Among the most fundamental upstream influences on architecture is the strategy of the enterprise. In a corporate context, the firm’s corporate strategy describes the means by which the firm achieves corporate goals, such as increasing profitability and building competitive shareholder value. In a government context, the enterprise’s strategy similarly defines the means by which the agency achieves its mission. Strategy should explicitly differentiate how the firm or enterprise will do this; stating corporate strategy as “grow the revenue of the firm while maintaining the product margins” conveys little of what decisions the firm made. Strategy defines the specific activities of the organization: the mission of the enterprise, the scope of activities, the long-term and intermediate-term goals, resource allocation decisions, and planned initiatives.

An effective corporate strategy is most crucially a way to communicate vision and direction to the stakeholders and team, and a guide to the investment of scarce resources. It should provide a coherent, unifying, and integrative pattern of decisions. The strategy should reflect what markets, features, and customers are considered, and which are excluded from consideration. Strategy involves calculated gambles. If success were assured, strategy would be called investing in risk-free bonds!

In many technology firms, the architecture of the system has an enormous impact on the firm’s corporate strategy, and vice versa. IBM’s corporate strategy decision to outsource the operating system development to Microsoft, combined with its decision to create a stable architecture for the PC, shaped the desktop computer market for 25 years. Airbus’s decision to define a common glass cockpit for the A319, A320, and A321 had a strong positive impact on the firm’s market strategy, enabling it to sell to customers the benefits of commonality through training and maintenance savings.

Many engineers unfamiliar with strategy are initially frustrated by the lack of useful ­information in what in a for-profit firm would be called the shareholder annual report corporate strategy. This level identifies the long-term objectives (such as “be the largest automotive OEM by units sold in 2018” ^[2]), action programs (“drive cost synergies across business units”), and resource allocation priorities (“continue our commitment to R&D in energy storage”). By definition, information that the firm makes publicly available to its competitors does little to define what is excluded from consideration and what is truly being prioritized. For example, which of the largest five automotive firms doesn’t want to be the largest? This statement alone does not provide much information about what actions the firm is taking to realize that goal.

Strategy assesses the opportunities and threats in the competitive environment, and the strengths and weaknesses in the enterprise. It defines initiatives and action programs around which the enterprise will mobilize. Financial analysts consume information at the level of the shareholder annual report and produce summaries of their positions on the firm’s strategy, which can provide another mechanism for understanding the firm’s strategy. Analysts’ reports can include assessments of the opportunities and threats in the competitive environment (such as which competitors are losing structural advantages due to deregulation) and of the strengths and weaknesses of the organization (such as its core competency in designing paper-routing mechanisms and its potential weakness in assessing and crafting service plans).

The shareholder annual report corporate strategy is distinctly different from the executive corporate strategy. The executive management strategy level defines what businesses the firm is in or should be in, and then establishes a means of investing selectively to develop the ­capabilities for sustainable competitive advantage. This level involves clear decisions on priorities, primarily executed through investment decisions, and, even more important, what to exclude. Executive management strategy defines corporate philosophy, sets shareholder expectations, segments the business, creates horizontal/vertical strategies, and considers global and macroeconomic trends.

For example, BMW decided in 2009 to exit Formula 1 (F1) racing at a savings of several hundred million U.S. dollars per year. This top management team weighed the benefits, in terms of BMW brand awareness, brand association with F1, and F1 technology trickle-down to production vehicles, against the opportunity cost of other marketing and R&D investments. BMW indicated in its press release that “Premium will increasingly be defined in terms of sustainability and environmental compatibility. This is an area in which we want to remain in the lead.” ^[3] Thus BMW’s forecast of macroeconomic trends resulted in a new business segment, BMW i, focusing on small, efficient, city-driven vehicles. [^4]

In larger companies, there exists a business unit strategy below the executive level corporate strategy. Business unit strategy is specialized to the sector, market, geography, or technology that defines the business unit. In the BMW case, the business unit strategy for the BMW i sub-brand asks these questions: Given that BMW is targeting small, efficient, city-driven vehicles, how will the BMW i sub-brand segment its customers, which threats will it actively mitigate with investments, and which opportunities will it exclude from consideration? To be effective, the architect must be intimately familiar with the business unit strategy, in order to understand the context, the priorities, the decisions, and the investment process.

Within a business unit (and sometimes across business units) there are functional strategies that aggregate the goals with regard to the firm functions—marketing, R&D, sourcing, and so on. These functional strategies can express how the function serves a corporate goal (“What actions does sourcing need to take, given that the firm wants to be first to market with technology in the industry?”) or they can express improvement plans that are only indirectly tied to the firm’s profitability. Here are some of the key strategy questions that often appear in these functional strategies:

• Marketing. Where a company competes (markets, segments, competitors, ­geography) and how it competes (the “attack plan”—cost, quality, services, feature innovator/follower).

• R&D/Technology. How important new technology is to the business, how ­technology will be developed/acquired, at what level of investment, with what type of multiproduct planning.

• Manufacturing/Sourcing. How important low-cost manufacturing is to the business, whether internal manufacturing or outsourcing will be used, and how suppliers will be integrated.

• Product Development. How new products will be developed, whether to employ any platforming, global vs. regional products, and whether the development will be internal, outsourced, or an alliance effort.

The architect must be deeply engaged with these functional strategies.

At all four levels of corporate strategy (shareholder annual report, executive, business unit, functional), goals are frequently expressed in corporate finance terms. If the architect is unable to interpret a compound annual growth rate (CAGR) target of 20% for a market entry strategy in Asia in terms of its implications for product development timelines, she or he will fail in the role of communicating goals for the project. Similarly, an architect must be able to define whether a R&D level of 3% of revenues will be sufficient to develop the lead variant in a product family, whether the second and third variants will contribute to the amortization of that investment, and what implications this has for the return on investment (ROI) of the variants individually as compared with the product platform as a whole.

How does corporate strategy impact architecture? How does architecture impact corporate strategy? These are questions that the architect must thoughtfully consider. Some of the many impactful relationships between aspects of strategy and architecture are noted below.