Have your architects and business units interpreted the intention of the strategy in the way it was originally intended?
Everything starts with Value, your value proposition to a Customer Segment, and how you will differentiate your value proposition from competing offers.
One of the Critical Success Factor is to secure that all needed parts of the business have the same understanding of what the value propositions is, what customer segment we aim at, and how we shall create and provide this value proposition, this is the commitment and engagement to success.
We can formulate our value proposition and what needs to change from different starting points as the below picture indicates, my story starts from the top and goes down into more and more details, I have selected to use visual tools to make communication easier and the different parts establish a common language and definition to secure that a term means the same thing to everyone.
This article is a summary and my interpretation of a small part of Business Architecture to create and make the intended value proposition ‘stick’ in the company, inspiration comes from BizBok, ToGaf, SAFE, BaBok and other sources.
To learn more I recommend reading the BizBok, a quick guide can be purchased at https://www.amazon.com/Business-Architecture-Quick-Guide-GameChangers/dp/0929652606/ref=sr_1_1?keywords=BIZBOK&qid=1643108432&s=books&sr=1-1
High Level Modeling Find the right way, Business Model Canvas
One way of visualizing the key aspects of how value should be provided and how we create revenue from the value delivery can be done with help of a Business Model Canvas.
With the tool you can try out various ways for how the value should be provided, test revenue models, 0 cost for consumers with advertise or fixed price,…, and other scenarios to get the right value proposition with the best way of supplying it.
The Canvas has nine blocks;
- The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve.
- The Value Proposition Building Block describes the bundle of products and services that create value for a specific Customer Segment.
- The Channels Building Block describes how a company communicates with and reach its Customer Segments to deliver a Value Proposition.
- The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments.
- The Revenue Streams Building Block represents the cash a company generates from each Customer Segment (cost must be subtracted from revenues to create earning)
- The Key Resources Building Block describes the most important assets required to make a business model work. Key resources can be physical, financial, intellectual, or human.
- The Key Activities Building Block describes the most important things a company must do to make its business model work.
- The Key Partnerships Building Block describes the network of suppliers and partners that make the business model work.
- The Cost Structure describes all cost incurred to operate a business model.
The Business Model Canvas can be used to identify new Value Proposition but as well as to review existing ones, by reviewing them on regular basis you can validate the status of them and find out if Revenue is going down or if Value Proposition is losing its differentiation factor, or if Customer Segment is changing etc. you could use traffic light coloring to quickly assess each block of the canvas.
With the Canvas you can highlight what changes you want to do to improve, this makes it easy for architects and business units to understand how they should transform to realize the new strategy.
I will not dive deeper into how the Business Model Canvas is applied as there is good articles on this and a good book from the inventors Alexander Osterwalder and Yves Pigneur, you can read a sample of it on this site https://www.strategyzer.com/books/business-model-generation
The visual effect of the business model canvas makes it useful for communicating the strategy to the company to help aligning on the objectives.
Value Streams high level description of the value realization
From the high level business model canvas we have the input to start describe how the value is generated in more details by using Value Stream Modeling.
Value Streams can be used without the Business Model Canvas, and you can use it to analyze and describe the strategy changes.
Value Stream Modeling is describing how value is created seen from the Customer perspective broken down into high level value adding steps, called Value Stages needed to create the value proposition to the customer.
Each Stage in the Value Stream Model is creating value needed by next stage and the final Value Stage is delivering the Value Proposition to the Customer.
For deep learning about value stream mapping I can recommend the book BizBok and TOGAF if you are member you can read a guide here https://publications.opengroup.org/g178 . There is also other similar technics like “Porter Value Chain”, “Value Network”, “Lean Value Stream”, SAFE https://www.scaledagileframework.com/value-stream-management-in-safe/ worth looking into.
Value streams can also be modelled for internal stakeholders and not only for customer.
With the help of Value Stream Model we have described how the value is provided without going down into the details of the process and organization.
To make a proper Value Stream Model documentation we should for each Value Stream Stage define;
- Entrance Criteria
- Exit Criteria
- Value Items created
- Key Stakeholder(s) involved in this stage
The Value Proposition defined in the Business Model Canvas in most cases require multiple Value Stream Models to deliver the package of products and services which represents the Value Proposition in the Business Model Canvas.
In below picture I have visualized that three Value Streams are needed to deliver the Value Proposition defined in the Business Model Canvas.
With the help of Value Stream Model we can analyze and highlight the key areas to change to meet the objectives of the Value Proposition, we can evaluate it from many perspectives;
- Quality of value items from each stage
- Cost of each stage
- Lead Time to deliver each stage
- Process implementation for each stage
- Capability needed and the state of them for each stage
Later in the article I get back to perspective of GAP analyze.
In this picture I used traffic light to highlight lead time and lag time constraints compared to our expectation originating from the Business Model Canvas.
Capabilities defining what we do
Each of the Value Stages can be mapped to the capabilities needed to create the value items that is the delivery of each Value Stage.
