Porter conceptualized, in the 80s, the Value Chain (VC) of an Enterprise. A VC categorises the business functions of a company in primary (operations) and secondary (support) functions. Porter also introduced Value Networks and Systems consisting of a string of Value Chains contributing to the delivery of the end product or value where each VC is implemented by an Enterprise.
A business model specifies, amongst other, the specific way a firm approaches and segments the market, delivers value to its customers, manages relationships with customers and partners, and customises its value chain and core capabilities to return revenue.
In what we are concerned with, the business model describes "the architecture of the firm and its network of partners" and how they contribute to the Value Chain. The business model maps on the Value Chain and the extended Value Network, the company VC is part of. A Business Architecture should be structured on the Value Chain and Business Model of the Enterprise.
To succeed in Today's business world, competition is not enough. Strategic alliances and collaboration are required, partnerships are key. With the pace of competition today, outsourcing becomes an important strategy. Through outsourcing, the partner will become part of your Value Chain.
Many or most business functions of your organisation can be outsourced to partners. The difference in cost and efficiency between an "on demand" or pay per usage outsourcing model and an on-premises and self manned typical function could be significant. What traditionally were called core functions are no more a sacred territory in outsourcing.
This arises speculation on the Virtual Enterprise (VE) where a company outsources most business functions but retains governance for planning, coordinating operations, sourcing..., marketing, budgeting and making all important decisions. And it can be successful assuming it employs best of breed outsourced services in a "virtual" Value Chain implementation. The "virtual" Enterprise is, debatable, the future of the entrepreneurial world, specialising in management and governance skills while outsourcing most of the Functions of the Enterprise today. A "virtual" Enterprise operates over a virtual Value Chain, i.e. a chain whose links are owned by partner companies.
The virtual Enterprise blurrs the borders between the Value Chain of the company and the Value Network it is part of. This virtuality demands good relationships that is, a reliance on collaboration. The web services technology enables the automated workflows over B2B interactions between participating parties. SOA will provide a structured architecture to enable a virtual Enterprise based on oustourced services. A service may be defined in this Enterprise context as the processes, applications, infrastructure and people operating them. As such, an outsourced business function, would consist of the business process, technology and the people handling it, now part of a standalone company.
The Governance function is what defines and identifies the Virtual Enterprise since most or all functions of the Enterprise (primary and secondary in Porter's definition) would be outsourced. The VE is defined by a new business model promoting collaboration, B2B to take advantage of best of breed processes and applications on the market. This VE businesws model is enabled by the increasing adoption of business process outsourcing (BPO), application outsourcing, Software as a Service (SaaS), and in general by the fast adoption of Web Services, SOA and collaborative technologies of the Web 2 such as mashups, wikies, blogging and social networks.
"In business, a Virtual Organization is a firm that outsources the majority of its functions", a Wikipedia definition. The concept is similar to the virtualisation described in the previous post: an Enterprise, consisting of outsourced business functions and a governance function that coordinates and identifies the company, becomes "virtual".
The Virtual Enterprise (VE) is composed of business functions belonging to different outsourcing parties participating in the VE Value Chain. A business function is described by a few typical Enterprise Architecture layers: business, applications, information and infrastructure. To these, one might add people/organization and non-IT technology which are often neglected. Effectively, all processes, data, technology and people belonging to a business function are outsourced together. Take for instance a SaaS outsourced application. This layered view conveys a first dimension to the Enterprise virtualisation.
All the same, each and every layer (process, information, applications, infrastructure) of an Enterprise Architecture can be virtualised, that is, an abstraction layer can be introduced to standardise communication to its functionality and hide the complexity and implementation. This is the way to handle the ever increasing complexity. This is the way it was done in the netorks OSI (Open Standard Interconnect) standards where each layer provides a number of functions and an interface to the layer above to hide its implementation. The encapsulation of business functions and applications follows a similar paradigm to the HW industry where microprocessor chips encapsulate so much functionality.
