Preface
This book is about business models. What is a business model? A business model is a model of a business—a simple representation of the complex reality of a particular organization. Business models are useful for understanding how a business is organized, who interacts with whom, what goals and strategies are being pursued, what work the business performs, and how it performs that work. We create business models to realize these understandings. We also create business models to communicate these understanding to others. Business models are often graphical, making the communication easier and more natural.
This book is also about business modeling—about how to create a business model that represents the reality of a business. We explain how to create business models that are useful for solving problems, for helping organizations transform, for convincing customers to purchase, and for communicating aspects of a business to others.
Business modeling is sometimes confused with software modeling. Software engineers create models of the systems they build—models of software components and the ways those components interact and communicate over time. Software models are different from business models because they are models of different things. A software model is a model of software—applications and databases and other information technology artifacts. A business model is a model of a business, a model of what people do and how they interact. Different techniques are used for software modeling and business modeling. Different modeling elements are appropriate. Different tools are needed.
Yet the confusion between business modeling and software modeling is understandable. Business modeling and software modeling are related activities; both are modeling. Both aspire to capture the essence of a messy complex thing—either a business or an application—in a simple rigorous model. Furthermore, we have found that many of the best business modelers come from software engineering, computer science, or other related disciplines. People who create software models sometimes cross over to business modeling. There is a technical rigor involved in business modeling that is comfortable to people with software engineering and other similar backgrounds.
Business modeling has become more popular in recent years. With the popularity has come a wide variance in the quality and usefulness of the models that are created. In our day-to-day work with business modeling, we see a lot of models. Some are good, but many are bad. Most business models simply do not achieve their intended results.
The problem is that just like any other specialization, business modeling is a complex skill. Many people expect that they can create a good business model the first time they try, the first day a business modeling application is installed on their computer. It does not work that way, any more than someone can learn to manage a profit center in one day or learn to create a marketing program for a new product in one day. Creating a good business model is a complex skill, and like any complex skill, it requires time, knowledge, practice, and patience to learn.
One of the reasons business modeling is complex is that there are four distinct business modeling disciplines. Business process models—the most well-understood of the four disciplines—capture how a business performs its work, the step-by-step activities that are performed. Business motivation models capture the goals and strategies of a business—what a business is attempting to do and how those attempts fit into its changing environment. Business organization models capture who performs the work in an organization and who they interact with, both inside the organization and outside. And business rule models capture the constraints on a business—the external constraints from regulations and laws, and the internal constraints from policies, rules, and other guidance.
Surprisingly few business modeling practitioners today know all four disciplines. Some people create business process models and ignore the relationship of processes to strategies and other motivations. Other people create motivation models but ignore how those strategies are implemented in processes and policies.
This book is intended as a guide for practical business modeling. We explain what business modeling is, what the business modeling disciplines are, how to create good business models, and how to apply models once they are built.
Good business models often include more than one of the four modeling disciplines. A business process is useful, but it is more useful when accompanied by details about the goals of the business, the organizations that participate in the process, and the rules and policies that guide the process. To be more effective, business modelers need to understand all four disciplines. They need to create models that include multiple disciplines. This book describes all four disciplines.
Standards are important in business modeling. A model created by one group of people should be understandable by others. Others should be able to update the model when business circumstances change. Models created in one modeling tool should be readable and changeable by other tools. All this happens only when standards are used. The models in this book use standards where the relevant standards exist. We also describe the state of the standardization efforts for each of the four disciplines.
Our outline for the book is focused from beginning to end on practicality. We begin with why you would want to create a business model. Next we describe the four modeling disciplines. Then we focus on practical concerns that cross all four disciplines: best practices for creating models and working with subject matter experts. We end with a discussion of the way that business models can be analyzed, simulated, and deployed.
Chapters 1 and 2 focus on the “why” and “what” of business modeling. Chapter 1 focuses on the first challenge business modelers face: explaining to others why business modeling is important and justifying it. In this chapter we explain what a business model is, the state of business modeling, and the various uses for business modeling. In Chapter 2 we explain some modeling fundamentals and introduce the four business modeling disciplines. We also cover the state of standards and tools.
Chapters 3, 4, 5, and 6 explain the four disciplines. Each chapter covers one discipline, detailing what the discipline is, how it is used, what standards are applicable, and how it relates to the other models in the other disciplines. These chapters cover the most important elements of these models, the ones we find most useful in day-to-day business modeling. We provide many examples of models within each discipline.
Then we shift to the creation of models and modeling pragmatics. Chapters 7, 8, and 9 provide advice on how to create good models and the best methods to use. Chapter 7 describes some best practices and common mistakes to avoid. Chapters 8 and 9 explain model-based workshops, the most practical method of creating models with subject matter experts. Chapter 8 describes what a model-based workshop is and some common variations on the model-based workshop theme. Chapter 9 explains how to run a model-based workshop.
We conclude the book by examining the results of a model once it is built, describing how to analyze a model, how to simulate one, and how to deploy one. Chapter 10 explains how to analyze a model and covers several different methods of analysis. Chapter 11 describes model simulations. Chapter 12 covers the deployment of business models to help run a business.
Throughout the book we present real case studies based on our own business experiences. These case studies illustrate how we have used business modeling to achieve business goals. In addition to the case studies, this book has many example models that we created to illustrate the various model elements. Many of these examples concern Mykonos Dining Corporation, a Chicago-based company that owns and runs over 100 high-end restaurants throughout the United States. Mykonos is of course fictional; no such company exists. But it is convenient both for us and for you to have a single running illustration, so we don’t have to explain the background behind an automotive example in one chapter, an insurance example in another chapter, and so on. Since all of us have some experience with good restaurants, we hope you find the Mykonos examples natural and intuitive. And if, like many people, you have fantasized about opening your own restaurant, we encourage you to indulge that fantasy as you learn about business modeling.