A capability is describing “What” we do without defining how it is done or by whom, by so it is providing the ability to talk about the same thing with a common understandment of meaning.
Capabilities is organized in a Capability Map describing all the capabilities the business have or need to have.
A capability is usually rather static over time, but varies over time in how it is implemented and in which form, for example the capability Loans is something a bank have had since 1800 when the bank started to exist, but the way we manage loans has changed over time, today many loan related value propositions is fully automated, where you can get a loan in minutes, and today a bank loan never involves physical money but rather making the amount available on your account.
A capability have a description that should not contain the name of the capability, and the name should preferable start with a noun, a capability can also have an outcome describing what it is delivering.
Some organizations has created reference capability maps that can be used as a starting point, one of them is BIAN providing a capability map for financial industry.
The capability map shall when completed contain all the parts of the business, from internal supporting capabilities like payroll management, facility management to external customer oriented.
Capabilities are broken down to more fine grained capabilities or specialization, the level of granularity depends on your need of clarification.
Capabilities are usually grouped together below you see BIANs grouping of the top level capabilities, Bizbok has another grouping using three groups;
- Strategic or Direction Setting
- Core, Customer-facing
The grouping is mainly to easier orient yourself in the capability map.
The Capability describe what we do and not how it is done and by whom, when we implement a capability we have a Capability Instance that is the realization of a capability and we can have many Capability Instances, depending on how the business is structured, for example many enterprises have business in more than one country and might have a local implementation of a Capability meeting the country legal requirements.
Value Stream Stage is enabled by Capabilities
Back to the Value Stream, we map in the capabilities needed to enable each of the Value Stages, this can be done on different detail level, a complete mapping should contain the highest level of capabilities defining the group of needed capabilities.
Now when we have identified the capabilities needed we can analyze the gaps we have related to each capability from various perspective and use traffic light coloring to visualize how severe the gap is.
For gaps I have used 3 colors red, orange and yellow to indicate severity of each gap.
Gaps can reflect different aspects, it can be a missing capability, process related, information related or organization related etc..
The severity of the gaps sums up to the traffic light color on the capability.
Business Objects and Information Map
The Value Items coming out of a Value Stage is something that exist in reality and is created by the Capabilities mapped to the Value Stages.
In below picture we can see that a Capability provides Business Objects of varying kind, in the picture I have only specified Information as one specific Business Object type, but it can be anything, example of a business object is an “agreement” or a “bicycle”.
Capabilities are also using Business Objects provided by other Capabilities.
If we have a capability named Customer Management, that would then create and define the business objects related to that, so one Information Business Object would be Customer and we define it as “A legal entity that has, plans to have, or has had an agreement with the organization, or is a recipient or beneficiary of the organization’s products or services.”.
From the Information Business Objects we get the starting point for our Glossary, Taxonomy and Ontology by defining how Information Business Objects relate to each out and in what way, and under what business rule, for example a Customer can have one 0 or more Agreements and have 1 or more Location (permanent address, summer house address).
Business Objects have states, Customer for example can have the states;
When we have identified the business objects provided by our capabilities, we can create the information map to establish o common language, and it could look something similar to below picture, but where the relationship relatesTo is replaced by a defined relation and the business rule for the relation, you can see the explicit relation between Customer and Agreement “have Agreement 0:n” and Customer and Language, Customer and Location.
The information map is essential to understand if we have Information related Gaps in relation to the Value Proposition, for example do we have the needed customer insight information to assess the risk we take before we are granting a Loan.
This picture above is taken from a playground I am working on and is not a full information map and needs to be more completely modeled, its content is originating from BizBok financial reference model.
For Financial sector I can recommend looking into the Ontology FIBO that provides a full ontology map that can be used to extract the high level Information Map https://edmconnect.edmcouncil.org/fibointerestgroup/fibo-products/fibo-viewer
Organization and processes delivering the Value Items
Let’s get back to the Value Stream and look into how the work is done, process supporting the Capability Instances, and which part of organization that is providing it.
For simplicity we assume we have one implementation of the capabilities ( Capability Instance ) we can then assume it is executed by a single business unit.
In the picture we see Business Units that have the Capability Instance implemented, we have not yet gone into the implementation view, so each Capability Instance can be detailed out into how it is implemented with or without technology.
For each Value Stream Stage we can describe the process for how the Value Items are delivered by modeling the High level subprocesses and detailing them out in swim line diagram containing tasks and roles.
With this detailed implementation view we can review and point out what needs to be changed or added to realize the Value Proposition.
Observe this article was not intended as a manual or even a guide, it was indented to highlight what’s involved in realizing a value proposition that is originating from the strategy goal and objectives, by using visual tools for the different level in details to make it easy to communicate and understand by all parts of the organization, supported by common language derived from Capabilities Map and Information Map, by the usage of transforming a Business Model Canvas Value Proposition Package into the Value Streams needed to provide the parts in the Value Proposition Package.
Mapping the Value Stream Stages to Capabilities, identifying which Capability Instance to use that is provided by a Business Unit in the organization and then finalize the details by looking into the implementation on technology and processes.