2009 Ninth Annual International Symposium on Applications and the Internet

Enterprise Architecture Create Business Value

1

Takaaki Kamogawa, 2 Hitoshi Okada

The Graduate University for Advanced Studies, School of Multidisciplinary Sciences,

Department of Informatics,
2-1-2 Hitotsubashi, Chiyoda-ku, Tokyo, Japan
2
National Institute of Informatics, 2-1-2 Hitotsubashi, Chiyoda-ku, Tokyo, Japan
1
kamogawa@grad.nii.ac.jp, 2 okada@nii.ac.jp

Abstract. Since Japan is currently facing to some

environment change like global competition, deregulations,
highly developed Information Technology (IT) and so on,
Japanese companies are need to get their productivities more up
ever than before, and have flexible information systems to be
survived by themselves. Historically, the biggest challenge
facing to companies is adaptation to any environment. The
flexibility of the information systems to create business values
has been discussed for a long time as one of critical problems
among ICT communities. One of potential solutions is
increasing the ability of organizations to adapt to business
change by using Enterprise Architecture (EA) as a foundation of
ICT. This paper deals with the primary influence of EA on the
creation of business value.
Keywords: Enterprise Architecture, measuring business value,
financial-performance measure, exploratory factor analysis,
correlative analysis;

1.

BACKGOROUND OF THE RESEARCH

The history of information systems development in Japanese

industries is over 30 years old. This relatively long history has
meant that in some cases individual subsystems have grown or
been combined into large, complicated systems. The more
recent trends of dispersed application development and
development utilizing Web services enable faster and easier
development but they do not consider the business itself, its
strategy, or purpose [1]. Under these circumstances where
different hardware, software and development techniques
combine to form a single system, it may be difficult to
understand how the entire system works, and redundancies may
occur in the system or business operations for which the system
is intended. In fact, improper integration and optimization of the
system can be harmful to Japanese companies. The concept of
entire optimum enterprise architecture (EA) reflects the
integration and standardization requirements of the businesss
operating model [2]. EA integrates the rules, principles, and
guidelines for projects and businesses in order to assure efficient
improvements and changes to the IT environment. It treats the
application, data, and logic on the basis of the whole system [3].
The effectiveness of EA regarding a systems infrastructure has
been discussed for some time [4] [5] [6] [7]. In this research we
raise two key questions as follows: (1) To what extent will be
financial performance affected in companies which tried to
adopt EA? (2) How do organizations affect the creation of the
value brought by adopting EA? The fundamental question is
whether the claim of the benefits of EA is. In our research we
examined approximately 300 Japanese companies listed in

978-0-7695-3700-9/09 $25.00 2009 IEEE

DOI 10.1109/SAINT.2009.46

Japanese stock market on the basis of a questionnaire survey

with respect to EA, governance, and organization. The purpose
of this paper is to argue about business value brought by EA.
2.

RELATED WORK

This paper deals with the primary influence of EA on the

creation of business value. Although governments and other
organizations are promoting EA, we confine our study to EA in
relation to Japanese private enterprises from business point of
view.
2.1 How EA can improve business value
At this moment we may have a good time to reassess how EA
can improve the business use of technology and IT enabled
services. The silver lining of an economic downturn could be
needed for abrupt change to show the ability of EA in order to
improve business execution. Why is the execution of EA
important? The compelling need for EA is to enable strategic
business goal, and companies derive the strategic outcome from
EA in terms of operational excellence. The excellence covers
low-cost reliable and predictable operations, with an emphasis
on cost. In addition, it is argued that EA can reflect extreme
changes in the business environment, so it can be applied to
business models for making acquisitions and out-sourcing.
Jeanne W. Ross, Peter Weill and David C. Robertson found that
companies with a solid foundation concerning EA had a higher
profitability, faster time to market, and lower IT cost, and these
outcomes are universally beneficial and timeless based on the
result of their research to investigate more than 200 companies
[8]. Although their research shows a lot of case studies
concerning EA as a foundation to achieve business goals, they
do not state how specific factors affect generating business
value for companies which adopt EA as a strategic foundation.
Jaap Schekkerman states that an EA implementation strategy
reflecting an organizations mission and vision together with the
stake holder is not enough; governance must be also be
considered [9]. He also discusses the enablement of the effective
use of IT on the basis of EA and finds that transparency in
business is connected to expediting decision making.
Schekkermans research goes as far as making implications
about the theoretical framework concerning EA, but it does not
use scientific techniques to verify certain variables that can
generate business value. The authors show a conceptual model
that adds variables for creating business value and has wider
applicability in this paper.

