About the Service-Based Business
A business process can be understood as a network of services. A service-based business is one where management is focused on the provision and consumption of services.
This has a number of important implications.
- The value-added by a business or business unit has to do with the way a set of input services is transformed into a set of output services, in response to a set of customer demands.
- The input services will often be regarded as a commodity, to be procured from the most convenient and cost-effective source. In some cases, there may be some advantage in making a stable commitment to a particular service provider, and building a long-term relationship. In other cases, there will be greater advantage in maintaining multiple sources of supply, and switching flexibly between different service providers according to the prevailing service charges and service levels.
- Alternatively the input services may be regarded as a customized relationship, where the negotiated service is a formal expression of the commercial agreement.
- The service is managed across an interface, with a defined service level agreement. The service specification (interface) specifies the service and its quality (WHAT), but does not define the implementation (HOW) or the context (WHY). The service consumer knows WHY but does not need to know HOW. Conversely, the service provider knows HOW but may not know WHY.
- Services typically manage their own resources, own their own assets, and hide as much complexity as possible. By providing services, rather than direct access to key resources and other assets, a business may be better able to protect confidentiality and privacy, and to preserve intellectual property rights and trade information.
- Services are provided on-demand - and if necessary, redesigned and reconfigured. The form and content of the services are dynamically aligned, both individually and as a whole, to the changing demands of the consumers and the environment.
- A business can be regarded as a platform of services. This has important implications for the (variable) geometry of the single firm, as well as the interoperability of multiple firms.
Service-Based Thinking Helps Business Change
Public Interfaces
Each organization unit performs defined services
Contracts and service level agreements (SLAs) based on clear division of responsibilities
Stepwise/Evolutionary Change
Changes can be made in one organization unit at a time, without affecting other units
Business concepts can be tested quickly and cheaply ("paper and string" mechanisms may work well enough for initial low transaction volumes)
Proven business concepts can then be supported by robust software solutions.
However ...
Some changes (requiring simultaneous changes to many autonomous units) may be hard to orchestrate - especially if they cut across the architecture.
Therefore ...
Important to start with a good architectural structure in the first place.
Each organization unit performs defined services
Contracts and service level agreements (SLAs) based on clear division of responsibilities
Stepwise/Evolutionary Change
Changes can be made in one organization unit at a time, without affecting other units
Business concepts can be tested quickly and cheaply ("paper and string" mechanisms may work well enough for initial low transaction volumes)
Proven business concepts can then be supported by robust software solutions.
However ...
Some changes (requiring simultaneous changes to many autonomous units) may be hard to orchestrate - especially if they cut across the architecture.
Therefore ...
Important to start with a good architectural structure in the first place.
Four Agendas
Different stakeholders may have different objectives for different situations. Here are four possibilities.
1. Constructing a Business From Autonomous Pieces
Typical goals
* Rapid low-risk entry into new markets
* Short-term profits
* Longer-term flexibility, survival and growth
Typical concerns
* Defining and maintaining the business kernel
* Finding and negotiating third-party components and services
* Balancing stability (trust) with dynamic response (freedom)
2. Developing Autonomous Business Platforms and Services
Typical goals
* Creating and marketing an autonomous business component to provide business services
Typical concerns
* Defining and maintaining stable yet flexible service interfaces and protocols
* Aligning internal capabilities with external demand
* Evolving the service to maintain and improve market penetration
3. Restructuring ("unbundling") the Business Into Autonomous Chunks
Typical goals
* Improving organizational flexibility and performance
* Accommodation of mergers and acqusitions
* Satisfying industry regulation
Typical concerns
* Creating and exposing internal interfaces
* Overcoming fragmentation - maintaining business integrity
* Customer service and brand management
4. Regulation
Typical goals
* Maintaining a viable and equitable business ecosystem.
