Modeling Value Creation with Enterprise Architecture
P. M. Singh
1
, H. Jonkers
2
, M. E. Iacob
1
and M. J. van Sinderen
1
1
University of Twente, Enschede, The Netherlands
2
BiZZdesign, Enschede, The Netherlands
Keywords: Value Creation, Enterprise Architecture, Archimate, Business Models, Sensitivity Analysis, e-3 Value
Model.
Abstract: Firms may not succeed in business if strategies are not properly implemented in practice. Every firm needs
to know, represent and master its value creation logic, not only to stay in business but also to keep growing.
This paper is about focusing on an important topic in the field of strategic management and economics:
value creation. We develop a value creation framework and then use the ArchiMate enterprise architecture
modeling standard to model value creation, using a four step method. The output of this method is a new
model, the value creation model, which represents value creation by a firm. We demonstrate the use of the
method with an example case. Potential uses of the value creation model, including traceability, sensitivity
analysis and a networked enterprise architecture, are discussed in detail.
1 INTRODUCTION
The primary function of any firm is creating and
maintaining value (O'Cass, et al., 2011) – only as
long as a firm creates value in the eyes of the
customer it can stay in business. The moment it
stops offering this value, its existence is threatened.
One would expect that the process of value creation
is well understood by decision makers in general and
by managers in particular. However, literature
suggests that this not the case and there is “minimal
theory explaining “-how-” managers/firms transform
resources to create value” (Sirmon, et al., 2007).
Moreover, there is little consensus on what value
creation is or on how it can be achieved (Lepak, et
al., 2007).
Amit & Zott (2001), while studying value
creation in e-business, suggested that a business
model should be used as a starting point for analysis
of value creation. There exist different business
modeling approaches, each with their own merits
and focus (Al-Debei & Avison, 2010, Iacob et al.,
2012).
A business model typically identifies agents,
goals, resources and exchanges of resources between
agents (Andersson, et al., 2006), and focuses on the
what side of value creation. A process model is more
detailed than a business model and focuses on the
procedural and operational aspects, i.e., the how side
of value creation. Apart from business and process
models, we have information systems models which
focus on the IT infrastructure of firms. The IT
infrastructure components support the processes of
the firm and therefore information system models
can be considered as models that represent the with
what side of value creation. A similar division of
viewpoints on value creation was put forward by
Gordijn & Akkermans (2003).
There exists a gap in the literature when it comes
to representing ‘how’ value is created and ‘with
what’ value is created. As firms get bigger in size
and expand their business, the answers to these
questions become increasingly complex. Managers
frequently face problems while translating the value
creation logic of the firm from strategy to
implementation, i.e., how new products and services
should be created and how the existing ones are to
be improved. This is the case because there are no
existing models or modeling approaches to specify
the processes and technological resources used for
creating a particular value proposition
.
What is the correct way to model value creation
at a low level of abstraction? To the best of our
knowledge no satisfactory answer is found for this
question in literature. We argue that the enterprise
architecture of a firm provides an excellent base and
starting point to model value creation at low level of
343
Singh P., Jonkers H., Iacob M. and van Sinderen M..
Modeling Value Creation with Enterprise Architecture.
DOI: 10.5220/0004883903430351
In Proceedings of the 16th International Conference on Enterprise Information Systems (ICEIS-2014), pages 343-351
ISBN: 978-989-758-029-1
Copyright
c
2014 SCITEPRESS (Science and Technology Publications, Lda.)
abstraction. An enterprise architecture (EA) model is
the “organizing logic for business processes and IT
infrastructure reflecting the integration and
standardization requirement of the company’s
operating model” (MIT, 2013). An EA model shows
how a firm realizes the services it offers to its
customers. (Janssen, et al., 2005). The EA modeling
standard used for this research is ArchiMate® (The
Open Group, 2012), which consists of different
elements to model the business and IT processes of a
firm, the supporting infrastructure and human
resources. The main contribution of the paper is a
method to derive a value creation model from an
existing EA model. This value creation model will
not only provide managers better insights into the
existing value creation logic of the firm but will also
aid in new value creation, thereby bridging the gap
between strategy formulation and strategy
implementation.
