and structural approach on Competency Centers, and I successfully used it to create a Business Intelligence CC.” “Pages of well-developed thoughts and practical concepts presented for consumption by novice or architect on what to most is still an evolving discipline. Master these competencies and unlock the benefits of agility inside your enterprise. I just bought four more copies and consider it a must read for my managers.” 2 White Paper “Their [Schmidt and Lyle] insistence that integration is a separate layer and not simply a component or API to an application is a very important point, and one that is not always appreciated. Think of this layer as the structure that makes possible emergent value for an organization.” The one criticism of the book from some readers is that it’s not enough. The ICC book has helped many successfully down the integration path, but now they are hungry for more. As one reader put it: “It would have been nice if the authors could have provided more information on certain advanced topics. Treatment of Web services, business processes and orchestration is very thin, and these are the emerging value centers for integration. Semantic integration, the future paradigm, receives only cursory treatment. Complex event processing and content integration (which poses separate problems from data integration) are not covered.” So I am happy to report that an extended edition of the ICC book is in the works. It may take a year or so before it is published, but in the interests of serving loyal readers, we are not waiting to release some of the new content. This paper is one of several new chapters planned for the next edition. Note that it is not necessary to read the ICC book first. This paper provides sufficient context that it can be read on its own. Questions from organizations about the best way to structure a chargeback model, how to create incentives to encourage enterprise-wide adoption, and best practices for justifying investments in shared infrastructure led us to tackle the issue of economics first in this new series of papers. This paper addresses these and other related questions, but does more than provide answers. It starts by exploring and elucidating the underlying dynamics that drive organizational and individual behaviors: namely, the challenges associated with making trade-offs among limited resources such as time, money, people, and management attention. My hope is that this paper will equip you to answer not just these specific questions but a broad range of other questions as well. And if it helps you to achieve the benefits of integration a little more easily, then it will have done its job. The Economics of Integration Competency Centers 3 Introduction Economics is the social science that studies the production, distribution, and consumption of goods and services. More importantly, economic concepts are applicable to integration competency centers. ICCs are shared service functions that operate in an internal economy where they serve multiple groups. ICCs need to compete for the attention of internal consumers who often have alternative choices that allow them to avoid using the shared service if it isn’t perceived as providing value. ICCs must also compete internally for investment capital in order to improve service delivery capabilities and must make regular decisions about how to best allocate limited resources. This paper explores the effective use of integration competency centers in medium-size and large organizations and how economic concepts can be applied to achieve breakthrough business results.

W H I T E PA P E R The Economics of Integration Competency Centers This document contains Confidential, Proprietary and Trade Secret Information (“Confidential Information”) of Informatica Corporation and may not be copied, distributed, duplicated, or otherwise reproduced in any manner without the prior written consent of Informatica. While every attempt has been made to ensure that the information in this document is accurate and complete, some typographical errors or technical inaccuracies may exist. Informatica does not accept responsibility for any kind of loss resulting from the use of information contained in this document. The information contained in this document is subject to change without notice. The incorporation of the product attributes discussed in these materials into any release or upgrade of any Informatica software product—as well as the timing of any such release or upgrade—is at the sole discretion of Informatica. Protected by one or more of the following U.S. Patents: 6,032,158; 5,794,246; 6,014,670; 6,339,775; 6,044,374; 6,208,990; 6,208,990; 6,850,947; 6,895,471; or by the following pending U.S. Patents: 09/644,280; 10/966,046; 10/727,700. This edition published April 2008 White Paper Table of Contents Foreword (by John Schmidt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 What Are Integration Competency Centers? . . . . . . . . . . . . . . . . . . . . . . . . 5 ICC Operating Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Challenges and Root Cause Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Optimizing the Whole Versus Optimizing the Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Centralization Versus Decentralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Standardization Versus Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Innovation Versus Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Economic Framework and Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Nonfinancial Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Financial Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Aligning ICC Models with the Financial Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Infrastructure Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Case Study 1: Shared Services ICC—an Executive VisionInvestment Strategy . . . . . . . . . 21 Case Study 2: Integration Hub Consolidation—a “Creating the Wave” Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Case Study 3: Charge-Back Model—ETL COE ProductionSupport Chargebacks . . . . . . . 