Typical concerns
* Complexity and flexibility - regulating the present, not the past
1. Constructing a Business From Autonomous Pieces
Typical goals
* Rapid low-risk entry into new markets
* Short-term profits
* Longer-term flexibility, survival and growth
Typical concerns
* Defining and maintaining the business kernel
* Finding and negotiating third-party components and services
* Balancing stability (trust) with dynamic response (freedom)
2. Developing Autonomous Business Platforms and Services
Typical goals
* Creating and marketing an autonomous business component to provide business services
Typical concerns
* Defining and maintaining stable yet flexible service interfaces and protocols
* Aligning internal capabilities with external demand
* Evolving the service to maintain and improve market penetration
3. Restructuring ("unbundling") the Business Into Autonomous Chunks
Typical goals
* Improving organizational flexibility and performance
* Accommodation of mergers and acqusitions
* Satisfying industry regulation
Typical concerns
* Creating and exposing internal interfaces
* Overcoming fragmentation - maintaining business integrity
* Customer service and brand management
4. Regulation
Typical goals
* Maintaining a viable and equitable business ecosystem.
Typical concerns
* Complexity and flexibility - regulating the present, not the past
Historical Background
In my book on the Component-Based Business (2001), I wrote about the fundamental principles of decomposing business into independent chunks. I also devoted a great deal of space to the (sociotechnical) relationships between the chunks, and to the emergent properties of the whole ecosystem that is composed of these chunks.
In the past few years, there has been some huge shifts both in the technology itself, and in the way people are thinking about the technology. People are starting to become much more comfortable in thinking about service-orientation, and the technology is becoming more credible. My colleagues and I have started to talk less about the Component-Based Business and more about the Service-Based Business, but I see this as a shift in emphasis rather than a fundamental shift in perspective.
Elsewhere, some people are starting to take much more interest in the potential business impact of web services and SOA. As one indicator of this, we can see people starting to talk seriously about the component-based business as well as the service-based business. For example, IBM has been promoting a method called Component Business Modeling (CBM), which serves as a front-end to its Service-Oriented Modeling Approach (SOMA). However, based on the materials I have seen, I don't think that IBM's CBM represents the full power of the component-based business approach.
Meanwhile, business writers like John Hagel and John Seely-Brown are promoting an approach to business management that corresponds pretty nicely to the technological agenda of Service-Oriented Architecture and Service Engineering.
In my view, the main challenges of the component-based or service-based business include those of governance. A component-based approach must have a clear strategy for managing complexity, not just denying or suppressing complexity, and is probably going to draw ideas from complex systems engineering (systems, not software). This calls, among other things, for new kinds of modelling and new approaches to architecture.
In the past few years, there has been some huge shifts both in the technology itself, and in the way people are thinking about the technology. People are starting to become much more comfortable in thinking about service-orientation, and the technology is becoming more credible. My colleagues and I have started to talk less about the Component-Based Business and more about the Service-Based Business, but I see this as a shift in emphasis rather than a fundamental shift in perspective.
Elsewhere, some people are starting to take much more interest in the potential business impact of web services and SOA. As one indicator of this, we can see people starting to talk seriously about the component-based business as well as the service-based business. For example, IBM has been promoting a method called Component Business Modeling (CBM), which serves as a front-end to its Service-Oriented Modeling Approach (SOMA). However, based on the materials I have seen, I don't think that IBM's CBM represents the full power of the component-based business approach.
Meanwhile, business writers like John Hagel and John Seely-Brown are promoting an approach to business management that corresponds pretty nicely to the technological agenda of Service-Oriented Architecture and Service Engineering.
In my view, the main challenges of the component-based or service-based business include those of governance. A component-based approach must have a clear strategy for managing complexity, not just denying or suppressing complexity, and is probably going to draw ideas from complex systems engineering (systems, not software). This calls, among other things, for new kinds of modelling and new approaches to architecture.
Booklist
The Component-Based Business: Plug and Play (Practitioner Series)
Published in 2001. Not completely up-to-date with the latest business and technology ideas, but contained some of the fundamental principles we are still working towards.
Amazon Price: $99.00 (as of 10/07/2008)
The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization
Amazon Price: $18.25 (as of 10/07/2008)
References and useful material
- John Hagel's website
- I can strongly recommend subscribing to his blog as well.
- Towards the Service-Based Business
- David Sprott and I wrote this in September 2003. (For CBDI subscribers only, I'm afraid.)
- The Loosely Coupled Enterprise: The Secret to Speed and Flexibility
- ComputerWorld article by Melissa Cook, October 2005.
Future Plans
There are two reasons why it might be a good time for me to produce an updated edition of my book.
- This topic is now getting much hotter, and I think people may be more ready to accept some of my more radical suggestions.
- I am now in a position to update some of the material, reference more recent technological opportunities and threats, and introduce a lot of practical business examples.
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