Architecting multi sided business

Architecting theMulti-SidedBusiness IASA UK CHAPTER Richard Veryard February 2012

About this presentation An earlier version of this presentation was given to the UK Chapter of IASA on February 13th 2012. I’m afraid some of the slides may not be completely self- explanatory. Feel free to contact me for further discussion. The material is an extract from my Business Architecture Bootcamp. See Unicom website for more details. http://unicom.co.uk/product_detail.asp?prdid=1864

Agenda A modern business typically needs to operate in multiple markets simultaneously, and satisfy the overlapping needs of different stakeholders. The emerging architectural response to this challenge is to configure the enterprise as a platform of services, rather than a traditional value chain. But this kind of transformation involves profound architectural challenges, which business architects need to be able to master.

Supply Chain as Stack We can start by picturing the supply chain as a stack. Passenger Transport Services Software engineers are familiar with the concept of Airline stack in software and communications. But here we Landing Services are talking about a business Airport stack, in which each organization provides a Engineering Services platform of services for the organizations directly above it Engineer in the stack.

Straight-Through Processing  Straight-through processing (STP) generally makes the following Car Driver assumptions: Insurance  There is a collaboration between Broker several service providers  The purpose of the collaboration Underwriting is to expedite some customer transaction Insurance  The service providers have a common view of this transaction Claims  The customer transaction belongs within some domain, in which all Claims the service providers participate.

Disintermediation  The passenger can easily bypass the travel agent, and buy tickets direct from the airline. Passenger  What makes this easy? Ticket Services Travel Agent Passenger Services Airline  The passenger might also bypass the airline, and Airplane Charter charter a plane directly.  What makes this Airplane more difficult?

Making Disintermediation Harder Does this count as adding value? Easier Harder ExampleBusiness Same Different Tickets versusConcepts Landing SlotsGranularity Same Different Individual Seat versus whole PlaneTime Synchronous Asynchronous Annual Harvest versus All-Year- Round Supply… ? ? ?

Stack Challenges The UK’s vertically integrated rail network (British Rail) wasHere’s an example of a seriously flawed stack. decomposed into a stack of separately owned and operated companies. Passenger Transport Services Knowledge was fragmented – nobody knew the full state of Train Co the network. Rail Services Service levels were Track Co incommensurable and muddled. Engineering Services Engineer Serious safety issues emerged (Hatfield).

Stack Design and GovernanceCritical success factors Analysis and Design Monitoring and Control Understand the transformation  Proper distribution of risk between layers.  Getting a holistic view on what Work out the implications for is going on. service levels and pricing.

Stack Strategy  Strategic Questions Where exactly should we be inWhere do I want to be in the stack? the stack? Can we influence the stack geometry?  Does the telecoms company Bank sell direct to banks, or via software companies and Packaged Solution system integrators?  Can the identity company Software bypass (disintermediate) the telecoms company? Packaged Identity Strategic Impact Telecoms  … on the commercial viability of the platform? Identity Services  … on the agility (responsiveness) of the stack Identity Co as a whole?

Stack Architecture Stack geometry and governance calls for architectural thinking. Architectural Questions Demand Side How many layers? How can this geometry ?? be both adapted and adaptable. What is the appropriate granularity in each layer? ??Differential Rate of Change  What is the rate of change within each layer? How much coupling is there ?? between layers?Innovation Gradient  What are the trust and securityTrust Gradient  ?? requirements in each layer? What is the appropriate technology for Supply Side each layer?

Emergent Properties of Stacks  Stacks typically fail to provide cleanBUT separation of concerns.  Stacks tend to get more complicated over time.  Attempts to export costs and risk upwards or downwards usually result in greater aggregate cost and risk.

Implications for Business StrategyTHEREFORE Business strategy calls for understanding the whole stack – indirect relationships as well as direct relationships. A sustainable business will deliver indirect value as well as direct value. So let’s see what happens when we view business as a multi-sided platform.

Business as PlatformA platform can satisfy many different types of customer. Typical Outsourcing Issues  Management / Coordination  Delegation / Risk Airport Airline Outsourcing Strategy Engineering Services Platform Strategy Typical Platform Issues Engineer Engineer  Pricing & Service Levels  Granularity / Unbundling of Services

Raising the PlatformMoving the platform upwards (or downwards) is a strategic move.  Premium added-value services Corporate New Business Network Old Business Network Telecoms  Commodity services  Downward pressure on price  Non-viable as long-term business

Changing Market Structure (Retail) Asymmetric DesignTraditional Platform Indirect Consumer Consumer relationships Caterer Manufacturer Retailer Farmer Manufacturer Caterer Farmer Retailer Economics of Scale, Scope  Economics of Alignment, Governance

Many Platforms are single-sided, with Media Producers & MediaDistributors and Broadcasters at one end and buyers at the other. Source: Maat International

Multi-Sided Business Models provide benefits by increasing and capturing indirect network externalities Growth in the number of potential customers on Side One for complementary contents and services on Side Two occurs This then leads to an increase in the quantity and diversity of complements made availableSide One by Side Two Side Two Because Side One users are favorably inclined to a wider variety of contents and services on the other side, more join the platform. The increased number of users makes it even more attractive for Side Two to develop new complements. Source: Maat International

A Media information aggregator builds a relationship with end users andconnects them to various retailers and Contents / Services Providers. Source: Maat International

