Business Modeling is s not different from the logic of scientific discovery: Start with a hypothesis Test in the market place Conceptual test: does it make sense ? Market test: do the numbers add up ?
“ The functions of a business model are to: articulate the value proposition , that is, the value created for users by the offering based on the technology; identify a market segment , that is, the users to whom the technology is useful and for what purpose; define the structure of the value chain within the firm required to create and distribute the offering; estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen; describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementors and competitors; formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals. These six attributes collectively serve additional functions, to justify the financial capital needed to realize the model and to define a path to scale up the business.The process begins with articulating a value proposition latent in the new technology. This requires a preliminary definition of what the product offering will be and in what form a customer may use it. The business model must then specify a group of customers or a market segment to whom the proposition will be appealing and from whom resources will be received. A customer can value a technology according to its ability to reduce the cost of a solution to an existing problem, or its ability to create new possibilities and solutions. Importantly, different prospective customers may desire different latent attributes of the technology. Thus, there is no single inherent value for the technology: if it subsequently were to be developed in different ways, it would likely accrue different value to its developer. Value, of course, is an economic concept, not primarily measured in physical performance attributes, but rather what a buyer will pay for a product or service. A further complexity is the fact that realizing value also involves third parties, both within the vertical value chain, and from the value network
Example Digitial document management
Example: Unisys – Phenix – Justice dept – 50 Mio € Na zes jaren van vertraging, verspilling en bochtenwringerij heeft defederale regering eenzijdig het contract opgezegd met Unisys in het kader van het Phenix-project. Dat project moest voorzien in demodernisering van het departement van Justitie. De FOD justitie werkt nu samen met Fedict aan een overbruggingsscenario.
Many people argue that companies are able to use innovation to create needs within customers. The iPod is a classic example, people defend that the world never needed such fashionable device before Apple created it. In my opinion, however, it is not possible to create needs within customers.One can influence people and consumption behavior with marketing techniques but he can not create a need out of nothing. Every successful innovation addresses a task that customers were already trying to perform in the first place.The Iridium project launched by Motorola in the late 1990s illustrates this point perfectly. Around that time the mobile market was in ferment and service operators around the world were fighting to conquer the increasing number of mobile subscribers.Most mobile networks, however, were based on base stations that could cover a couple of kilometers each. Such technology obviously limited the range where operators could offer their services.In order to solve such a problem Motorola tried to develop a network that would cover literally the whole world. It looked like a great innovation and the management team was enthusiast about the idea that people would be able to talk anywhere from the Sahara Desert to the North Pole. The project required an investment of 7 billion dollars and it involved 88 satellites that were placed into orbit around the Earth.After the network was in place they started selling the services. The handsets were large and clumsy, after all they required a much more complex technology. They would also sell for $3000 a pop and call charges were incredibly high. But hey, those would allow users to communicate anywhere in the globe!A couple of months later, once the novelty worn off, people started to realize that there was not such a strong need to make calls from a remote city in Siberia or from an island in Polynesia, after all. But it was already too late. Motorola did not only missed the sales expectations by far but it was also forced to keep paying the maintenance of the satellites, which accounted for 2 billion dollars… monthly. Motorola invested into what could have been a very successful innovation, but there was no customer need to be met in the first place. In 1999 the Iridium project filled for Chapter 11 bankruptcy.
Many people and organisations are interested in the construction of a software system. We call them the stakeholders: The customer, the end user , the developer, the people who maintain the system are a few examples. These stakeholders have different concerns that they wish the system to optimize or guarantee. The software architecture of a system is the first early artifact that allows to analyze the priorities of the competing concerns and translates them into system qualities.
When we consider complex physical buildings, it is immediately apparent that we could not do without architecture. The result is at best baroque. Along with theclumsiness, inelegance and discord in the structures, we get • duplication, redundancy, wasted effort, rework • gaps • poor integration, inconsistency, mismatch We simply could not imagine building a skyscraper without an architecture! Now there is not just the need for integrity of the design, consistency of assumptions, and integration among the parts. Even for theinexpert, other considerations loom large: The sequence of work has to be carefully planned. Also, structural qualities have to be designed --including the building ’ s ability to bear load, it ’ s behavior under high-winds, the ability to move people as well as bulky heavy equipment into the building. All these normal conditions, and unusual conditions like fire, earthquake, and terrorist attacks, have to be taken into account. If they are not explicitly taken into account in creating the architecture, it is left purely to a matter of luck and who can afford this?
While there are numerous similar definitions of software architecture, at the core of all of them is the notion that the architecture describes its gross structure using one or more views. The structure in a view illuminates a set of top level design decisions, including such as how the system is composed of interacting parts, the main ways of interaction and communication and the propoerties of the parts. Software architecture typically plays a key role as a bridge between requirements and design and by providing an absrtact description of the system it gives the designer a tool to assess certain system requirements and suggest methods for construction and implementation
Communication among stakeholders Understanding, vocabulary for structure, system and constraints. Making architectural choices.
