ECONTECHMOD. AN INTERNATIONAL QUARTERLY JOURNAL – 2015, Vol. 4, No. 1, 17–24 ECONTECHMOD. AN INTERNATIONAL QUARTERLY JOURNAL – 2015. Vol. 1. No. 1. 21–28

Life cycle business modelling

A. Chukhray1, I. Novakivskii2

1 Department of Marketing and Logistics, 2 Department of Management of Organizations, Lviv Polytechnic National University 79013, Lviv, BanderyReceived st.January 12, [email protected] 08.2015; accepted March, [email protected] 15.2015

Abstract. The article deals with the task of life cycle model of the enterprise, which should be selected business modelling. In the article the strategic individually for each enterprise. orientation of enterprises is examined from the point of According to the dominant and widespread today estimation view of its possibility to cost creation. A concept of system approach, functions of planning, problem consists in development of management organizing, regulation, motivation and control are the mechanism of the difficult mutually concerted basic, which are combined by the processes of multistage complex of tasks in industries of cost creation communication, decision-making and management. The for a consumer and cost of enterprise, as in turn laid out processes of setting goals for the future, tasks projects on the row of the recommended project measures. This defining and decision-making for their achievement in task was set forth in terms of the dynamic programming. the conditions of uncertainty – belong to the initial stage The brought analysis over of this task allowed forming of any entity activity, which depending on the level of the comfortable and transparent algorithm of her detail can be seen as a series of interrelated activities decision, and her erection in an eventual result to the aimed at making the predictions, plans and programs. Its task of the linear programming. main purpose is to analyze and identify the main trends Key words: enterprise developments strategy, and tendencies of enterprise developments, predicting of consumer value, enterprise value, dynamic program- conditions changing and factors of strategic ming, algorithm, task of the linear programming. development, creation of scientific base for the development of long-term economic policies and INTRODUCTION making efficient solutions for its implementation. Strategic orientation of enterprises in recent years is If to treat the business model as a management taken into consideration from the point of view of the concept to create value for customers and society as well enterprise ability to create value. Such business theorists as enhancement of enterprise value based on existing and practitioners as Osterwalder A., Yves P. (2002), key competencies and chosen strategic set in order to Jansen W.,Steenbakkers W., Jäegers H.(2007), Chesboro achieve the goals, than in order to ensure sustainable G. (2008), Debalak D. (2009), Dzhonson M., Kristensen (balanced) enterprise development – there should be the K., Kagermann Kh. (2009), Casadesus-Masanell R., balance between two strategically important concepts Ricart J.E. (2010), Jabloński M (2011) [1-13] are (lines) of the enterprise development [14]: looking for specific factors and models that distinguish • creating value for customers, those companies, which consistently achieve success • creation of enterprise value. and those which managed to get only a short-term These concepts should be cleverly intertwined, competitive advantage. To a large extent it depends on parallel initiated and implemented in real development the well designed and effectively implemented business projects. In particular, in order to create value for 18 A. CHUKHRAY, I. NOVAKIVSKII A. CHUKHRAY, I. NOVAKIVSKII consumers, a variety of the following administrative eproductive process, closing the cycle of money tasks should be coordinated: circulation in case of a successful sale of goods in the • quality of goods / services, markets. • the price of goods / services, • customers service. MATERIALS AND METHODS In turn, for the company value creation there is needs In terms of “portfolio” analysis, strategic planning to coordinate the range of design tasks, namely [15]: is seen as a building block of enterprise “portfolio”, • orientation for maximum efficiency, enabling interchange ability of tasks to performing, • orientation for maximum effectiveness, depending on the characteristics and the chosen • creation a positive image and a socially strategies. Such modular approach allows to increase the responsible company. application flexibility of the developed strategies. Thus, the set management tasks can be reduced to Therefore, the following tasks should be considered solving of two “portfolios” of the company business model. throughout the life cycle (further LC), namely phases, The purpose of each “portfolio” is to achieve internal and which are passed by enterprise from development, external competitive advantages, which can be realized in implementation and initial growth, maturity and decline. the presence of different directions of activity organization. According to the Chief Information Officer Council Both portfolios, in turn, can be united in certain “strategic (2001) Enterprise Life Cycle (ELC) in enterprise portfolio” of the business model. With such a “strategic architecture is the dynamic, iterative process of portfolio” it is possible to identify the investment priorities changing the enterprise over time by incorporating new and the basis for allocation of resources, reaching more business processes, new technology, and new efficiency of their use. capabilities, as well as maintenance, disposition and Clearly, these approaches should be mutually disposal of existing elements of the enterprise [16]., the coordinated and alternatively initiated according to the life cycle consists of the following five distinct stages possibility and feasibility of their implementation. A (Figure 1). separate problem which arises before the developers of  Pre-start-up – during this period, the company business model “portfolio” of the company – it is develops and implements a new idea. In this case, sales synergy achievement between the various activities. equal zero, and the volume of investment increases with Thus, a reasonable “strategic set” of the enterprise approaching the final stage. can be formed by using the concept of management  Start-up (Implementation) – sales are growing problems consistent solution as a tool to ensure the slowly. success of the enterprise for the sustainable development  Growth – sales quantity, consequently, the and profits maximizing. Only in case of their develop- profit level. ment and implementation the company can fulfils its  Maturity – sales growth slows down.