Examples of Multi-Sided MarketsBusiness Complementors Customers A Customer Situation Indirect BenefitsPlatformSocial Private Aircraft Travellers Team travelling to a fixture Cost-effectiveFlights direct travelCredit Merchants Card holders On holiday in Paris TransactionCards convenienceSmart Applications Users Organizing things while we’re Personalphones away on holiday organizationSports Teams, Sponsors Spectators Following our local team Family socialclubs eventHospitals Doctors, Pharma Patients Complications from a bite Treatment for my from a deer tick conditionAirports Airlines, Retail Travellers Making a flight connection Personal travelCable Content providers Audiences Being able to watch things Personal viewingnetworks when we chooseMicrosoft Developers Customers Applications that support the Personal way I work computing Source: Asymmetric Design

Elements of a Multi-Sided Market Definition Example: Social FlightsCustomer Situations in which there is a need The need for members of aSituations for a particular form of collaboration team to travel together to between customers and play an ‘away’ match complementors.Customers The end-users within a customer The team members situationComplementors The suppliers whose Owners of private aircraft product/service offerings are offering lower overall costs needed within particular customer on the particular route situations.Platform The means by which customers The capability to bring and complementors are enabled to customers and come together to form a complementors together collaboration Source: Asymmetric Design

General Pattern Consumer Questions Consumer Consumer  Where are the products and services located? Complementor ComplementorComplementor  How is the platform designed and managed?  How does the platform support indirect Platform Business relationships?  Where is the added value located?

Design principles for multi-sided markets Solid understanding of the needs of  The solution should, where relevant, the different sides of the market is define appropriate strong branding key. that communicates the common There should be a business model characteristics of the solution to end- that balances the benefits for both users, such as reach (size of the sides of the market, and if applicable network), basic user experience, etc. their service providers (positive  The solution should strive to remove business case for all players). unnecessary frictions on network The design process should be driven growth, such as high entry barriers, by an independent party to ensure etc. neutrality and impartiality.  The solution should, were The solution should remain as appropriate, foster both same-side flexible as possible to enable service and cross-side network effects as providers to define their own unique much as possible, especially during differentiating propositions towards the growth stage of the network. their customers (competitive services on top of the collaborative scheme). Source: Innopay

Four Types of Customer Behaviour Comparison DestinationSupply Infrastructure • Choosing between • There is only one different solutions to place for the the same demand customer to go. Cost Convenience Custom • Choosing between • Supplier adapting the similar standardized offering to the offerings customer’s requirement Capability Requirement

Microsoft Architecture Journal Diffusion Model Asymmetric Design Destination/ ExperienceCoordination Coordination Comparison/ HOW WHY of the whole Product Making WHAT WHO/M things work Cost/ Commodity inside outside Custom/ Solution Interoperability Destination/ Experience

Managing over the whole Microsoft Architecture Journal governance cycle Asymmetric Design Standardization of model of relation to context Requires asymmetric governance comparison destination Customisation ofStandardization of service under model for customised coordination of model of supply supply cost custom Requires platform-based Customization of service under architecture standardised model of supply

Strategic choices The move from destination to product involves reducing the exposure to integration risks by externalizing the exogenous risks. The move from product to cost involves reducing the exposure to the technology and engineering risks by standardizing the business model. The move from cost to custom involves increasing the exposure to integration risks again, but only the endogenous ones. Only the move from custom to destination faces the business with the exo-interoperability risks.

Differentiating Capabilities: TheArchitecture of Knowledge Core  Partnering [source: Amin & Cohendet]  High trust / security knowledge intensity Competence  Network  Medium trust / security Peripheral  Market  Low trust / security distance from core

Decoupling different levels of abstraction Standardizing the  Differentiating the platform level business level capabilities. capabilities. For example, a  For example, offering a standard approach to wide range of third customization. party products and technologies.

General Framework Entitlement Domain 6 (context-of- Knowledge use) Procedural Know-How 5 Cases 4 Interaction Protocols 1-3 Service Platforms Source: Veryard & Boxer 2004

Compare and Contrast Platform StrategiesEach of these companieshas a distinctive platformstrategy.Which architecturalviewpoint (or businessmodelling language) is mostuseful for understandingthe strategic differencesbetween these companies?

New Challenges for Business ArchitectsEcosystem Horizontal accountability Mapping the ecosystem of organisations,  Considering how to strengthen customers and contexts within which horizontal accountability in ways business must to decide how to act. which hold accountable theIndirect value individuals who are dealing directly with customers. Defining the indirect value for our customers beyond the immediate value Agility arising from their involvement with our  Developing the agility of systems services. and processes to cope withEconomies of governance variation in the scale and scope of individuals’ needs, and in Establishing economies of governance in response to continued change in the way business and other resources can economics conditions and/or be brought together and combined in customer demand individual interventions.

Six Views of Business STRATEGIC CAPABILITY MANAGEMENT VIEW VIEW VIEWWhat the business wants What the business does How the business thinks VALUE KNOWEDGE $TREAM VIEW How the business does What business knows ORGANIZATION VIEW What the business is including platform configuration

Future EventsFuture Events Other Material and LinksBusiness ArchitectureBootcamp RVsoapbox. February 28-29Organizational IntelligenceWorkshop BlogSpot.com March 1Enterprise Architecture twitter.com/Forum March 29 richardveryard

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Architecting multi sided business

by Richard Veryard

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