24 Case Study 4: Charge-Back Model—ETL COE Initiative-DrivenCapacity Chargebacks . . . 25 The Economics of Integration Competency Centers 1 Foreword (by John Schmidt) Integration is difficult but there is tremendous value in connecting people and systems across an organization in seamless processes that optimize the business and serve the customer. These two forces—difficult to do but beneficial when done well—make integration competency centers (ICCs) such a compelling approach. There is a host of reasons why integration is important, including technology issues such as incompatible data definitions from different applications or inconsistent interfaces between vendors that make the promise of “plug and play” more like a “square peg in a round hole.” When the long list of technical reasons is exhausted, we can add political and social factors such as conflicting motivations driven by inconsistent incentives, lack of trust between organizational groups, and the “not invented here” syndrome. At the heart of the integration challenge is complexity and change. If we didn’t have layer upon layer of technology with massive amounts of data and if things just stopped changing, we wouldn’t have this problem. Out of this challenge comes an opportunity: the possibility to differentiate your business. After all, if integration were easy, if it was a commodity, everyone would do it and there would be no competitive advantage. The organizations that develop a 360-degree view of their customers and are therefore able to serve them better and sell to them more effectively will be rewarded with increased market share. Organizations that have “one version of the truth” for business operations and finances will operate more efficiently and with the right data to make wise decisions. Organizations that govern their data have an advantage in protecting their intellectual property, securing their customers’ data, and satisfying costly regulatory obligations. More than three years ago, David Lyle and I wrote the first book on this topic, Integration Competency Center: An Implementation Methodology. Since then, I have been rewarded to see it adopted by thousands of individuals and hundreds of organizations using it to help establish an ICC. The vast majority of feedback from readers is positive such as these excerpts from amazon. com reader comments: “I think this book is a fantastic help for anybody from starter to more experienced managers. It gives a very good and structural approach on Competency Centers, and I successfully used it to create a Business Intelligence CC.” “Pages of well-developed thoughts and practical concepts presented for consumption by novice or architect on what to most is still an evolving discipline. Master these competencies and unlock the benefits of agility inside your enterprise. I just bought four more copies and consider it a must read for my managers.” 2 White Paper “Their [Schmidt and Lyle] insistence that integration is a separate layer and not simply a component or API to an application is a very important point, and one that is not always appreciated. Think of this layer as the structure that makes possible emergent value for an organization.” The one criticism of the book from some readers is that it’s not enough. The ICC book has helped many successfully down the integration path, but now they are hungry for more. As one reader put it: “It would have been nice if the authors could have provided more information on certain advanced topics. Treatment of Web services, business processes and orchestration is very thin, and these are the emerging value centers for integration. Semantic integration, the future paradigm, receives only cursory treatment. Complex event processing and content integration (which poses separate problems from data integration) are not covered.” So I am happy to report that an extended edition of the ICC book is in the works. It may take a year or so before it is published, but in the interests of serving loyal readers, we are not waiting to release some of the new content. This paper is one of several new chapters planned for the next edition. Note that it is not necessary to read the ICC book first. This paper provides sufficient context that it can be read on its own. Questions from organizations about the best way to structure a chargeback model, how to create incentives to encourage enterprise-wide adoption, and best practices for justifying investments in shared infrastructure led us to tackle the issue of economics first in this new series of papers. This paper addresses these and other related questions, but does more than provide answers. It starts by exploring and elucidating the underlying dynamics that drive organizational and individual behaviors: namely, the challenges associated with making trade-offs among limited resources such as time, money, people, and management attention. I would like to also take this time to give a special “thank you” to Don Heiser, for his time and contributions to this paper. My hope is that this paper will equip you to answer not just these specific questions but a broad range of other questions as well. And if it helps you to achieve the benefits of integration a little more easily, then it will have done its job. The Economics of Integration Competency Centers 3 Introduction Economics is the social science that studies the production, distribution, and consumption of goods and services. More importantly, economic concepts are applicable to integration competency centers. ICCs are shared service functions that operate in an internal economy where they serve multiple groups. ICCs need to compete for the attention of internal consumers who often have alternative choices that allow them to avoid using the shared service if it isn’t perceived as providing value. ICCs must also compete internally for investment capital in order to improve service delivery capabilities and must make regular decisions about how to best allocate limited resources.