Capability-based Business Model Transformation

Martin Henkel, Ilia Bider, Erik Perjons

Department of Computer and Systems Sciences,

Stockholm University, Sweden

{martinh,ilia,perjons}@dsv.su.se

Pre-proceedings - http://bit.ly/1qZ5KsOSpringer proceedings –

http://link.springer.com/chapter/10.1007/978-3-319-07869-4_8

Motivation

● Ever changing business environment of today

● Organizations should adapt to changes to survive

● Also need to use opportunities the changes give to grow

and prospect by offering new products and services

● Any organization in subject of changes in the

environment, or having the desire to improve, needs to

change their processes, personnel and their use of

resources.

HOW to design the change?

* the ability of an organization to manage its resources to accomplish a task.

Existing approaches

Business model transformation with a help of Canvas

Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.

Problems with the existing approaches

● Changes take their departure in an organizations existing capabilities (the ability of an organization to manage its resources to accomplish a task).

● To support change, there is a need to understand and assess an organization’s capabilities.

● There is a need to have a structured approach for– Discovering and assessing capability– Rearranging them for a new usage

Are there satisfactory answers?

Contribution

● A modelling approach that describes an organization as a recursive structure of capabilities, including the resources being used.

● A set of initial transformation patterns that allows an organization to restructure their capabilities in order to implement a new business model, and find out what new capabilities should be added, and what existing capabilities are to be removed

Background – Process-Assets model

From our previous work:Bider, I., Perjons, E., & Elias, M. (2012). Untangling the Dynamic Structure of an Enterprise by Applying a Fractal Approach to Business Processes. In The Practice of Enterprise Modeling (pp. 61-75). Springer Berlin HeidelbergAvailable at http://www.ibissoft.se/publications/FractalOrg.pdf or http://link.springer.com/chapter/10.1007%2F978-3-642-34549-4_5

Original goal:Find all business processes in the company, even the ones that not many people are aware of

Approach:Start with a main (visible) process and find out all other processes that needs to be in place in order to run the main one

Background: Process-assets and asset-processes archetypes

Process-assets archetype for a main process

Background: Process-assets and asset-processes archetypes

Assets-processes archetype

Background: Conclusions

In addition to getting all processesthe uncovered dynamic structure of an enterprise can support:

1. strategic planning. For example, when sales plans a new campaign that will bring new customers, all assets required by the corresponding main process should be adjusted to satisfy the larger number of customers. This includes workforce, suppliers, infrastructure, etc.

2. change management. For example, a product manufacturing company could decide to become an engineering company. Such a decision can be made when manufacturing becomes unprofitable, while the company still have a very strong engineering department.

3. discovering and preventing misbalances between its business processes. For example, a supporting process can starts behaving as it were a main one disturbing the balance of the organizational structure. This is typical for IT–departments that may start finding external "customers" for software developed for internal needs.

In focus of this work

Goal

● A modelling approach that helps an organization to discover and depict all its capabilities, including the resources being used.

● Transformation patterns that allows an organization to restructure their capabilities in order to implement a new business model, and find out what new capabilities should be added, and what existing capabilities are to be removed

Approach to achieving the goal:

● Rename concepts in the existing framework:– Process – Capability– Asset – Resource

● Adjust the framework for discussing capabilities

● Design rules for business model transformation

Overview of the approach

Step1, uncovering the organizational structure

● Starts with the so-called main capability

● Continue with discovering of so-called supporting capabilities by examining the use of different types of resources

● Result: A tree structure of capabilities

Step 2, transforming the business structure identified during step 1. The aim is to identify sub-capabilities that can be transformed, thereby creating a new business model for the organization.

● Uses pattern for the transformation

● Result: A new tree structure of capabilities

Step1, uncovering the organizational structure

1. Start with the main capabilities. These are capabilities that produce value for which some of the enterprise external stakeholders are ready to pay.

2. Identify resources. Proceed with following up resources that are needed to run the main capabilities.This step is Guided by Capability resource types.

3. Identify supporting capabilities. Each Resource requires a set of so-called supporting capabilities.This step is guided by Capability sub-types.

Repeat 2-3

Product manufacturing

Main capability

CustomersWorkers on the conveyor belt

Machines and IT for production

SuppliersProduct design

Paying stakeholdersWorkforce Infrastructure

Execution templatePartners

Sales & Marketing

Endingcustomer

relationships

CustomerRelationshipManagement

Acquire Maintain Retire

Workers IT/computers

Workforce Infrastructure

Capability resource types

● Paying stakeholders

● Workforce

● Execution templates

● Partners

● Infrastructure

Note:

● All resources are equally important

● To be of use, each resource need to available in the right

capacity.

Capability sub-types

● Acquire – sub-capabilities that result in the enterprise acquiring a new resource of a given type.

● Maintain – sub-capabilities that help to keep existing resources in the right shape to be useful in the capability of a given type.

● Retire – sub-capabilities that phase out resources that no longer can be used as part of the capability.

Customers

Resource

Sales & Marketing

Endingcustomer

relationships

CustomerRelationshipManagement

Acquire Maintain Retire

Step 2, transforming the business structure

● Use the model with resources and capabilities as defined in Step 1.

● Apply capability transformation patterns to change the structure

Two initial patterns described in the paper:

● Externalising a capability. This involves taking a capability that the enterprise has and market it toward its customers.

● Add value to a capability. Extend existing capabilities, or embed them into new main capabilities.

Example case

Transforming a software consulting company into a product vendor

Example case

● Describes the changes a software development company went through

● Initial business: Traditional software consulting company, working in several domains such as healthcare and financials. Main capability offered to customers: software development.

● Impetus for change:A main customer was lost, leaving the company with several software developers without a project. To sustain, the company was thus in need of re-organising its capabilities.

Step1, uncovering the organizational structure

Use the defined resource types to find the resources that the main capability uses.

Resource types

Resources

Step 2, transforming the business structure

Selected transformation pattern: Add value to a capability. This entails a “re-packaging” and extension of an existing capability by adding a new main capability that can be offered to the customers.

Main question: “Can we combine this capability with other , new, capabilities in order to provide value to our customers?”

Step2, continued

old capabilityUsed for acquiring/building a software product.

Redesigned main capability

Conclusion

● A practical tool for uncovering/documenting a business in form of capabilities. The process is guided by both capability sub-types and resource types.

● The transformation patterns guide the formulation of a new structure

Future work:

● More transformation patterns need to be identified

● Validation, through historical empirical evaluation or case studies