The structure of the paper is as follows. In
Section 2 we present background information on
value creation and the ArchiMate® EA modeling
standard. In Section 3, 4 and 5 we create the
necessary base for developing the method to derive
the value creation model. The method itself is
presented in Section 6. The use of the method to
derive the value creation model is demonstrated with
the help of an example in Section 7. The potential
uses of the value creation model are discussed in
Section 8. Finally, limitations of the research and
potential areas of future research are given in
Section 9.
2 BACKGROUND
2.1 Value Creation
We firstly clarify what we mean by the term value
creation, since there is “-considerable disagreement
and confusion-” among researchers about value
creation. (Lepak, et al., 2007). O'Cass & Ngo (2011)
identified two main streams of research in the field
of value creation:
1. The first stream of research focuses on how
value is created by the customer at the point of
exchange and during use of the product/service,
therefore is exogenously determined.
2. The second stream of research focuses on
understanding how value is created by the firm at
the point of proposition.
Exchange value is the amount paid by the customer
to the firm for the product or service. The
transaction of product/service and the exchange
value (between the firm and the customer), occurs at
a point in time which is called the point of exchange
(Bowman, et al., 2000). Point of proposition is the
point in time at which a firm offers a product or
service to the market. This product or service has
some value in the eyes of the customer, and the firm
expects that the customer is willing to buy that
product or service. Our concept of value creation is
aligned to the second stream of research and we aim
to model the process of creating value by the firm.
We define value creation as the process or the
mechanism via which firms build, combine and
reconfigure resources (possessed or acquired) to
produce a product or service for the customer.
2.1.1 Elements of Value Creation
To model value creation, we have to answer three
questions a) what is being created b) what activities
are performed c) what resources are used.
Correspondingly, we propose a three-step value
creation framework for our research, shown in the
Figure 1.
Figure 1: Three step value creation framework.
Various resources and activities come together to
form a value creation process, whose output is a
product or a service, which the firms offers to the
customer, also called the value proposition. A value
creation process has the following three constituents.
Value – is associated with the outcome of the
value creation process. The outcome of the process
has value to the customer (e.g., Flight ticket,
Insurance Policy or Customer Support). It can be a
part of the value proposition by the firm or the value
proposition itself.
Resources – are the inputs for the value creation
process. They can be inert inputs or human inputs.
Human input is different from inert input as it is
capable of creating new inert inputs (Bowman, et al.,
2003). According to Osterwalder (2004), resources
can be physical, human, intellectual or financial.
Activities – are performed on resources which
incrementally change them to a product or service
having value for the customer. Firms perform
different kinds of activities for value creation
(Bowman & Ambrosini, 2003). Activities acquired
Which
resources
Which
activities
Whatis
created
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by a firm from its business network are called
capabilities.
2.2 ArchiMate
ArchiMate® is a widely popular EA modeling
language, promoted by The Open Group®. It is a
lightweight and scalable modeling language which
provides an integrated architectural approach for
describing and visualizing the different architectural
domains, their underlying relations and
dependencies in a firm. (The Open Group, 2012).
The ArchiMate metamodel consist of three types
of elements, viz. active, passive and behavioral
elements. They are related in the same way as parts
of a sentence, i.e., subject (active structure element),
object (passive structure element), and a verb
(behavior element) (The Open Group, 2012). The
active element performs an action (specified by the
behavior element) on the passive element. Besides
the above classification based on role, ArchiMate
elements are also divided according to their
specialization and scope into three layers, i.e.,
Business, Application, and Technology. The
elements in the technology layer provide the
necessary infrastructure to run applications, which in
turn are used by business processes that realize the
services and products offered to the customer.
ArchiMate® also has a set of relationships to show
how the different elements interact with one another.
Many of these relationships (composition,
aggregation, association, and specialization) have
been inherited from UML, while others, like trigger,
are from business process modeling languages.
Relationships in ArchiMate® can also been ranked
with respect to their “strength” (Buuren, et al.,
2004).