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2.2 Measuring business benefits

EA shows great potential to move to companies to a new
productivity growth curve. The business justification for
investing in it comes from its promises as a platform for
increased business productivity, however, the return on
investment(ROI) demands that the costs of the investment are
returned within scope of the specific project at hand, making it
too tactical. Due to this reason, at first, we use a
financial-performance measure (return on assets, or ROA for
short) that tells an investor how much profit a company
generates for each dollar in assets in general. The ROA figure is
also a sure-fire way to gauge the asset intensity of a business.
Jorge L. Lopez who works for Gartner group asserts that
assessing the value of investments in enterprise architecture,
whose effects may not be readily apparent for perhaps another
five years, requires another measure. ROA is a strategic
alternative, forcing a business to build value based on increases
in the productivity of their capital assets [10]. On the other hand,
we use another financial-performance measure (return on sales,
or ROS for short) that has been used as a profitability measure in
numerous studies [11] [12] [13]. ROS is calculated as ratio of
net operating income (before taxes) to sales. In addition to these
two measures, we use the (compound) rate of change of sales
(CAGR) as the third individual measure of business benefitsto
measure business growth over the three-year period preceding
this survey. It is a widely used measure of performance [12] [14]
[15].
3.

HYPOTHESES AND ANALYSIS

3.2 Analysis method

Before correlative analysis was conducted to clarify the
relation between ROA and other measures concerning ROS and
CAGR based on financial data, we tested the deference between
companies which implement EA and those which do not
implement EA with respect to each variable by using t-statistic.
Then, the factor analysis was conducted with the exploratory
factor analysis to determine the appropriateness of the question
items in order to clarify specific factors. Varimax rotation was
done with a factor of 1.0 or more, and each factor was
interpreted.
1) Correlative analysis
We tried to conduct a correlative analysis based on the
collected financial data in terms of variables, ROA, ROS and
CAGR. In case of companies which have not implemented EA,
there is not significant concerning the correlative relation
between ROA and ROSshown in Table 1, and there is also not
significant concerning the correlative relation between ROA
and CAGR shown in Table 2. On the other hand, in case of
companies which implement EA, there is significant concerning
the correlative relation between ROA and ROS shown in Table
3, and there is also significant concerning the correlative relation
between ROA and CAGR shown in Table 4. As a result of that,
the foundation for execution of business operations based on EA
affects good performance-based CAGR. Similarly the good
asset rotation could bring good business performance to be
shown as the variable, ROS.
2) Factor analysis
Then, we conducted an exploratory factor analysis for the
questions related to organization and business value brought by
EA.

3.1 Hypotheses
EA is a planning, governance, and innovation function that
a)
Degree of recognition of EA
enables an organization to progress toward its vision of its future
Among
the
questions related to the degree of recognition of
stage to achieve strategic business goals. Our key hypothesis is
that the variable, ROA which indicates the efficiency of asset EA, the factor analysis revealed two factors. The first factor was
control is positively related to both sales factors for both ROS coherence of information. The observation variables were
and CAGR concerning companies that would implement EA.
To verify this hypothesis, we conducted a questionnaire survey
on the Web. The survey period was from February 1st to
February 14th, 2006. The participants were chiefs of section,
employees who had experience in making management plans,
and those involved in accounting and financial affairs, system
planning, and business design. The survey sheet was sent to 676
persons, and 308 adequate replies were returned to us. Figure 1
shows the industry type of enterprise and data regarding scales.
In addition, we collected financial data for the corresponding
company collected from the web survey from the view of
financial perspectives, and then ROA, ROS and CAGR noted in
previous section were collected as the performance measures.
The period for these data is from the year 2006 to 2008. During
this period some financial data could not be collected since Figure 1. Profile of participating companies (by industry (left),
by scale (right))
M&A occurred, and the companies were dropped from Japanese
stock market.

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Business architecture, Data architecture, Having adequate

knowledge and experience in management, and Having
adequate knowledge and experience in IT. The second factor
was Clearness of return on investment for business value, and
the observation variables were Understanding the effectiveness
of EA implementation and Priority regarding EA
implementation as IT portfolio.
b)

Table 3. Correlative analysis for companies which adopt EA

(a)

Business value from EA implementation

Among the questions related to business value from EA

implementation, the factor analysis revealed three factors. The
result of factor analysis defined Agility for business,
Efficiency for business, and Ability to deal with changes as
latent variables. Expediting decision making and Visualizing
business, and Improving business model were the
observation variables for Agility for business. Speeding up
the information system development cycle and Managing IT
portfolio were the observation variables for Efficiency for
business.Then, Pliability for acquisition, and Pliability for
out-sourcing were the observation variables for Ability to deal
with changes. Table 5 lists abbreviations for the observation
variables, and Table 6 and 7 list the results of the factor loading
regarding degree of recognition of EA and business value from
EA respectively.

