![Differentiating Capabilities: The
Architecture of Knowledge
Core
Partnering [source: Amin & Cohendet]
High trust / security
knowledge intensity
Competence
Network
Medium trust /
security
Peripheral
Market
Low trust / security
distance from core](https://image.slidesharecdn.com/architectingmulti-sidedbusiness-120219044554-phpapp01/85/Architecting-multi-sided-business-29-320.jpg)
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Architecting multi sided business
This document discusses architecting multi-sided businesses. It begins by explaining that modern businesses need to operate in multiple markets simultaneously and satisfy different stakeholders. The emerging response is to configure the enterprise as a platform of services rather than a traditional value chain. However, this transformation involves profound architectural challenges. It then discusses various topics related to architecting multi-sided businesses including viewing the supply chain as a stack, challenges with stack design, and strategic choices regarding where to position the business in the stack. The document emphasizes the importance of understanding indirect relationships in multi-sided markets and delivering indirect value in addition to direct value.
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Architecting multi sided business
- 1. Architecting the Multi-Sided Business IASA UK CHAPTER Richard Veryard February 2012
- 2. About this presentation An earlier version of this presentation was given to the UK Chapter of IASA on February 13th 2012. I’m afraid some of the slides may not be completely self- explanatory. Feel free to contact me for further discussion. The material is an extract from my Business Architecture Bootcamp. See Unicom website for more details. http://unicom.co.uk/product_detail.asp?prdid=1864
- 3. Agenda A modern business typically needs to operate in multiple markets simultaneously, and satisfy the overlapping needs of different stakeholders. The emerging architectural response to this challenge is to configure the enterprise as a platform of services, rather than a traditional value chain. But this kind of transformation involves profound architectural challenges, which business architects need to be able to master.
- 4. Supply Chain asStack We can start by picturing the supply chain as a stack. Passenger Transport Services Software engineers are familiar with the concept of Airline stack in software and communications. But here we Landing Services are talking about a business Airport stack, in which each organization provides a Engineering Services platform of services for the organizations directly above it Engineer in the stack.
- 5. Straight-Through Processing Straight-through processing (STP) generally makes the following Car Driver assumptions: Insurance There is a collaboration between Broker several service providers The purpose of the collaboration Underwriting is to expedite some customer transaction Insurance The service providers have a common view of this transaction Claims The customer transaction belongs within some domain, in which all Claims the service providers participate.
- 6. Disintermediation The passenger can easily bypass the travel agent, and buy tickets direct from the airline. Passenger What makes this easy? Ticket Services Travel Agent Passenger Services Airline The passenger might also bypass the airline, and Airplane Charter charter a plane directly. What makes this Airplane more difficult?
- 7. Making Disintermediation Harder Does this count as adding value? Easier Harder Example Business Same Different Tickets versus Concepts Landing Slots Granularity Same Different Individual Seat versus whole Plane Time Synchronous Asynchronous Annual Harvest versus All-Year- Round Supply … ? ? ?
- 8. Stack Challenges The UK’s vertically integrated rail network (British Rail) was Here’s an example of a seriously flawed stack. decomposed into a stack of separately owned and operated companies. Passenger Transport Services Knowledge was fragmented – nobody knew the full state of Train Co the network. Rail Services Service levels were Track Co incommensurable and muddled. Engineering Services Engineer Serious safety issues emerged (Hatfield).
- 9. Stack Design andGovernance Critical success factors Analysis and Design Monitoring and Control Understand the transformation Proper distribution of risk between layers. Getting a holistic view on what Work out the implications for is going on. service levels and pricing.
- 10. Stack Strategy Strategic Questions Where exactly should we be in Where do I want to be in the stack? the stack? Can we influence the stack geometry? Does the telecoms company Bank sell direct to banks, or via software companies and Packaged Solution system integrators? Can the identity company Software bypass (disintermediate) the telecoms company? Packaged Identity Strategic Impact Telecoms … on the commercial viability of the platform? Identity Services … on the agility (responsiveness) of the stack Identity Co as a whole?
- 11. Stack Architecture Stack geometry and governance calls for architectural thinking. Architectural Questions Demand Side How many layers? How can this geometry ?? be both adapted and adaptable. What is the appropriate granularity in each layer? ?? Differential Rate of Change What is the rate of change within each layer? How much coupling is there ?? between layers? Innovation Gradient What are the trust and security Trust Gradient ?? requirements in each layer? What is the appropriate technology for Supply Side each layer?
- 12. Emergent Properties ofStacks Stacks typically fail to provide clean BUT separation of concerns. Stacks tend to get more complicated over time. Attempts to export costs and risk upwards or downwards usually result in greater aggregate cost and risk.
