Architecting multi sided business 2

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My presentation to the IASA UK conference, April 2013.

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  • First version presented IASA UK Chapter February 2012Revised version presented IASA Conference April 2013
  • For example, a retail company can define its business model as providing a platform for manufacturers to sell their good to consumers.
  • Each of these companies has a distinctive platform strategy.Which architectural viewpoint (or business modelling language) is most useful for understanding the strategic differences between these companies?
  • Steve Sinofskyhttp://rvsoapbox.blogspot.co.uk/2012/11/functional-organization-at-microsoft.html
  • Categories due to David S Evans
  • The traditional retailer acts as a hub in the food supply chain, aggregating food supply from fields and factories, and distributing food to workshops and private kitchens. This is essentially a positional strategy: the retailer seeks to establish and maintain a strategic position within a value chain, as the bottleneck/hinge point between upstream and downstream. Within the positional strategy, the business drivers are understood in terms of the economics of scale and the economics of scope.But if we shift from a value-chain perspective to a service-oriented perspective (effects-ladder), we can see that the retailer is providing a service (=delivering value) downwards as well as upwards – it is a food distribution platform for farmers and manufacturers as well as a food supply platform for consumers and catering companies.So instead of drawing the merchant in the middle, we can draw the merchant as a new kind of platform providing various kinds of market interaction.This takes us from a positional strategy to a relational strategy. No longer just focused on the economies of scale and scope, the relational strategy emphasizes how economies of governance are generated in relation to two kinds of demand context. The big question for a company such as Wal-Mart is how to balance the exploitation of each of these forms of asymmetric advantage.
  • http://cloudmedia.kactoo.com/multisided-business-model-_smart_multisided-business-model-168664065262.htm
  • http://blogs.hbr.org/cs/2013/01/three_elements_of_a_successful_platform.html
  • http://blogs.hbr.org/cs/2013/01/three_elements_of_a_successful_platform.html
  • http://www2.druid.dk/conferences/viewpaper.php?id=5952&cf=32
  • Bill Bailey, Cressida Bonas, Miranda Hart, Jeremy Hunt, RobertPeston 71pSnoop Dogg, Salman Rushdie £10.08Tom Daley £10.68Mark Zuckerberg $100
  • The names for two of these four ways came from research on shopping behaviour by Gary Davies in which he distinguished ‘cost’ convenience (choosing between similar standardised offerings) and ‘comparison’ behaviours (choosing between different solutions to the same demand). The other two separated out circumstances where there was a demand particular to the customer, distinguishing offerings in which there was only one place for the customer to go ( ‘destination’), or in which the supplier would adapt the offering to the customer’s requirement ( ‘custom’) within their context-of-use. The point being made, however, was that the ‘destination’ form of offering required asymmetric governance because of the need to hold power at the edge of the organisation. What distinguishes this position in the cycle?If we think of the original development of pc-based spreadsheet programs in-house (destination), they soon became a limited number of alternative branded solutions (comparison) that in turn became dominated by the one offering all the others’ features in one package (cost). From here we have seen an increasing ability to customise the ways it can be used (custom) to the point where we are now looking at a new cycle of web-based solutions that we can build one-by-one (destination).http://www.asymmetricdesign.com/2006/04/managing-over-the-whole-governance-cycle/
  • PatternDescriptionComparison(WHOM-HOW)The demand is defined in such a way that the context from which it arises is ignored, but the service is coordinated in a way that enables it to respond to that particular demand. This characteristic corresponds to the "comparison" approach for the patient, who is looking for the best solution offered to his or her demand. For suppliers, this form of governance allows them to minimize their exposure to exo-risks by limiting the definition of demand that they will respond to (the user requirement); although, they are still faced by integration risks inside the business.Cost(WHOM-WHAT)Not only is the demand defined in such a way that the context from which it arises is ignored, but the response of the service is proceduralized, too, and there is no need for an explicit coordinating process. In this "cost" approach both the nature of the demands and the responses to them have become standardized. Now the integration risk is minimized for the supplier and the technology and engineering risks being proscribed.Custom(WHY-WHAT)An implicit form of coordination of how things work, often in the form of a particular budgetary regime, constrains the way the service is able to respond to the patient's condition. This characteristic corresponds to the "custom" approach, where the service is standardized but the way it is provided into the patient's context can be varied (mass customization). Here the supplier is exposed to integration risks again, as it builds more variability into the way its service works.Destination(WHY-HOW)Each of these three forms treats demand as symmetric to an implicit or explicit form of endogenous coordination. Only in the fourth case do we have asymmetric governance in which the endogenous and exogenous forms of coordination have to be aligned with each other. This characteristic corresponds to the "destination" approach, where the patient goes to that place where he or she can get a treatment exactly aligned to the nature of their condition. It is also only in this case that the supplier takes on the exo-interoperability risks explicitly.We are particularly focused on the risks associated with interoperability, not only because any given geometry is a particular coordination between its constituent services, but also because these are the ones that emerge as you coordinate across systems and organizations. (We have been following the recent developments around Hurricane Katrina with considerable interest because some of the public criticism of the Federal Emergency Management Agency [FEMA] clearly exposes difficulties in managing some of the interoperability risks.) How are we to think about the nature of these risks?
