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Art and Science of Business Architectures

Art and Science of Business Architectures






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    Art and Science of Business Architectures Art and Science of Business Architectures Presentation Transcript

    • All rights reserved. No part of this publication may be repro- duced or transmitted in any form or by any means, electronic, digital, mechanical or any other storage and retrieval system without prior permission in writing from the publisher. Copyright © 2009 BPACS PO Box 101318 Moreletaplaza South Africa 0167 Printed and bound in South Africa
    • I N T R O D U C T I O N The first task I faced in my industrial engineering career was to develop a computer simulation model of a newly planned mining plant. After many frustrating hours spent on this model, I asked the fundamental question: “How can one model real-world systems effectively in order to understand them better?” Nearly twenty years later I am still pursuing the answer to this elusive problem. During my PhD research, I started to form an opinion on the modeling of systems. Though it was not complicated, I came up with the idea that what seems to be complex in our eyes might in fact be constructed from order. This order would then be based on small components which at their ‘atomic’ level are structured according to well-defined patterns. From an engineering perspective, this fuzzy opinion doesn’t fly very well in the established academic world; yet this hasn’t stopped me from working on the creation of holistic, abstract models of business systems. The art and science of business architectures is about the analysis and design of business systems. Beautiful structures – like Notre Dame cathedral, the Chrysler Building, or the Eiffel Tower – were designed by their architects. In the same way, I believe, business systems should be designed and created through business architecture. To support this quest, one needs to work from a fundamental framework of understanding. I have created the concept of the business fractal as the basis for my work. My model uses the concepts of patterns, content, time, and feedback loops to model complex business systems. To explain some of this, in the following pages I discuss the principles involved in creating these models. And instead of using calculus, I do so with the help of visual notes. Enjoy it – and remember: simplexity! Greater understanding lies in the simplification of complex matters. Antonie van Rensburg - February 2009
    • If I had a problem on which my life depended, and I had one hour in which to solve it, I would spend 40 minutes examining it 15 minutes reviewing it 5 minutes solving it. ALBERT EINSTEIN
    • C O N S T R U C T I O N A BUSINESS FRACTAL The secret of understanding the complex is the ability to understand the basic principles of its con- struction. Forty years ago, Benoit Mandelbrot started to study the behaviour of cotton markets. This led to his discovery of the fractal – a shape that can be broken down into smaller parts, each echoing the whole. Using this analogy, I created the concept of a business fractal – a pattern that shows busi- ness activities at their most basic, most granular level. The simplest shape to help us understand business complexity is the transformation model of input to output, originally developed as part of the Structured Analysis Design Technique. A basic operations research principle teaches us that any system striving towards optimal perfor- mance does so by using resources to achieve this. Unfortunately, virtually no resource in this world has infinite capacity – and so we need to recognise that our transformation model faces constraints. This bring us to the understanding of the pattern in a business fractal – a pattern that represents the transformation of input into output through the use of resources under a set of constraints.
    • T R A N S F O R M A T I O N Any business system does three things in the transformation process: it consumes, creates, and produces. In the transformation process, a series of events deals with material, information, and customers’ activities. For a particular business system, the consumption, creation, and production process will require certain business rules, or logical relationships. These rules define the relationships between the system objects, and create the content understanding of the business fractal. As we use available resources (such as people, land, and capital) over time, the business system starts to exhibit its own behaviour. Capturing this behaviour through stochastic data allows us to cre- ate memory within the business fractal. Neither complex nor simple systems behave in a linear fashion over time. Adding resources such as innovation, technology, knowledge, or policy to the transformation process can cause it to react in a non-linear, power-law fashion. The typical non-linear, hidden relationships in the transformation process bring volatility to the busi- ness fractal, enabling it to provide the means of modelling complexity through a simple pattern. Combing the pattern with content, memory, and volatility brings about the definition and under- standing of a business fractal.
    • The conventional dichotomy between business and software engineering inevitably creates frustrating incompatibilities between the business and its software, with the two systems working in different ways towards different ends. The complexity that results from combining the two discrepant systems may actually lead to chaotic organizational behavior, in the scientific sense of being inherently unpredictable and uncontrollable. D AV I D TAY L O R , P H D
    • S Y S T E M A T I C BUSINESS ARCHITECTURE Traditionally, architecture is the art and science of designing physical structures, and integrating them into the landscape. By analogy, business architecture is the art and science of the analysis and design of business systems, and their integration into surrounding business system landscapes. As opposed to architecture – which has been practised for thousands of years – business architecture has only come to light in the past twenty years, making it a very young science. Just as traditional architecture has its tools and devices for the task of designing, so business archi- tecture has its own key concepts. These are: modelling methods, visualisation, and business refer- ence models. In practice this means that the business architect needs to start with some basic principles for the design of the business system. As a start, reference models provide the architect with the means to create a generic construction of the business system. There are various modelling methods that enable the architect to mould and enrich this generic construction into a specific model of the busi- ness system. And finally, visualisation allows the business architect to relay the analysis and design of the business system to its stakeholders – just as the traditional architect will use blueprints and scale models of the planned structure.
    • D I M E N S I O N A L Good business architecture introduces three dimensions to the analysis and design of business sys- tems: abstraction, hierarchy, and time. Let me explain these. The first dimension, abstraction, allows the analyst to describe complexity while choosing to filter out any content that is not strictly relevant at that point. From an analysis perspective, the architect can show or hide the richness of the business system blueprint. So the architect can show you the ‘plumb- ing’ of the business system, or hide it from view and concentrate only on the ‘electrical wiring’. The second dimension, hierarchy, segments the architecture into horizontal views that represent different levels of complexity in the business system – like departments on different floors of a multi- storey building. The architect can add or remove content as it relates to a particular level in the hier- archy. Which brings us to the third dimension of analysis and design: time. The architecture descriptions relating to abstraction and hierarchy are static: the architecture does not show what happens to the business system as it operates through time. By time-stamping events in the business architecture, the business architect gains valuable insight into the behaviour and characteristics of the business system.
    • Just as shovels themselves do not dig holes, but rather provide leverage for a human to dig, methods provide leverage for the human mind to accomplish a job more effectively. The method may assist and motivate the intellectual activities of the human, but it does not make the decisions, create the insights, nor discover the problems. KNOWLEDGE BASED SYSTEMS, INC.
    • E X P E R I E N C E SELLING BENEFIT The raison d’être of any business is to sell benefit to the customer. To create a good busi- ness architecture that will support this basic aim, we need to understand what this benefit is, and how it is created. This in turn drives the business processes that are required to deliver these benefits and experiences to the customer. Using a similar concept to that of a Bill of Material (BOM), the Bill of Events (BOE) models customer experience and customer touch points within the business system.
    • F U N D A M E N T A L ‘Selling benefit’ takes place when the organisation offers a product and service to its customers. This can be driven by the profit motive, or by a purely social benefit. Thus we can cover either a capitalist system (profit-driven) or a socialist system (benefit-driven), or a mix of both. To understand what is being sold to the customer, the business also needs to define how it is created, and the mechanisms or chan- nels that deliver the benefit to the customer. To formalise this approach, the business creates a Bill of Events. ‘Events’ can be information, clients, or material. Specifying the benefit that the customer requires defines which events are required, how many of each, and the order in which they should be delivered. The complexity of the Bill of Events is delivered via routings. Routings, or value-added processes, define how products and services are created and delivered as a series of events to the customer. A routing takes shape through the actions that need to be executed, their timing, and their sequence. These value-added processes form part of the ‘supply chain network’ of the business, which will be discussed at a later stage. To serve different customers in different markets, the business must design its products and processes accordingly. Classical operations management principles tell us that customer choice across the volume of customers can be managed in one of three ways. In the first, Make-To-Stock (MTS) processes, business must produce an inventory of products in the supply chain network. In this scenario, cus- tomer expectations are managed by balancing all supply and demand through these inventory or stock levels. The second way is to use Assemble-To-Order (ATO) processes. Here, the business balances customer expectations by using standard sub-components that are assembled as a final product. Assembly and delivery time shapes the customer experience in this case. The third way is the Make-To- Order (MTO) process. MTO delivers the customer’s order by taking raw materials and manufacturing a unique final product. In each of the three processes, measuring customer experience is significantly different. A proper business architecture helps the busi- ness to understand the differences, plan for them, and deliver them.
    • The scientist takes off from the manifold observations of predecessors, and shows his intelligence, if any, by his ability to discriminate between the important and the negligible, by selecting here and there the significant steppingstones that will lead across the difficulties to new understanding. The one who places the last stone and steps across to the terra firma of accomplished discovery gets all the credit. Only the initiated know and honor those whose patient integrity and devotion to exact observation have made the last step possible. HANS ZINSSER (1878-1940)
    • F U N C T I O N A L THE BUSINESS PROCESS MODEL The business process model is at the heart of business architecture. It contains the meta- structure for all business processes in the business system. It groups processes into one of four categories: strategic processes, tactical processes, supply chain processes, and support processes. The logic behind this structure is that each process type enables the business system to create benefit for the customer.
    • I N T E G R A T I O N I have just said that the business process model deals with four main groups of process- es. Let’s look at these in more detail. The main task of strategy processes is to create and deliver a business plan, and to budget with functional targets and objectives that lead into the tactical processes. Tactical processes ensure that the business has the re- quired capacity to manage all events in the business system. They do this by planning and controlling capacity and events in the supply chain network. The supply chain network processes include all the processes that move raw material towards the final product, and deliver service to the customer. The fourth group, support processes, undergirds the other three process groups in the business system.
    • If building applications to solve problems no longer work, what should the new strategy be? There is now a clear and compelling answer to this question: model-based development. The goal of this approach is to construct software models that represent the structure and operations of a business as simply and directly as possible. Because these models are not tied to any particular problem, they can be used to address a wide range of problems, including problems that weren’t even imagined when the models were constructed. D AV I D TAY L O R , P H D
    • S T R A T E G I C STRATEGY PROCESSES Strategy processes facilitate organisational purpose for the business system. Once this purpose has been created, strategy defines the alignment of organisational resources to achieve this purpose. One of these processes is the ‘strategy formulation process’, which delivers a mission, vision, value, and objective state- ment. Another, the ‘balanced scorecard process’, takes the objective statement and translates it into a series of measurable objectives and targets to be achieved over the planned strategy horizon. The ‘business plan process’ takes this and expands it into an action plan with allocated responsibilities. Finally, operational data is turned into structured information so that the business can create ‘what-if’ scenarios and make performance measurement decisions.
    • Formulation and construction of the abstract model of the system is perhaps the most unstructured, expensive and ill-supported task. D O U K I D I S A N D PA U L
    • C O N T R O L L A B L E TACTICAL PROCESSES Tactical processes link the business’ strategy process and the supply chain processes. Although they are very important in the business architecture, they are also the least understood. A number of key processes link strategy with operations. First, the business strategy needs to be translated so that we can define the business policies and business configu- rations for the supply chain network, product, and customer. Second, the processes for the design and delivery (or routings) of the product need to be developed. Moving into operations, we need to ensure that the business system’s resource capacity and event flow are properly planned and controlled. And finally, there must be a process to im- prove the current operations. These four groups of processes form the tactical processes required to translate strategy into operations.
    • M E A S U R A B L E To deal effectively with tactical processes, we need an organisation-wide focus and effort. In the design process, a product and process need to be formally designed to deliver benefit to the customer. The type of industry we’re dealing with – for example, manufacturing or services – determines the actual content of these processes. Improving processes after they have been put into production through the planning and control processes also requires a method or approach. Good practices – such as change management – should ensure that the business can still deliver to its customers even while its current process and product are being improved.
    • Those who think the purpose of their work is to please the boss, or to perform the same task over and over again, have little in common with those whose first concern is creating value for the customer and taking responsibility for the performance of an entire process. KNOWLEDGE BASED SYSTEMS, INC.
    • P R A C T I C A L SUPPLY CHAIN NETWORK PROCESSES The supply chain network covers all the processes that convert raw material into the final product or service for the end-customer. This network of processes has three main groups: the inbound supply chain process, the value chain process, and the outbound supply chain process. The inbound supply chain process deals with moving raw material from the supplier to the business. The tactical decisions on vertical integration and supplier partnerships play important roles in the configuration and execution of these processes in the value chain of the business. The value chain process starts with receiving output from the inbound supply chain, and covers all value-adding steps to the business’ final product or service. The outbound supply chain process includes all product and service delivery to the final customer after receiving the value chain output.
    • D E L I V E R A B L E The supply chain network process flow starts with the suppliers and ends with the customer. A number of factors create complexity in the supply chain network process. These are: customer segmentation, the product and service BOE, delivery mechanisms, channel logistics, delivery chan- nels, and the suppliers of the raw materials for production and distribution. The inbound supply chain process forms an NXM matrix. This matrix is created from the complex- ity of the number of suppliers (N) used in the transformation processes, as well as the impact of vertical integration, collaboration, and general supplier sourcing (M). The outbound supply chain process also forms an NXM matrix, created from N channel distribu- tion layers to M customer segmentation layers. This matrix is influenced by the complexity of the product and service BOE, as well as the types of distribution channels that are used in delivering the product or service. The value chain in a supply chain network consists of the value-added processes on the premises and within the control of the business. There are many ways to describe these, but in essence the business needs to perform a number of generic business processes in order to create benefit for the customer.
    • M A N A G E A B L E The business needs to research and develop a product or service for its customers. Once the business understands the market (customers), it can brand the offering. In the process of building the product or service, the business will acquire or procure raw materials or services from its supplier network. On completion, the sales force sells the benefit to customers. When it receives customer orders, the business will fulfil these orders. Beyond that point, the business supports its products and services in the market.
    • We are an intelligent species and the use of our intelligence quite properly gives us pleasure. In this respect the brain is like a muscle. When it is in use we feel very good. Understanding is joyous. CARL SAGAN (1934 -1996)
    • A C H I E V I N G SUPPORT PROCESSES In the business architecture, support processes support the supply chain network and the tactical and strategy processes. To recap: the supply chain network processes fo- cus on delivering the required levels of customer experience, while tactical and strategic processes aim to align the supply chain network with the business strategy. Support pro- cesses do what the name implies: they support the supply chain network and the tactical and strategic processes in achieving their purpose and execution. Support processes are determined by the type of industry in which the business system works. For example, a company’s human resource function is typically a support process; but a human resource business providing services to customers will have human re- source processes as value chain processes at its heart.
    • Some people will never learn anything; for this reason, because they understand everything too soon. ALEXANDER POPE (1688-1744)
    • I N N O V A T I V E CONCLUSION To analyse, design, implement, and manage a business system, we need guidance from con- ceptual models. Business architecture provides a powerful framework for such purposes. The effectiveness of business architecture is based on the principles of system thinking and fractal geometry. A complex system can be simplified through a basic fractal model. This enables the user to comprehend and link simple business processes within a complex business system, and to produce a powerful descriptive model of the whole system in context. In this presentation I have used a number of principles to show how we can construct a busi- ness architecture through visual notes. These visual notes contain design principles. And these design principles can be used to comprehend the processes found in most types of business systems. I hope that, through this presentation, I have shown you that business architecture is both an engaging art and an exact science.
    • I N S P I R E D Antonie van Rensburg obtained his B.Eng (Industrial) (Cum Laude), M.Eng (Industrial) (Cum Laude) and Ph.D (Industrial Engineering) from the University of Pretoria, where he was a lecturer from 1991 to 2000. He left as an Associate Professor in 2000 to pursue start-up investments in the Information Technology, Business Consulting and Financial Services industries. As the operational side of these activities became overly onerous, he balanced them with his professional interests, research and teaching, and after a brief stint at the Wits Business School, re- turned to his alma mater, the Department of Industrial and Systems Engineering at the University of Pretoria. Over the years Antonie has consulted to more than 50 local and international companies across various industries. In addition to consulting, he has a passion for business, technology and invest- ment, which has led to the funding and incubation of a number of enterprises over recent years. Antonie has presented and published numerous conference papers and articles in his research field, both locally and internationally. Returning to his roots in the Business Process Management domain, he pursues various key challenges – one of them being that of Business Architecture.