Gartner s Pace-Layered Application Strategy. Johan Bronkhorst

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1 Gartner s Pace-Layered Application Strategy Johan Bronkhorst

2 Gartner s Pace Layered Application Strategy is a methodology for categorising, selecting, managing and governing applications to support business change Why do companies struggle to replace legacy systems? Many companies make long-term decisions on mission-critical software solutions without an appropriate IT-strategy to guide decision makers. Is it any wonder that most of the IT selection projects fail to deliver on expectations? Selecting and deploying software in the absence of an ITstrategy is similar to be expected to hit a target while being blindfolded. Most software selection project for Enterprise Resource Planning Systems (ERP) starts with a Request for Proposal (RFP). The RFP asks software vendors to state the capabilities of their software and to provide a quotation for their solution. Shortlisted vendors are invited to demonstrate their software, and after some deliberation, the company will choose what it considers to be the most appropriate solution. The above approach, more often than not, doesn't have the fairy-tale ending that vendors promise and companies expect. In most instances, after spending an incredible amount of time and money, there is no "happily ever after" but rather a situation of blame shifting for non-compliance and budget blowouts. The question is what went wrong and what can we learn from it? The main reason for failure is the conversation between business leaders and IT leaders is not working. The biggest mistake most companies make is to have only one policy for selecting, deploying and managing applications. The problem with this approach is it doesn't recognise that applications are inherently different based on how the organisation uses them. The Pace Layered Application Strategy from Gartner provides a framework for better decision-making. Gartner introduced the Pace-Layered Application Strategy by defining three application categories or "layers" to distinguish application types based on how companies use them:

3 Fig 1 The Pace Layered Application Strategy Systems-of-Record These are typically applications that are for processes that are stable over an extended period (10+ years). Typical applications that make up an organisation's Systems-of-Record are Finance, HR, Asset Management, Banking and Procurement. The greatest benefits from these systems are efficiencies in transaction processing. These systems should provide a stable basis for recording and manage all core activities of the organisation for at least ten years, so they must allow for any anticipated growth in scale. Systems-of-Differentiation These are applications that support processes unique to the company or its industry and that drive competitive advantage. These applications should continually be evaluated and might require changing every couple of years. These applications may be part of a suite or can be best-of-breed applications. Systems-of-Innovation These are applications built to support business transformation including new and innovative business activities. These applications must be constructed quickly to enable enterprises to take advantage of new ideas and opportunities. These systems will either support innovative new technologies to provide new capabilities or deliver strategic value. For example, profitability modelling and optimisation applications enable executives to understand what drives profitability and to create new strategies that can transform corporate performance. Connective-Tissue This is the technology that allows applications in different Pace-Layers and within layers to work together as a whole. Connective-Tissue includes technologies such as; Service-oriented architecture (SOA), Application Program Interfaces (API's) and Business Process Modelling (BPM). With the Pace-Layered model, Connective-Tissue becomes an essential consideration for companies as this ensure that Systems-of-Innovation and Differentiation can still be fully integrated with Systems-of-Record, in a cost effective, robust and efficient way.

4 Benefits of the Pace-Layer approach The Pace-Layered Application Strategy provides the framework for governance to encourage meaningful and continuous input from the various departments in a company while the occurrence of "Shadow IT*" is minimised. *Shadow IT is when individuals use solutions (e.g. Spreadsheets) outside the official business systems to overcome frustrations with the solution. The biggest benefit of the Pace-Layered Application Strategy is that it enables business leaders to focus on areas where differentiation and innovation can give them a competitive advantage and to act on these opportunities quickly. How can Pace-Layers promote differentiation? Most of our customers are astounded at the results when they see the material improvement in business outcomes when they reprioritise IT.. Provide a process to consider individual business activities rather than application categories. Create a framework to support the coexistence of integrated suites and "best-of-class" apps. Establish a governance process that allows departments to specify, justify and even purchase applications themselves.

5 Encourage a dialogue between business and IT leaders about which activities are (or should be) differentiating. Introduce the idea that differentiating applications change at a faster pace. How can Pace-Layers encourage innovation? Create a category of "Innovation Applications" with a budget and governance process. Establish a development environment with tools and resources to make innovative applications faster and easier to develop. Use the pace layers model to shift some funding from systems of record applications to Innovation applications. Develop "connective tissue" that allows Systems of Innovation applications to access master data and call Web services without compromising data integrity or security. By using the Pace-Layered model, companies can develop more appropriate strategies for each layer. Once the Pace-Layered Application Strategy is understood and supported by all the role players, it becomes easier to get consensus on the right process to evaluate and implement new software applications. Each layer should have a differentiated strategy for areas such as; budgeting, maintenance and support, selection criteria, data management, architectural standards and deployment model as depicted in the following table of recommendations from Gartner: Table 1

6 Building a Pace-Layered Strategy At this point, I trust we have proven the benefits of first implementing a holistic IT strategy before engaging in a selection project for a new ERP system. The challenge is how to go about it. Recommended Process The recommended process to implement a Pace-Layered Application Strategy is as follows: Create a panel of business users and IT application experts. Decompose existing suites into individual applications. Associate each application with the business process it supports. Analyse the characteristics of each application and process. Use the Pace-Layered Application features as a starting point to assign the application to a layer. Adapt your software governance model to fit the objectives and needs of the three layers. Establish a set of connective technologies to facilitate the interoperability of the application within and between layers. Build awareness of Pace-Layers throughout the organisation. Encourage users to think about applications and processes based on their probable rate of change Example of existing applications assigned to Pace-Layers (As-Is model) With limited information about your operations, the following example is for clarification purposes only

7 With the above example, it is now possible to evaluate where the gaps are. First, start with Systemsof-Record as these form the foundation for all the other applications. The most important questions to ask regarding Systems-of-Record are: Does my Systems-of-Record provide the most cost effective way to process daily transactions? Will my systems of record be scalable to accommodate growth over the next ten years? Do they provide the "connective tissue" to integrate to other applications? At this point, some companies realise there is no need to replace their System-of-Record. However, if the answer to any of the above questions is "no", then it is time to consider replacing them. Replacing your systems of record The selection of a new System-of-Record should still follow a formal evaluation process, after all, this is a long-term decision and critical to get right. The focus, however, changes to the following four areas: Connective tissue Probably the most important consideration and an area that many companies overlook in the evaluation process. Connective technology is critical to ensure systems of innovation and differentiation can successfully be integrated. Scalability Extrapolate growth expectations over ten years and ensure the system can handle the number of transactions as well as users. Upgrades Ensure the vendor regularly provides updates to the solution to ensure you keep current, especially in areas such as technology improvements and potential regulatory changes. It's also

8 important to understand what is involved in upgrading as it could vary significantly between different vendors. Best practice Business processes managed by systems of record should be standardised and supported by best-practice templates in the applications. The To-Be model could now look as follows

9 Summary It was not the intention of this document to cover the Pace-Layered Application Strategy in depth but to rather provide a high-level overview. We trust this white-paper clarified the potential benefits of first developing a robust IT-strategy before engaging on a software selection project. If this is something you would like to pursue, we'd love to help. At CBS ERP Consulting we have the expertise to assist companies with the implementation of a Pace-Layered Application Strategy. Please do not hesitate to give us a call should you have any further questions. Best Regards Johan Bronkhorst Solutions Architect CBS ERP Solutions PO BOX 7942 Baulkham Hills BC, NSW 2153 Helpdesk W: helpdesk.cbsau.com E: support@cbsau.com P: +61 (2) M: +61 (0) F: +61 (2) E: JohanB@cbsau.com Web: