Linking businessmodelsb.arch part1

Linking Business Models with Business Architecture to Drive Innovation
August 2015 1 Copyright ©2015 Business Architecture Guild
Linking Business Models
with Business Architecture
to Drive Innovation
A Business Architecture Guild Whitepaper
Principal Co-Authors: Steve DuPont, Karen Erwin, Bryan Lail,
Stephen Marshall
Reviewers: Remco Blom, Frank Fons, William Ulrich,
Wilton Wratten, Carl Zuhl

Executive Summary
A business model describes the rationale of how an organization creates, delivers, and
captures value.1
Organizations are expanding their innovation focus from products and processes to business
models in order to remain competitive in the face of shrinking product lifecycles and growing
market uncertainties. They are increasingly embracing the business model concept in strategic
planning, accompanied by a greater focus on customers and corresponding value propositions.
In a parallel development, organizations are using business architecture to provide increased
business transparency and maximize the likelihood of an effective and successful deployment of
strategy.
Business architecture is defined as “a blueprint of the enterprise that provides a common
understanding of the organization and is used to align strategic objectives and tactical
demands.”2
Despite the natural progression from business models (as an expression of business strategy) to
business architecture (as the actionable blueprint for that strategy), these two concepts have
evolved separately. To date, limited consideration has been given as to how they relate to each
other.
This white paper aims to address that gap, by demonstrating that the two approaches not only
relate to each other but also work well together to effect change. We further expand on this
synergy with a practical case study. In doing so, we illustrate how business models play a crucial
role in business innovation and are realized more effectively through the practice of business
architecture.
Introduction
In the mid-nineties, the advent of the Internet era coupled with accelerating globalization forever
changed the business landscape. The rapid pace of e-commerce and virtualization technologies
created vast new markets and, in the process, eliminated many businesses that did not make the
leap from established “brick and mortar” business structures. The accelerating pace of
technology and market change forced companies to expand their focus of innovation from
1
A. Osterwalder, Yves Pigneur et al, Business Model Generation (John Wiley & Sons, Inc., 2010. Page 14).
2
Business Architecture Guild, A Guide to the Business Architecture Body of Knowledge®, v 4.5 (BIZBOK® Guide), 2015.
Part 1, Page 1.

products and processes to rethinking the logic of value creation and value exchange. Decreasing
time-to-market along with an ability to evolve rapidly became critical factors in developing
sustainable businesses.
Conventional methods of viewing and transforming a business such as business process re-
engineering could not provide the big picture that senior executives and strategic planners
needed to communicate and evaluate new business proposals. Business leaders began to refer
to new ways of creating and monetizing value as “business models.” New types of business
models also appeared, with names such as “freemium” and “long tail.” Yet, despite becoming
commonplace, the term “business model” remained ambiguous until 2010, when the now widely
accepted definition introduced at the beginning of this paper emerged with the publication of
Business Model Generation by Alexander Osterwalder and Yves Pigneur.
Business model frameworks had also begun to emerge at the turn of the millennium, with works
from academics and theorists such as Timmers (1998), Osterwalder (2004), Chesbrough (2007),
and Lindgren (2012). While each framework has its proponents, it was Osterwalder and Pigneur’s
simple-to-use methods and tools in Business Model Generation that popularized the Business
Model Canvas and established it as a common framework for business model innovation. We use
the Business Model Canvas in this paper as the business model framework to explain the
concepts around business model alignment with strategy and business architecture. Appendix A
provides an overview of the Business Model Canvas.
The Impact and Benefit of Business Models
Executives leverage business models in conjunction with other strategic planning artifacts,
business architecture blueprints, and tools focused on organizational or cultural fluency. Business
models highlight the critical relationships between the various elements that constitute a
business in ways that are:
• Not fully covered by other approaches or techniques and, therefore, contribute to a more
complete examination of costs, revenues, and other business perspectives; or
• Covered by other approaches or techniques—but through a different method—and thus
business models help cross-check other points of information
The business model’s focus of impact is improved communication and understanding between:
• The strategist and colleagues working together in the enterprise architecture domain
• The strategist and business executives
• Business executives and the rest of the organization

Business models typically improve communication among business executives because they
provide a common perspective for the organization’s core business logic, thus helping executives
“get on the same page.” Having this common perspective, structure, and understanding allows
for more effective business design3 and enables the successful deployment of an organization’s
business models.
In essence, business models provide clarity of thought using a different point of view from the
one provided by traditional strategic planning methods. Business models foster the level of
thinking required for innovation.
A Structured Approach for Business Model Innovation
In order to steer the business in the face of constant change (or disrupt the market for its own
benefit), business strategists are increasingly turning to business model innovation to rethink
their business models or to create new ones. These strategists use established business model
frameworks, like the Business Model Canvas, in conjunction with a design-oriented approach to
develop their business models. They often employ design thinking, in particular, to uncover and
develop new ideas. See Appendix B for details on design thinking.
Business model innovation occurs when an organization takes its proposed business models from
ideation to implementation. Using a design-oriented approach, business model innovators first
construct observations about their environment and the organization’s position within that
environment, including a description of the current-state business model. Then, they develop
and test a set of hypotheses using alternative future-state business models. They design
prototypes of those business models to test and validate assumptions, using software-based
models and simulation tools to assist the validation process. Most importantly, business model
innovators use test results to confirm or reject the hypotheses and adjust or iterate the business
model prototypes accordingly. Finally, they select the optimal business model and describe it in
sufficient detail through business architecture to support planning, development, and
deployment.
While it might be a relatively easy task to conceive a new business model, implementing it and
then continuously adapting it are not so easy. However, in the current environment of constant
and rapid change, implementation and adaptation are exactly where successful organizations
3
Business Design is “a human-centered approach to innovation. It applies the principles and practices of design to
help organizations create new value and new forms of competitive advantage. At its core, Business Design is the
integration of customer empathy, experience design and business strategy.” What is Business Design? Rotman
DesignWorks, Rotman School of Management. 2015.
rotman.utoronto.ca/FacultyAndResearch/EducationCentres/DesignWorks/About BD.aspx.

need to excel. It is not sufficient to establish a business model and then stop there; companies
must constantly reevaluate and redefine basic precepts including:
• What the company currently does
• How the company does it
• What the company could do
• How the company could do it
• With whom the company should do it
• How each piece interacts with other parts of the company’s business ecosystem and the
world at large4
The last point is particularly significant. When constructing a business model, organizations
should ensure that they design and build all elements of that business model for agility to enable
the business to thrive in a state of constant motion.
Linking Business Models to Business Architecture
Organizations must be able to articulate their business models in sufficient detail in order to
deploy them successfully. A business articulates business models most effectively through the
practice of business architecture. Additionally, businesses that leverage business architecture as
a vehicle for realizing one or more business models gain value from the synergies across both
disciplines. This includes using business architecture to visualize the external and internal impacts
of the business model.
Relationship to the External Environment
Organizations should design and evaluate their business models within the context of the
external business environment (the external factors that influence a company’s operating
situation5) as shown in figure 1. Considering external factors helps a business evaluate and adapt
business models to different contexts. For example, a business model that performs well in North
American markets may not transfer well into European markets. Business architecture articulates
not only the business model details but also key elements of the external business environment
(such as stakeholders and business locations) to ensure that a business can deploy an effective
blueprint of the business model in all intended contexts.
4
Phil Simon, The Age of the Platform: How Amazon, Apple, Facebook, and Google Have Redefined Business (Motion
Publishing, 2011).
5
Derived from businessdictionary.com

Figure 1: External Influences in Business Model Development
Relationship to the Internal Environment
In contrast to the external environment, business models do not fully depict the details of how
the internal resources of the business work together to realize the business model. The
organization’s operating model largely addresses this concern.
An operating model is an abstract representation of how an organization operates across
a range of domains in order to accomplish its function.6
Operating models overlap with business models in areas of business infrastructure and cost
structure. Like business models, operating models include delivery channels and business
infrastructure aspects but typically introduce additional, more granular aspects, including
processes and data. As such, operating models tend to add a layer of detail to describe how the
elements of the organization and infrastructure work together to realize business models in the
most optimal way, including intended levels of standardization and integration across the
enterprise. In both cases, organizations should further articulate business models and operating
models using business architecture in order to enable effective deployment.
6
Marne de Vries et al. A Method for Identifying Process Reuse Opportunities to Enhance the Operating Model.
2011 IEEE International Conference on Industrial Engineering and Engineering Management.
en.wikipedia.org/wiki/Operating_model

From Sketch to Blueprint
As described earlier, much of the current attention around business models is within an
innovation context. Entrepreneurs and strategists use summary views or “sketch views” to
communicate key business model concepts, which in turn represent a conceptual design of the
business (see figure 2).
Figure 2: Business Models in Conceptual Design and Business Architecture7
To use an analogy from the conceptual design activities within the construction industry,
architects produce a limited number of alternative sketches (viewpoints) of the proposed
business models with just enough detail to analyze feasibility and risk. These summary views also
support strategic decisions for how to meet the goals and objectives of the business.
However, these sketch views do not contain sufficient information for deployment. Once a firm’s
strategic direction has been identified and refined through a series of business modeling
scenarios, the business architecture needs to be developed to offer more detailed blueprints of
the business that can be leveraged for planning, option analysis, further business design, initiative
planning and scenario deployment. In this context, the business architecture practitioner
analyzes and maps the business strategy and the associated business models to the business
7
1. Depiction of Business Model Canvas from strategyzer.com; 2. Depiction of Operating Model Sketch from Using
Business Architecture to Realize your Operating Model, S. DuPont, Boeing, March 2014 in Business Architecture
Innovation Summit 2014, Object Management Group/Business Architecture Guild; 3. Depiction of Business
Architecture Diagrams from BIZBOK® Guide v4.5 Part 1 p. 4.

architecture focusing on key business architecture aspects including strategy maps, capability
maps, information maps, and value streams. In the end, the business architecture blueprints
embody a fully detailed business model perspective that management, planning teams, and
practitioners can use to express or map to the operating model perspective.
Using Business Models to Solve Key Business Problems
It is important to identify the manner in which strategists and architects might use business
models to help solve key business problems. To define an actionable blueprint, the business
strategist uses the Business Model Canvas to ask questions and diagnose pain points for the
business. For example, discussions around problem areas associated with Customer
Relationships may lead to improvements in Key Activities (such as customer service). That could
then drive new Channels and Key Resources, such as a 24X7 call center, more web-based self-
service, social media engagement, or improved knowledge management regarding customers’
situations to provide pre-emptive communication.
The use of probing questions and what-if scenarios are key to the process of business model
design and analysis. A few examples include:
• Are there new or emerging Customer Segments for our current products and services? If
so, what type of relationship do we want to build? What capabilities should the business
consider adding to Customer Relationships in order to realize that relationship, penetrate
that new segment, keep those customers, and serve them?
• What level of channel integration is required?
• What if the company could disrupt the market before someone else does? In terms of the
Value Proposition, what are those disruptive characteristics? What capabilities are
needed to realize the Value Proposition?
These types of questions help spur creative thinking and speed up the decision-making process.
This advances the organization toward its target business model faster.

Linking businessmodelsb.arch part1

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Linking businessmodelsb.arch part1