At this point we ought to answer an important
question, i.e., why do we choose ArchiMate, to
model value creation? Firstly, ArchiMate has a
layered structure spanning the whole enterprise.
Thus it provides the required granularity to our
approach to model value creation at a low
abstraction level. Secondly, the supporting
infrastructure for performing the processes, i.e.,
human, IT resources, etc. is incorporated in
ArchiMate®. Thirdly, the resource and activity
components of the value creation framework aligns
well with the concept of structural and behavioral
elements in ArchiMate® metamodel, respectively.
Lastly, ArchiMate® is adopted by the Open group
and is widely used by academics and practitioners in
the field of enterprise architecture (Iacob, et al.,
2012)
2.3 e-3 Value Model
It should be kept in mind that firms may acquire
resources and activities for creating value from
partners in their business network. e-3 value
(Gordijn & Akkermans, 2003) is a simple technique
to model value creation by firms from a network
perspective. A e-3 value model shows how firms
create value in a network by exchanging objects
having economic value among them. Originally
proposed to gauge the feasibility of new e-commerce
ideas and ventures, e-3 value models have been
successfully applied to many diverse industries, like
healthcare and banks (Kinderen, Gaaloul, & Proper,
2012). Key concepts used in an e-3 value model are
Actor, Value exchange and Value Object.
3 CLASSIFICATION OF
ARCHIMATE ELEMENTS
In this section we classify ArchiMate elements based
on value creation framework presented above and
our definition of value creation as resources,
activities and value.
Value is Business service, Application Service,
Infrastructure Service and Business Product. It is
through these concepts, that the firm exposes its
value offerings to the environment.
Resources are mostly the structural components
in ArchiMate i.e. Business Object, Data Object,
Application Component, Artifact, System Software,
Device, Network, Role, Business Collaboration,
Application Collaboration, Communication Path and
Node.
Activities are behavioral elements in ArchiMate,
i.e., Business Interaction, Application Function,
Business Function, Application Service,
Infrastructure Service, Infrastructure Function,
Application Interaction, Business Process, Business
Service.
The remaining ArchiMate elements do not fall
into any of categories above. Such elements are
Meaning, Contract, Application Interface, etc
.
4 RELATING VALUE TO
RESOURCE AND ACTIVITY
For relating a particular service/product to resources
and activities, which realize it, we have developed
an algorithm which traverses an ArchiMate model as
ModelingValueCreationwithEnterpriseArchitecture
345
a directed graph, while treating ArchiMate elements
as nodes and the relationships between them as
edges. Our starting point is a given EA model
(modeled in ArchiMate) and a certain service (or
product) for which one wants to understand the
value creation process. The selected service/product
to be analyzed is the starting element of the
algorithm. The result of applying the algorithm to an
ArchiMate model, is a smaller model, called, the
value model which specifies how value is created at
the process level, and in which the selected
service/product is the root node. To derive the value
model, the algorithm starts with a chosen
service/product and includes all architecture
elements on which this service/product is dependent.
It does this recursively. To define dependency, we
have used the meaning associated to each
relationship shown in Table 1.
Table 1: ArchiMate relationships and their weights.
Relationship Meaning Weight
Composition Is Composed of 7
Aggregation Is an aggregation of 6
Assignment Is performed by 5
Realization Is realized by 4
Use Uses 3
Access Accesses 2
Trigger Is triggered by 1
Flow Inflow 0
All entries in the column “Meaning” form the set E
of all unidirectional relationships expressing
dependency between two architecture elements. The
weights of the relationship have been motivated
from Buuren, Jonkers, Iacob, & Strating (2004).
Thus, we define the following sets:
N = {all ArchiMate elements which are classified
as either Value, Resources or Activity}.
E = {all unidirectional dependency relationships}.
The algorithm makes the following assumptions.
There exist a stack S, with unlimited storage.
Each element of the given EA model has 5 fields,
i.e., Name, Type, Parent, Relationship and State.
At initiation, the Parent and Relationship fields of
all elements in the EA model is NULL. Also, the
State field is equal to “not checked”.
Below we provide the pseudo-code specification of
the proposed traversing algorithm.
Step 1: Push the starting element into
S. Create S in the new model
Step 2: Till S is not empty.
