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Value Chain Modeling Is Essential for SOA Management

About 9 months ago I discussed the potential development of an OMG (Object Management Group) standard for modeling value chains: A Value Chain Modeling Standard?. Progress has been slow, but over the past year we have gained additional insights. OMG issued an RFI and received four responses: Cordys, Hewlett Packard, Value Chain Group and VUA Amsterdam. An operating level view of value chains would provide important business insights for a conventional enterprise, but such a view is essential to effective business design and management in a Service Oriented Architecture (SOA). A new draft RFP for "Value Delivery Modeling" has been prepared for discussion at the next OMG meeting in March.

Paul Harmon provides perspective on the evolution of the value chain and related concepts in Value Chains and Other Processes. The value chain models needed for SOA are not the executive-level models of Michael Porter, but are more operationally focused models of the activities involved in the delivery of customer value.

A value chain will represent a dependency network of activities needed to produce customer value for a line of business or similar products. The dependencies correspond to the flow of work products from activities where they are produced to activities where they are needed as inputs. The activities reflect the application of business capabilities at an operating level. Essentially the value chain is a use-case of business capabilities. 

An activity may be linked to a capability type that defines the resources, skills, facilities and intellectual capital needed to perform the activity as well as similar activities. In the actual operation of the value chain, a capability type may be filled by a particular organizational unit that possesses the needed capability, or there may be alternative organizational units that can perform the needed activity.

In a SOA, the capability type might be described as a service specification, referring to the activities or "services" that a particular organization, or "service unit" offers to perform. The difference between a capability and a service unit is that a service unit has a well-defined interface that enables it to be used in different business contexts, particularly, different lines of business.

Paul Harmon, in his book, Business Process Change: A Guide for Business Managers and BPM and Six Sigma Professionals, (page 71) describes the difficulty of deciding how many value chains an enterprise should have, in other words, what level of granularity and product differentiation should be reflected in the value chain model.  SOA provides an answer: the activities in the value chain should be those performed by service units. Different products can share a value chain as long as the activities don't require participation by different service units. Of course the specific actions performed by a service unit may vary significantly based on the product specifications.

Value chain models are essential to SOA because they define the service units that are engaged to produce customer value for each line of business. Conversely, they define the contribution a service unit makes to each line of business in which it participates. This provides the context for evaluation of service unit performance and the context for considering the merit of investing in service unit improvement. It also provides a means to configure existing capabilities to address a new market opportunity. I explored these ideas in more depth in my book, Building the Agile Enterprise with SOA, BPM and MBM.

Value chain models should incorporate the full cost of activities along with activity durations to support analysis of value delivery cost and timeliness. Value chains also can provide insights on the consequences of capability failures. Linkage to internal value chains for supporting services can provide insights on overhead costs and identification of non-essential business capabilities.

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About the Author(s)
  • Steve Simske is an HP Fellow and Director in the Printing and Content Delivery Lab in Hewlett-Packard Labs, and is the Director and Chief Technologist for the HP Labs Security Printing and Imaging program.
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