- 13. Implications for BusinessStrategy THEREFORE Business strategy calls for understanding the whole stack – indirect relationships as well as direct relationships. A sustainable business will deliver indirect value as well as direct value. So let’s see what happens when we view business as a multi-sided platform.
- 14. Business as Platform Aplatform can satisfy many different types of customer. Typical Outsourcing Issues Management / Coordination Delegation / Risk Airport Airline Outsourcing Strategy Engineering Services Platform Strategy Typical Platform Issues Engineer Engineer Pricing & Service Levels Granularity / Unbundling of Services
- 15. Raising the Platform Movingthe platform upwards (or downwards) is a strategic move. Premium added-value services Corporate New Business Network Old Business Network Telecoms Commodity services Downward pressure on price Non-viable as long-term business
- 16. Changing Market Structure(Retail) Asymmetric Design Traditional Platform Indirect Consumer Consumer relationships Caterer Manufacturer Retailer Farmer Manufacturer Caterer Farmer Retailer Economics of Scale, Scope Economics of Alignment, Governance
- 17. Many Platforms aresingle-sided, with Media Producers & Media Distributors and Broadcasters at one end and buyers at the other. Source: Maat International
- 18. Multi-Sided Business Modelsprovide benefits by increasing and capturing indirect network externalities Growth in the number of potential customers on Side One for complementary contents and services on Side Two occurs This then leads to an increase in the quantity and diversity of complements made available Side One by Side Two Side Two Because Side One users are favorably inclined to a wider variety of contents and services on the other side, more join the platform. The increased number of users makes it even more attractive for Side Two to develop new complements. Source: Maat International
- 19. A Media informationaggregator builds a relationship with end users and connects them to various retailers and Contents / Services Providers. Source: Maat International
- 20. Examples of Multi-SidedMarkets Business Complementors Customers A Customer Situation Indirect Benefits Platform Social Private Aircraft Travellers Team travelling to a fixture Cost-effective Flights direct travel Credit Merchants Card holders On holiday in Paris Transaction Cards convenience Smart Applications Users Organizing things while we’re Personal phones away on holiday organization Sports Teams, Sponsors Spectators Following our local team Family social clubs event Hospitals Doctors, Pharma Patients Complications from a bite Treatment for my from a deer tick condition Airports Airlines, Retail Travellers Making a flight connection Personal travel Cable Content providers Audiences Being able to watch things Personal viewing networks when we choose Microsoft Developers Customers Applications that support the Personal way I work computing Source: Asymmetric Design
- 21. Elements of aMulti-Sided Market Definition Example: Social Flights Customer Situations in which there is a need The need for members of a Situations for a particular form of collaboration team to travel together to between customers and play an ‘away’ match complementors. Customers The end-users within a customer The team members situation Complementors The suppliers whose Owners of private aircraft product/service offerings are offering lower overall costs needed within particular customer on the particular route situations. Platform The means by which customers The capability to bring and complementors are enabled to customers and come together to form a complementors together collaboration Source: Asymmetric Design
- 22. General Pattern Consumer Questions Consumer Consumer Where are the products and services located? Complementor Complementor Complementor How is the platform designed and managed? How does the platform support indirect Platform Business relationships? Where is the added value located?
- 23. Design principles formulti-sided markets Solid understanding of the needs of The solution should, where relevant, the different sides of the market is define appropriate strong branding key. that communicates the common There should be a business model characteristics of the solution to end- that balances the benefits for both users, such as reach (size of the sides of the market, and if applicable network), basic user experience, etc. their service providers (positive The solution should strive to remove business case for all players). unnecessary frictions on network The design process should be driven growth, such as high entry barriers, by an independent party to ensure etc. neutrality and impartiality. The solution should, were The solution should remain as appropriate, foster both same-side flexible as possible to enable service and cross-side network effects as providers to define their own unique much as possible, especially during differentiating propositions towards the growth stage of the network. their customers (competitive services on top of the collaborative scheme). Source: Innopay
- 24. Four Types ofCustomer Behaviour Comparison Destination Supply Infrastructure • Choosing between • There is only one different solutions to place for the the same demand customer to go. Cost Convenience Custom • Choosing between • Supplier adapting the similar standardized offering to the offerings customer’s requirement Capability Requirement
- 25. Microsoft Architecture Journal Diffusion Model Asymmetric Design Destination/ Experience Coordination Coordination Comparison/ HOW WHY of the whole Product Making WHAT WHO/M things work Cost/ Commodity inside outside Custom/ Solution Interoperability Destination/ Experience
- 26. Managing over thewhole Microsoft Architecture Journal governance cycle Asymmetric Design Standardization of model of relation to context Requires asymmetric governance comparison destination Customisation of Standardization of service under model for customised coordination of model of supply supply cost custom Requires platform-based Customization of service under architecture standardised model of supply
- 27. Strategic choices The move from destination to product involves reducing the exposure to integration risks by externalizing the exogenous risks. The move from product to cost involves reducing the exposure to the technology and engineering risks by standardizing the business model. The move from cost to custom involves increasing the exposure to integration risks again, but only the endogenous ones. Only the move from custom to destination faces the business with the exo-interoperability risks.