First entrepreneurial phase Size Possible nature entrepreneurial Usually NPD strategies Sales phase Regeneration

Mid-life crisis Usually time of increasing organizational rigidity Decline

An era of complacency and rigidity

Enterprise begins to take a Profit “past orientation”

Pre start-up Start-up Growth Maturity Decline (Recession)

Fig. 1. The Enterprise Life cycle LIFE CYCLE BUSINESS MODELLING 19 LIFE CYCLE BUSINESS MODELLING

Systems Life Cycle

Enterprise Systems Migration Engineering and Program Management Human EA Modernization Resources Process

CPIC Process Operations & Maintenance

Sequrity Management

Fig. 2. The Enterprise Lifecycle as a concept in Enterprise Architecture

Decline (Recession) – reducing of sales and Sometimes, it is advisable for enterprise managers reducing of income.The enterprise life cycle is a concept to build all models to form an overall picture in terms of in Enterprise Architecture (EA). The Enterprise different perspectives. Each approach has its “for” and Architecture process is closely related to other “against”, but in any case it is important that, after processes, such as enterprise engineering and program reaching the analytical completeness and accuracy in management cycle, more commonly known as the describing the situation, we may set the foundation for Systems Development Life Cycle. This concept aids in solving more complex problem – the formation and the implementation of an Enterprise Architecture, and management of “portfolio” in order to get the best the Capital Planning and Investment Control (CPIC) results from the use of enterprise resources. process that selects, controls, and evaluates investments ”Portfolio” of tasks concerning creating of value for [17]. Overlying these processes are human capital management and information security management. customers can be represented as a series of constant – When these processes work together effectively, the parallel their performance. In this regard, there is need enterprise can effectively manage information techno- for effective organizing and planning of tasks lifecycle logy as a strategic resource and business process performing for timely decisions management that will enabler. When these processes are properly reduce the impact of unavoidable disturbances. At the synchronized, systems migrate efficiently from legacy same time, it should be taken into consideration that technology environments through evolutionary and during the transition from one task to another – the incremental developments, and the Agency is able to relative value of alternative tasks changes. Therefore, demonstrate its return on investment (ROI) [17]. The one of the main problems, which occur within strategic figure 2 above illustrates the interaction of the dynamic management, is to predict the nature and stages of life and interactive cycles as they would occur over time. cycle. Since the yield at different stages of the life cycle is The balance between different tasks depends on the different, it is necessary to take into account the need to decisions, taken by enterprise management on more or maintain the total profitability. Coordinating rules and less of their relationship (mutual support). Of course, life cycles time during the execution of the tasks from there may be different variants: balanced portfolio, in “portfolio”, the company is able to increase its competitiveness by complementarities, synergy, which which “life cycles” are balanced in terms of passing provides additional benefits which cannot be achieved in phases and in terms of volumes. But, the most often we a situation, when “strategic portfolio” is a simple sum of meet with unbalanced portfolios where the volumes are individual available areas development plans. Synergy is different, and there is a non-compliance of time / cost formed by mutual support and complementarities of indicators etc. In such circumstances, it is difficult to different tasks. take a decision. 20 A. CHUKHRAY, I. NOVAKIVSKII A. CHUKHRAY, I. NOVAKIVSKII

