When doing business architecture, we need to know and clarify some basic concepts first. The author of this article shares 5 core concepts, among which value stream, business capabilities and business processes are easy to confuse, and you can collect and learn.
First, the business model
The business model is the "secret" to the success of the enterprise, which integrates various internal and external elements of the enterprise to build a comprehensive, efficient and unique competitive advantage operation system. The purpose of this system is to meet the needs of the market, maximize the value of various stakeholders, and ensure the long-term profitability of the business.
The core architecture of a business model consists of three closely linked components: value creation, value delivery, and value acquisition.
- Value creation: This session revolves around the needs of customers and provides attractive value propositions.
- Deliver value: Ensure effective value delivery by optimizing resource allocation and implementing relevant strategies.
- Capture value: Achieve continuous growth of corporate revenue through a well-designed profit mechanism.
These three components depend on each other and together form the framework of the business model, and they work together to help businesses stand out in a competitive market.
Examples of business models
Because of the development of the Internet and digitalization, companies are trying to change the traditional business model, integrating multiple parts such as production, sales, trading, logistics and payment, without being limited by time and space.
By using new technologies such as mobile internet, big data, artificial intelligence, and cloud computing, companies are changing consumers' shopping habits and lifestyles. The changes in new retail are particularly obvious, with offline physical stores transforming to online, and online e-commerce companies are also looking for opportunities to expand the physical store market.
Here are some examples of typical e-commerce business models:
• B2C (business-to-consumer): This is the most common model in the e-commerce space, where merchants sell products and services directly to consumers. Platforms such as Tmall and JD.com are typical representatives of this model.
• B2B (business-to-merchant): In this model, the supply side and the purchaser complete the transaction through the e-commerce platform, which effectively solves the problem of upstream to midstream of the supply chain. Platforms such as 1688 are outstanding representatives of this model.
• C2C (Consumer-to-Consumer): In this model, consumers can transact directly with other consumers. It emphasizes the personalization and quality of the product, providing services similar to B2C, but with a greater focus on service. Platforms such as Taobao and WeChat stores are examples of this model.
• C2M (Consumer-to-Factory): This is a model of direct connection between consumers and manufacturers, eliminating intermediate links, providing customized production and consumption, emphasizing customized services and value-added services. Platforms such as Taobao Special Edition and Pinduoduo have adopted this model.
• O2O (online-to-offline): This model integrates online information acquisition and offline purchase experience, and is a typical representative of the new retail business model. Many traditional enterprises are actively exploring the O2O model to enhance market competitiveness.
The business model is not static, it changes with the changes in the business strategy and market environment.
Business Model Canvas
The Business Model Canvas is a widely used tool for planning business models, pioneered by Alexander Osterwalder. Through the 9-square grid framework, companies are able to visualize their business models and comprehensively review and analyze their business operations.
Core elements of the Business Model Canvas:
• Value proposition: What unique products, services, or values does the business offer to its customers, and what problems does it solve? The value proposition is key to differentiating a business from its competitors, delivering value through elements such as innovation, performance, customization, quality, design, branding, pricing, cost-effectiveness, risk reduction, convenience, and usability.
• Customer relationships: What relationships does the business intend to build with its customers? Possible types of relationships include personalization, dedication, self-service, automation, community interaction, and co-creation.
• Customer segmentation: Who is the target customer group of the business? By identifying and understanding the different needs and characteristics of customers, companies can accurately segment customer groups, such as mass market, niche market, multilateral market, segmented market, etc., to better meet the needs of specific customer groups.
• Core Resources: What are the key resources for businesses to support their business activities? These may be physical assets, knowledge, employees, or financial assets.
• Key activities: What are the main activities that a business needs to carry out to ensure the smooth functioning of a product or service? These activities may include product manufacturing, problem solving, platform building, and service network building.
