Enabling the e-business model | Xpragma white paper
Xpragma white paper
December 15, 1999
by Marc Buyens (@mbuyens), Xpragma
marc.buyens@xpragma.com
url: http://www.xpragma.com/ebusiness_wp.php
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Over the past years we have seen some dramatic evolutions in the business landscape. Globalisation, deregulation, the Internet economy, mergers and acquisitions are only a few of the drivers that have influenced the way companies do business. In this article we examine the evolution to an e-business model, but especially from an information technology point of view.
Introduction
Over the past years we have seen some dramatic evolutions in the business landscape. Globalisation, deregulation, the Internet economy, mergers and acquisitions are only a few of the drivers that have influenced the way companies do business.
At the same time, Information Technology (IT) has evolved to become the predominant element in many business deployments, be it that this importance has both a positive and a negative side. The positive element is the reality that very often IT has introduced capabilities that enabled new business paradigms. The Internet related (r)evolution is probably the best known example. On the other hand, IT is hampered by the heritage of its previous implementations and has grown to a level of complexity that is hard to manage, especially given the speed of change in today's business environment.
To some extent, the combined forces of business change and technology drive have somewhat been masked and slowed down by "unplanned" influences such as the Euro and Y2000 exercises. Both these elements have given a false feeling of commonality, of "stability". But this is just an illusion. As we reach the end of this millennium, we also live the last moments of many traditional business models. A momentum of change, of innovation, of new customer needs has built up over the past years that no longer can be stopped. Many of these drivers will materialise in new initiatives that cannot be handled with traditional business practices. As companies wake up in the new millennium, they will find that their world is no longer the same.
In this article we examine the evolution to an e-business model, but especially from an information technology point of view. Readers should be aware that this addresses only part of the challenge. Equally important or perhaps even more is the requirement that e-business initiatives are deployed in accordance to agreed business objectives and do take into account the organisational, political and cultural reality of the company.
Competing in the e-business age
Already for some time, the IT infrastructure has become a distributed one. Decentralisation, attempts to achieve cost reductions, greater flexibility, empowerment of the end-user... all of these have been drivers towards today's client/server architectures.
To a large extent, this evolution has not lived up to the expectations. Many organisations ended up with a complex IT infrastructure that was hard to manage and more costly than expected. This complexity further on resulted in the inability to deploy new initiatives sufficiently fast, resulting in the well-known project backlog in most organisations. As a reaction to this we saw an increased interest in the (re-)deployment of more centralised infrastructures.
However, at the same time, business itself has evolved to become more and more networked. Globalisation, mergers and acquisitions have transformed companies into complex corporations that are scattered all over the world, relying on complex collaborations with and between partners, both internally and externally.
Additionally, with the Internet, a new dimension has been added to this complexity: the Customer. In the traditional business model, this customer was merely an external element to the business process. The design and full control of the process resided within the hands of the company. Today, customers are increasingly becoming important participants and executors of the business process and want to play a role in the design of it.
In this new e-business world, companies will have to compete based upon new business models. Traditional protections such as local presence, customer loyalty, usage patterns, etc. will disappear. Any customer becomes a target for any competitor. Even worse, more than ever customers will have the freedom to look for alternatives in various ways. One might say that companies will no longer sell their products or services, but customers will select the vendors they want to buy from. Over time this will evolve to a completely open business environment where companies, offering nearly identical products and services, will compete based upon the way they interact with the market.
In such a complex and hostile environment, organisations will have to look for ways to get attention, to attract new customers and retain existing ones, but as said, traditional approaches will no longer be sufficient. The only available alternative is to differentiate your company in the way it delivers its products and services to the individual customer.
Thereby, the only viable approach will be the built-up of knowledge and the appropriate usage of such knowledge to influence the buying experience of the customer. Therefore, information and behaviour capturing and the real-time usage of such knowledge to automatically re-model the interaction with the customer will become absolute requirements. This type of intelligent interaction with the customer will have to be present at every level of the relationship, at every contact point. This approach has to be consistent across all types of interactions, be they human or automated.
All of this has to be deployed in a very dynamic environment. New competitors will enter the market introducing new innovative business models. New technology will become available that enables new interaction models. IT infrastructure presence will become universal, allowing for interactions with customers at moments, in places and for reasons unseen before.
