Trinity of systems

There seems to be an increasing lack of understanding and subsequent lack of appropriate analysis and design in relation to the distinctions and relationships between:

  • Business systems
  • Information systems
  • IT systems

This problem underpins a number of the issues that I outlined in the article IT systems as means not ends. It has prompted further discussion with colleagues and clients, and led me to conversations with Nigel Green, exploring the issues and responses that he outlined in the book “Lost in Translation“.

This article seeks to:

  • describe the problem space as I see it in various client settings
  • outline how I conceive of this in systems terms
  • explore the implications of our failure to address these problems
  • share some of the thinking tools that I use to undertake more effective analysis and design in this area

Outline

Let’s start by outlining what I mean by each of these terms, and hopefully, what you would assume that I intend to convey when I use these terms. You might wonder why I am bothering to do this? It has been my experience that these three terms are sometimes used interchangeably, when they are distinctly different (but related).

Business system

A business system is the combination of all elements which operate together to fulfill a business objective. A business system can entail some or all of:

  • people, their knowledge, skills, behaviour, attitudes, observations, thoughts, actions
  • process, implicit and explicit ways of “doing things”
  • information, no matter where it is stored, including in computers, on paper, and in people’s minds
  • assets, equipment, materials and supplies
  • customers, suppliers, partners, regulators and other entities with which the business system interacts

Such systems could be part of an organisation, an entire organisation or a multi-organisational system. Examples include:

  • Production system within a manufacturing organisation
  • A retail store
  • Criminal justice system

Business systems include the information systems which they use to achieve their business objectives. Yet, business systems are more than information systems. They include a range of entities and activities beyond those involved in or relating to the information systems used by an organisation, including:

  • machines in a factory
  • rooms, furniture, food storage and food preparation devices in a restaurant
  • medical equipment and supplies in an operating theatre
  • people’s abilities to use these items and their interactions with each other

Information systems

An information system is the combination of elements required to collect, store, manage, remove, archive, access, analyse and report a nominated collection of information, including:

  • people who record, update, manage or access the information
  • records, irrespective of the medium on which they are recorded
  • structures, whether they be documents, forms, images, databases
  • processes which are invoked by people or technology in recording, updating, managing and accessing the information

As noted by Peter Checkland in Soft Systems Methodology in Action …

The boundary of an information system, if we are using the phrase seriously, will always have to include the attribution of meaning, which is a uniquely human act. An information system, in the exact sense of the phrase, will consist of both data manipulation, which machines do, and the transformation of the data into information by attribution of meaning. Of course, the designers of the data manipulating machine will have in mind a particular set of meaning attributions and will hope that the manipulated data will always be interpreted as particular information – but they cannot guarantee that, since users are ultimately autonomous.

Information systems encompass more than the IT systems that may be used to support them, including:

  • the people and the processes and interactions that occur beyond an IT system that may be used
  • other methods of recording and communicating information, including different media and the different methods of manipulating and interpreting the activities in which the organisation engages and interacts with other people and other objects

IT systems

Information technology systems encompass the hardware, software, networks, databases, configuration data which are composed in a particular manner to fulfill defined activities.

Little elaboration is required (hopefully) to distinguish IT systems from information systems and business systems. Yet, in the undertaking of business change projects, sometimes referred to as IT projects, the focus of the project is limited to realising the nature and intended function of the IT system, with little, and certainly insufficient, attention to the information systems and business systems which the IT system is required to support.

Extending beyond these definitions

There is a sense in which I have described:

  • an IT system as being encompassed within an information system
  • an information system as being encompassed within a business system

Of course, it is more complex than this, as information systems and IT systems can and often are created to be used by more than one business system. Nevertheless, the distinctions identified in a “simpler” scenario still apply.

There is another element to the distinctions and relative importance of business, information and IT systems. The business system provides the context within which information systems and IT systems are conceived, designed and realised. Such activities require consideration of the balance between the cost of creating and operating these systems, and the value derived by the business system in using these information and IT systems. There are numerous situations in which there will not be sufficient justification for creating proposed information systems or IT systems because the total cost of ownership (creation, operation and sustainment) exceeds the value that could conceivably be derived.

This is one of the fundamental reasons why an adequate understanding of any business system is required in proposing, designing, building and sustaining any information system or IT system.

Implications

Hopefully, the key implications of understanding and addressing the distinctions between business systems, information systems and IT systems are evident from the descriptions that I have provided for each. They are distinct and different. Each interacts with the other. The existence of an information system or IT system enables a business system to operate in a manner that is not possible without such systems. Design of any of these systems requires consideration of the interaction between all three types of systems and their design and future operation.

Hence, the key implications seem to me to be:

  • Design of each of these systems requires consideration of the design of the other systems in play
  • Design of information systems and IT systems requires consideration of the business systems they are intended to support in order to evaluate whether there is sufficient justification for the proposed scope and functionality of these systems

Tools

There is a wide range of thinking, analysis and design “tools” which can be used to ensure improved quality and integrity of the design, construction, operation and sustainment of business, information and IT systems.

Three key methods that I use in the early stages of proposing, designing and justifying information systems and IT systems relate to clear definition and articulation of:

  • Objectives
  • Scope
  • Systems

For objectives, I seek to clearly articulate:

  • the objectives of the business (system) – business objectives
  • the objectives of the information system – system objectives
  • the objectives of the project (being to realise the intended business system, information system and IT system) – project objectives

For scope, I seek to clearly articulate:

  • the scope of the business system – in business function or business process terms
  • the scope of the information system, but often the scope of the IT system
  • the scope of the project

Careful and diligent attention to expression of these and the distinctions between them has proven highly valuable in reducing project risk as they provide valuable reference points for all subsequent project, operations and sustainment activities.

Further clarity is provided by describing:

  • business context for the business system
  • system context for the information and IT systems

These aid in giving attention to the encompassing systems of which the business, information and IT systems are part, providing further clarity to the scope and function of the intended systems, where it will need to be recognised that changing the “part” may not realise the outcomes sought within the “whole” – typically being the ecosystem within which the business system will be operating.

Other tools are outlined in the following articles:

Enterprise dualities

There are a range of conceptual pairs that I have found to be important to understand and consider when architecting enterprises. Each of these pairs constitute a duality where change of one encompasses or allows change to the other. Understanding both dimensions of each of these dualities is essential to the successful architecting and design of enterprises. Equally, changing one without appreciating the other is changing can be fraught with danger! The pairs that come to mind include:

  • Self and other
  • Enterprise and organisation
  • Internal and external
  • Information and process
  • Means and ends
  • Capability and outcome
  • Autonomy and control

Self and other

I have listed this first because people are intrinsic to all enterprises. People conceive and pursue enterprises. Many enterprises entail collaboration with others, engaging them in the ongoing conception and pursuit of the enterprise.

From the outset of our lives, we engage in a process of understanding ourselves. The concept of “self” unavoidably entails the concept of “other” – to define “self”, we must be able to differentiate “self” from “other”. Consider the development of a child, coming to understand themselves as separate and distinct from:

  • their mother and father
  • the world or environment in which they live

Our understanding of ourselves is as much informed by our understanding of others, and vice versa. We communicate with others and that communication changes them. They communicate with us and that changes us.

As we collaborate with others in conceiving and pursuing enterprises, we engage in developing a shared conception of our enterprise and the manner in which we pursue it. We share our conception and others conception may be challenged, reinforced and possibly changed. They share their conception and the same may occur.

The models that we develop as part of conceiving and pursuing our collaborative enterprise inevitably entail ongoing changes to self and to others. In my experience, they are more successfully conceived and pursued when I give due attention to the manner in which others can and do contribute to the enterprise.

This duality prompts consideration of numerous dimensions, far more than can be covered in this article, providing an valuable source of topics for future articles, including:

Enterprise and organisation

“Enterprise” has a number of different meanings. Often it is used as a synonym for organisation, as in:

  • enterprise-bargaining and organisation-wide-bargaining
  • enterprise-agreement and organisation-wide-agreement
  • enterprise-development and organisational-development
  • our-enterprise and our-organisation

In architecting enterprises, it is helpful to bring a different meaning into play – as outlined by Len Fehskens when I encountered him through LinkedIn and more recently through the Association of Enterprise Architects and their journal, of which he is Chief Editor. Len encourages us to consider

enterprise as an undertaking or endeavour

In doing so, it is then possible to make a clearer distinction between the organisation that we establish to pursue the undertaking or endeavour and the undertaking or endeavour itself. It also enables us to apply the concept of enterprise in a range of different ways that are not tied to the scope of an organisation, including:

  • a new product or service as an endeavour
  • a multi-organisation endeavour
  • a project as an endeavour

Each time the conception of the endeavour changes, there will be a necessary change to the organisation established to pursue the endeavour. Each time the organisation is changed, we create the capability and opportunity to pursue different endeavours.

Internal and external

This is a more general version of self and other, but applied to any entity or system. As we create and define the boundary which “defines” the entity or system, so

the boundary creates the distinctions of internal to the boundary and external to the boundary

If we change what we regard as internal, then we are changing what we regard as external. If something changes externally, then this may cause us to change something internally.

For some enterprises, their ultimate failure has arisen through a failure to recognise the external changes that have been impacting their enterprise as each enterprise responds to external needs by making internally developed offers.

Information and process

This is probably the earliest “pair” that I encountered, as part of my role as a business analyst.

For any process, it is possible to identify:

  • the information consumed by the process
  • the information generated by the process

For any information, it is possible to identify:

  • the generating process
  • the consuming process

Hence, the view that one does not exist without the other. This has provided the basis for reviewing and assuring the quality of business requirements documents, checking that there are identified processes for the information requirements, and that there are identified information domains and entities for the process requirements.

Means and ends

This is a well known pair that comes in a variety of forms:

  • means and ends
  • strategies and objectives
  • how and why

They can exist in a cascade where:

  • Strategy A is pursued to realise objective 1
  • Objective 2 reflects Strategy A
  • Strategy B is pursued to realise objective 2

These elements may be used to explore:

  • business objectives and business strategies
  • program objectives and program strategies
  • project objectives and project strategies
  • system objectives and system strategies

Change the objectives and it is necessary to change the strategies. Change the strategies and different objectives may be realised.

Capability and outcome

Whenever a different outcome is required, there is a need to determine whether that demands new or different capabilities. Whenever a different capability is available, there is the opportunity to realise new of different outcomes.

There are several modeling techniques which enable effective exploration of this particular duality:

  • Benefit realisation chains aid in understanding the chain of outcomes that are required in order to realise ultimate enterprise goals and outcomes. Once developed, it is helpful to explore the capabilities required to deliver each benefit / outcome in the chain
  • Business capability models aid in reflecting the capabilities existing within an enterprise or required to pursue an intended enterprise. Once developed, it is helpful to explore the gaps in capability to inform a change or transformation program, and to articulate the outcome measures for each capability which aids in evaluating progress and degree of success.

Autonomy and control

Consideration of autonomy versus control arises in a range of situations, most commonly in relation to:

  • Governance
  • Management
  • Process

In a governance context, there is a recognition of the separation between the governing body and management. Governance creates an environment through articulation of strategy and policy within which management are expected to operate. Strategy and policy which are too prescriptive limit the capacity of management to respond the dynamic nature of the environment in which the enterprise operates. Alternately, ill-defined strategy and policy may offer a degree of autonomy such that management pursue outcomes beyond those identified by the governing body.

In a management context, managers and staff reporting to a manager will give consideration to the degree to which the manager controls staff or empower staff and affords them a degree of autonomy. Staff with little autonomy will often speak of being micro-managed, implying a degree of control beyond that which they deem necessary.

In a process context, consideration needs to be given to the conditions within which the process operates and the extent to which these can be accommodated by a process which prescribes what should be done versus a process which relies on the knowledge and skill of staff to determine what should be done.

In each context, increasing autonomy entails decreasing control and vice versa. Careful attention is required to determining the appropriate balance between autonomy and control.

Conclusion

Each of these dualities are important to the successful architecting, operation and sustaining of enterprises.

Perhaps there are other dualities of which you are conscious and which you find important to consider?

Enterprise development

In the article about Operating Models, one of the four primary systems is the Development System as shown in the following figure.

I have been prompted to further elaborate on enterprise development because of:

  • the increasing interest in effective business transformation and business change and the related field of digital transformation
  • some recent commentary on the development system element of operating models

The latter can be found on Andrew Campbell’s Operating Model blog where he comments on the representation of operating models that I have outlined.

