Sunday, January 29, 2012

Outside-In Business Architecture with VDML

In a 2007 blog, “Unanswered Questions from Supernova 2007,” John Hagel observed that IT architectures evolved from the inside-out as the scope of automation and integration expanded over time, and he forecast that attention will shift to outside-in development that starts with an extended enterprise perspective.  Richard Veryard elaborated on the outside-in perspective in his blog post, “Outside-In Architecture,” later that year.  The topic was recently raised in the LinkedIn Business Architecture Community .  Although we have not described it as such, I believe the development of VDML (Value Delivery Modeling Language) at the OMG (Object Management Group) will provide the perspective and the modeling support for this shift in perspective.
Information technology has enabled new approaches to business architecture.  It has changed relationships with business partners and customers, enabled business operations to be globally distributed, and reduced the time and cost of business operations.  However, optimal business design can no longer be achieved by simply automating the existing business design—an inside-out approach.  An optimal architecture requires a design that takes advantage of the capabilities of modern information technology but is driven by an outside-in perspective.  The design of the business must be driven by the values and relationships of customers and other participants in the business ecosystem as well as optimization of business operations to achieve competitive cost, quality and timeliness objectives.  This change in perspective is reflected in my earlier blog, “Rethinking Business for a Changing World.”
VDML is designed as a business design language for business people.  While it will provide a business context for the application of information technology, the focus is on the operation of the business, not the application of IT.  It is based on a number of existing modeling techniques, identified in the diagram, below, and it brings these viewpoints together to provide an integrated business modeling capability.
The solid boxes represent viewpoints that are currently addressed in the draft specification, and the dashed boxes represent viewpoints that are still under consideration.  The different viewpoints are supported by a shared computational model.  This shared model represents a somewhat expanded approach from that described in my earlier VDML blog posts that were driven, primarily, by a value stream perspective.  It is expected that this more robust model will support a wide range of analysis and design so that an enterprise model can be developed, maintained and evolved as the enterprise continues to adapt to changing business requirements.

Core Concepts

In the following paragraphs I will outline the core concepts of VDML that support this integrated business modeling.

Values and value propositions

A value is a characteristic of a product or service that is desired by a recipient.  Values include cost, the utility of a product or service, producer goodwill, product reliability, prestige and timeliness of delivery.  In an exchange involving two or more business partners, each will provide and receive values and each must experience a net gain for the exchange to be viable.
Values of a product or service are contributed by various activities that participate in the delivery of the product or service as well as other enterprise activities such as product design and marketing.  VDML models the contributions of activities to the end product or service such that the end values can be traced back to contributing activities.  This provides insights on where improvements will have the greatest impact on the value of a product or service to the customer.
The value contribution metrics are aggregated in a value proposition.  The value proposition transforms the more objective contribution metrics to subjective measures of expected recipient satisfaction.  These can then be combined in a weighted average to provide an overall expected level of satisfaction.  Different value propositions may be defined for different market segments.  The same concept can be applied to value propositions for other stakeholders.

Collaborations, organizations, activities and roles

A collaboration is people and/or organizations working together for some shared purpose.  Participants in a collaboration fill roles that define their involvement in activities of the collaboration.  This is similar to activities in a BPMN business process that are performed by participants in roles.  In VDML, a role may also be performed by a collaboration—people and/or organizations working together to achieve the desired result of one or more activities.  This provides for complex collaborations to be composed of collaborations that are in turn composed of more specialized collaborations.
A traditional management hierarchy may be viewed as a hierarchy of collaborations—a company, its divisions, departments, groups, etc.  These are persistent collaborations involving specific persons and persistent organizational relationships.  In addition, persons in the same or different organizations may work together from time to time in task forces, project teams, committees, as well as business processes.  These are also collaborations—people working together to achieve some shared purpose. 
In collaborations, participants perform activities and exchange business items as deliverables.  The flow of deliverables between activities forms an activity network.  The capture of value contributions and aggregation of values in a value proposition provide the basis for value stream analysis.  A value stream identifies the flow of materials from and to activities that contribute value to the end product or service.   Value stream analysis can help expose and clarify the opportunities for improvement based on their impact on value proposition(s).
An abstraction of this activity network can be viewed simply as roles exchanging values.  This is a useful abstraction for understanding the interactions of business entities in an ecosystem as well as specific work being performed by people within a company or agency.  This is the perspective of Value Network Analysis (VNA).  VNA focuses on the exchange of values that may involve some of the same participants in roles of multiple, interacting collaborations.