If these are the challenges organisations have to address in the new e-business world, how can they succeed? Before answering this question, let us first have a look at the way organisations approach the market.
The given horse
An existing organisation always has its own identity. This identity represents the basic characteristics and capabilities of the company. These characteristics are the result of the strategic choices the company has made in the past. Examples of this are: the industry segment the company is in; the type of business; the product mix; the manufacturing locations; the distribution channels; etc.
These characteristics also determine the basic capabilities of the company. Such capabilities can be: the design of a new product, the production of such product, the sale and distribution of it, etc. To a large extent all of this also translates to the organisational structure of the company, its culture and the politics that play within.
This identity has to be looked at as being the "stable" or even "rigid" part of the company. It groups the things that cannot readily be changed if the company has to respond to changing market conditions. As such it also forms the checklist that has to be used for any new deployment. Starting projects that are not in accordance with the identity of the organisation are likely to result in failure or poor results.
From an IT perspective, various technologies will be used to support these basic capabilities. The data objects that are the representation of these capabilities are reasonably well known, shared by multiple organisations. Often standard definitions exist for each specific industry segment.
ERP solutions are typical technologies that provide various levels of application support for most of the basic capabilities. By also ensuring the data integration between most of these basic capabilities, they also implement an important part of the next layer: the business processes.
Business Processes
Business processes represent the way the company deploys its basic capabilities to deliver "value". They are the procedures to bring its identity to the market in such a way that the company achieves its business objectives. They determine the effectiveness of the company, its productivity.
Business processes represent the internal end-to-end process: the execution of the various steps as the company itself experiences them. The view of the customer on this process might be completely different.
For most industries, the business processes are also reasonably well known. Therefore, ERP and other solutions exist that successfully support most of these processes. However, no single solution does support all business process requirements, even not within a single industry segment. Most companies will have to deploy a mixture of various products to cover all aspects of their business processes.
Business processes represent the agile part of the company. They represent the capability of the company to change its business approach, without having the need to alter the long-term strategic choices the company has made.
Business processes must be easy to change for three reasons:
- To be able to quickly deliver new or changing business models (see hereafter) for changing market needs.
- To be able to deliver personalised business models.
- To be able to re-adjust the business processes so that the business model is delivered to the customer in the most productive, the most cost-effective way.
Business Models
Business models represent the view of the customer on his relationship with the organisation. It is, if you want, the customer-visible part of all business processes. More important, it is the customer's personalised and unique view on the business processes.
The customer's view on the model might be very simplistic: he can select a book via his web browser, order it and agree on payment via credit card, receive confirmation and shipment notices via e-mail and get delivery of the book at home within 5 days.
For the customer, this is the complete business model. The reality behind might be an extremely complex combination of multiple business processes, involving multiple companies, locations, etc. As such, the business model can be viewed as the externalisation of the internal business process. These visible aspects are the only things that matter for the customer. He can even have the experience of a high-quality, rapid, fully automated service, while most of the internal business processes still are handled manually.
It is important to understand that the business model is the only thing the company can influence to increase revenue, increase market share or improve its "image". It is the only thing that is visible for (experienced by) the customer. The business processes that support the experience can of course be optimised so that they become more productive or less costly, but in itself they do not influence the view of the customer. Therefore, companies must be organised in such a way that they can easily change the "experience" of the customer if the need arises.
Addressing the challenge
With this in mind, how can organisations acquire this agility to change their business models or deploy new business models in a flexible and cost effective way?
Understand your identity
A first, mandatory step for organisations that want to be successful in these e-business times is a correct assessment of their present status.
An e-business approach will always require a process-driven organisation, but not all organisations are already prepared for this. Also, as mentioned earlier, not understanding the cultural and political drivers within your organisation will be an inhibitor for success. For many of these challenges, IT will be of little help, although IT can provide some tools to assist you in the unbiased capturing of today's reality.
Capture the reality
Any definition of a new business model or change to an existing one has to be based upon a complete and correct understanding of the company's present business processes. All too often e-business initiatives are launched, based upon an incomplete understanding of these processes. While the planned initiative for a new or changed business model might be commercially correct, not taking into account the reality will inevitably result in unexpected problems later on.