Step 3: Pop one element from S. Call it
E
0.
If E
0
:state is not equal to “is
checked” proceed further, else go to
Step 2.
Step 4: For every X attached to E
0
through Y
Condition 1: IF (X: typeN) AND (YE)
THEN
a) {Create a model E
0
:parentX via Y
real
} where Y
real
is the lowest
weighted relationship between Y and
E
0
: relationship.
b) {Push X in S if state of X is not
equal to “is checked”}
c) {X: parent = NULL, X:
relationship=NULL}
Condition 2: IF (X: type
N) and (YE)
THEN
a) {Push X in S if state of X is not
equal to “is checked”}
b) IF {E
0
: parent = NULL} THEN {X:
parent = E
0
} ELSE {X : parent = E
0
:
parent}
c) IF {E
0
: relationship = NULL} THEN
{X: relationship = Y} ELSE {X :
relationship = Y
real
} where Y
real
is the lowest
d) weighted relationship between Y and
E
0
: relationship}
Condition 3: IF (YE) THEN
a) Do Nothing
Step 5: Mark E
0
“is checked”. Go to
step 2.
Stop
This algorithm has been successfully implemented
in EA modeling tool BiZZdesign Architect ® for
testing purposes.
5 VALUE CREATION AND
VALUE NETWORKS
“In today’s global economy, firms rarely create
value in isolation. Instead, firms co-operate to create
products and services” (Cavusoglu, et al., 2011).
They create value together with suppliers,
customers, and sometimes even with competitors.
The discussion of value creation by a firm would be
incomplete without the inclusion of its business
network because the success of a firm largely
depends on how well it is able to manage and exploit
its network to create greater value for the customer
and thus greater profit for itself. (Normann &
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346
Ramirez, 1993). A firm acquires resources,
capabilities from other firms in its network and
employs them in its value creation process
(Bowman, et al., 2000). Without the inclusion of
these acquired resources and capabilities, our value
creation model
would be incomplete. We call these
resources and capabilities, use-values. To model
use-values and include them in a given EA model of
a firm we follow a 4 step, Create, Select, Model and
Make (CSMM) procedure, described below.
1. Create an e-3 value model, showing the acquired
use-values and the network entities from which
they are acquired.
2. Select those use-values which are used in
realizing the product (or service) under analysis.
3. Model and add these acquired use-values as
services (business, application or infrastructure)
or product in the given EA model. Another way
of adding these use-values is by using the
collaboration element in ArchiMate i.e. business
collaborations (when two Roles are collaborating
to perform a specific function) or application
collaboration (when two Application
Components are collaborating to perform a
specific function).
4. Make a relationship between these new
additional elements (made in step 3) and an
existing element in the EA model which uses
them.
6 A METHOD TO MODEL
VALUE CREATION
In this section we present a step by step method for
creating the value creation model using a given EA
model. The concepts used in the method, are e
3
-
value model, value creation framework, and the
algorithm developed as a part of this research, all of
which have been discussed in the previous sections.
The only pre-requisite for applying this method is
that there exists an EA model of the firm.
Step 1. Choose the business product or service
from the given EA model for which analysis has to
be done. This product or service would be the root of
the value creation model.
Step 2. Create an e-3 value model, select, model
and add the use-values acquired from the network to
the EA model, by following the CSMM procedure
mentioned in section 5, sequentially. After Step 2
the EA model with which we stared, would have
some addition in the form of new external services,
products or collaborations.
Step 3. Run the algorithm with the product or
service chosen in Step 1 as the starting element. As a
result a smaller value
model is created. This step is
automated by using the EA modeling tool,
BiZZdesign Architect®.
Step 4. Select the key activities from the value
model and make two tables for each of these
activities, i.e. Internal Value table and External
Value table. In these value tables, those
resources/capabilities are enumerated which are
difficult to be modeled using ArchiMate concepts,
e.g. skills, funds, revenue, consultancy etc.
Resources/Capabilities which are possessed by the
firm are entered in the Internal Value Table and
those which are acquired from the network are
entered in the External Value Table. Each of these
resources/capabilities are then added to the value
model and related to an existing element.
The final model resulting after these 4 steps is
the value creation model for a given service/product.
It includes the network perspective of value creation
and also those resources which are difficult to model
using the standard ArchiMate concepts.
7 ILLUSTRATION OF THE
METHOD
We illustrate our method presented in Section 6 with
the help of an example case which has is an adaption
of the case used by Schuster & Motal, 2009.
Case Description: A Newspaper Publisher,
wants a sustained increase in its coverage by
retaining its current customers and also by
increasing its customer base. To accomplish this, the
Newspaper Publisher has started providing a
monthly gift to all its current readers and to every
new reader, so that they continue their subscription
with the Newspaper and do not start a subscription
from a different newspaper. Since the publisher does
not produce gift items (and neither does it want to do
that), it acquires them from a Gift Vendor. The gifts
are sent by the Gift Vendor to the Newspaper’s
office, from where they are sent to the customers.
The Vendor gets paid by the publisher for every gift
which is delivered to its warehouse. New customer
acquisition is an important function of the
Newspaper, which is performed by the Marketing
Department. This is done in two ways. 1) By Online
Marketing on the Internet and 2) By Cold Calling.
Customer Acquisition via cold calling is outsourced
to a Call Center. The call center transfers the details
of customers interested in a subscription to the
ModelingValueCreationwithEnterpriseArchitecture
347
Newspaper. For this, the call center is paid a fixed
amount per month by the newspaper. The value
network of the Newspaper Publisher (Figure 2)
consists of the Call Center, Gift Vendor, Reader
(current customers) and Test Reader (new
customers). The EA model
of the Newspaper
Publisher is given in Figure 4. A middle level
product manager of the Newspaper Publisher wants
to know how the value proposition, Advertising Gift,
is realized or created. We apply our method to the
above case.
Step 1. The business service (in the EA model of
the newspaper) which has to be analyzed is the
service “Provide Advt. Gift to customer”. This
service will be the root of the value creation model.
Step 2: In the second step of the method we have
to follow CSMM procedure as described in Section
5.
Figure 2: A simple e-3 value model of the example case.
Create: An e-3 value model has been created based
on the case description. It has five network actors
namely, Newspaper, Gift Vendor, Call Center,
Reader and New Reader. The use value which the
Newspaper acquires from the network are, Advt.
Gift from the Gift Vendor, New Customer Details
from the Call Center, Fees and Coverage from the
Readers.
Select: In this step we choose those use-values
which are
used for realizing the business service,
Provide Advt. Gift to Customer. For providing Advt.
gift to customer only one use value is required, i.e.
the Advt. Gift itself from the Gift Vendor.
Model: We model Advt. Gift as a business
product.
Make: We now connect business product Advt.
Gift and the business process Store Gift by the used-
by relationship as shown in Figure 3.
Step 3. In this step the algorithm is run on the EA
model of the newspaper with the business service,
Provide Advt. Gift to Customer as the starting
element. The resulting value model is shown in
Figure. 5 (left).
Step 4. From the above value model the key
activities of are to be filtered. Due to space
restriction only one entry for internal value table and
one entry for external value table is shown for the
business process Store Gift.
We now add each of these values to the value
model and relate them to the appropriate element.
Figure 3: Make a relationship.
The final model after mapping these values is shown
in Figure 5 (right). The final model is called the
value creation model for providing the advertising
gift to the customer.
Table 2: An entry for the Internal Value Table.
Store
Gift
Value Element Description
Comp-
uter Skills
Store
Manager
The store managers
should have the
computer skills to
enter the data in the
logistic software
Table 3: An entry for the External Value Table.
Stor
e
Gift
Value Element Description
Ware-
house
Space
Store Gift The newspaper
rents the warehouse
space to store the
gifts sent by the
gift vendor
8 APPLICATION OF THE VALUE
CREATION MODEL
In this section we discuss ways in which the value
creation model can be used in practice to support
analysts and decision-makers in firms.