Capabilities and resources

A capability is the ability of a person or organization to perform a particular type of work.  The capability may include skilled people, materials, tools, machines, intellectual property and facilities.  A group of people or organizations working together to deliver a capability is another form of collaboration that we are calling a capability method.  A capability method is a template for performing the work required by a capability.  Instances of a capability method describe the collaboration of specific persons and organizations performing the capability.  Instances would occur in the operation of the enterprise, but a VDML model does not get into the specific, day-to-day assignments of individuals to capability methods.
As described above, a capability method (collaboration) may engage other capability methods (collaborations) to deliver the desired capability.  This aligns with the concepts of a service oriented architecture where a capability method defines a service that may engage other services to achieve its purpose.  This relationship is described in my book, Building the Agile Enterprise with SOA,BPM and MBM.  A “high-level” capability method may specify the activities needed to deliver an end product or service using more specialized capability methods.  This supports the services analysis viewpoint.
The purpose of each capability method is described by a capability definition. A capability definition also may be referenced by similar capabilities identified elsewhere in the enterprise.  Capability definitions are catalogued in a taxonomy.  Each capability definition describes the nature of the work and the business items as resources that are necessary to perform that type of work including people, machines, materials consumed, etc.  Note that the same business items are viewed as deliverables when they flow between activities (or VNA roles).
In the analysis of an existing enterprise, the production of a product or service requires specific capabilities to perform the activities.  Similar capabilities may be used in different lines of business.  The type of work and resources required, together, provide a basis for identification of capabilities that may be candidates for consolidation or outsourcing.  The capability taxonomy in conjunction with the analysis of value contributions can be viewed as a capability heat map used in capability analysis to identify those capabilities that require particular attention for improvement.
The more specialized capabilities are where the work of the enterprise gets done.  If properly defined, these capabilities can serve the needs of multiple lines of business and become the leveraged building-blocks for new lines of business.

Resources and stores

Capabilities require resources as inputs to activities.  Some resources such as facilities and intellectual property are static, but others are consumed or are used and reused.  The activity network of a collaboration defines the exchange of deliverables where activities produce deliverables that are used by other activities.  The business items needed to perform an activity are viewed as resources; these include business items received as deliverables. 
A resource that is consumed or reused is either received from another activity or provided by a store.  A store is a logical container of a type of business item that is accumulated in anticipation of its use.  A VDML model may represent the flow of deliverables into a store and the flow out of the store as the resource is required by an activity.
An abstraction of a VDML activity network supports an REA perspective.  In REA, activities are viewed as economic events that receive resources and produce resources with added economic value, and economic agents exchange resources for economic gain.  REA may represent a full cycle, for example, a resource is produced, stored, and consumed, the product is sold in exchange for money, some of the money, as a resource, enables production of more resource to produce more product.
Resources and stores provide the potential for VDML to support discrete event simulation or system dynamics modeling for analysis of the flow of resources and the creation and exchange of value over time.  These dynamic models are beyond the scope of the current specification, but are being considered in the current design as a future extension.

Outside-In Design

The above brief description of core VDML concepts should provide a general understanding of the focus and scope of VDML.  I believe VDML will be an important tool for achieving outside-in design.  I see this at two levels: (1) design of business operations as a basis for design and integration of supporting IT systems, and (2) design of the enterprise in the context of the extended enterprise to achieve value for customers and other stakeholders.
VDML is intended to provide a business perspective and support executive-level understanding of how the business works.  The model provides accountability for business operations in the context of value delivery.  This provides insight on the value delivery implications of potential opportunities both for development of improvements and for adaptation of the business as the marketplace and technology continue to evolve.
As with financial reporting, a VDML model supports a high-level perspective, but also supports a drill-down into particular aspects of the business operation to identify sources of concerns and support analysis of potential improvements.
The analysis of capabilities supports potential consolidation or outsourcing to improve operating efficiencies and value delivery.  Links to the organization structure provide accountability as well as better understanding of organizational dynamics, alignment of goals and incentives, and the impact of organizational changes on the operation of the business.
Finally, the structure and relationships of capabilities provides a framework for the design of business processes and services as well as automation that achieves business agility and efficiency.