More than ever, e-business initiatives do require a complex interoperation of human and automated procedures. Well-developed business models will implement numerous interactions with the customer and all partners involved in the execution of the model. This will result in a level of complexity that can not readily be understood in all its aspects without a formal analysis. Therefore, starting with a formal process capturing exercise that collects the input of all knowledge holders is a mandatory first step.
Assess the impact
This complete understanding of the present business processes must be used as the basis for any new design of business models. Doing so, the impact of the anticipated change or new introduction can be clearly identified, allowing for an appropriate risk assessment.
Such impact analysis is important from both an organisational and an IT perspective. From an organisational point of view it will identify the areas of interaction where organisational or procedural changes will be needed. From an IT perspective it will identify all areas where complementary technology or specific integration actions will be required. Doing so, it provides a first assessment for the complexity and cost associated with such efforts.
Build an infrastructure
If possible, this (re-)design of business processes has to be transferred automatically into the IT infrastructure to assist in the configuration of message brokers, workflow engines, etc. If it cannot be avoided that the physical implementation affects the designed business processes, such impact should be fed back into the business model.
By necessity, the IT infrastructure will have to encompass a number of (old and new) products and technologies to support the complete business model. Given this complexity and the frequent change requirement, organisations should opt for a very modular, component oriented architecture whereby the individual parts of the infrastructure can easily interact or be replaced when the need arises. Such architecture has to support the usage of heterogeneous components of various sources in a fully distributed environment.
Implement the model as a single process
Most likely the execution of the business model will involve aspects of human intervention, automated workflow and application integration. Hereby it is mandatory that the physical implementation preserves a consistent business view on the complete execution of the business model.
This translates to the requirement that business objects and business states can be monitored throughout the execution of the complete model. This also translates to the requirement that the infrastructure is able to handle all types of information (data, documents, binary media...) in a transparent way.
Manageability
Although a complete discussion on this falls outside the scope of this document, it is clear that e-business initiatives introduce a number of specific challenges. Examples are:
- The speed of change requirement introduces the need that new business models or important changes can be simulated and tested in an easy way, without requiring extensive physical implementations or changes to the operational infrastructure.
- Development approaches should be used that allow for the rapid introduction of new or changed functionality, without introducing risks for the rest of the application environment.
- Monitoring of the physical execution has to be possible from a business perspective, so that a correct assessment of potential business impact is possible if problems arise.
The learning perspective
Finally, the execution of the business model must provide the basis for further knowledge building. This results in the requirement that the necessary hooks are available to capture customer behaviours, usage patterns, etc. Important thereby is the requirement to be able to relate this capturing of information to business objects and not simply to technical components that are executed.
Although probably not possible in the first phase, such captured knowledge should be fed back into the business model working towards adaptive business processes that fine-tune the business model for each individual customer.
Conclusion
Achieving all of this is not an overnight exercise. Many companies will be facing the reality that their organisation is not yet ready for this type of approach. However, understanding this reality is part of the necessary exercise. This might result in delays for your first e-business initiative, but you will win in the long run.
Today, a lot of visibility goes to a number of start-up companies that have built their e-business strategy from scratch. Doing so, they have selected the technical solution that was most adapted to this strategy. This approach allowed them to move fast, much faster than most of the established companies could do. In various domains, this allowed them to conquer leading positions.
Whether they can keep these positions is another question. As their success grows, so grows the complexity of their challenge. If their initial technological and organisational choices do not scale up to their success, they will face problems that will be even greater than the ones experienced by the traditional companies.
By necessity, traditional companies will have to work more slowly, changing and adapting their infrastructure and organisation. This will often be a painful process, but the advantage will be that such approach does take into account requirements for growth, scalability, etc.
Although the Internet scene is still dominated by the successes of the start-ups, it is for sure that large corporations are currently deploying major changes to their IT infrastructure and associated capability for business process change. Most of them feel confident that, once this preparation work is finished, they will be in a position to rapidly wipe out the dominating position of some of their smaller competitors. The future will tell.
Categories: E-business strategy
About the author
Marc Buyens is analyst, management consultant and owner of Xpragma.
Marc started Xpragma in 1999 after a 20+ years career in the IT sector. Today, he provides advice, training and mentoring services focusing on the intersection of technological evolution, organisational change and business strategy: a messy world of unfulfilled promises.
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