Enterprise Architecture for SMEs

Small and medium-sized Enterprises (SMEs) are important drivers of economy. SMEs face a number of problems due to a lack of structure and overview of the company. Enterprise architecture (EA) can be used as a holistic approach to keep things aligned in a company, regardless of size.

In this blog we put forth an argument for the benefits of EA to the SME Sector

Small and Medium Enterprises are a big part of our economy

Enterprises are complex and highly integrated systems which comprise of People, processes, information and technologies with interrelationships and dependencies to reach common goals. The size of an enterprise is defined by the number of employees it has. While definitions vary across countries, in New Zealand these are defined as (1):

• Small – 1-19 employees (this includes sole traders)
• Medium – 20-99 employees
• Large – 100+ employees

According to the latest data from Statistics New Zealand, SMEs account for 99.6% of all enterprises in the country and contribute nearly 58% of total industry sales in 2018 (2).

While SMEs are important drivers of economy, they face several problems due to a lack of experience and knowledge in certain domains common across all businesses.

SMEs are typically characterized as enterprises with flat hierarchies, non-bureaucratic structures, limited resources (personnel and financial), operating in specific corners of the market or having a specific customer base. The day-to-day business is specialized, but flexible to change based on the requirements of individual customers.

Within a small business, the owner is often working in their own company. In medium-sized enterprises this task is often replaced and augmented by other activities like making decisions, depending on the amount of information about the environment, the risks, and chances. As a result, the decision processes of SME are often highly centralized.

SMEs are often more focused on the operational planning and controlling than strategic aspects and the use of controlling instruments is often limited. In addition, there is a big difference between the knowledge about the importance of such management models and the implementation of concrete measures. While this does not apply to every SME, surveys have shown that the majority of SME fit them (3).

The adoption of Technology by SMBs

As technology is a major element of both costs and added value on a business there is interest in the long-term existence of IT systems, yet there still exists a gap in how SMEs approach their technology strategy. Regardless of size it is necessary to identify and rectify these gaps to remain competitive and grow. These gaps are often a result of the five common challenges impacting IT adoption in SMEs:

1. Employees and management are typically focused on day-to-day business, leaving little time for themselves to look at strategic matters such as process management, not to mention quality and process improvement.
2. In many sectors, SMEs have limited IT knowledge and technical skills and significantly fewer resources than larger companies to hire strategic planners.
3. There is a big demand in these companies for knowledge regarding the performance of tasks and how things are done.
4. The CEO is the central figure who determines the direction of an SME. Their skills and preferences have a major impact on the extent to which the SME changes.
5. With every decision there is a degree of uncertainty. The expected returns must exceed the expected risks and costs (time, money, effort) to accept a new approach.

From these challenges it is possible to derive criteria that can be a guidance for developing techniques that have a higher fit with SMEs:

1. The approach should enable SMEs to work in a time efficient manner on strategic issues.
2. It should be possible to apply the approach without needing a full-time resource
3. The approach should enable making descriptions of how things are done in the company.
4. The CEO must be involved in the approach.
5. The expected revenues of the approach must exceed the expected costs and risks.

(adapted from 4)

Enterprise Architecture for SMEs

This is where an Enterprise Architecture (EA) approach can help. Traditionally found in larger companies EA is the process by which organizations standardise and organise technology to align with business goals. It aligns systems with the people and processes they support while focussing on both cost efficiency and flexibility of the IT systems.

Following EA good practice businesses can focus on both cost efficiency and flexibility of the IT systems in alignment with supporting digital transformation, IT growth and the modernization of IT within the business. This leads to a more mature approach to selecting and managing technology in SMBs as decisions are approached strategically rather than tactically.

There is strong evidence that EA provides value to those large organisations which use it.  For example, the EA group of a large bank delivered cost savings more than $200 million (1.4% of the company’s operating expenditure) through IT asset rationalisation and reuse (5). In another example  a  large-scale IT-enabled business transformation EA organisation to avoid more than $20 million in costs in the first year of the program (about 2% of the total cost of the five-year program) through the identification of synergies and reuse opportunities (6).

The non-financial benefits of following an EA model include:

• Simplification of an enterprise.
• Align technology operation to the business needs.
• Align enterprise components to strategy. 
• More effective IT operations. 
• Effective management and exploitation of information through IT.
• Better return on existing investment, reduced risk for future investment.

Deployed correctly EA has the potential to provide these benefits to SMEs by providing the view of the relationships between the people, processes, information, and technology. The challenge is that it is not a well-known construct outside of big business. Exploratory conversations with New Zealand SMEs confirm that few know of or utilise EA capabilities, research that is supported in overseas markets.

And that is what we are on a mission to resolve.

In our next blog, we’ll explore how a business in the Enterprise Architecture for SMEs can be utilised to drive and sustain growth.

Want to know more? Contact us today

References

(1)https://www.mbie.govt.nz/business-and-employment/business/support-for-business/small-business/

(2)https://nzbusiness.co.nz/news-items/nzs-small-businesses-numbers

(3) Wibotzki, M., Timm, F., Sonnenberger, A., 2015. A Survey on Enterprsie Architecture Management in Small and Medium Enterprises.

(4) Bernaert, M., Poels, G., Snoeck M., De Backer, M., 2014. Enterprise Architecture for Small and Medium-Sized Enterprises: A Starting Point for Bringing EA to SMEs, Based on Adoption Models

(5) Burns, P., Neutens, M., Newman, D., Power, T., 2009. Building Value through Enterprise Architecture: A Global Study. Booz and Co.

(6) Tamm, T., Seddon, P., Shanks, G., Reynolds, P., Frampton, K.M., 2015. How an Australian retailer enabled business transformation through enterprise architecture.