8.1 Extract a Relevant Subset of a
Model
In its basic form, the method extracts a subset from a
complete EA model that is relevant from the
perspective of a certain type of value that is
delivered to the customer. This enables product or
process managers to focus on the elements in the
architecture needed to deliver a specific product or
service to the customer. The value creation model is
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348
Figure 4: The EA model of the Newspaper Publisher.
a good starting point to improve Business-IT
alignment, as it highlights how IT facilities are
involved in providing customer value.
8.2 Linking EA to Value Networks
In the second step of the method we suggested a way
to model values acquired from the network. These
values can be modeled as services, products or
collaborations. If the EA models of all the firms
participating in value network are known, then the
value creation model provides a way of linking the
EA models of the firms in a network, resulting in a
networked EA model. Previously, several
researchers Publisher have tried to integrate e-3
value and ArchiMate by attempting a mapping
between them. Janssen, Buuren, & Gordijn (2005)
concluded that there is much similarity between
these two modeling techniques. The first step of our
method uses an e-3 value model to model the
services acquired from the network and thus shows a
possible way of mapping these two approaches. Also
the value creation model can help in mapping the
value activity concept of e3 value model to an EA
model.
8.3 Analysis
The value creation model is a good starting point for
various types of qualitative and quantitative
(financial) analysis of an EA model. It has been
previously shown that ArchiMate can be used for
portfolio analysis, cost benefit analysis and also
business case modelling (Janssen, Buuren, &
Gordijn, 2005). The value creation model can
provide a basis for calculating the costs incurred for
realizing a product or service, and thus aid the
above-mentioned types of analysis. Since the value
creation model includes the use-values acquired
from the network (Step 2), as well as the resources
and activities which are difficult to model as
ArchiMate elements (Step 4), it is a more
comprehensive way of doing cost-benefit analysis. A
second type of analysis is traceability analysis. Our
method can be used to trace a value proposition to
the resources and activities that realize it, thereby
helping product or process managers to decide
whether changing or stopping a particular activity or
resources would affect a given value proposition.
Traceability is not only confined to a single firm, but
could span a complete network. From the example
of the Newspaper Publisher and the Vendor, the
value proposition of Advertising Gift can be traced
back to resources, such as the Shipping Component
application of the Gift Vendor. A third type of
analysis that we want to highlight is sensitivity
analysis, to determine how critical certain resources
or activities are to a given value proposition. For this
purpose, a number of metrics can be defined, such as
the weight and importance of elements in the
architecture. The result of the analysis is a sensitivity
factor, which indicates how much a product or
service will be affected if a certain resource or
activity is changed or removed. A detailed research
ModelingValueCreationwithEnterpriseArchitecture
349
Figure 5: The Value Model (Left) and the Value Creation Model (right).
paper, dedicated to the quantitative applications of
the value creation model is under preparation.
8.4 Composition of New Services
The value creation model may also aid process and
product managers in designing or composing new
services. The model is used to identify the resources
and activities that are used to realize an existing
service, and which may be reused or replicated to
compose similar services.
9 CONCLUSIONS
In this research paper we have shown a step-by-step
method to model value creation using ArchiMate.
We argue that our method and the value creation
model will help managers to better implement,
analyze, evaluate and reconfigure strategies. A
detailed evaluation of the method was conducted
through an online survey and personal interviews of
researchers and practitioners. The results of the
evaluation show that the method in general and the
value creation model in particular have important
practical and theoretical implications in real life
problem solving and decision making. Further
extension of the method and its application to
different cases are in progress. Below we enumerate
some of the limitations of our research.
Firstly, the method has not been tested on a real
case. Secondly, we have chosen not to use the
association relationship as an edge while creating
the value model. This might lead to some omissions
from the original ArchiMate model. Thirdly, in the
case of a large organization, having a complex EA,
the value model itself can be large and difficult to
analyze. Lastly, since some elements are excluded
from the original EA model, the algorithm can result
in some relationships between two elements which
are inconsistent with the ArchiMate meta-model.
This research opens some promising future areas
of research. The value creation model should be
used in real cases to ascertain its contribution. The
metrics proposed in this research, have to be further
formalized before they can be used in real cases.
More possible uses of the value creation model have
to be explored.
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