Financial strategic management – all are looking for the best in streams, terms of some criterion that is leading to extreme (the k UAH Task Task Task largest or the smallest) value of the objective function – i j k some numerical characteristics of the process. Multi-steps

of strategic management in this sense are understood as multi-steps program structure which is divided into a series of sequential stages, steps that correspond, usually, to different levels of management. In terms of mathematical optimization, dynamic programming means simplification of finding of overall optimal solution by Time finding solutions to subproblems obtained by problem partitioning into sequential subproblems ranked by level. t 1 If subtasks can be nested recursively inside larger t 2 problems, so that dynamic programming techniques can be applied, there is a relationship between the solution Fig. 3. The model of task realization lifecycles split by of the general problem, and a solution of subproblems. strategic management In the optimization methods this ratio is expressed by Unlike most matrix models, which are used for the Bellman equation [20, 21]. “portfolio” analysis and planning, it is advisable to use a The problem of strategic portfolio management of method of dynamic programming in the analysis of design tasks can be presented to maximize the objective “strategic portfolio”. function:

RESULTS AND DISCUSSION VW     n nnVtj j,, t i ij,, t i  Wtj j t i ij t i  П=   max Dynamic programming – this is a mathematical ii   i1jj  111qq 1    apparatus, with the help of which multi steps optimal    control problem are solved [18, 19]. In this VW     programming for process control amongn  the nnsetVt ofj all j ,, t i ij,, t i  Wtj j t i ij t i  П=  max , (1) ii   feasible solutions – all are looking for i1the bestjj  1in terms11 qq 1    of certain criteria, namely, such a solution that provides   extreme (the highest or the lowest) value of the objective V  function – some numerical characteristics of the process. where: t j – current time of strategic project Multi – steps system is understood as multi – stages implementation of j’s customer value creating project, process structure or distribution of management for a   searching value; W – current time of strategic project number of successive stages that correspond usually to t j different periods of time. implementation of j’s company value creating project, V  Their solution will enable to predict measures searching value; Vt, t– value of the function concerning overcome of critical situations caused by the jj i need to make a decision at some stage of the life cycle, profit that describes value creation for customers; and establish the most effective strategy of the company W  Wtjj, t i– value of the function profit that describes for implementation and the achievement of its overall  

objectives. Thus, in general, dynamic programming the creation of enterprise value; ij, t i – value of makes it possible not only to see the future of created efficiency function in the combination of different new product, but also to set a goal and develop an projects time realization of creating value for customers; appropriate plan of action [18].  The dynamic programming uses approach of ij, t i – function value of efficiency in the simplification of difficult problem solving search by combination of different projects time realization of splitting it into simpler subproblems, usually by recursion. creating value of enterprise; ti – current time of While some problems cannot be solved in this way, strategic project implementation; n – number of time decisions which comprise multiple points in time indeed periods that are allocated for the project realization; q – are often divided recursively into subproblems. Bellman called this as the principle of optimality. Similarly, in discount rate, w/or loosing assumption stakes as a economic sciences about planning problem, which can be constant for whole the period; k – number of projects are broken down into sub-problems recursively, we can say considered in each direction (k=3) at branches customer that it will have optimal substructure. or company value creating; ,  –weighting factors, In the dynamic programming for the controlled shows comparable weight of branch value for company; process among the set of all acceptable methods for satisfy the conditions  1, 0   ,  1 . LIFE CYCLE BUSINESS MODELLING 21 LIFE CYCLE BUSINESS MODELLING

V j t j ,0,W j t j ,0

Development Deployment Growth Maturity Descent Stage (I) Stage Stage Stage Stage (II) (III) (IV) (V)

Revenue

Profit Δt

t

 j,0  j,1  j,2  j,3  j,4  j,5 t t t t t t

Fig. 4. Discrete model of project objectives life cycle

Additional constraints for this problem of dynamic programming can be the following limitations:  at the ensuring of a certain level of income during a specified period of the strategic portfolio: VW   const 12   Vtjj , t i Wt jj ,, t i П i ii , (2)  at the duration of the project realization: n  N . (3) V  Function Vtjj ,0 is shown in Fig. 4. V  Function Vtjj , t i harmonized to:

 jV,0   0, tt t,  ij   j,0  j ,0   j,0  V  j,0  V  jV,1   a b tti t j,, t tji tt t j   j,1  j ,1   jV,1    jV,1    j,2   V a b tti t j,, t tji tt t j   V  j,2  j ,2   jV,2    jV,2    jV,3   Vtjj , t i  a b ti t t j ,, t tj t i t t j   j,3  j ,3  jV,3    jV,3    jV,4    a b  tt   t,, t  t  tt  t   i j ji j   j,4   j,4   jV,4    jV,4    jV,5    a b tti t j,, t tji tt t j    jV,5    0, ttij t.