• Channels: What are the ways through which companies deliver their products or services to customers? There are five stages involved in the construction of a channel pathway: awareness, evaluation, purchase, delivery, and post-sale. Channel types include own channels (such as physical stores), partner channels (such as distributors), and new retail channels such as online, offline and O2O.
• Partners: Which upstream or downstream enterprises does the company need to establish in-depth cooperative relations with? Partnerships may include strategic alliances, competitive collaborations, new business collaborations, and supplier-buyer relationships. The essence of cooperation lies in resource sharing and mutual benefit.
• Cost structure: Does the company fully consider cost factors in its business operations? The cost structure can be cost-driven or value-driven, with fixed costs, variable costs, economies of scale, and economies of scope taking into account.
• Source of income: What are the main revenue streams for the business? Revenue is generated through product sales, usage fees, subscription fees, lease fees, licensing fees, transaction fees, and advertising fees.
The following diagram shows the business model canvas of DiDi Enterprises:
Second, the value stream
The related concepts of value stream include: value proposition, value stream, and value stream stage.
Value proposition
The concept of value proposition is explained in the Business Model Canvas section.
The value proposition is at the center of the business canvas, and when a company decides whether to invest in a product or service, it first needs to know which customer segment it serves. What value does it offer? And whether the target customer group can afford the price of the product or service?
Value streams
Definition of a value stream: A collection of end-to-end activities that create results for a customer, who may be the end customer of the value stream or a user who uses it internally.
The value stream is more focused on a specific target customer and value proposition, with clear goals. At the same time, the value stream places more emphasis on result-oriented and value growth.
With value stream analysis, we can easily see which links are value-added and which are not. Theoretically, we can eliminate or mitigate areas where there is no value growth, which can avoid situations where the process is too heavy and the effect is not obvious.
Value stream stage
The value stream can be further subdivided into different value stream stages, each of which contributes a corresponding value increment to ensure the gradual realization and complete delivery of the overall value required by the customer. The value stream stage has the following characteristics:
• Each process stage has a corresponding "value". If a certain stage does not add or contribute to the value that the customer needs, it is theoretically possible to abandon that stage.
• There are entry conditions for each stage. Only if certain conditions are met can you proceed to the next step. Acknowledging and guaranteeing these conditions is conducive to the successful achievement of the objectives at this stage.
• Each value stream stage has a condition for completion. By setting clear completion criteria, you can quickly check if you've completed the tasks at that stage and start the next one.
Let's take a pick-up service as an example:
• Value proposition: Enable consumers to experience the convenience of self-pickup services
• Value stream stage: The entire value chain consists of 5 stages, namely product browsing, order payment, stocking and notification, pick-up, and after-sales.
3. Business capabilities
Business competencies refer to the set of core skills and resources that a business needs to carry out its business activities. These capabilities are specific skills or production capabilities that are built from a business perspective to achieve specific goals or outcomes.
A company's business capabilities are closely related to business models and value streams, as they directly affect the company's performance and value creation. They ensure the implementation of the corporate strategy and alignment with the customer journey and market environment. In addition, business capabilities align business needs and IT systems.
The scope of business capabilities is more macroscopic, and it helps enterprises to carry out strategic planning and business development from multiple perspectives. In TOGAF (Open Organizational Framework), the implementation of business capabilities involves the combined use of roles, processes, information, and tools.
In other enterprise management theories, business capability is also regarded as an important part of enterprise architecture, which includes multiple elements such as people, organization, functions, processes, business services, data information, application systems and infrastructure, and is closely related to various projects and solutions of the enterprise.
Business competencies provide a business perspective that is independent of existing organizational structures, business processes, applications, and offerings, helping organizations understand and manage their business at a higher level.
In the business architecture system, the key to business capability is to systematically express the core business functions of the enterprise.
Taking e-commerce business as an example, common business capabilities include comprehensive management of store management, product management, membership marketing, order processing, logistics, payment and settlement, and after-sales service. The capabilities that come together from these management activities constitute the high-level business capabilities of the enterprise, and can be further subdivided into multiple sub-business capabilities.