This has led me to elaborate further on:

  • the role and purpose of this system
  • the increasing importance of this system
  • the place of this system in the enterprise lifecycle
  • the implications of ignoring this system
  • a maturity view of this enterprise capability

Development System

Let me start by talking about the naming of the system, and by indicating that others may have or prefer alternate names. I chose “development system” because I believe it is helpful to consider:

  • enterprises as living systems which adapt, evolve, develop and mature in response to internal and external factors
  • change and transformation as processes which develop the capabilities of an enterprise to realise its goals and aspirations
  • the transition from an existing operating model to an intended operating model as an enterprise learning and development process

The term also relates well to other enterprise activities such as:

  • business development
  • organisational development
  • leadership development
  • professional development

Role and purpose

The development system exists to fulfill a purpose which can be expressed in different ways, including:

  • Develop the necessary enterprise capabilities to execute business strategy
  • Transform the enterprise from its current to intended state
  • Design, plan and implement the necessary changes to realise the intended enterprise

The system exists from the moment that the founder creates the enterprise through to its current form. It supports the development of the enterprise through its lifecycle. An interesting set of perspectives on the enterprise lifecycle is provided by Ichak Adizes in his book “Managing Corporate Lifecycles”.

Importance

In the past, I have not incorporated this system and its subsystems in my descriptions of the architecture of an enterprise. However, the importance of its inclusion has become evident over time. Contributing factors include:

  • Commentary on the failure of business strategy execution. It seems to me that such failure either arises due to poor strategy or poor execution. The latter reflects a failure of the development system – and its role in establishing the necessary capabilities to fulfill the requisite business strategy.
  • Commentary on change failure or project failure. Both of these are about the failure of the development system. An enterprise can have the best strategy in the world, but if it cannot be realised, then it is of no use to the enterprise. Hence, there is a need to understand the adequacy of development capabilities and address these if strategic capabilities are to be realised.
  • The increasing degree of change in the market / environment in which enterprises operate means that the demand and necessity to change and develop is becoming an increasingly important aspect of any enterprise. This is reflected in an increasing allocation of resources to the development system within many enterprises.
  • In John Kotter’s article in HBR – Accelerate, John outlines the concept of a “dual operating system” within enterprises – the operational system and the change / transformation / development system – which he sees emerging in response to the increasing demand for enterprise agility and the significantly different features and culture required in these two systems.

Hence, it seems to me that the demands for enterprises to change, transform and develop in a more adaptable and agile manner for their ongoing viability and sustainability are such that attention to the development system is not just becoming increasingly important, but is becoming unavoidable.

Lifecycle

The enterprise development lifecycle is shown in the following figure.

The development system converts business strategy into enterprise operations. The performance system monitors the development system and the operations system in relation to progress and realisation of the intended outcomes. This provides inputs into subsequent cycles of strategy development.

Typically, key activities within the development system will include:

  • Refinement of the intended business model(s) and operating model required to effect the business model(s)
  • Development of the transformation or change strategy to realise the intended operating model
  • Formation and execution of the transformation program to put the change strategy into effect

Implications

The implications of failing to give attention to the development capabilities of an enterprise include:

  • Ongoing change and project failure
  • Higher than anticipated costs and lower than expected outcomes in effecting business strategy
  • Unnecessary revision to business strategy due to assumptions that the business strategy was deficient where it may be weaknesses in execution and deficiencies in change management capabilities
  • Unnecessary risk to enterprise viability due to an incapacity to respond to market disruption in a timely and cost effective manner

Maturity

The development capability is simply another capability within the enterprise. It can be assessed in terms of its maturity, just as any other capability, identifying the different dimensions to the capability and which of these may require improvement. In part, the value of the maturity view is one of acknowledging and leveraging the areas of strength, and determining those particular dimensions where learning and/or change is required. With the increasing degree of change occurring in enterprises, early attention to the maturity of this capability will be critical for many enterprises.

Enterprise resources

In the article about Operating Models, one of the four primary systems is the Resource Management System as shown in the following figure. 

Several comments have been made about the need or value in considering the Resource Management System. This has prompted me to elaborate further on:

  • the role and purpose of this system
  • the increasing importance of this system and the implications of ignoring this system

Role and purpose

All enterprises rely on a range of resources as part of their enterprise capabilities, established to deliver their intended products / services. These resources include:

  • Finance (a means of securing other resource types)
  • People (and their associated knowledge, experience, skills, attitudes and behaviours)
  • Information (both the information consumed and the information generated and consumed by other parts of the enterprise)
  • Assets (fixed assets, plant and equipment, and technology)
  • Materials (or consumables)

The types of resources required can vary significantly across different enterprises and different industries. All enterprises have in common the need to manage finance, people and information. Many enterprises have few assets that they require and can often access the assets on a usage basis without involving the additional activities and responsibilities entailed in asset ownership. Enterprises have varying needs for materials.