Simon Brown at C5 – Jersey -
Software Architecture Prof.Dr.ir. F. GielenThe Architecture Business Cycle - ABC Vakgroep Informatietechnologie – IBCN
Software ArchitectureSoftware Architecture Software creates Value Software Architecture Business Cycle What is Software Architecture ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 2
What is a business model ? It is a description of how your company intends to Create value Capture value High Tech Innovation: New product New MarketsVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 3
Why make a business model ? Measured in technical domain Measured in value domain The business model unlocks the value of the technology and justifies the capital requirements to implement it ..Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 4
Functions of the business model 1. Articulate the value proposition, that is, the value created for users by the offering based on the technology; 2. Identify a market segment, that is, the users to whom the technology is useful and for what purpose; 3. Define the structure of the value chain within the firm required to create and distribute the offering; 4. Estimate the cost structure and profit potential of the offering 5. Describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementors and competitors; 6. Formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals.Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 5
Example: The Paperless Office • What is the value proposition ? • What are the market segments ? • Who is your customer ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 6
Value Chain : Customers & UsersA value chain is a “chain” of companies that work together to satisfy a market demand for a particular product.Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 7
Example: On-line GamesVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 8
Example: The Paperless Office • What is the value chain? • Who is your customer ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 9
Creating value In the real world Only 28% of projects finish on time and within budget 23 % of projects are cancelled before delivery The remaining projects (late, over budget) only delivered a fraction of the planned functionality. Standish Group CHAOS 2000 reportSoftware is increasing in :• complexity, size and functionality.• customer expectations• business valueVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 10
… almost 10 years later Only 32% of projects finish on time and within budget 24 % of projects are cancelled before delivery Standish Group CHAOS 2009 reportVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 11
Failed projects : Motorola Iridium • 7 billion USD development cost • 88 satelites • 3.000.- USD for a phone • 2 billion satellite opex per monthVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 12
Software Architecture Business CycleSoftware Architecture Software creates Value Software Architecture Business Cycle What is Software Architecture ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 13
The ABC: Architecture Business Cycle 1. Stakeholder needs 2. Business management issues 3. Legal/contractual issues 4. Commercial & competitive pressures 5. Technical environment 6. Political issues 7. Life-cycle issuesAn architecture is the result of a set of business and technical decisions Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 14
Influence by Stakeholders Development Marketing End user Maintenance Customer Manager Manager ManagerVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 15
Skills of a software architect Handle ( conflicting ) requirements from: business organisation customer finance people Be a technical guru. Be a diplomat …with great communication skills Do you still want the job …. ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 16
Influence of the architect Organisation Subsystems = teams & skills Budget & schedule Build up the skill base for the company Business impact Development & maintenance cost Time to market Meet customer requirementsVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 17
Architect a DoghouseVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 18
Architecting a High riseVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 19
Dimensions of complexity Higher technical complexity - Embedded, real-time, distributed, fault-tolerant - Custom, unprecedented, architecture reengineering - High performanceAn average software project: - 5-10 people Defense- 10-15 month duration Telecom Weapon System- 3-5 external interfaces Switch- Some unknowns & risks National Air Traffic Commercial Control System Embedded Compiler Automotive Software Large-ScaleLower CASE Tool Organization/Entity Simulation Highermanagement managementcomplexity Small Scientific complexity- Small scale Simulation - Large scale- Informal IS Application Defense - Contractual Distributed Objects Enterprise IS- Single stakeholder (Family of IS MIS System - Many stake holders (Order Entry)- “Products” Applications) - “Projects” IS Application GUI/RDB (Order Entry) Business Spreadsheet Lower technical complexity - Mostly 4GL, or component-based - Application reengineering Walker Royce, Rational - Interactive performance Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 20
Software ArchitectureSoftware Architecture Software creates value Software Architecture Business Cycle What is Software Architecture ?Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 21
Software Architecture Definition The Software Architecture of a program or computing system is the structure or structures of the system, which comprises software elements, the external visible properties of those elements and the relationships among them. SoftwareRequirements Design ArchitectureVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 22
Qualities in Software Architecture Functionality Software System Architectural Architecture Qualities Qualities Business QualitiesVakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 23
The Role of Software Architecture (1/2) Communicate among stakeholders Vocabulary for structure, system and constraints Making architectural choices Make early design decisions Resource allocation Organisation and work breakdown Inhibit and enables quality attributes High performance -> time budgets Scalable -> high capacity requirements Re-usable -> coupling Change Management local and non-local changes architectural changes Analysis System level analysis , verify structural constraints, consistency checking.Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 24
The Role of Software Architecture (2/2) Construction Partial blueprint, construction instructions. Evolution Allowable envelope of change, change impact analysis. Reuse components, and patterns for the organisation Management evaluation of milestones, identification of risks Basis for evolutionary prototyping Skeletal construction - vertical strip.Vakgroep Informatietechnologie – Onderzoeksgroep IBCN p. 25