How to elaborate a Business Model with Enterprise Architecture?
8 December 2010
How does an Enterprise Architecture and a Business Model work together?
Successful organisations are those that improve and innovate their Business Models to find a profitable niche against their competitors.
But a new Business Model alone is not enough. It needs to be implemented and executed. This is where an Enterprise Architecture comes in.
If organisations do not align their Business Model and their Enterprise Architecture then how can they be certain of making it work?
The first step is integrating the Business Model with the Business Architecture part of the Enterprise Architecture. This is described below.
Business Model Canvas
Business Model innovation is rapidly becoming a hot topic and especially with the release of the book ‘Business Model Generation’ by Dr Alexander Oesterwalder. http://www.businessmodelgeneration.com/
This book introduces a standard way of developing a Business Model called the Business Model Canvas. If you are an Enterprise Architect highly recommend you read it.
Up to now most organisations had their own informal and idiosyncratic way of defining a business model that was unique just to themselves. This is the first time a standard for developing a business model has been defined and published.
The Business Model Canvas is a powerful approach for business model design and innovation.
It captures the 9 most essential elements of a business model in a simple way, enabling the design of a ‘business model on a page’.
The 9 different segments are
- Customer Segments
- Customer Relationships
- Value Proposition
- Key Activities
- Key Resources
- Key Partners
- Cost Structures
- Revenue Streams
You can see some example Business Models developed with the business Model Canvas at http://www.businessmodelalchemist.com/ and on an associate web site where you can view a variety of example Business Models and try creating your own can be found at http://bmdesigner.com/ .
So what does all this have to do with Enterprise Architecture?
Enterprise Architecture exists to provide a path between strategy and execution, identifying the current state and the desired future state and plot a roadmap of strategic changes between them.
See book ‘Enterprise Architecture as Strategy’ – http://www.architectureasstrategy.com/book/eas/
Enterprise Architecture provides the organising logic and architectural thinking needed to design the appropriate business capabilities need to implement a Business Model. To get the right outcomes, organisations must focus on Enterprise Architecture and Business Architecture not try and jump straight to IT architecture and solution design.
After setting the overall mission and enterprise vision, the first Enterprise Architecture domain that we need to model and align with the Business Model is the Business Architecture.
Business Architecture Model
A Business Architecture model is used further elaborates the 9 high level concepts segments that have been populated with conceptual themes and business strategies in the Business Model Canvas. A number of techniques and approaches, views and artifacts are used to explore the themes and strategies in each Business model canvas segment.
Create a Porter’s Five Forces model to explore the market and the general business environment in which the organisation exists. Also conduct a SWOT analysis.
Create a VPECT model to explore the Values, Policies, Events, Content (outcomes) and Trust relationships from the perspective of each different customer segment.
For details of VPECT read the book ‘Lost in Translaton’ by Nigel Green and Carl bate – http://www.lithandbook.com/
Create a Business Event model, further elaborating the Business Events identified with the VPECT model.
For each current and especially the future Events, create a Business Scenario. This should explore he what if questions that will effect the business model in the future.
Create a model of the various channels that exist between the organisation and its customer segments as well as between the organisation and its partners and suppliers.
Don’t forget those new social media channels, such as iPhone or Android phones and other devices and applications such as Twitter and Facebook. Partners can also be channels as well.
Create a model of the flow of business information between the organisation and its customers and between the organisation and its partners and suppliers (use the Actor Co-operation Viewpoint in Archimate).
Use VPECT to explore what Value you provide to each customer segment and what problems you solve for them.
Create a Value Proposition Model of the Products, Business Services and associated Values (using the Product Viewpoint in Archimate).
Value Propositions drive Business Strategy, so create a Business Motivation Model to understand all the relationships between Vision, Goals, Objectives, Strategies and Tactics associated with the Value Proposition.
See http://www.businessrulesgroup.org/second_paper/BRG-BMM.pdf for details of the Business Rules Group’s Business Motivation Model.
Key activities includes any model of behaviour,
This should include both internal Business (organisational) Services, Business Functions, Business Processes and Activities as well as the external behaviour of your customers, partners and suppliers.
In some cases it is useful to think about behaviour in terms of external services (the what) and the internal behaviour (the how).