For example, order processing capabilities can be subdivided into sub-capabilities such as platform order management, self-operated order management, third-party order management, order source tracking, and order splitting processing.
Fourth, business processes
A business process is a series of logically related business activities that are combined to achieve a specific business outcome. In the design stage of business architecture, business process plays a vital role, which is not only related to the effective use of enterprise resources, but also directly affects the specific needs of application function design and system integration in enterprise IT architecture.
A business process is a further expansion of the concept of a value stream, which refines the concepts in a value stream into actionable processes.
Difference Between Business Process and Business Capability:
• Business capabilities: Focus on the capabilities and results of the core business of the enterprise, and do not involve specific process decomposition.
• Business process: Focusing on the process itself, facing specific scenarios, and solving specific problems through a combination of activities is the key to the daily operation of the enterprise.
• Business processes cover key business activities such as sales, marketing, production, procurement, and customer service, as well as the roles that perform these activities and the interactions between them. At the same time, business processes need to comply with industry norms, professional standards, and internal regulations.
Business processes can be further refined into different levels, including main processes and sub-processes. They are the link between different business units, and the end-to-end process often spans multiple departments or areas of business capability to deliver added value.
Taking the e-commerce system as an example, the user transaction process is a relatively standardized process, which usually includes the following links:
• Product selection: Users browse the e-commerce platform, select the items they want to buy, and add them to their cart.
• Cart confirmation: The user can view the items in the cart and can modify the quantity or delete the items they don't want to buy.
• Settlement: The user selects the "Settlement" option and is ready to make the payment. At this step, the user can also select or add a shipping address.
• Payment: The user selects the payment method (such as credit card, Alipay, WeChat Pay, etc.) and enters the necessary payment information to pay.
• Order confirmation: After the payment is completed, the system generates the order, confirms the purchased goods and payment details, and usually sends the order confirmation information to the user in the form of email or SMS.
• Logistics processing: The order information is passed to the warehouse and the packing and shipping process begins.
• Shipping & Tracking: After the goods are shipped, users can track the status of the logistics through the order system.
• Confirm receipt: The user receives the goods and confirms the receipt.
Business processes can be further refined into different levels to provide more specific management and execution guidance. With a hierarchical approach, companies are able to ensure that business process design is closely linked to each part of the value stream to maximize value at different levels. It usually includes the following levels:
• Process categories: large categories, such as purchasing, sales, production, etc.
• Process group: A collection of related processes under the same category, such as order processing process group may include order receiving, order confirmation, order fulfillment, and so on.
• Process: Specific operational steps, such as the order confirmation process, which may include steps such as receiving the order, reviewing the order, confirming inventory, generating a delivery order, etc.
• Sub-processes: More detailed steps in the process, such as reviewing an order, may be refined to verifying customer profiles, checking payment status, etc.
• Tasks: The most basic unit of operation, specific to the specific work of the individual, such as entering customer order data, printing delivery notes, etc.
5. Organizational structure
The organizational structure is to set and arrange departments and positions in accordance with the corporate strategy to form a stable and scientific management system. This system ensures that the company can adapt to the needs of the business and support the development of the enterprise.
Organizational structure is essential to business architecture. When sorting out the business process, it is necessary to arrange the right personnel at each node of the process according to the operation rules and processing logic of the business process, so as to ensure the flexibility of the organization and the clear distribution of responsibilities.
At the same time, the business architecture also needs to consider the business needs and development of the organization, and make clear plans for the position setting, staffing, role definition, authority allocation, clear responsibilities and assessment mechanism of the department to ensure the smooth operation of each link in the business process.
The following diagram shows the organizational chart of a small and medium-sized chain enterprise.
This article was written by Everyone is a Product Manager Author【Tang Shiye】, WeChat public account: [Architect Tang Shiye], original/authorized Published in Everyone is a product manager, without permission, it is forbidden to reprint.
Image from Unsplash, based on the CC0 license.