- 29. Differentiating Capabilities: The Architectureof Knowledge Core Partnering [source: Amin & Cohendet] High trust / security knowledge intensity Competence Network Medium trust / security Peripheral Market Low trust / security distance from core
- 30. Decoupling different levelsof abstraction Standardizing the Differentiating the platform level business level capabilities. capabilities. For example, a For example, offering a standard approach to wide range of third customization. party products and technologies.
- 31. General Framework Entitlement Domain 6 (context-of- Knowledge use) Procedural Know-How 5 Cases 4 Interaction Protocols 1-3 Service Platforms Source: Veryard & Boxer 2004
- 32. Compare and ContrastPlatform Strategies Each of these companies has a distinctive platform strategy. Which architectural viewpoint (or business modelling language) is most useful for understanding the strategic differences between these companies?
- 33. New Challenges forBusiness Architects Ecosystem Horizontal accountability Mapping the ecosystem of organisations, Considering how to strengthen customers and contexts within which horizontal accountability in ways business must to decide how to act. which hold accountable the Indirect value individuals who are dealing directly with customers. Defining the indirect value for our customers beyond the immediate value Agility arising from their involvement with our Developing the agility of systems services. and processes to cope with Economies of governance variation in the scale and scope of individuals’ needs, and in Establishing economies of governance in response to continued change in the way business and other resources can economics conditions and/or be brought together and combined in customer demand individual interventions.
- 34. Six Views ofBusiness STRATEGIC CAPABILITY MANAGEMENT VIEW VIEW VIEW What the business wants What the business does How the business thinks VALUE KNOWEDGE $TREAM VIEW How the business does What business knows ORGANIZATION VIEW What the business is including platform configuration
- 35. Future Events Future Events Other Material and Links Business Architecture Bootcamp RVsoapbox. February 28-29 Organizational Intelligence Workshop BlogSpot.com March 1 Enterprise Architecture twitter.com/ Forum March 29 richardveryard
Editor's Notes
- #4 For example, a retail company can define its business model as providing a platform for manufacturers to sell their good to consumers.
- #7 http://www.veryard.com/so/2005/02/straight-through-processing.htmhttp://rvsoapbox.blogspot.com/2005/04/straight-through-processing-2.htmhttp://rvsoapbox.blogspot.com/2009/03/straight-through-processing-3.html
- #18 The traditional retailer acts as a hub in the food supply chain, aggregating food supply from fields and factories, and distributing food to workshops and private kitchens. This is essentially a positional strategy: the retailer seeks to establish and maintain a strategic position within a value chain, as the bottleneck/hinge point between upstream and downstream. Within the positional strategy, the business drivers are understood in terms of the economics of scale and the economics of scope.But if we shift from a value-chain perspective to a service-oriented perspective (effects-ladder), we can see that the retailer is providing a service (=delivering value) downwards as well as upwards – it is a food distribution platform for farmers and manufacturers as well as a food supply platform for consumers and catering companies.So instead of drawing the merchant in the middle, we can draw the merchant as a new kind of platform providing various kinds of market interaction.This takes us from a positional strategy to a relational strategy. No longer just focused on the economies of scale and scope, the relational strategy emphasizes how economies of governance are generated in relation to two kinds of demand context. The big question for a company such as Wal-Mart is how to balance the exploitation of each of these forms of asymmetric advantage.
- #19 http://cloudmedia.kactoo.com/multisided-business-model-_smart_multisided-business-model-168664065262.htm
- #20 http://cloudmedia.kactoo.com/multisided-business-model-_smart_multisided-business-model-168664065262.htmGrowth in the number of potential customers on Side One for complementary contents and services on Side Two occursThis then leads to an increase in the quantity and diversity of complements made available by Side TwoBecause Side One users are favorably inclined to a wider variety of contents and services on the other side, more join the platform.The increased number of users makes it even more attractive for Side Two to develop new complements.