Additional Work

Development of the VDML specification is still in process.  The NEFFICS project brought several industry experts to the VDML development effort.  This has provided deeper understanding of relevant, existing modeling techniques.  Additional work is required to refine the details of the VDML metamodel and to reconcile additional modeling techniques.
At the beginning of this article, I depicted VDML as a shared model supporting existing modeling techniques.  Most of these have been addressed, but further work is required to reconcile the three viewpoints in dashed boxes, discussed briefly, below.

Business models

A business model is an abstraction of the business that describes how the business is expected to be successful from the standpoint of an investor or other external stakeholder.   Examples of business models have been developed by Peter Lindgren and Alex Osterwalder.  The elements of a business model should align with an abstract view of aspects of a VDML model.

e3Value

e3Value supports analysis of Internet value constellations in which multiple parties participate in value exchanges.  To be viable, each party must realize a net gain.  This perspective should align with VDML collaborations of business entities. 

Risk analysis

Risk analysis, generally, involves consideration of the consequences of possible disruptions to the business.  Henk de Man of Cordys and I were involved several years ago in consideration of models to support risk analysis.  We believe the VDML network of activities and flow-dependencies between them provides a basis for considering the consequences of disruptions in capabilities or availability of resources—an important aspect of risk analysis.

Future Evolution

A VDML model will support a variety of design and analysis techniques.  An investment in development of a VDML model should provide a basis for on-going analysis and design of an enterprise, and the standard will enable an existing model to be imported to alternative tools that may support viewpoints and interactive features that are more suitable to particular initiatives.
We also expect the VDML standard to support the continued evolution of business modeling, design and analysis techniques.  The standard and the models developed using it will reduce barriers to entry of new approaches and associated modeling tools.

12 comments:

  1. Hi Fred,

    Please check out my blog post on Business Models
    http://bit.ly/O6TI9K

    I created a package of elements that is rationalized and consistent deriving from Osterwalder's work yet useful for business architectural efforts.

    I'd love to get your feedback.

    --- Nick Malik

    ReplyDelete
    Replies
    1. This comment has been removed by the author.

      Delete
    2. Nick, I've tried twice to post acomment on you blog, and it never shows up. So here are my comments.

      I found this blog interesting and insightful. You identify important business modeling issues. However, I think your additions would overly expand the scope of Osterwalder’s business model.

      I see Osterwalder’s business model as providing a collection of abstract views that provide a comprehensive understanding of the viability and potential of a business without obscuring it with unnecessary detail. While these views must be consistent, the underlying detail that ensures consistency need not be visible in these views.

      I do agree that Osterwalder’s nine building blocks could use some refinements. I would suggest the following changes, some of which incorporate your suggestions:

      • I would combine customer segments, channels, customer relationships and customer wants and needs under a target-markets building block.

      • I would add a building block for competitors and competitive differentiators to include intellectual property and time to market advantages.

      • I would remove key activities and focus on a capabilities building block (activities are the exercise of capabilities), and I would include key partnerships that fill capability gaps, including consideration of geographical locations of capabilities.

      Another dimension that has been a recent topic of discussion is business culture. See my recent blog series at http://fredacummins.blogspot.com/2012/08/business-culture-part-1-why-is-culture.html . I’m not sure just how to tie that into the building blocks, but I think it is key to achieving the exceptional enterprise.

      I believe VDML can provide the underlying detail to support appropriate business model views and thus provide the detail of concepts shared by a number of other business viewpoints.

      Delete
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  3. Alvin. Thanks. If you have not seen it, you might be interested in my latest blog post, Value Delivery Modeling Language: An Update.

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