Why Business Model Definition?

Three emerging trends illustrate why business model definition is a necessary component for today's IT projects:

- The continuously evolving technology environment presents companies with opportunities to innovate the business

- The formal hierarchies in the enterprise that were once responsible for discrete components of the business model are breaking down

- High employee turnover makes it essential that companies institutionalize knowledge about their business environment

Technology Evolution Drives Continuous Business Innovation

In the past, much of the information captured in the business model had been informally maintained and updated by word-of-mouth and general understanding of the business. Since the pace of business innovation was relatively slow, it was easy to keep track of seemingly routine knowledge such as the customer base, product portfolio, and company vision, and it was assumed that every manager knew this crucial information by heart.

But in the face of one of the enduring legacies from the New Economy ”the recognition that technology advances can provide a basis for innovating the business ”this familiar paradigm must change. Today's companies have sped up their business planning to keep pace with trends like globalization, deregulation , and especially the torrent of IT breakthroughs that continue to flow out of laboratories and research and development (R&D) departments. To be prepared to capitalize upon the new opportunities offered by tomorrow's technology innovations, enterprises are moving from a paradigm where business priorities are re-evaluated after regular but long intervals, to one of continuous re-examination of the business model. Analyst META Group, in fact, predicts that "30% of CIOs will adopt a shorter planning cycle (no more than three months)," and eventually, "leading global 2000 organizations will [implement] a continuous, dynamic strategic planning process." ^[1] By codifying the loose-knit information that makes up the business model and providing a central location for storing business designs, business model definition helps companies cope with this perpetually shifting business environment.

Formal Hierarchies Are Breaking Down

The second trend that is driving companies to adopt business model definition is the breakdown of traditional hierarchies within the organization. In the conventional, pyramid-shaped organizational model, IT projects usually addressed only a narrow slice of the business. (The product development team, for example, might have sole responsibility for bringing new products to market and balancing the product portfolio.) This siloed approach meant that members of a particular project team were very familiar with their own area of responsibility, and rarely needed to look beyond the borders of their organizational unit to complete the project.

In many of today's organizations, however, rigid reporting structures have broken down, and IT teams are being asked to develop solutions for a cross-functional audience. In order for these teams to make design decisions to service this broad user base, they need to develop a more complete understanding of the business. At the same time, project teams are frequently staffed with members that come from across the business, including the business unit professionals for whom the project is intended, as well as subject-matter experts ranging from process engineers to enterprise architects to software developers. These diverse teams, regardless of their individual backgrounds, need an accessible, broad-based snapshot of the business around which they can discuss alternatives and make intelligent trade-offs.

High Employee Turnover

The final trend that is driving enterprises to embrace business model definition is the high turnover of employees , especially in the IT department. Before the development of structured business models, crucial knowledge about the business was maintained only in the heads of relevant managers. Since the business was relatively static, these managers could be counted on to educate their reports and make sure that individual decisions complemented overall strategy and objectives.

But in the IT world, turnover runs rampant; specialists with sought-after skill sets are recruited for other projects, consultants walk out the door after their engagement ends, and opportunities in a competitive job market lead employees to pursue new and greener pastures. Information that was once safe with long-time employees might be gone tomorrow. By formally capturing the business model and making it available to new hires or employees with new responsibilities, companies make sure that crucial decisions can be maintained even if the minds that first made them are long gone.