Hanging the Interviewer! Key Concepts of Business Architecture

business model

A business model is the "secret" of an enterprise's success, which integrates multiple internal and external elements to build a comprehensive, efficient operating system with unique competitive advantages. The purpose of this system is to satisfy market demand, maximize the value of all stakeholders and ensure the long-term profitability of the enterprise.

The core structure of a business model consists of three closely interconnected components: creating value, delivering value, and capturing value.

Creating Value: This segment is centered around the customer's needs and provides an attractive value proposition.
Delivering Value: Ensure effective delivery of value by optimizing resource allocation and implementing relevant strategies.
Capture value: Achieve sustained growth in corporate earnings through well-designed profitability mechanisms.

These three components are interdependent and together form the framework of the business model, and they work in tandem to help organizations stand out in a competitive marketplace.

Examples of business models

Because of the Internet and digitalization, the company is trying to change the traditional business model by integrating several parts, such as production, sales, trading, logistics and payment, without the limitations of 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 are particularly evident in new retail, with offline brick-and-mortar stores transitioning to online, and online e-commerce companies looking to expand brick-and-mortar market opportunities. Here are some examples of typical e-commerce business models:

B2C (Business-to-Consumer): This is the most common model in e-commerce, where merchants sell products and services directly to consumers. Platforms such as Tmall and Jingdong are typical representatives of this model.
B2B (merchant to merchant): in this mode, the supplier and purchaser complete the transaction through the e-commerce platform, effectively solving the problem of the supply chain from upstream to midstream. 1688 and other platforms are the outstanding representatives of this mode.
C2C (Consumer-to-Consumer): In this model, consumers can transact directly with other consumers. It emphasizes the personalization and quality of products and offers services similar to B2C but with a greater focus on service. Platforms such as Taobao and Weishop are examples of this model.
C2M (Consumer-to-Manufacturer): This is a model where consumers and manufacturers are directly connected, removing the intermediate links and providing customized production and consumption, with an emphasis on 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 access 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 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. With the nine-panel framework, companies are able to visualize their business model and comprehensively review and analyze their business operations.

Core elements of the business model canvas:

Value proposition: what unique product, service or value does the business offer to its customers and what problems does it solve for them? The value proposition is what differentiates 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 kind of relationship does the organization intend to build with its customers? Possible types of relationships include personalized service, exclusive service, self-service, automated service, community interaction and co-creation.
Customer Segmentation: Who is the target customer group of the enterprise? By identifying and understanding the different needs and characteristics of customers, an enterprise can accurately segment its customer groups, such as mass market, niche market, multilateral market, compartmentalized market, etc., to better meet the needs of specific customer groups.
Core resources: what are the important resources that a business has in order to support its business activities? These may be physical assets, knowledge, employees, or financial assets.
Key activities: What are the main activities that an organization needs to perform to ensure the smooth operation of a product or service? These activities may include product manufacturing, problem solving, platform building and service networking.
Channel Pathways: Through which pathways does a company deliver its products or services to its customers? The construction of a channel pathway involves five stages: awareness, evaluation, purchase, delivery and after-sales. Channel types include owned channels (e.g., brick-and-mortar stores), partner channels (e.g., distributors), and new retail channels such as online, offline, and O2O need to be considered.
Partnerships: With which upstream or downstream companies does the organization need to establish deep partnerships? Partnerships may include strategic alliances, competitive collaborations, new business partnerships, and supplier-buyer relationships. The essence of cooperation lies in resource sharing and mutual benefits.
Cost structure: Does the organization adequately consider cost factors in its business operations? Cost structures can be cost-driven or value-driven and need to take into account fixed costs, variable costs, economies of scale and economies of scope.
Sources of Revenue: What are the main ways in which a business generates revenue? Revenue is generated through product sales, royalties, subscriptions, leases, licenses, transaction fees and advertising.

The following figure shows the business model canvas of the DDT enterprise:

value stream

Related concepts of value streams include: value proposition, value stream, and value stream stages.

value proposition

The value proposition concept is explained in the Business Model Canvas section.

The value proposition is at the center of the business canvas, and before a company decides whether or not to invest in a product or service, it first needs to identify which customer group it serves? What value does it provide? And can the target customer group afford the price of the product or service?

value stream

Definition of a value stream: the collection of end-to-end activities that create outcomes for a customer, who may be the end customer of the value stream or an internal use user.

Value streams are more focused on specific target customers and value propositions with clear objectives. At the same time, value streams emphasize more on result orientation and value growth.

Through value stream analysis, we can easily see which links add value and which do not. Theoretically, we can eliminate or attenuate the links that do not add value, which can prevent the process from being too burdensome and ineffective.

value stream stage

The value stream can be further subdivided into different value stream stages, each of which contributes a corresponding increment of value to ensure the progressive realization and complete delivery of the overall value required by the customer. The value stream stages are characterized by the following:

Each process stage has a corresponding "value". If a stage does not add or contribute to the value that the customer needs, it can theoretically be abandoned.
Each stage has entry conditions. The next step can only be taken if specific conditions are met. Recognizing and securing these conditions facilitates the successful achievement of the objectives of the stage.
Each value stream phase has completion conditions. Setting clear completion conditions allows you to quickly check if the stage has been completed and start the next stage.