Create a Business Function Model (using the Business Function Viewpoint in ArchiMate). A useful approach to use here is the Component Business Model approach from IBM. See http://www-935.ibm.com/services/uk/igs/html/cbm-bizmodel.html
IBM’s Component Business Model provides a good basis for visualising the Target Operating Model in terms of Business Functions or in terms of Business Capabilities (they’re not the same thing…).
Create a Business Process Model (using the Business Process Viewpoint in ArchiMate). Business Process Models are not just Process Hierarchy Models but include Value Chains and Value Streams.
Create Value Stream models for each Event/Outcome pair (use the Business Process Viewpoint in Archimate) identified in the customer relationship segment above.
Create a Value Chain model at a high level for each customer segment (also using the Business Process Viewpoint in Archimate).
See http://www.opengroup.org/archimate/doc/ts_archimate/ for details of modelling the Business Architecture Layer in Archimate.
As they are high level abstract views, Value Chains are often specified more in terms of Business Functions than the more specific Business processes or Activities.
Resources in this segment can be further elaborated by the other Enterprise Architecture domains or Information Architecture, Application Architecture (and Application Service Architecture) and Infrastructure Architecture.
However before jumping to the IT Architecture it is better to start more conceptually and create an Enterprise Vision Model and a Business Capability model.
Enterprise Vision models are those high level one page models described as ‘core’ models in the book ‘Enterprise Architecture as Strategy’ (http://www.architectureasstrategy.com/book/eas/) and also in TOGAF Phase A.
You can also use the Layered Viewpoint in ArchiMate to produce Enterprise Vision Models.
Create a Business Capability model. This is usually a hierarchy model similar to a Business Function Model but remember that a Business Function and a Business Capability are two different concepts.
A Business Function is a high level view of existing internal behaviour from an organisational perspective, where the business functions are closely associated with the organisation units.
A Business Capability is defined by TOGAF9 as ‘A business-focused outcome that is delivered by the completion of one or more work packages’. A Business Capability is defined as the ability to execute a specified course of action, to achieve specific strategic goals and objectives. A Capability is defined in terms of the outcome of the course of action, one that has a business value. The concept of Capability is used in the military context and the MODAF framework where it is described in the abstract. See http://en.wikipedia.org/wiki/Capability_management and http://tinyurl.com/2vge39e
See also my previous post on Modelling Behaviour.
Create an Organisation model (using the Organisation Viewpoint in ArchiMate) to capture the human resources and their roles and responsibilities.
Create a Business Information Model (using the Information Structure Viewpoint in ArchiMate) to understand the knowledge, information and data resources within the organisation. Outcomes identified as Content in the VPECT model and in the Value Stream models are also modelled here as Business Information (represented by Business Object, Meaning and Representation object types in ArchiMate).
Identify your key partners, suppliers as carefully as you do your customer segments and customer relationships.
Don’t forget that Enterprise Architecture includes the extended environment as well as the organisation itself. This extended environment includes the Suppliers and Partners (use the Actor Co-operation Viewpoint in Archimate).
Explore the costs with a Total Cost of Ownership (TCO) model. This can be a spreadsheet.
Create a System Dynamics Models to fully explore and understand the cause and effect relationships between different stocks and flows, and run simulations.
Also explore revenues with a TCO model as with the Cost Structures
Remember that revenue doesn’t always mean profits in terms of money, but can be other non-monetary outcomes of value, (especially relevant for Government departments, non-profit and charity organisations who seek outcomes in terms of benefits to citizens and indirectly, votes).
It is again very useful to produce System Dynamics Models to understand the cause and effect relationships between different stocks and flows.
I think it’s surprising that more organisations don’t use System Dynamics as part of their enterprise architecture modelling. More on that subject in a future post…
Other Enterprise Architecture models
Starting from the Business Model Canvas, the Business Architecture views described above are used to further elaborate the details of the business model and to understand what needs to be realised from a business perspective.
After that the Business Architecture model is aligned to the Information/Data Architecture model, the Application Architecture model and finally the Infrastructure Architecture model pretty much as usual. I mostly develop these models using Archimate combined with other concepts from TOGAF 9 as needed, using tool such as Avolution Abacus and BiZZdesign Architect.
Note that other variations of Oesterwalder’s Business Model Canvas are starting to emerge. This is a sure sign that the concept is an important one that is reaching a tipping point.
These other business model approaches include: