Enterprise Architecture for Business Model Innovation in a Connected Economy


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This paper describes an approach to perform a mapping from a business model design to an enterprise architecture which is manifested in a platform ecosystem that supports agile innovation. The paper will be of interest to executives and IT leadership seeking strategic insights for unlocking the creative potential of business model innovation. The paper also provides those interested in enterprise architecture, business model design and systems integration with a concrete roadmap and actionable guidance to execute on the vision.

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Enterprise Architecture for Business Model Innovation in a Connected Economy

  1. 1. Enterprise Architecture for Business Model Innovation in a Connected Economy Sergio Compean – March 19, 2014
  2. 2. Executive Overview The constant tensionbetweenprofiting fromoperational excellence and searching for newways to deliver value neednot be an unresolveddissonance for enterprise executives. Creative harmonybetweenthe two types of activities begins with an understanding of how to designa solidfoundationfor anoperatingmodel andknowledge of platformcapabilities that serve to support the underlying enterprise architecture. Using a systems thinkingapproach, it is possible to holisticallymapout th e various facets of a business model into the components of anenterprise architecture whichcanthenbe implemented with capabilities offered by ubiquitous andcloud computing, collaborationplatforms, as well as Big Data. This paper willdescribe anapproachto perform the mappingfrom the businessmodel to an enterprise architecture whichis manifestedina platform ecosystem. The BusinessModel Canvas willprovide a visual representation ofthe keycomponents of the business modeland serve to anchor discussiononhow anenterprise creates, delivers andcaptures value. The next step in the processis to identifyanOperating Model that is well-suited for the business model characteristics. Several types of Operating Models will be introduced to present options inthe mapping process. Once the Operating Modelis selected, a Core Diagram is produced that illustratesthe platform ecosystem which delivers the capabilitiesneeded to support the enterprise architecture. The Core Diagram’s mainpurpose is to graphicallyrepresent the systems capabilities and connectivityin a single, comprehensive reference. The focus of this part of the paper will be to provide a clear visionof how these platform capabilities come together inthe ecosystemto implement a particular class of Operating Model. The paper will endbydiscussing how the platform capabilities enable anunprecedentedlevel of business agilitywhichallows an enterprise to maintaincore operations for profitabilitywhile experimentingon the edges of its OperatingModel to seek out new value streams. Thisdynamic nature ofthe enterprise architecture willthen be shown to empower executives with significant degreesof businesscreativityinadapting the businessmodel usingthe Business ModelCanvas inaniterative fashion to respondto market feedbackandopportunitiesto maximize value creation.
  3. 3. Succeeding in the Global Connected Economy Achievingsuccessinthe new global market environment requires modernenterprises to consider powerful trends and dynamics in order to be able to adapt andrespond at velocities much more rapid than ever before inhistory. These market events andforces are having aneffect of tearing apart the traditional enterprise that does not have the architecture to withstand the constant flux of change, competition, andcustomer demands. Disruptioncanhappenat anytime, inany industry, in anymarket and can threatenmarket leaders to sucha degree that theycanbe replacedina few years’ time. Inhis book, The Business ModelInnovation Factory: How to StayRelevant When the World is Changing, Saul Kaplanuses the disruptionBlockbuster experienceddue to Netflix’s businessmodel innovationto coina termto describe the phenomena: Blockbuster was “netflixed” 1 . Kaplan offers other examplesof entire industries being netflixedbycompanies with innovative business models suchas Apple, Google, and Amazon. In this environment, there is increasingpressure for enterprise executives to developdual strategies to preserve the profitable core business while innovatingwith newproducts andservices onprice, capabilities, andvalue for customers. The two types of strategic development require distinct set of lenses withwhichto identifythe set ofchallengesandopportunitiesthat must be addressed. One the one hand, robust analytical thinking is essentialfor optimizingthe core but onthe other, boldcreativityis neededto generate additional market value to facilitate the reinvention andevolutionof the next generationenterprise. Personalizationfor Mobile, EmpoweredConsumer The exponential proliferation ofmobile devices and adoption byconsumers hasledto a phenomenal surge inthe levels of interactivityon the Web. The interactivityenables newforms ofvalue creationandsocialconnectivity but alsochanges the expectations for howenterprise platforms need to be designedto support these emergent behaviors. More thanever, consumers gravitate to content andservices that are especiallysuitedto their needs inthe context theydesire. Preferences and recommendations are commonplace but consumers’ demands for more social intelligence inservice offerings drive the level of analytical sophisticationrequiredinenterprise capabilities evenhigher. Consumers are expecting service providers to not onlyunderstandtheir individual identitybut also their social graphand the open world around them. Inthe open worldof consumers, time is also ofthe essence for deliveryof those insights andcapabilities to help manage uncertaintyandmaximize outcomes. Personalized content, capability, andcontext are allimportant to deliver if an enterprise seeks to gaincompetitive advantage in the consumer market. Long Tail on the Demand Side The long tail onthe demandside illustratesthe need for evenfurther personalizationin not onlythe product deliverybut also marketing. Consumer segments must be targetedwithspecialized messagingto drive demandfor niche products andservices to capitalize onadditional opportunities. However, the challenge for developingmarketing campaigns for these segments is centeredoncost. Enterprisesneed to buildout analyticalcapabilities to execute these highlytailored marketing initiatives fo r each consumer segment inan efficient manner. The days of broadcast advertisingto the mass market are historyand new marketing models basedonparticipatoryengagement and social advocacymust be identified inorder to enhance innovation possibilities in the longtail. Businessesalso needto understandhow to cultivate niche markets to gaingreater tractionin segments that are adjacent or lagging to the target. Transitioning across this chasmis keyfor enterprises that want to achieve significantlygreater market share for their products and services.
  4. 4. Collaborative Real-Time Context for DistributedEnterprise The massive influence the consumer feedback loopis having onenterprise information technologyis evident inthe increasing velocities withwhichdata insights need to be delivered. Inthe digital supplychain, events processedfrom the consumers’ open world must be handled collaborativelyacrossdepartments, business units, andevenpartners at a speedapproaching real-time. The collaborative groupmust observe the context and data associatedwith the event, become oriented to the situation, decide upona course ofaction, and thenexecute the response. The collaborative entitiesmayconsist of knowledge workers, informationsystems, or a combinationof both – andinsome scenarios, ubiquitous smart devices. To enable thistype of high-speed collaborationand event processing, enterprises needto consider business process standardizationand integrationintheir operating model. The degree of standardizationandintegrationdepends onthe architecture that best aligns with the business model. The pathto this desired state involves anevolutionaryprocessthat builds out anecosystem which satisfies keyarchitectural principles to realize the necessarycharacteristics andcapabilities to enable the collaborative, event-driven, real-time distributedenterprise. Disruptive Economics onthe Supply Side Another major force that everyenterprise must contendwithis disruptive innovationwithintheir market segments. Using open source technologies andplatforms, smaller and, often stealth, startups achieve significant efficienciesand time-to-market accelerationto deliver their innovative products andservicesthat are faster, cheaper, or better than those producedbythe market leader. The important economic factor with openinnovationis the fact that those technologiescanbe acquired and integratedat no cost to the startup or enterprise. These disruptive economics leadto the realitythat enterprisesmust be able to adapt their supplychain to counter threats presented bymore agile and fast-movingcompetitors. The most immediate capabilitythat can be leveragedto respondto these potential disruptors is cloudcomputing. Cloud computing enablesthe supplychain to integrate external capabilities into the enterprise core to achieve increasedagility, velocity, andefficiencies with reducedcapitalexpenditures typicallyassociatedwithsuch initiatives. Sustainability Sustainabilityis the corporate responsibilityof everymodernenterprise to seekways to minimize the environmental footprint and cost of doing business. Regulations related to sustainabilityimpact the decision-making enterprise executives must undertake on a globalbasisandoftenleadto necessarychangesinthe businessmodel as well. Executives mayinitiallyconsider these changesas overhead but whenviewed withopportunistic lenses the business modelcanbe adaptedsothat overall energycosts are reduced thus contributingto longer-term profitability. Business model innovation to achieve greater sustainabilityprovides the enterprise with manybenefits including enhancedconsumer perception, more efficient supplychain, and more valuable products andservices. Consumers are veryinformed about sustainabilitywhenmaking buying decisions so enterprises’ topline are improvedwith greener products and services.
  5. 5. Innovation Process and Design Thinking The process andorganization neededto take on a business modelinnovationinitiative must be consideredon a holistic, strategic level. Ad-hoc exercises donot yield the potentiallytransformative results that are achievable usinga design thinking approach. Design thinking leverages a set of design practices within aninforming over-arching frameworkthat considers the linkagesandinteractions of the various components of the organizational and information technology structures. Design thinking is especiallysuited to addressthe context-driven, user-centric nature of the challenges posedto succeedinthe connectedglobal economy. These skillsets are critical to developinga robust foundational operating enterprise core that can be extendedor specializedat the edges to support iterative innovationcycles with acceleratedcadences. Designthinkingcan also empower creativityat the edges of the operating model as well as provide a mechanism to validate hypothesis to ensure the new businessmodel designis achievingthe desiredoutcomes. Execution versus Search Paradigms Business model innovation shouldfollowa searchparadigmthat creativelyexperiments andtests hypothesis inthe elements of the new designto determine whether a newproduct or service is commerciallyviable. The search paradigm is inherently riskier andmore feedback-oriented comparedto the execution mindset necessarywhen optimizing anestablished business model. Modern enterprises needto excel at not onlyimproving existing elements of its current businessmodel but inventing entirelynew businessmodels whose exact structure and dynamics are emergent. The businessmodel innovationinitiatives maybe organizedas a set ofventures that operate outside of existing businessunits but leverage their resources. The management of shared resources across the portfolio introduces new requirements in the organizational and information technologyarchitecture. The successful new business ventures mayeventuallybecome integratedintothe core operating model so that theycanbe scaledandoptimized to maximize value generation. Intrapreneurs Enterprise executives must consider that the management philosophynecessaryto run these venturesis considerablydifferent than what is expectedfor existingbusiness units. Insteadof applying a discipline for optimizing executionof operations, the team running a business modelinnovationventure is highlyentrepreneurial, comfortable withrisk, challenges the established modus operandi, andcreativelypivots basedonfindings from market feedback. These intrapreneurs are essentiallyleading startups onthe edges ofthe enterpriseto findnew market opportunities for value creation. Intrapreneurs applydesign thinking to realize innovationfor customers. Enterprise Architects The teamsettingout to develop the new enterprise architecture consists of individualsknowledgeable with a systems thinking approachfor design. Enterprise architects applydesignthinking to deliver transformational capabilitiesto executive management. The team establishesa clear vision that enterprise architecture is the organizing logic for businessprocesses and IT infrastructure reflecting the standardizationandintegration requirements ofthe core operating modelas wellas the new venture entities. The designers must work closelywithboth management teams inthe established business and newventures to identifythe architecture elements that canbe sharedandextendedto support innovationbeyondthe operatingcore. The enterprise architecture team excels at creating the standardizationandintegration necessaryto exploit resources to provide management withthe capabilities for optimallyrunning their businessunit or venture while supporting innovationprocesses. The design team must alsobe able to communicate the benefits of enterprise architecture which include: reducedIT costs increasedIT responsiveness improvedrisk management increasedmanagement satisfaction, and enhancedstrategic outcomes.
  6. 6. Business Model Design Business model designsets out to define howanenterprise creates, delivers andcapturesmarket value. The interrelationship betweenthose three facets is keyto understanding how a business model canbe inventedto define a new venture. Intrapreneurs exercise the ideation component to produce novel products or services to potentiallycreate a new market witha compelling value propositionfor target customer segments. The activities andprocessesthat need to be executed together with partners andsuppliers to shipthe product or service to customers define the value fulfillment mechanism. Lastly, the enterprise capturesvalue whencustomers payfor the product or service contributing to the revenue stream. Implementing this value generation cycle is the essence of businessmodel design. Business Model Canvas A valuable tool to use for prototyping a business model is the BusinessModel Canvas. The Business ModelCanvas is a strategic management asset to describe, design, andinvent businessmodels using anontologydeveloped byAlexander Osterwalder 2 . The Business Model Canvas provides a visual representationfor the mainaspects that define how an enterprise creates, delivers andcaptures value. The canvas can be developed usingpaper prototyping techniqueswhere each of the elements are represented byn ote cards and modified easilyduring the designprocess 3 . The tactilenature ofthis technique induces collaborationandintense feedback to establisha shared vision for the innovation inbusiness model design. Alternatively, the BusinessModel Toolbox i s aniPad applicationavailable inthe Apple AppStore to developthe aspects of the Business Model Canvas indigital form. Business Model Canvas (Business Model Generation, Osterwalder et al, 2010)
  7. 7. Value Propositions On the Business ModelCanvas, Value Propositions are the product or service that will offer value to customers basedon novelty, performance, risk reduction, cost efficiencies, customization, or other desiredoutcomes. Essentially, these are the reasons customers will payfor anenterprise’s offering that solves a problem or satisfies a particular need and serve as the basis for Revenue Streams. Customer Segments Customer Segments identifythe target market which realize benefits fromValue Propositions that are specificallydesignedthat intendedaudience. Each segment will have a corresponding level of profitabilityso it is important to understandhowthis impacts the business modeldesign. Customer Relationships Customer Relationships define the nature of the ongoing engagement betweenthe enterprise andcustomers. Theydefine the frequencyof interactionas well as the mechanisms bywhichcustomers will derive value from doing businesswith the enterprise. Channels Channels are the distribution modesbywhichdemandfor products and services is generatedin target Customer Segments as well as howfulfillment is delivered. Revenue Streams Revenue Streams capture the options and mechanisms bywhich Customer Segments payfor products andservices. Options mayinclude flat fees, subscriptionmodels or auctions. Payment mechanisms mayinvolve online portals, mobile applications, or retail locations. Key Activities KeyActivities are the business processes and operations required to support the business model. These processes mayinvolve partners, suppliers andalliances to deliver the value to customers. Operations include platform capabilitiesrequiredto support the data andinterfaces to enable the collaborationbetweenthese organizations as well as customer-facing channels. Key Resources KeyResources are the physical and digitalassets usedto provide capabilityfor the various components inthe business model. Resources neededto fulfill demands inKeyActivities, Channels, Customer Relationships andRevenue Streams shouldbe consideredto ensure value is created, delivered, and capturedefficiently. The resources mayinvolve intellectualproperty, financial instruments, and human capital. Key Partners KeyPartners indicate suppliers, service providers, and alliancesthat support KeyActivities and KeyResources to deliver on the Value Proposition to Customer Segments.
  8. 8. Cost Structure The Cost Structure describesthe fixedandvariable expenditures requiredto support KeyActivitiesand KeyResources. It is important to consider whether the businessmodel is cost or value driven. A cost-driven business model is more concerned with efficiencies suchas automationandprice-basedvalue proposition. A value-drivenbusinessmodel is focusedon maximum value creationofferedbya premiumvalue proposition. DesignProcess Startinga newventure within the enterprise for business model innovation begins with a mobilizationof team consistingof intrapreneurs, enterprise architects and executives fromexistingbusiness units. Executives from these business units work together withenterprise architects to identifysharedservices anddata that wouldsupport the new ventures. Intrapreneurs initiate the ideationactivitiesto identifypossibilities for new value propositions for Customer Segments. The teamnext seeks to understandthe viabilityof the value propositions byconductingmarket research andidentifying how theycan take shape with newproducts andservices. These activities require the teamto analyze customer contexts and feedback to gain a deep understanding of the needs andproblems that present an opportunity. In the design phase, the elements ofthe business modelare discussed and defined withthe innovationteam. Businessmodel prototyping is the keyactivityto experiment with various designs onthe Business ModelCanvas. The teamcanuse post-it notes on a wall inthe designroom to rapidlychange the elements inthe Business Model Canvas. Different versions of proposedbusiness model prototypes can be evaluated to determine best fit and optimal viabilityfor the target Customer Segments. Other factors suchas KeyResources andKeyActivities can be assessedto support Channels, Customer Relationships, andRevenue Streams. The deliverable from thisdesign phaseis a Business Model Canvas that hasbeen selected with the highest evaluationdeterminedbythe innovation team. In fact, it is inthe design phase that enterprise architects beginthe process of mapping the business model to anoperating model. Enterprise architects collaborate withintrapreneurs to identifythe data andprocesses to enable the elements inthe business model. The mappingprocessis described further in IdentifyinganOperating Model andMapping the Business Model to anOperating Model. A plan to deploythe selectedBusiness Model Canvas is then developed to begin deliveringthe Value Propositions inthe market. The planshouldinclude a roadmapto keepKeyPartners synchronizedwiththe deployment timeline and to ensure dependencies will be met. Enterprise architects workwith KeyPartners to facilitate the integrationof servicesand data to enable the processes in the newbusiness model design. Intrapreneurs also beginworkingwith Channels to drive demandfor the offerings inthe target Customer Segments. After the businessmodel is deployed, a programto manage the adaptations in response to market feedback shouldbe operationalized. The program shouldinclude tracking the validityof business model hypotheses and measuring performance. The components ofthis program are discussedin greater detailinEvaluatingBusiness ModelPerformance.
  9. 9. Identifying an Operating Model An operatingmodel is the first layer in the foundation for executionin an enterprise architecture. The operating modelis the business process standardizationand integrationnecessaryto deliver value to Customer Segments. It is the conceptual component inthe organizinglogic that defines anenterprise architecture. In this sense, the operating model is the initial manifestationof the business model when it is deployedas it indicateshowvalue is created, deliveredandcaptured bythe business units inthe enterprise. Researchconducted byMIT’s Center for Information Systems Researchfound that enterprises implementing an operating modelreportedthe following: 17% greater strategic effectiveness, 31% higher operational efficiencies, 33% more customer intimacy, 34% higher product leadership, and 29% greater strategic agilitythanthose companies that didnot. 4 Basedon surveyandcase studyresearch at more than200 companies in the UnitedStates andEurope, MIT’s CISR developed a quadrant based onthe two dimensions of businessprocessstandardizationandintegration in whichhighperforming enterprises that hadimplementedanoperating model couldbe classified. Operating Model Quadrant (Enterprise Architecture as Strategy, Ross et al, 2006)
  10. 10. Coordination Operating Model The Coordination OperatingModel is characterized bysharedcustomer, product or supplier data but operationallyunique business units that canimpact eachother’s transactions. These autonomous businessunits have a high degree of control over business process designto adapt to its specific operations. Visuallya CoordinationOperating Modelis representedinthe following diagram. Coordination Operating Model
  11. 11. Unification Operating Model The UnificationOperating Model is basedon a globallyintegratedset of business processeswhere customers and suppliers are distributed geographically. Businessunits have similar operations where process anddata are designed centrallysotheycan be shared. Centralizedmanagement of these processes typically leverages a matrix approachto keep track ofthe business unit composition. Although the business units have distinct operations, high-level business process owners work to standardize business processesacross the businessunits. Essentially, Unification is based ona canonicalset ofprocesses anddata that can be dynamicallyconfiguredto execute withineach businessunit’s operations. Unification Operating Model
  12. 12. Diversification Operating Model Diversificationis based onthe fact that business units have few, if any, shared customers or suppliers. These business units also are operationallyunique andhave transactions that are independent. There is minimal business process standardization and integrationina DiversificationOperatingModel. Most IT decisions andbusinessprocessdesign are made at eachbusinessunit. However, these business units doleverage a commonset of sharedservices that canbe integratedintotheir specific environment. Diversification Operating Model
  13. 13. Replication Operating Model The ReplicationOperating Modelalso has few, if any, sharedcustomers or suppliers. The autonomous business units ina Replication OperatingModel leverage a federatedapproachto business processintegrationandstandardization. Business process design is centrallymanagedas are IT services. The informationarchitecture is standardizedwith canonical data definitions but the actual data is locallyownedwith some aggregation to the enterprise. From an operations perspective, the business units are verysimilar inexecution. Replication Operating Model
  14. 14. Mapping Business Model toOperating Model The next stepinthe process is to identifyan OperatingModel that is well-suitedfor the business modelcharacteristics. The process is definedbyevaluatingstandardizationandintegrationnecessaryincertainelements inthe businessmodel. Elements in the business model that playa significant role in determine the operatingmodel include Customer Segments, KeyActivities, KeyResources andKeyPartners. The mapping presentedhere provides insight intothe rational for selecting anoperating model as well as a structuredmatrix for organizing the logic in the process. The mapping activityshouldbe conductedina session including the intrapreneurs andenterprise architects. The intrapreneurs can provide data and characteristics fromthe business modelto the mapping matrix. Enterprise architects cananalyze the business processes, system linkages, and data necessaryto support that aspect of the businessmodel to lead to a choice for the operatingmodel. The mapping process andcriteriacanbe adaptedto suit the enterprise’s particular business model innovationparameters. Business ModelElement MappingCriteria Operating Model Customer Segments Small number ofsegments, sharedacross business units Coordination Large number of segments, not shared across business units Unification, Diversification, or Replication KeyActivities Sharedprocesses between business units Coordination Sharedprocesses between partners Coordination Centralizedmanagement of business process and data Unification Business unit control of processes anddata Diversification Transactions aggregatedat enterprise level Replication KeyResources Globallyshared process and data Unification, Coordination Business unit specific processes anddata Diversification Federatedprocesses and standardized data schema Replication KeyPartners Small number ofpartners, shared across business units Coordination Large number of partners, not sharedacross business units Unification, Diversificationor Replication Mapping Matrix
  15. 15. Designing an Ecosystem to Support the Operating Model In order to begin implementing anenterprise architecture to support a foundationfor execution, it is important to consider the composition ofthe types of architectural practices, standardizedtechnologies, andplatforms inthe ecosystem. Technology standardizationis part of the evolution ofthe enterprise system landscape towardanoptimized, agile ecosystem that provides the responsivenessneededto enable strategic initiatives to be implementedat higher velocities. Identifyingthe set of services and platform capabilitiesina holistic manner allows a systems thinking approach to support designinitiatives for the enterprise architecture. The cost benefits are alsosignificant as it gives enterprise architects a roadmap to perform technologyand platform evaluations that are compliant with the ecosystemgovernance model to avoidredundant deployments and wasted resources. Architecture Principles Enterprise architecture principlesthat inform program portfolios relatedto the core operating modelandnew ventures can serve as valuable guides to buildingout the ecosystemina cohesive, consistent manner. These principles alsofacilitate increasingorganizationcapabilityto design, develop, test, anddeploysolutions with higher qualityand highvelocities. Establishing a set ofarchitecturalprinciples for enterprise architecture development underscores the important consideration that process is just as important as technologyfor creatingworldclass solutions. Besidesagility, economies of scale and scope can be achievedbyleveraging or extendingexisting architecturalcomponents andsubsystems to deliver new solutions required to support a newventure. These architecturalprinciples specificallyhelpaddress the challenges neededto succeedinthe global connected economy. Architecture Principle Objectives Responsive Mobile First Design Responsive Mobile First Designis the principle to designinterfacesas if theywere targetinga mobile audience that maybe using various types of devices suchas smart phones or tablets. The objectives of thisprinciple are: Personalizedcontent, capabilities, context delivery Enhancedcustomer relationships Support for ambient awareness Optimizedchannel distributionfor demandgenerationor service delivery OODA Loop 5 The Observe-Orient-Decide-Act Loopprinciple is a paradigm that informs designinganalyticaland event-processing capabilitiesintothe operatingcore as well as new ventures. The OODA Loop includes components for decision modeling. Some ofthe objectives driving this architectural principle include: Open worlddecision support for consumers Real-time data insights Complex event processing Distributed enterprise collaborationanddecisionsupport Service-OrientedCloudFirst Design Service-OrientedCloudFirst Designis the principle to designall services with business modularityandcloudcomputing capabilityto maximize utilityof network effects. The principles helps to achieve these objectives: Globalclass integration Partner and supplier plug-n-play Supplychain agility Ecosystem Architecture Principles
  16. 16. Ecosystem Architecture Technology and PlatformCapabilities In addition to standardizing the process for designing the ecosystem, the technologyinfrastructure and platform capabilities also needto be classifiedto facilitate deployment decisions. These categories are essentiallythe toolbox for the enterprise architect to use to create solutions to power newventures launchedfrom businessmodel innovationinitiatives. The categories have been defined as theyhelpaddress specific aspects of the types of capabilitiesneededto succeedinthe globalconnected economy. It shouldbe noted, however, that the ontologypresentedinthe table belowis not exhaustive. Enterprise architects should developa more comprehensive catalogof the technologyandplatformcapabilities needed to support the operating model andanyextensions for new ventures. Technology/Platform Objectives/Candidates Mobile Mobile platforms produce responsive interfaces for consumers usingsmart phones or tablets. Platforms should facilitate deployingcontext-aware, personalizedcontent andcapabilities inthe various relationships, channels, and revenue streams the consumer is engaged. Candidate platforms include: Apple iOS Google Android Windows Phone Ubiquitous Computing Ubiquitous computing is drivenbyneedto capture more openworldcontextual data via sensors to developenhanced situational awarenessto empower the decisionmodeling inthe enterprise. Candidate platforms include: RFID iBeacon Arduino RaspberryPi Big Data and Machine Learning Big Data is the collectionof large volumesof data fromdiverse sources at high velocities. BigData can enable business context insights to move withhigh velocities acrossbusiness units and/or partners in the operating models as well serve as the source for shared data. Candidate platforms include: Windows Azure HDInsight Amazon Elastic MapReduce Apache Hadoop To unlockvalue from vast amounts of data over large numbers of dimensions, machine learningplatforms canprovide the numericalanalysisto develop insights basedonclassification, regression, andpredictive analytics. As such, these platforms canalsodrive personalizationfor products andservices and facilitate openworlddecisionmodelinginthe consumer customer segments.
  17. 17. Technology/Platform Objectives/Candidates Cloud Computing Cloud computingprovides elastic computing resources for scalabilityand also relaymechanisms for enabling linkages betweenbusinessunits andenterprises. This platform capabilityis especiallyvaluable for business model innovation since these servicescanbe usedinanon-demandbasis andcanbe disconnectedif the new businessmodel does not performwell. These connections canbe made as part of a new venture or inresponse to market feedbackor competition. Candidate platforms include: Windows Azure Amazon Elastic Compute Cloud (EC2) OpenStack Complex Event Processing Complex event processing is necessaryto capture richcontext informationin real-time. Events occurring in the consumer’s openworldor inthe collaborative distributed enterprise contains contextual data that shouldbe incorporatedinto decisionmodeling for determining how to respond. Candidate technologiesinclude: Microsoft .NET Reactive Extensions Microsoft StreamInsight TIBCO StreamBase CEP Enterprise Service Bus In modern enterprise architectures that have successfullyevolvedto support composite services and applications, anenterprise service bus is oftena key enabler for reaching the data velocities required for business agility. An enterprise service bus provides keycapabilities to support high data velocityat the operatingcore such as message routing, service brokering, mediation, and message processing including transformation and enrichment, operations management, as well as qualityof service. Candidate platforms include: Neudesic NeuronESB MuleSoft Mule ESB Microsoft BizTalk Server Enterprise CollaborationPortals Enterprise collaboration portalsare the interface for groupcollaboration within and across businessunits inthe enterprise. These platforms include social network andvirtual teaming capabilitiesto support standardizedbusiness processes andaccessing shared data. Candidate platforms include: Neudesic Pulse Microsoft SharePoint Ecosystem Technology and Platforms
  18. 18. Core Diagram, A Visual Model for an Ecosystem Once the Operating Modelis selected, a Core Diagram is producedthat illustrates the platform ecosystem which delivers the capabilities neededto support the enterprise architecture. The Core Diagram’s main purposeis to graphicallyrepresent the systems capabilities and connectivityin a single, comprehensive reference. The Core Diagram is the blueprint that answers the question: “What does anenterprise architecture look like?” The Core Diagramcomponents include the following: Core Business Processes SharedData Driving Core Business Processes KeyLinking and Automation Technologies o Middleware o Portals o Integration Interfaces  Employees  Customers  Partners  Suppliers KeyCustomer Segments Core Diagram Design Process 4 (©2005 MIT Sloan Center for Information Systems Research and IMD) Each type Core Diagram can be designed using a processthat is alignedwith the characteristics of the operating model. Inthe example diagramabove, the major activities inthe process are indicated inthe sequence inwhichthey are performed. For instance, in the diagram, keycustomer segments are first identified sothat the business processesthat are to be standardized and integratedcanbe determined. Once these processes have been selected, the shareddata neededto execute them is synthesized to developintothe Core Diagram informationarchitecture. Inthe diagram, the technologyandplatforms enabling the standardizedintegrationare optionallyincludedinthe model. The visual model produced bythe process is the Core Diagram that includesall the elements of anenterprise architecture that can be exploitedas a robust foundationfor execution. The Core Diagram becomes anessential reference for executive management when developingnew businessstrategies andbusinessmodel innovationventures. The Core Diagram enhances strategic thinkingfor executive management by facilitating businesscreativityat a glance.
  19. 19. CoordinationOperating Model –Core Diagram Coordination Operating Model Core Diagram 4 (©2005 MIT Sloan Center for Information Systems Research and IMD) The Coordination OperatingModel Core Diagram is designedbyfirst consideringthe keycustomers shared among the business units inthe enterprise. The business units in this case offer different products andservices but all dependupona set of shared data to deliver value to the customer segments. Business processes inthe CoordinationOperatingModel are highlyintegrated since those products andservicesmayinvolve transactions that span businessunits. The keyobjective is for each customer segment to have a cohesive experience across all the channels andrelationships. The integrationtechnologies andlinked processes that enable these business processesare optionallyincludedin the diagram. To beginto understandthe designof the enterprise architecture ecosystem, the tablebelowmaps out the enabling technologies andplatforms that canbe considered for eachaspect of the operating model. Core Diagram Component Ecosystem Technology/Platforms SharedCustomers Apple iOS Google Android Windows Phone SharedData Windows Azure HDInsight Amazon Elastic MapReduce Microsoft .NET Reactive Extensions (CEP) Microsoft StreamInsight (CEP) TIBCO StreamBase CEP IntegrationTechnology Neuron ESB MuleSoft Mule ESB Microsoft BizTalk Server Windows Azure Service Bus RFID, iBeacon, Arduino, RaspberryPi LinkedProcesses Neudesic Pulse Microsoft SharePoint Coordination Operating Model Ecosystem
  20. 20. In this operating modelmobile-first responsive design can playa major role inthe implementationof the enterprise architecture capabilities. It is important for the shared customer segments to have a consistent yet context-drivenpresentation as theyengage acrossthe various interfaces ofeachbusiness unit andchannel usingeither a Windows Phone, Apple iOS or Google Androiddevice. Big Data platforms, such as Windows Azure HDInsight or AmazonElastic MapReduce, are also keyinthis modelsince the volume, varietyand velocity of sharedcustomer-relateddata that is generated acrossbusiness units and channelscanbe very significant. Developing sophisticated analytical capabilitiessuch as machine learning algorithms canyielddata insights over a large number ofdimensions that can be capitalizedon an enterprise-wide basis. Beinghighonthe integrationscale, the operating model willhave to make effective use of platforms that cancreate system linkageswhile enabling businessprocesscustomization. Eachbusiness unit mayexecute a variant versionof a business process that must be supported withagile and flexible integration platforms that candeliver data at highvelocity. Some of the integrationplatformenablers include NeuronESB, Microsoft BizTalkServer andWindows Azure Service Bus. New Venture in Coordination Operating Model The core diagramfacilitates the envisioning process for how the newventure will be able to exploit the enterprise architecture to deliver on the businessmodel innovation. Executive management canuse the core diagramproduced bythe enterprise architects as a means to build shared vision withthe intrapreneurs for how the venture will operate. The core diagram informs the innovationteamhowthe venture would leverage shared customer data while creating the linkages via ecosystem integrationplatforms into enterprise resourcesand services, suchas Big Data analytics.
  21. 21. UnificationOperating Model –Core Diagram Unification Operating Model Core Diagram 4 (©2005 MIT Sloan Center for Information Systems Research and IMD) The UnificationOperating Model is designedbyfirst identifyingthe keycustomer segments or channelsthat need to be served. The enterprise architecture team along with executive management work to select the keystandardized processes that should be executedona consistent and scalable basisthroughout the business. The processes maybe definedaroundcore competencies bywhichthe enterprise delivers value to the customer segments. The processes are dependent ona set of common master data that are usedacross coordinated high-velocitytransactions. This type of operating model is especially well-suited to respond to customer and channel events inreal-time to enable the OODA loopto power the collaborative decision-makingwithinthe enterprise. The technologyecosystem to support thisoperatingmodel consists of a standardized set of integrationtechnologies andplatformcapabilities that exhibit robust reliabilityand highscalability. For customer segments, the keyto delivering exceptional experiencesacross relationships andchannelsis the architecture’s abilityto scale elasticallyas the core business processes andtheir associatedworkflows are performed. Moreover, the interfacesto these customer segments shouldbe addressedwitha mobile-first drivendesignto facilitate a consistent, context- driven interactionwith the core standard processes. These interfaces enable communication of real-time openworldevents into the operatingcore and the response must be presented reliablythroughout each process. The elastic computing necessaryto support standardized core processescanbe achieved via cloud-basedintegrationplatforms such Amazon EC2, Windows Azure, or open-source platforms suchas OpenStack. The economic justificationfor considering these options are basedonthe fact that capitalexpenditures related to additional data center capacityneed not be incurred to deliver the service level outcomes desired bythe enterprise. Duringpeak periods, cloudcomputingresources canscale to meet the event-basedtransactionprocessing to ensure the customer experience is smooth andseamless as theyengage inthe various relationships andchannels. To surface the standardizedbusiness process, enterprise portals provide the collaborative capabilitiesto performthem ina consistent andrepeatable manner. Neudesic Pulse is designed especiallywell for this enablement since it alsoincludes social networking features built ona Windows Azure cloudinfrastructure. Microsoft SharePoint is another optionsince the platform provides richsupport for incorporatingsharedenterpriseinformationincollaborative workflows. These platforms help address the emphasis inthe Unificationmodel oncreatinghighlycollaborative environments to enable scalable processingas wellas group-baseddecisionmodeling.
  22. 22. Shareddata in this operating model, as inthe Coordinationmodel, alsointroduces anemphasis onBig Data technologyand platforms due to the volume, varietyandvelocitybywhich the data canbe generatedandcollectedthroughout the enterprise. The centralized data aspect to the Unificationmodel prioritizes the needto create a solidfoundationfor advancedanalytics such as classification, regressionandpredictionto support integrated decisionmodeling. Apache HadoopandWindows Azure HD Insight are two platforms that serve as viable candidates for thesecapabilities inthe operating model to support BigData. The table belowillustrates the ecosystemtechnologyandplatform emphasis mapping for each aspect inthe Unification operatingmodel. Core Diagram Component Ecosystem Technology/Platforms KeyCustomers Apple iOS Google Android Windows Phone LinkedandStandard (Core) Processes Neudesic Pulse Microsoft SharePoint SharedData Windows Azure HDInsight Amazon Elastic MapReduce Microsoft .NET Reactive Extensions (CEP) Microsoft StreamInsight (CEP) TIBCO StreamBase CEP LinkingandAutomating Technologies Neuron ESB MuleSoft Mule ESB Microsoft BizTalk Server Windows Azure Service Bus RFID, iBeacon, Arduino, RaspberryPi Unification Operating Model Ecosystem A new venture canfullyexploit the scalabilityoffered bythe UnificationModel byincorporating the standardized processes and integrationinterfaces intoits business model. Enterprise architects use the Core Diagram to illustrate the business agilityto intrapreneurs as well as executive management andto create a sharedvisionof the specializedprocesses and integration neededto support the innovation at the edge of the enterprise. New Venture in Unification Operating Model
  23. 23. DiversificationOperating Model –Core Diagram Diversification Operating Model Core Diagram 4 (©2005 MIT Sloan Center for Information Systems Research and IMD) The Diversification OperatingModel places the emphasis onthe sharedtechnologyandplatform stackinstead ofbusiness process standardizationandintegration. To begindesigningthe Core Diagram for a Diversification model, the shared technologyarchitecture services are identifiedthen the corresponding platforms are selected. The business units inthis type of enterprise canthen leverage the sharedservicesto execute highlyspecializedbusiness processes to deliver value to their specific customer segments. The business units alsoownthe data to serve their customer segments loweringthe n eedfor a common master data set. However, the designof the operating modelcanallow for a commonset ofbusiness processes that can be leveragedandthencustomized byeachbusinessunit. In this type of operating model, the technologyand platform stack needs to have a flexible foundationfor business process agilitysothat each business unit canperform their customizations. Integration platforms, such as Neudesic ESB andMicrosoft BizTalk Server, which support business process andworkflow design, can serve as the enablers for this capabilityinthe stack. Enterprise architects can work withbusiness process owners inthe business units to deliver the particular integrations and systemlinkageswithcustomers and partners for executionbasedonthe commonintegrationplatforms. The custombusiness processes mayleverage features suchas message-basedrouting, service brokering and transformation servicesinthese platforms. It shouldbe noted, however, that business units canmake decisions to deployother platforms based ontheir specific integrationneeds. To surface the set of shared business processes available to the business units, enterprise collaborationportalslike Neudesic Pulse andMicrosoft SharePoint, canaddress this aspect ofthe operatingmodel. Businessunits are free to designthe informationworker experience usingthese portals to perform the specialized business processing activities. Infact, using a composite applicationdesignapproach, commonenterprise services maybe usedto developflexible andadaptable user interfacestailoredspecificallyto the information worker needs ina givenbusiness unit. Virtual teamingis another important service providedbythese platforms that enable mobilizationof individual resources with the requiredskillsets to execute a specializedprocess. The abilityto search anddiscover the informationworker resources available witha givenskillset pro file allows businessunits to focus onproducingandmaintaining the data to optimize virtual team formation.
  24. 24. The table belowshows the ecosystememphasis mappingto eachaspect in the DiversificationOperating Model. The Core Diagram is designedto illustrate how thismapping is manifested inthe enterprise architecture. Core Diagram Component Ecosystem Technology/Platform SharedTechnologies Neuron ESB MuleSoft Mule ESB Microsoft BizTalk Server Windows Azure Service Bus SharedProcesses Neudesic Pulse Microsoft SharePoint Business Unit-Specific Data Windows Azure HDInsight Amazon Elastic MapReduce Microsoft .NET Reactive Extensions (CEP) Microsoft StreamInsight (CEP) TIBCO StreamBase CEP Business Unit-Specific Customers Apple iOS Google Android Windows Phone Diversification Operating Model Ecosystem In the Diversificationoperating model, the shared services are exploitedbythe new venture in business model innovation. The new venture can be acceleratedbydeveloping specializedbusinessprocesses to deliver value to its specific customer segments using the foundational technologystack. The new venture can focus on provingout is businessmodel without the needto deploythe pre-requisite technologyinfrastructure. In fact, inthisoperatingmodel, usinga commoncollaborationplatform can facilitate the mobilization ofinformationworker resources fromestablishedbusiness units into the newventure. Information workers familiar with the user interface canmore readilyexecute the specific activities involved in the newprocesses. New Venture in Diversification Operating Model
  25. 25. ReplicationOperating Model –Core Diagram Replication Operating Model Core Diagram 4 (©2005 MIT Sloan Center for Information Systems Research and IMD) The ReplicationOperating model emphasisis onbusiness processscalabilityandacceleratedtime-to-market for new ventures. The design ofthe Core Diagram begins withthe identificationof standardizedbusiness processes that are to be executed byany new venturesinbusiness modelinnovation. Business modularityis a keycharacteristic of this operating model. The business processes are designedbya centralized team which mayinclude enterprise architects andexecutive management. This operatingmodel is advantageswhere business units need to be deploye drapidlyona global basis but need to maintain consistencywithother parts of the enterprise to capitalize onestablishedbusiness modelcomponents innew contexts. The autonomous nature of businessunits inthisoperatingmodel is also advantageous in the global environment. The supporting technologies andplatforms usedto automate thesestandardizedbusiness processesare thenidentified andbundledto facilitate planninganddeployment whena newventure is formed. In this operating model, predefinedbusinessprocesses canbe enabledusingenterprise groupcollaborationplatforms such as Neudesic Pulseand Microsoft SharePoint. Packagedworkflows and groupworkspaces or sites canbe createdto be deployed and operated in anindependent manner ineachbusiness unit. In essence, these deployments are ofturnkeycollaboration solutions that canthenbe customized to meet the specific needs of the businessunit inits operatingcontext or region. These technologies andplatforms automate business processes that are knownto be efficient andprofitable so the topline benefits to the enterprise canbe significant fromaninvestment perspective. The businessmodules andassociatedpackaged deployment reduces riskandaccelerates the time-to-value for the enterprise whena new venture is launched. In addition to the portal interfaces in these bundledsolutions, the underlying integration technologies that facilitate the linkagesbetweeninternal systems andexternal servicesare alsoincluded as part ofthe automationdeployment to support the standardizedprocesses. Platforms inthe ecosystem that canserve these purposes are Neuron ESB, Microsoft BizTalkServer as well as Windows Azure Service Bus. Components representing the codificationandencapsulationof the businessmodules can be developedineither Neuron ESBprocesses or BizTalk Server applications. Deployment in a specific businessunit will involve following a standard procedure withconfiguration management reflectingthe specific business unit ITenvironment. Windows Azure Service Bus canbe usedto enable linkages between business units, partners andchannel service interfaces. Hybrid solutions could playa major role inthese deployments since the businessunits needto exploit a federatedinfrastructure for autonomous operation. Considering Azure Service Bus also enhance abilityinthe enterprise to perform global class deployments for newventures.
  26. 26. The table belowindicates the ecosystemtechnologyandplatform emphasismapping to the Replicationoperating model design aspects. Note that the ecosystemcomponents that are directedat the business unit level are alsomappedinthe ta ble to illustrate the relationship inthe enterprise architecture. Core Diagram Component Ecosystem Technology/Platform StandardizedProcesses Neudesic Pulse Microsoft SharePoint Automating and Linking Technologies Neuron ESB MuleSoft Mule ESB Microsoft BizTalk Server Windows Azure Service Bus RFID, iBeacon, Arduino, RaspberryPi Business Unit-Specific Data Windows Azure HDInsight Amazon Elastic MapReduce Microsoft .NET Reactive Extensions (CEP) Microsoft StreamInsight (CEP) TIBCO StreamBase CEP Business Unit-Specific Customers Apple iOS Google Android Windows Phone Replication Operating Model Ecosystem New ventures in the ReplicationOperating Model can be deployedgloballyinaccelerated fashionbyexploitingthe business process modularityand turnkeysolutions usedfor automation and integration. Inthis scenario, enterprise executives are adapting a successful andprofitable business model to capitalize onopportunitiesinnew markets usinga verysimilar value proposition, or product-service market fit. Intrapreneurs inbusinessmodel innovationcanalsoanalyze howthese solutions can be adaptedto ensure success withinthe specific context or regionthe businessunit will be operating. Enterprise architects can thenwork together withthe intrapreneurs to identifylinkages acrossbusiness units that maybe necessaryto coordinate federatedbusiness processes. New Venture in Replication Operating Model
  27. 27. Evaluating Business Model Performance Verifying Model Hypothesis With the businessmodel deployed, the verification process can beginto collect data and feedback to determine if the elements of the model are performing as expected. The hypothesis forming the basis for the Value Propositions can be verifiedwith feedback from paying customers. This type of checkcanbe conducted for other elements suchas KeyPartners, Channels, and KeyActivities. All the interactions and interdependencies betweenelements of the business model canalsobe verified. Tracking Metrics Metrics shouldbe identifiedto quantifythe verificationprocess for the elements of the business model. This tracking makes the task of improving the business model more concrete leverage real data basedon customer feedback or market conditions. Tracking metrics enable a program of continuous innovationwhere the newbusiness modelis calibratedwithminor adaptations to gaingreater market traction. Whena certain trajectoryof profitabilityor customer adoption is observed, then the venture changes focus from verification to scalability. Insustainabilityinnovation, metrics relatedto energysavings canbe tracked to determine if the businessmodel is makingthe desiredimpact. Leveraging the full capabilitiesof the operating model, the new venture canreadilyincorporate resources andservices to begin the scalingprocess. Performance Measurement Architecture A performance measurement architecture is neededto support verificationandtracking of metrics associated withbusiness model hypothesis. The architecture canleverage platform analytics present inthe enterprise architecture while providing interfacesspecializedfor business model performance evaluationandmonitoring. Customer Development andPivoting Part of the task ofevaluating performance relates to the process of customer development. Whena new venture launches, several keyquestions shouldbe considered: Who are the paying customers? Are theythe customers we targetedinour business modeldesign? The answers to these questions mayleadto a change inthe new venture’s offerings to those customers to identifyan optimal market fit. At some point in customer development process, the metrics mayindicate the needto adapt the business model, or pivot, in order to enhance the viabilityof the business model. The innovatingteam canrevisit the designusing the Business Model Canvas to produce an adaptedversionto reflect customer development analysis andfindings. Scaling and Operationalizing If the metrics are indicating satisfactoryperformance andanalysis projects growth in market share, the new venture needs to consider scalingthe components of the business model so that the venture cangraduallybe shiftedintothe operatingcore. In this scenario the outcome hasbeen a successful business model innovationventure that is producing the desiredimpact on profitabilityor sustainability.
  28. 28. The Creative Power of Business Model Innovation The creative power of businessmodel innovationcan boost enterprises to new levels of growthand value generation. With an enterprise architecture that enables executive management to strategicallyand creativelyadvance business modelinnovation, the potential to unlocksignificant market value increasesdramatically. Executives andintrapreneurs can collaborate to identify new markets, partners, resources, channels, andvalue propositions to deliver new experiences or solutions to customers. For instance, in2003, Apple unleashed the tremendous disruptive potentialof business model innovation whenit introduced the iPod digitalmusic player along witha novel distributionchannel for the music industryanda convenient mechanismfor consumers to legallydiscover and downloadmusic. Moreover, Apple introduced newmobile products, the iPhone andiPad, that addedto network effects of the newbusiness model. In three years, Apple’s business model innovation became worth almost $10 billion representing approximately 50% of the company’s total revenue. Apple’s market capitalization increased from around $1 billioninearly2003 to over $150 billionbylate 2007. Clayton Christensenmade the important observation that Apple was not the first companyto bring a portable digitalmusic player to market. Another companycalled Diamond Multimediahad introducedits player, the Rio, in1998. So what didApple dobetter? Accordingto Christensen, Apple made the product its business model enabledbythe technology. 6 Business model innovation was the force that unlocked the value. Apple’s Performance, Before and After Business Model Innovation 7 (Amit and Zott, MIT Sloan Management Review) Business outcomes driven bybusiness model innovationare increasinglybeing recognizedbyexecutive management. A recent global surveybythe Economic Intelligence Unit foundthat a majorityof the 4,000 executives polled preferred business model innovationover other means to create competitive advantage. 7 Reinforcingthis finding is IBM’s 2012 Global CEO Report which determined that 33% of the more than1,700 chief executive officers in64 countriesinterviewedconsider business model innovationas a keysource ofsustainedeconomic value. 8 Infact, the report foundthat outperformers were more bolder in their approachto business model innovation. Withallthe challengesCEOs face inthe current environment, there is not a moment to lose for setting out to buildanenterprise architecture that will harness the creative power of business modelinnovation to succeedina global connectedeconomy.
  29. 29. References 1. The Business Model InnovationFactory:How to StayRelevant When the World is Changing, Saul Kaplan, WileyPress, 2012 2. Alexander Osterwalder (2004). The BusinessModel Ontology - A PropositionInA DesignScience Approach. PhDthesis Universityof Lausanne. 3. Business ModelGeneration, Alexander Osterwalder, Yves Pigneur, WileyPress, 2010. 4. Enterprise Architecture as Strategy:Creatinga Foundationfor Business Execution, J. Ross, P. Weill, D. Robertson, Harvard Business School Press, 2006. 5. USAF Colonel John Boyd, briefings onmilitarystrategy. (http://en.wikipedia.org/wiki/OODA_loop) 6. Reinventing Your Business Model, ClaytonM. Christensen, Mark W. Johnson, Henning Kagermann, Harvard Business Review, December 2008. 7. Creating Value ThroughBusiness Model Innovation, RaphaelAmit, ChristophZott, MIT SloanManagement Review, Spring 2012 Vol. 53 No. 3. 8. 2012 IBMCEO Study, Leading ThroughConnections, IBMCorporation. The author can be reachedonLinkedInat http://www.linkedin.com/in/sergiocompean/.