  • http://www.asymmetricdesign.com/2006/04/managing-over-the-whole-governance-cycle/
  • http://rvsoapbox.blogspot.com/2009/03/tesco-outsources-core-ecommerce.html
  • http://www.trainmor-knowmore.eu/75D2E63A.en.aspxhttp://www.anecdote.com.au/archives/2006/02/knowledge_hoard.htmlThe I-space² is a model describing how knowledge moves from being undiffused (ie only known by a few people) and concrete (ie very specific to a single situation) to becoming more abstract (ie. generalised to apply to more situations) and codified (ie. more able to be articulated). At point 3 on the diagram the knowledge has maximum value to an organisation because it can be applied in a variety of ways to a range of problems but hasn’t leaked (diffused) to its competitors. It is inevitable, however, that if the knowledge is valuable it will soon become common knowledge. In the case of the lawyers, the idea of using collaboration software to get all parties together can quickly arrive at point 3 but as soon as the solution is implemented the knowledge is diffused and available to everyone—competitive value diminished rapidly.Boisot’s argument is that organisations which operate in a slow moving environment, such as flute makers where the way flutes have been made hasn’t changed in a century, should do whatever it takes to protect their intellectual property including doing everything to retain their master craftspeople. Fast moving industries require a different strategy: keep your mean time at point 3 as high as possible. This requires an organisation to continually rotate through the I-space spiral with new ideas—constant innovation.
  • For example, a retail company can define its business model as providing a platform for manufacturers to sell their good to consumers.
  • https://leanpub.com/u/richardveryard
  • Architecting multi sided business 2

    1. 1. Richard Veryard IASA UK Conference April 2013 Architecting the Multi-Sided Business 2
    2. 2. 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.
    3. 3. Compare and Contrast Platform Strategies We cannot understand what makes these companies different by analyzing the things they have in common.
    4. 4. Compare and Contrast  Activity architecture  Marketing  R&D  Partnerships  Information architecture  Customers  Products & Services  Partners  Platform Strategy  Business Service  Management Structure?  Culture? Similarities Differences Which architectural viewpoint helps understand strategy?
    5. 5. Governance  Responsibility View  Cybernetic View Original cartoon by Manu Cornet
    6. 6. Who does this guy think he is?
    7. 7. Organizing Principles builds management reporting lines around job functions -- such as product management, development, softw are testing. where multi-disciplinary teams work on specific feature sets together. Functional Organization Product Organization This is what Steve Sinofsky preaches and practices. Manu Cornet’s cartoon of Microsoft is thought to be a coded reference to Sinofsky. Sinofsky left Microsoft in November 2012.