Table 4. Correlative analysis for companies which adopt EA

(b)

Table 5. Lists abbreviations for the observation variables

Group

EA implementation
circumstances

Table 1. Correlative analysis for companies which do NOT

adopt EA (a)

EA value

Governance

Table 2. Correlative analysis for companies which do NOT

adopt EA (b)
Organization

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3.3 Empirical results

At first, as noted in Section 3, our key hypothesis is that ROA
is positively related to both sales factors for both ROS and
CAGR concerning companies that would implement EA. Based
on our correlative analysis, this hypothesis is supported.

Variables
EAC-2.0
EAC-3.1
EAC-3.2
EAC-3.3
EAC-3.4
EAC-3.5
EAC-3.6
EAC-3.7
EAC-3.8
EAC-3.9
EAC-4.1
EAC-4.2
EAC-5.0
EAC-6.0
EAC-7.1
EAC-7.2
EAC-7.3
EAC-7.4
EAC-8.0
EAE-9.1
EAE-9.2
EAE-9.3
EAE-9.4
EAE-9.5
EAE-9.6
EAE-9.7
EAE-9.8
EAE-9.9
EAG-1.0
EAG-2.0
EAG-3.0
EAG-4.0
EAO-1.0
EAO-2.0
EAO-3.0
EAO-4.0
EAO-5.0
EAO-6.0
EAO-7.0
EAO-8.0
EAO-9.0

Meaning
Knowledge of the manager

Expediting decision making

Visualizing business
Getting a bird's eye view of business and IT
Speeding up the information system development cycle
Managing its IT portfolio
Getting more from the IT investment budget
Improving the business model
Facilitating system mergers
Outsourcing
Having adequate knowledge and experience in management
Having adequate knowledge and experience in IT.
Degree of skill of EA specialist
Priority regarding EA implementation
Business architecture
Data architecture
Application architecture
Technology architecture
Understanding the effectiveness of EA implementation
Decision making
Visualization of business
Bird's eye view of business and IT
Shortening the time of information system development
Managing the IT portfolio
IT investment budgeting
Business model change
Pliability for acquisition
Pliability for out-sourcing
Establishment of internal control
Internal control of the IT system
Internal control evaluation
Risk
Application policy
Orientation plan
Automation of business process
Effective decisions about IS
Improvement of business process
Communications inside the company
External communications
Information assets
Standardization of the business process

Table 6. Lists the results of the factor loading regarding

degree of recognition of EA

The ability of
0rganizations

Coherence of
information

Agility

Efficiency
Clearness of
return on
investment

Table 7. Lists the results of the factor loading regarding

business value from EA

Ability
To deal with
changes

Measurement

ROA

ROS

CAGR

Figure 2. Conceptual Model

implementing the information systems by using IT enabled

services such as ICT. This research was to argue about business
value brought by EA. In the future, we will clarify how
governance and organization could affect business benefits on
the basis of EA.
REFERENCES
[1]
[2]

This result suggests that if companies implement EA as the basis

of business and business information system, they could
improve business performance. Secondly, we conducted a factor
analysis for the same data as the correlative analysis.As a result
coherence of information andclearness of return on investment
regarding IT were extracted as primary factors in terms of the
recognition of EA. This result suggests that to bring business
value organizations should care about these two factors.
Similarly, three factors were extracted as agility for business,
efficiency for business, and ability to deal with changes from
view of business value borough by implementation of EA.This
result suggests that the value of EA from business point of view
is the flexibility to business change.Based on both correlative
and factor analysis we can assume that organizations on the
basis of recognition of EA affect financial measures noted as
ROA, ROS, and CAGR as shown in Figure 2.
4.

Business
Value

[3]

[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]

FUTURE WORKS

This thesis does not state how organizations affect business

impact in terms of EA implementationin depth. We will clarify
the causal structure whereby the degree of recognition of EA
influences the value of EA implementation, governance
mechanisms, and organization of an enterprise after this
research. EA is becoming a prerequisite to constructing large
complex information systems in Japan. EA is the key to

[13]
[14]
[15]

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