It is clear that the effect will be reduce while few projects aimed making profit will be started at the same time.

To account this properly, it is proposed to use functions ij, t i and  ij, t i , which acquire different meanings: 1) the absence of overlapping project tasks, 2) combination of two tasks; 3) combination of three tasks. For different  V  project tasks will be use indices jjj,, , then function formula ij, t i for Vtjj , t i will be shown: 22 A. CHUKHRAY, I. NOVAKIVSKII A. CHUKHRAY, I. NOVAKIVSKII

  1.0, Vtji  0 Vt i 0 Vt i 0 ,   j   j      t 0.8,  Vt  0 Vt  0 Vt  0  Vt  0 Vt  0 , iji,  ji   jji   jji   i   i      0.6, Vtji  0 Vt i 0 Vt i 0 ,   j   j  where using the restriction: jjj. W  Similarly, we can introduce the function Wtjj , t i .  jW,0   0, tt t,  ij  j,0  j ,0   j,0  W  j,0  W  jW,1    tti t j,, t tji tt t j   j,1  j ,1   jW,1    jW,1    j,2   W  tti t j,, t tji tt t j   W  j,2  j ,2   jW,2    jW,2    jW,3   Wtjj , t i  ti t t j ,, t tj t i t t j   j,3  j ,3  jW,3    jW,3    jW,4    tt   t,, t t  tt  t   i j ji j    j,4    j,4   jW,4    jW,4    jW,5    tti t j,, t tji tt t j    jW,5   0, ttij t.  W  Function representing formula ij, t i for Wtjj , t i shows below:   1.0, Wtji  0 Wt i 0 Wt i 0 ,   j   j      t 0.8,  Wt  0 Wt  0 Wt  0  Wt  0 Wt  0 , iji,  ji   jji   jji   i   i       0.6, Wtji  0 Wt i 0 Wt i 0 .   j   j  where using the restriction: jjj.

V j t,0,W j t,0

t,

V  t2 V  t3

Fig. 5. Combining project tasks in one chosen direction LIFE CYCLE BUSINESS MODELLING 23 LIFE CYCLE BUSINESS MODELLING