- #21 http://cloudmedia.kactoo.com/multisided-business-model-_smart_multisided-business-model-168664065262.htm
- #22 http://www.asymmetricdesign.com/2011/10/asymmetric-demand-is-multi-sided-demand/Slightly amended
- #23 http://www.asymmetricdesign.com/2011/10/asymmetric-demand-is-multi-sided-demand/
- #25 http://www.innopay.com/content/product-development-two-sided-markets
- #26 The names for two of these four ways came from research on shopping behaviour by Gary Davies in which he distinguished ‘cost’ convenience (choosing between similar standardised offerings) and ‘comparison’ behaviours (choosing between different solutions to the same demand). The other two separated out circumstances where there was a demand particular to the customer, distinguishing offerings in which there was only one place for the customer to go ( ‘destination’), or in which the supplier would adapt the offering to the customer’s requirement ( ‘custom’) within their context-of-use. The point being made, however, was that the ‘destination’ form of offering required asymmetric governance because of the need to hold power at the edge of the organisation. What distinguishes this position in the cycle?If we think of the original development of pc-based spreadsheet programs in-house (destination), they soon became a limited number of alternative branded solutions (comparison) that in turn became dominated by the one offering all the others’ features in one package (cost). From here we have seen an increasing ability to customise the ways it can be used (custom) to the point where we are now looking at a new cycle of web-based solutions that we can build one-by-one (destination).http://www.asymmetricdesign.com/2006/04/managing-over-the-whole-governance-cycle/
- #27 PatternDescriptionComparison(WHOM-HOW)The demand is defined in such a way that the context from which it arises is ignored, but the service is coordinated in a way that enables it to respond to that particular demand. This characteristic corresponds to the "comparison" approach for the patient, who is looking for the best solution offered to his or her demand. For suppliers, this form of governance allows them to minimize their exposure to exo-risks by limiting the definition of demand that they will respond to (the user requirement); although, they are still faced by integration risks inside the business.Cost(WHOM-WHAT)Not only is the demand defined in such a way that the context from which it arises is ignored, but the response of the service is proceduralized, too, and there is no need for an explicit coordinating process. In this "cost" approach both the nature of the demands and the responses to them have become standardized. Now the integration risk is minimized for the supplier and the technology and engineering risks being proscribed.Custom(WHY-WHAT)An implicit form of coordination of how things work, often in the form of a particular budgetary regime, constrains the way the service is able to respond to the patient's condition. This characteristic corresponds to the "custom" approach, where the service is standardized but the way it is provided into the patient's context can be varied (mass customization). Here the supplier is exposed to integration risks again, as it builds more variability into the way its service works.Destination(WHY-HOW)Each of these three forms treats demand as symmetric to an implicit or explicit form of endogenous coordination. Only in the fourth case do we have asymmetric governance in which the endogenous and exogenous forms of coordination have to be aligned with each other. This characteristic corresponds to the "destination" approach, where the patient goes to that place where he or she can get a treatment exactly aligned to the nature of their condition. It is also only in this case that the supplier takes on the exo-interoperability risks explicitly.We are particularly focused on the risks associated with interoperability, not only because any given geometry is a particular coordination between its constituent services, but also because these are the ones that emerge as you coordinate across systems and organizations. (We have been following the recent developments around Hurricane Katrina with considerable interest because some of the public criticism of the Federal Emergency Management Agency [FEMA] clearly exposes difficulties in managing some of the interoperability risks.) How are we to think about the nature of these risks?
- #30 http://www.asymmetricdesign.com/2006/04/managing-over-the-whole-governance-cycle/
- #32 http://rvsoapbox.blogspot.com/2009/03/tesco-outsources-core-ecommerce.html
- #33 http://www.trainmor-knowmore.eu/75D2E63A.en.aspxhttp://www.anecdote.com.au/archives/2006/02/knowledge_hoard.htmlThe I-space² is a model describing how knowledge moves from being undiffused (ie only known by a few people) and concrete (ie very specific to a single situation) to becoming more abstract (ie. generalised to apply to more situations) and codified (ie. more able to be articulated). At point 3 on the diagram the knowledge has maximum value to an organisation because it can be applied in a variety of ways to a range of problems but hasn’t leaked (diffused) to its competitors. It is inevitable, however, that if the knowledge is valuable it will soon become common knowledge. In the case of the lawyers, the idea of using collaboration software to get all parties together can quickly arrive at point 3 but as soon as the solution is implemented the knowledge is diffused and available to everyone—competitive value diminished rapidly.Boisot’s argument is that organisations which operate in a slow moving environment, such as flute makers where the way flutes have been made hasn’t changed in a century, should do whatever it takes to protect their intellectual property including doing everything to retain their master craftspeople. Fast moving industries require a different strategy: keep your mean time at point 3 as high as possible. This requires an organisation to continually rotate through the I-space spiral with new ideas—constant innovation.