The virtualisation of the IT infrastructure, a hot topic now, in the Enterprise, is , in essence, about providing an abstraction of the IT technology: servers, storage and networks. It is about providing an interface hiding the infrastructure implementation and its platform types. The benefits appear to be compelling: server utilization grows significantly and inverse proportionally to the number of servers and the cost of the occupied real estate and cooling. Virtualisation provides light and less costly business continuity and easier management. Ultimately the infrastructure can be outsourced to a 3rd party and paid per usage. There is no more need for getting skilled people, training employees, buying hardware, upgrading HW/SW every so often, depreciating or disposing the hardware. No more headaches.
What virtualisation promises? Independence from the HW infrastructure. Multiple applications and OSs run on one physical or multiple servers. Virtualisation is supported by blade systems where processing power is modularly scaled on demand.
Processing power can be consumed "on demand" (IBM parlance); MIPS can be purchased in an "utility" like model (HP talk). Storage will be retailed as a commodity from a pool and I/O is ultimately virtualised. An analogy can be made to the networks world where the leased lines evolved into virtual circuits, VPNs etc. where, newly, QoS and SLAs matter. Same for virtualised infrastructure. Same for services, provided by an outsourcing company that have to be delivered, according to SLAs at a particular QoS, for every customer eventually, over a shared, virtualised infrastructure.
Rapidly, the virtualisation seeps upwards, from HW to OS, to applications and business processes. In fact, since long Java had introduced a virtual machine abstraction layer between the applications and OS. Application servers are providing even more abstracted functionality today.
At the application layer, virtualisation is provided by SOA through standard interfaces and encapsulation, hiding the implementation technology. More, SOA provides the standard integration technology. As such communications are implemented over standard protocols and interaction is described by interfaces accessed in a standard manner. SOA provides an abstraction layer above applications hiding the communications and applications implementation technology. It should not matter any longer how the applications and network are realised or what are the platforms. Applications are in effect virtualised as services.
There is still the issue of standardising business services and their operations; this may fall into the remit of the application suite vendors, industry standardisation bodies or your own business people having a good knowledge of the specific processes and services.
Why virtualisation in the Enterprise? In an ideal Enterprise for this fast moving world, the business, its logic, should not depend on IT technology, that is, its type or implementation. Business activities would be performed careless to technology and fearless to tomorrow's new IT hype. Who cares it's mainframe and COBOL, JavaEE or .NET (is there anyone who still remembers Smalltalk or even RPG?, not to mention the 4GLs that vanished in a historical instant).
That's why business will adopt technology virtualisation to interact with IT technology services at a virtual level where the negotiation is performed in a communication language structured in terms of capabilities, relative feature merits and their cost. IT functional and non-functional capabilities will be delivered under SLAs at an agreed price. And the business would fancy choice, as well; does this mean IT outsourcing, in the end?
This virtuality would probably alleviate the long existing divide between business and IT, often materialised in the blame culture, we all know. No amount of good will solve this divide until a good insulation (read interface) layer is added between the two.
Virtualisation is adding this interface layer hiding the IT implementation complexity: even more, it is about offering the user virtual processing, storage and network services. Virtualisation is not only an interface layer hiding the implementation complexity but it is about many virtual servers, storage pools and communications channels created on and between one or more physical machines.
Today, for historical reasons, the interface between business and IT is quite convoluted and low level, leading to business having to understand and take decisions about IT. That's why, when simple business meetings to discuss IT capabilities deliverables become debates of the merits of WS SOAP relative to REST, the communication between business and IT breaks down. Technology choice should be in the IT domain rather than on the business agenda.
A virtual Enterprise, as defined here, is a company consisting of outsourced business functions; nonetheless a governance function should still exist to coordinate all other function activities and legally identify the Enterprise. An outsourced business function would implicitly outsource the IT technology - applications & infrastructure - in that function. SaaS (Software As A Service) is a typical example of outsourcing the function processes, applications, and infrastructure, the most common layers of an Enterprise Architecture. BPO (Business Process Outsourcing) will typically outsource, a related group of functions and the people performing the processes, as well.
The virtualisation of the infrastructure (servers, storage and network), currently a hot topic in IT, adds an "EA layer" type of virtualisation to the Enterprise as opposed to the "Business Function/Process Outsourcing" kind described until now. What this means is that the infrastructure capabilities of your Enterprise can be now accessed through an interface under an SLA (Service Level Agreement) and their management may be eventually outsourced under a managed services agreement.
But the "EA layer" virtualisation is gradually moving upwards, to the business layer.
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