Thus, the problem dynamic programming can be CONCLUSIONS represented as the date of the start of the project tasks V  W  The analysis result of the presented algorithm of t j , t j in the following form: “strategic portfolio” is the following:  objective function: • developments of overall strategic recommen- dations on spectrum management of development VW     n nnVtj j,, t i ij,, t i  Wtj jobjectives, t i ij t i  П=   max ii   i1jj  111qq 1  • the problem solving of the type and extent of  “portfolio” diversification, VW     • providing of synergistic interaction of project n nnVtj j,, t i ij,, t i  Wtj j t i ij t i  П=  max ; (4) activities, ii   i1jj  111qq 1    • possibility of system prompt review of strategic    objectives and general strategies of the company.  limitations: Thus, this is the unique way according to which all VW   const 12   elements are combined, creating value for both the Vtjj , t i Wt jj ,, t i П i ii , (5) consumer and the enterprise, and is a competitive nN . (6) advantage core which is achieved through implemen- The list of specified limits may be increased for tation of the business model of the enterprise activity. clarifying and making more strict requirements if needed REFERENCES for the implementation of the proposed measures. To solve dynamic problem of dynamic 1. Jabloński M. 2011. Geometria strategii a procesy programming it is proposed to use the following kreacji wartości przedsiębiorstwa [Strategy algorithm. geometry. The process of creation consumerism I. In this case, at the first stage during problems value] / Przeglądorganizacji. – No 4. – 36-41 (in solving occurs at the level of two strategic concepts Poland). allocation of enterprise development: 2. Jansen W., Steenbakkers W. and Jäegers H. • creation of value for customers, is described by the 2007. New Business Models for the Knowledge V  Economy. – GowerPublishing. equation Vtjj, t i,   3. Keidel R.W. 2010. The Geometry of Strategy. • creation of value of enterprise, described by the Concepts for Strategie Management, Routledge, W  Taylor&FrancisGroup, NewYorkp. 67-69. equation Wtjj , t i . 4. Ostervald A. 2013. Postrojenije biznes-modelej: Each of these lines can be developed independently, nastolnaja kniga stratega inovatora [Business Model only with regard to the total capacity of the enterprise. Creating: handbook for strategist and innovator] / II. At the second stage it is enough to select the AlpinaPablisher – 288 (in Russian). sequence of the set tasks. For this k!=6 possible variants 5. Osterwalder A. and Yves P. 2002. An e-Business are consistently calculated of project activities Model Ontology for Modeling e-Business”. 15th consecutive implementation in each component of the Bled Electronic Commerce Conference (17-19) . portfolio in a certain direction. As a result, this one is 6. Potocan V. 2002. Business systems: sustainable selected – which provides maximization of the expected development an danticipatory system / Potocan V. // result. Management. – Vol. 7, No. 1. – 67-79. III. At the third stage, the problem is reduced to a 7. Prahalat K. K. 2005. Maibutne konkurencii. linear programming problem with a search of unknown Tvorenia unikalnoji cinnosti spilno z klijentamy V  W  [The Future of competition. Creating unique value quantities t , t , which in their content define the j j with customer ] / Vydavnyctvo Oleksija Kapusty – execution combination of design tasks (Figure 4). 258. (in Ukrainian) . Being aware of the management role and place of 8. Sooliatte A.U. Chto takoje biznes-model? such strategic portfolio of enterprise development as part [Business model, what is it?] / Available online at: of the overall business planning of the enterprise, it is http://mkozloff.files.wordpress.com/(in Russian). necessary to choose correctly the methods for its 9. Chukhray N. 2012. Competition as a strategy of implementation, taking into account the chosen enterprise functioning in the ecosystem of prediction horizon, the existing knowledge base, innovations. ECONTECHMOD Lublin, Lviv, restrictions criteria, existing and probable factors of Rzeszów. – 2012. – Vol. 1, No. 3. 9-16. influencing etc. 10. 10. Chukhrai A. I. 2012. Ontologiya poniatia “bizness model” pidpryjemstva [The statement 24 A. CHUKHRAY, I. NOVAKIVSKII A. CHUKHRAY, I. NOVAKIVSKII

ontology of company “business model”] / Visnyk 17. Casadesus-Masanell R. and Ricart J.E. 2010. Nacionalnogo universytetu “Lvivska politechnica” From Strategy to Business Models / Long Range “Logistyka”, № 749.– 94-103. (in Ukrainian). Planning., vol. 43, issues 2-3, s. 204. 11. Hunter M. 2012. On Some of the Misconceptions 18. ChanKim W. and Mauborgne R. 2005. Strategia about Entrepreneurship // Available online at: http: błękitnego oceanu.[Blue ocean strategy] – //www.orbus.be/info/important_news_augustus_ext Warswawa: MT Biznes, –336. (in Poland). ra_022_2012.htm (in English). 19. Chesboro G. 2008. Otkrytyje biznes-modeli. IP- 12. Chief Information Officer Council. 2001. A menedzhment [Open business models. IP- Practical Guide to Federal Enterprise Architecture. management]. (in Russian). 13. Cormen T. H., Leiserson C. E. and Rivest R. L. 20. Debalak D. 2009. Biznes-modeli: princypy and Stein C. 2001. Introduction to Algorithms (2nd sozdanija procvetajushchej organizacyy [Business ed.) / MIT Press& McGraw-Hill, 327-328. models: the principals of creation growing 14. Eddy S. R. 2004. What is dynamic programming? / organization] / Grebenshchykovarticles. – 256. (in Nature Biotechnology, 22, 909–910. Russian). 15. Bertele U. and Brioshi F. 1972. Nonserial dynamic 21. Dzhonson M., Kristensen K. and Kagermann programming. / N.Y.: Academic Press, – 235. Kh. 2009. Izobretaja novuju biznes-model [Cre- 16. Nocedal, J. and Wright, S. J. 2006. Numerical ation of new business model] / Strategii № 1–2, – p. Optimization, /Springer, 9. 14-24. (in Russian).