    8. 8. MOTIVATION VIEW What the business wants CAPABILITY VIEW What the business does CYBERNETIC VIEW How the business thinks ACTIVITY VIEW How the business does KNOWLEDGE VIEW What business knows RESPONSIBILITY VIEW Who Whom Six Views of Business including business service and platform configuration
    9. 9. Cybernetic View
    10. 10. Where is Michael Porter now? Value Chain Shared Value
    11. 11. Platform Types  Same-Side Platform  Multi-Sided Platform  Market-Making  Audience-Making  Demand Coordination
    12. 12. Other Platform Examples  Nike+ Accelerator  Department Stores (e.g. J C Penny)  Media (e.g. Disney)  Telecoms
    13. 13. Market Platform (Retail Example) Traditional Platform Consumer Retailer Farmer Manufacturer Caterer Consumer Retailer Farmer Manufacturer Caterer Asymmetric Design  Economics of Scale, Scope  Economics of Alignment, Governance Indirect relationships
    14. 14. Audience-Making Platform (Media) A Media information aggregator builds a relationship with end users and connects them to various retailers and Contents / Services Providers. Source: Maat International
    15. 15. Key Platform Measures how easily others can plug into the platform to share and transact how well the platform attracts participants, both producers and consumers Connection Gravity Flow how well the platform fosters the exchange and co-creation of value Source: Mark Bonchek and Sangeet Paul Choudary HBR
    16. 16. Key Platform Capabilities Making it easy for others to plug into the platform and enables interactions between participants. For example, Apple provides developers with the OS and underlying code libraries; YouTube provides hosting infrastructure to creators; Wikipedia provides writers with the tools to collaborate on an article; and JC Penney provides stores to its boutique partners. Attracting critical mass of participants. Platform builders must pay attention to the design of incentives, reputation systems, and pricing models. They must also leverage social media to harness the network effect for rapid growth. For example, developers and users (Apple, Android). Buyers and sellers (Amazon, eBay). The Toolbox The Magnet The Matchmaker Fostering the flow of value by making connections between producers and consumers. Capturing and leveraging rich data to facilitate connections between producers and consumers. For example, Google matches the supply and demand of online content, while marketplaces like eBay match buyers to relevant products Source: Mark Bonchek and Sangeet Paul Choudary HBR
    17. 17. Platform Ambiguity Platform Boundary Evolution  influence of discrete decisions of entry into a particular business  incremental adaptations in relation to suppliers of complementary components. Interface Ambiguity  ‘uncertainty in the market over what constitutes the key interface’ (Funk, 2002) Questions  What are the core components around which platforms in this industry arise?  How to characterize differences between platforms in this industry? Source: Pieter Ballon 2009
    18. 18. ComplementorComplementor General Pattern  Where are the products and services located?  How is the platform designed and managed?  How does the platform support indirect relationships?  Where is the added value located? Questions Consumer Platform Business Complementor ConsumerConsumer
    19. 19. Platform Strategies  Start Small  (e.g. Diners Club)  Marquee Strategy  (e.g. American Express)  Emergent  (e.g. Linked-In, Facebook)
    20. 20. Differentiating Users Celebrities and Others Cheap Expensive
    21. 21. Four Types of Customer Behaviour Comparison • Choosing between different solutions to the same demand Destination • There is only one place for the customer to go. Cost Convenience • Choosing between similar standardized offerings Custom • Supplier adapting the offering to the customer’s requirement SupplyInfrastructure Capability Requirement MicrosoftArchitectureJournal AsymmetricDesign
    22. 22. 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.
    23. 23. Boisot I-space
    24. 24. Decoupling different levels of abstraction  Standardizing the platform level capabilities.  For example, a standard approach to customization.  Differentiating the business level capabilities.  For example, offering a wide range of third party products and technologies.
    25. 25. Case Example: Business Service Company  Broad range of corporate customers  Each corporate customer had its own customized solution  Solution architects working with customers, focused on customization and innovation  Common platform of shared services  Internal  Third-party  Customer-facing  Solution architects focused on value-adding innovation  Customization process faster, more consistent, and more reliable. Before After
    26. 26. New Challenges for Business Architects Ecosystem  Mapping the ecosystem of organisations, customers and contexts within which business must to decide how to act. Indirect value  Defining the indirect value for our customers beyond the immediate value arising from their involvement with our services. Economies of governance  Establishing economies of governance in the way business and other resources can be brought together and combined in individual interventions. Horizontal accountability  Considering how to strengthen horizontal accountability in ways which hold accountable the individuals who are dealing directly with customers. Agility  Developing the agility of systems and processes to cope with variation in the scale and scope of individuals’ needs, and in response to continued change in economics conditions and/or customer demand
    27. 27. Conclusion  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.
    28. 28. MOTIVATION VIEW What the business wants CAPABILITY VIEW What the business does CYBERNETIC VIEW How the business thinks ACTIVITY VIEW How the business does KNOWLEDGE VIEW What business knows RESPONSIBILITY VIEW What the business is Six Views of Business
    29. 29. Books
    30. 30. Notes Enterprise Architecture Forum, 19 September 2013 RVsoapbox. BlogSpot.com twitter.com/ richardveryard Future Events Other Material and Links Acknowledgements Philip Boxer AsymmetricDesign.com

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