Let's use a store pickup service as an example:

Value proposition: allowing customers to enjoy quality hotel services
Value Stream Stages: The whole value chain consists of 5 stages, which are product browsing, order and payment, stocking and notification, self-pickup, and after-sale.

operational capacity

Business capabilities refer to the set of core skills and resources necessary for an enterprise to carry out its business activities. They are specific skills or productive capabilities built from a business perspective to achieve specific objectives or outcomes.

An organization's business capabilities are closely linked to its business model and value streams, as they directly impact its performance and value creation. They ensure the implementation of the business strategy and are aligned with the customer journey and market environment. In addition, business capabilities harmonize business requirements and IT systems.

The scope of business capability is more macro, which helps organizations to carry out strategic planning and business development from multiple perspectives. In TOGAF (The Open Organizational Framework), the realization of business capabilities involves the integrated use of roles, processes, information and tools.

In other enterprise management theories, business capabilities are likewise seen as an important component of the enterprise architecture, which includes a number of elements such as people, organization, functions, processes, business services, data and information, application systems and infrastructure, and is closely related to the various projects and solutions of the enterprise.

Business capabilities provide a view of the business that is independent of existing organizational structures, business processes, application systems, and products/services, and help companies understand and manage their business at a higher level.

In the business architecture system, the key to business capability is to systematically represent the core business functions of the enterprise.

Taking the e-commerce business as an example, common business capabilities include comprehensive management of store management, product management, member marketing, order processing, logistics, payment and settlement, and after-sales service. These management activities are brought together to form the high-level business capabilities of an enterprise, and can be further subdivided into multiple sub-business capabilities.

For example, order processing capabilities can be broken down into sub-capabilities such as platform order management, self-managed order management, third-party order management, order source tracking, and order split processing.

business process

A business process is a series of logically related business activities that are combined to achieve a specific business result. In the design phase of business architecture, business processes play a crucial role, which is not only related to the effective utilization of enterprise resources, but also directly affects the design of application functions in the enterprise IT architecture and the specific needs of system integration.

A business process is a further development of the value stream concept, which refines the concepts in the value stream into actionable processes.

The difference between business processes and business capabilities:

Business Capabilities: Focuses on the capabilities and results of an organization's core business and does not involve specific process breakdowns.
Business Process: Focusing on the process itself, oriented to specific scenarios, and solving specific problems through a combination of activities, it 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 corporate regulations.

Business processes can be further refined into different layers, including main processes and sub-processes. They are the link between different business units, and end-to-end processes often span multiple departments or business competency areas to realize added value.

Taking the e-commerce system as an example, the user transaction process is a relatively standardized process that usually includes the following links:

Product Selection: A user browses an e-commerce platform, selects an item they want to buy, and adds it to their shopping cart.
Shopping Cart Confirmation: Users view the items in the shopping cart and can modify the quantity or delete items they don't want to buy.
close an account: The user selects the "Checkout" option and is ready to pay. In this step, the user can also select or add a delivery address.
disbursement: The user selects the payment method (e.g. credit card, Alipay, WeChat payment, etc.) and enters the necessary payment information to make the payment.
Order Confirmation: Once payment is complete, the system generates an order confirming the purchased item and payment details, and sends an order confirmation message to the user, usually by email or SMS.
logistics: Order information is passed to the warehouse to begin the packing and shipping process.
Shipping & Tracking: After the goods are shipped, users can track the logistics status through the order system.
Confirmation of receipt of goods: The user receives the goods and confirms receipt.

Business processes can be further refined into different layers, providing more specific management and execution guidelines. By taking a layered approach, companies can ensure that the business process design is tightly linked to each part of the value stream so that value is maximized at different levels. The following layers are typically included:

Process Category: Broad categories such as purchasing, sales, production, etc.
process group: A collection of related processes under the same category, e.g., an order processing process group may include order receipt, order acknowledgement, order fulfillment, etc.
workflows: Specific operational steps, for example, the order confirmation process may include steps such as receiving an order, reviewing an order, confirming inventory, and generating a delivery order.
sub-process: More detailed steps in the process, such as reviewing an order might be refined to validate customer details, checking payment status, etc.
mandates: The most basic unit of operation, specific to an individual's specific task, such as entering customer order data and printing delivery notes.

Organizational structure

Organizational structure is to set and arrange departments and positions according to the enterprise strategy to form a stable and scientific management system. This system ensures that the enterprise can adapt to business needs and support its development.

Organizational structure is crucial to business structure. When sorting out business processes, it is important to arrange appropriate personnel at each node of the process in accordance with the operating rules and processing logic of the business process to ensure organizational flexibility and clear allocation of responsibilities.

At the same time, the business architecture also needs to take into account the business needs and development of the organization, and make clear planning for departmental job setting, staffing, role definition, authority allocation, clear responsibilities, and assessment mechanisms to ensure the smooth operation of each link in the business process.

The following figure shows the organization chart of a small and medium-sized chain of companies.

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