The primary role of the resource management systems is to ensure that other systems are readily able to access appropriate resources meeting their performance and other requirements. These systems attend to common activities such as those relating to:

  • financial resources, including management of financial resources, financial transactions (creditor and debtor management), allocation of financial resources and reporting of financial performance
  • human resources, including support for recruiting, employment conditions, training and development, workplace safety and performance management
  • information resources, including sourcing, organising and supporting access
  • physical assets, including the management of the asset through its lifecycle from acquisition / creation through to disposal
  • materials, including supplier selection and management, sourcing, storing and ensuring they are available for immediate use so as not to impede the productivity of the people or machines consuming them

Importance

These activities emerge and develop as enterprises grow in size and complexity. They are most commonly seen in the form of Corporate Service Divisions or Shared Service Centres. Their establishment and operation enables others to focus on their core capabilities and ensures that a consistent approach is taken to management and availability of these critical resources.

In some enterprises, intermediate products and services are developed and provided to provide more effective support to the core capabilities within the enterprise. This might constitute specific value adding services around a basic resource. For example, the fleet function in a policing organisation acquires vehicles and fits them out to be an appropriate resource for patrol staff. This takes a basic resource (car) and creates a key resource for a core capability – response to incidents. It is not a core value adding process and capability, rather it is a value adding capability in providing a critical resource.

Without these capabilities, enterprises are prone to:

  • duplicating these capabilities within their core capabilities
  • failing to adequately manage these capabilities
  • compromising overall enterprise performance

Resource development

The extent and sophistication of the resource systems vary considerably for different types of enterprise and different size and scale of enterprise.

In a small enterprise, the resource management capability is most likely to be part of the manager or director roles. As the enterprise grows, it might establish a “business manager” role, which may encompass a range of the resource management functions. Further growth will lead to a point where a Finance Manager may be appointed, or a HR Manager position established. As indicated earlier, these capabilities can grow to the point of an entire Division supporting the resource management systems.

In such situations, one needs to be mindful that some of these systems operate across all functions within the enterprise. So, for example, every manager in a 10,000 person enterprise will have financial management responsibilities and people management responsibilities. There may also be other roles in providing support. For example, in a university setting, when considering the HR or people management system, one needed to be mindful that this encompassed:

  • every employee
  • every manager
  • HR support functions at School level
  • HR support functions at Faculty level
  • HR support functions at Corporate level

In such scenarios, any one of the resource management systems can be viewed as an enterprise in its own right, and will entail a complex set of systems and functions providing support to the entire organisation. Whilst these systems are not part of the operations system, delivering the core products and services of the organisation, they can be critical to the success of the enterprise, and the manner in which they operate may be part of the way in which the enterprise is able to differentiate itself.

Operating models

This is an article in the series “Enterprise architecture – plain and simple” that I published on LinkedIn Pulse last year. In the article on elements of the description of current or intended architectures, I referenced a number of key models that I use. The first and primary model is the business model, described in another article in the series.

Whereas the description of business models seems to have become more consistent through the application of the ontology developed by Alex Osterwalder, I am not so confident that there is a clear ontology or framework for operating models.

There is research and thinking which has occurred in the area of operating model design. Andrew Campbell of Ashridge Business School runs courses on operating model design and publishes a blog on the topic – Ashridge on Operating Models. He and I have exchanged views and explored the relationship between enterprise architecture and operating model design. We have already published one article on the topic of enterprise architecture – see Why business managers should understand enterprise architecture. We have only a little further to go before we could confidently say that we have shared views in this domain. That represents for me, an interesting challenge and a great learning opportunity!

As I have explored the high level models that different practitioners develop, it has become evident that different frameworks (whether individual or commercial) adopt different ways of conceiving of the primary systems of which an enterprise is comprised. The highest level abstraction of the systems of which an enterprise is comprised, then “sets the tone” for all subsequent elaborations.

In this article, I will simply share some of the patterns and models which I have used quite successfully with a variety of clients. I do not pretend that the framework that I use is any better than any others. I will outline the rationale for the framework and leave it to readers to ascertain whether it seems to provide a satisfactory basis for further development to reflect the operating model for enterprises with which they are engaged.

Purpose

The primary purpose of an operating model is to express the means by which an organisation:

  • pursues its enterprise
  • realises its goals and aspirations
  • achieves and sustains viable operation

Enterprise system

There are four key systems forming the expression of any enterprise-as-system that I consider:

  1. Operations management system
  2. Resource management system
  3. Governance and management system
  4. Development management system

For many years, I have only addressed systems 1 to 3. Typically, I have not addressed the development management system, because:

  • I was usually part of this system
  • the development management system was usually embedded in the other systems

However, with the increasing degree of change, I am finding that more enterprises are recognising the development management system as a distinct system. This can be seen in John Kotter’s article – Accelerate! – where he outlines the case for a dual operating system. It can also be seen in the increasing profile of Program Management in enterprises and in enterprises where they have established a Chief Operating Officer and a Chief Change Officer.

Operations system

This system is the core system which produces the products and/or services of the enterprise. It is most commonly represented as a value stream, reflecting the core capabilities by which the enterprise transforms inputs into outputs and delivers value to its customers and consumers.

This system may also include support systems which are not part of the primary value stream. These may be systems which require specialist capabilities and are required by different systems in the value stream and deliver internal products and services beyond those provided as part of resource management.

Resource management system

This system manages each of the resource types required for successful operation of the enterprise. At a minimum, this will encompass:

  • Human resource management
  • Financial management
  • Information management

It may also include:

  • IT management
  • Asset management
  • Procurement, contract and materials management
  • Record management

Governance system

All enterprises require governance and management.

With respect to governance, I have drawn on the Tricker Model which is one of the models covered within the Company Directors Course run by the Australian Institute of Company Directors. By drawing on this model, I know that there are many Directors and Boards who will be familiar with the model and therefore comfortable with the subsystems that I include:

  • Accountability and reporting
  • Strategy
  • Policy
  • Performance reporting
  • Strategic risk management

To date, I have not modeled the management system. It seems to be adequately covered by the management embedded in each of the systems that I consider. I have included reference in this area – governance and management – to allow for inclusion of additional capabilities that become evident and require attention beyond those evident in all other areas.

Development system

This system supports the development of an enterprise and effects change in any of the systems. Change may derive from strategy, as the means by which strategy is executed, or from individual systems as part of continuous improvement. It includes:

  • Architecture management
  • Program management
  • Project management
  • Change management
  • Program and project support

I view change through a lifecycle lens taking change from idea to realisation. Key steps include:

  • Initiative formation
  • Investigation
  • Acquisition
  • Design, build and test
  • Implement
  • Review and close

Conclusion

Overall, this conceptualisation of an enterprise-as-system has enabled successful:

  • development of architectural models
  • formation of program strategies, plans and roadmaps

It seems to prompt reasonable coverage of the activities of any enterprise and it seems to be easily understood by stakeholders with whom I engage.  Further elaboration has been provided in relation to:

  • Enterprise resources
  • Enterprise development

 

Since initially publishing this article, Andrew Campbell has published Operating Model Canvas which provides a clearer articulation of operating models.  In due course, I will publish an update which outlines the elements of my thinking and practices that extend beyond the approaches outlined in Operating Model Canvas.

 

Exploring business models

This article extends on my first article about business models, where I outlined the key elements of such models and the value in developing such models.  This article explores:

  • the use of business model thinking for any system within an organisation
  • the relationship of the business model to other familiar techniques
  • the different considerations that arise in different enterprise contexts, with some specific examples

Systems within the enterprise

Traditionally, the concept of developing a business model has been applied at the enterprise level, inviting exploration of customers, products/services, value propositions, channels (on the output side of the business) and suppliers, partners, activities / capabilities (on the input and production side of the business) and developing a financial model that reflects an appropriate outcome (break-even or profit, depending on the type of enterprise).

These concepts can just as legitimately be considered for any system within the enterprise, whether that is an enterprise capability or an organisational unit.  It might be a particular “line of business”, a “shared service”, or a support function.  Taking people (or human resource) management as an example, it is feasible to consider:

  • the HR Branch (or organisational unit) providing products and services to the enterprise as customers with appropriate consideration of value propositions and channels, etc
  • the people management capability as a whole across the entire enterprise providing products and services to employees and to managers as customers with appropriate consideration of value propositions and channels, etc

Care needs to be taken in such treatments.  For the HR Branch, there is the risk of assuming its continued existence, whereas the people management capability model allows consideration of alternate sources for products and services. A genuine exploration of services and value propositions should test these against competitors (or other options) in either scenario.

This is not novel.  The application of customer service thinking to corporate services occurred several decades ago now.  For those with experience in such initiatives, it should be easy to recognise the focus as having been the “enterprise” or “system of interest”, to which the business model can be applied. This demonstrates the value of applying this “business model concept” in a fractal manner to any designated system-of-interest.  As such, it can be applied to any identified system-of-interest or organisational unit.

Relationship to other techniques

Whilst I was familiar with business-model-as-financial-model, I had not encountered the Ostwerwalder analysis and structure until about two years ago. Prior to that, along with many other architects, I had applied a range of traditional modeling techniques to the enterprise.

The simplest technique involved the use of a Context Diagram, placing the enterprise as the system-of-interest, and showing the external relationships to suppliers, partners and customers, each of which are considered in the business model .

As I started to explore value chains and value streams, it became evident that I could apply models used in Six Sigma and Lean thinking, in particular SIPOC, by considering the enterprise as a single process (P), and showing the suppliers (S), inputs (I), outputs (O) and customers (C).  This was (and is) a useful tool in making explicit these elements of the enterprise, as is the case when developing an expression of the business model.  Then, the core value stream could be expressed as a series of inter-connected SIPOC models as the next level of decomposition.

Another model which I have used is IDEFo, providing a different perspective by treating the enterprise as a function, and reflecting the inputs, outputs, controls (governance) and mechanisms (processes) which underpin the function.  Again, this model reflects some elements in common with the business model concept.

Each of these techniques demonstrates how the applicability of a system-related model to the enterprise, many of them paralleling elements that are included in the business model concept.  Analysts familiar with these techniques will be readily able to apply them to enterprises.

Application in different settings

There are different and distinctive differences in business models applied to different sectors.  Some assume that business models are not applicable to government and community sector organisations.  The following outlines some of the differences and demonstrates that the business model concept offers utility and value in all enterprise settings.

Public sector enterprises

These enterprises operate in more complex environments, where additional considerations are necessary.  Yet, the same concept and general principles can be applied, and potentially deliver additional value by establishing greater clarity and understanding of the way in which these enterprises can address the goals and objectives which communities set and expect of them.

The most obvious differences are that often public sector enterprises:

  • are not required to make a profit or realise a return on assets or investment
  • do not derive their income (revenue) from their customers
  • do not have choice as to their client / customer base
  • are measured on outcomes rather than outputs

(I may write a separate article to elaborate on these differences, as they are fundamental to better understanding the differing management challenges facing public and private sector managers.)

Business models are able to be accommodate these differences, as long as appropriate consideration is given to distinguishing between:

  • customers and consumers – customers being those who pay for products / services and consumers being those who use the products / services
  • treatment of income versus revenue, and profit/loss versus surplus/deficit
  • outputs and outcomes – the latter arising as an effect of the existence or use of an output

In order to treat these elements appropriately, greater attention must be given to:

  • the use of language and terminology
  • the varying stakeholders who may have interests and be beneficiaries of the enterprise beyond simply considering customers
  • the varying value propositions and benefits which may be afforded to the differing stakeholder groups

For example, I find it helpful to consider the following dimensions:

  • Financial dividends (afforded to owners and shareholders)
  • Economic, social and environmental dividends (afforded to other stakeholders)
  • Balancing of value propositions for owners, customers and employees (at a minimum)

Each of these can be explored and expressed in an enhanced business model representation.

People management as an enterprise

This provides an example of applying business model analysis to part of an organisation as opposed to an entire organisation. Whilst it is feasible to consider the HR organisation unit, it is often wiser to consider the entire people management capability or system, as there are elements of this system within the role of every manager and executive, in addition to any specialist services which the HR organisation unit may provide.

In considering this capability or system, the business model concept prompts consideration of:

  • customers – Executives, managers, employees
  • services – from workforce planning and industrial relations to payroll
  • channels – face to face, phone and online / self-service
  • suppliers and partners – providing specialist services
  • capabilities required to deliver the various services

An important element in this process is applying a combination of the business model concept and systems thinking concepts.  It is common in support functions to seek to optimise a particular function, when it is only part of the whole, and optimising a part may result in sub-optimal outcomes from a broader enterprise perspective.

Business models

The concept of business model is relatively recent, emerging in the 60’s and gaining greater attention in the 90’s and succeeding decades.  The different lines of thinking were subject of review in 2004 by Alex Osterwalder, who developed an ontology for understanding and expressing a business model. This ontology has provided the basis for development of a number of tools for expressing business models, the most well-known being Business Model Canvas.

This posting explores:

  • the concept and value of the business model as a key artefact in describing the architecture of an enterprise (AE)
  • potential areas for further development of this concept to provide greater utility

Key elements

Key elements of the business model ontology include:

  • Value proposition
  • Target customer
  • Distribution channel
  • Relationship
  • Value configuration
  • Capability
  • Partnership
  • Cost structure
  • Revenue model

Drivers

Looking at enterprises over the last 50 years, it is possible to see how their business models have moved from being quite static to quite dynamic. This has occurred as a result of the increasing rate of change in the business environment and internal organisation of capabilities.

A significant factor has been the increasing use of ICT in developing digital capabilities, complementary digital products / services and use of alternate digital channels.  This is evidenced in the increased attention given to business models in the dot.com era where digital channels became available as an alternative delivery mechanism.  It is also evident in the current business model disruption arising from effective use of ICT within the market in which enterprises operate, where digital services enable disaggregation of the value chain, opening up new points of competition for an enterprise.

Value

One of the key benefits of the business model is that it presents a model which encompasses both internal and external elements which underpin the viable operation of the intended enterprise.  Consideration of:

  • value proposition, target customer, channels and relationship give attention to factors underpinning the revenue / income model and the balancing of stakeholder value with income
  • value configuration, capability, and partnership give due attention to factors underpinning the expenditure / cost structure

Review and validation of the business model gives attention to the viability of the enterprise and provides a suitable foundation for development of the supporting operating model.

I am encountering an increasing number of situations where enterprises are finding it necessary and valuable to revisit the viability of their current business model(s), demanding that they change in order to remain viable.  In one case, a review of a transformation program led to identifying deficiencies in their intended operating model, which led to identifying deficiencies in their intended business model.  Their failure to recognise and address the business model issues has led to the failure of the enterprise (going into administration last year).

Attention to the business model gives cause to consider the fundamentals underlying the market strategy for an enterprise and the corporate / development strategy for an enterprise.  Developing a transformation program for a flawed business model is a recipe for disaster and for wasting valuable change investment, both personal effort, energy and enthusiasm as well as financial.  Attention to the business model also gives cause to consider the balance between changes to the market strategy versus development strategy.

Developments

There are two areas of development that I see occurring:

  • viewing the external environment in systems terms ie as an ecosystem
  • viewing the internal elements in systems terms

In the past, there has been a tendency to consider entities in the external environment relatively independently.  With increasing market disruption, viewing the market as the containing system gives recognition to interactions occurring in the market that have implications for an enterprise that were not previously considered because the interactions were not directly with the enterprise.

From what I have seen, the use of tools such as Business Model Canvas prompt consideration of the various internal elements of an enterprise, but this does not require the elements to be considered through a systems view, recognising that there are interactions which require consideration of the “whole” and not just the parts.

In bringing a systems perspective, this also introduces the opportunity to apply:

  • elements of systems thinking to the enterprise
  • the Viable Systems Model to the enterprise
  • business model thinking in a fractal manner to subsystems within the enterprise

Practical application

It is probably worth adding that I have found that thinking about and exploring the business model of various enterprises has been helpful, whether or not I am engaged in developing the architecture of the enterprise.  Cases in point include:

  • LinkedIn Groups – considering the business model for LinkedIn to provide context and understanding of the role and contribution of LinkedIn Groups when it is not a direct part of the revenue model for LinkedIn
  • My state of South Australia and nation of Australia – thinking about how we are positioned in the global context, what capabilities we have or need, etc, including contribution to a group which considered the “innovation system” within our nation, and another interested in “reinventing our nation”
  • Voluntary collaborations in which I have been a member and contributor, helping the group to think about its goals and aspirations, the outcomes it is seeking (value propositions), the capabilities the collaboration needs and the areas to which we need to give priority

 

I have elaborated further on business models in a more recent article – Exploring business models.