Goal-models meet the Five Forces: A Comprehensive Approach to Strategic Decision Making, the RCCL Case

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1 Goal-models meet the Five Forces: A Comprehensive Approach to Strategic Decision Making, the RCCL Case Elda Paja 1, Alejandro Mate 2, John Mylopoulos 1, and Carson Woo 3 1 University of Trento, Italy, elda.paja@unitn.it, WWW home page: 2 University of Alicante, Spain 3 University of British Columbia, Canada 1 Modeling and reasoning with i* We started the modeling and analysis of RCCL s case with i* [4], a prominent goal-oriented requirements modeling language. Modeling RCCL s business strategy in i*. In order to analyze the benefits of each alternative solution, we model RCCL s business strategy using i*, starting from the main business objectives: reduce costs, increase revenue, and enhance customer, see Fig. 1 providing an excerpt and simplified i* model of the RCCL case study 1. The model is the result of several iterations between modelers (us), and interactions with the business analyst. Multiple initiatives are implemented to achieve these objectives. First, the reduce costs objective is to be achieved by a combination of cost reductions in the supply chain, IT, and shore-excursion programs. Next, the company aims to increase revenue by redesigning ships, keeping up with technology that makes them more cost-efficient, and offering improved services (for which the customers pay more) in order to attract more customers. Finally, in order to enhance customer, RCCL wishes to provide better cruising vacation, know customer preferences in order to serve them better, and enhance their travel. Using this model as a baseline for reasoning, there are two ways to model the alternatives available. First, we can represent the three alternatives of investment as three mutually exclusive alternatives (via break relationships) in the goal model, since only one of them will be chosen. Second, we can create a separate model for each alternative ( as-is and to-be models), representing RCCL s objectives in case the represented alternative solution had been chosen. The former approach requires less effort, whereas the latter provides more clarity. Although in practice we went for the second approach, here, due to space constraints, we represent an excerpt model containing all three alternatives, with alternative one being selected as a possible solution for the what-if analysis. 1 Find the complete model at

2 2 Elda Paja et al. RCCL To reduce costs on supply chain To reduce costs on IT To reduce costs To redesign ships To keep up to date with technology Help To be competitive in the leisure cruise business Help To increase revenue To get more customers Help To offer new improved services Help To provide better cruising To enhance customer trade To know customers preferences D To enhance customer To enhance customer travel Actor D To maintain same budget Goal Softgoal D To maintain current system Domain assumption D System is sufficiently integrated To invest $8M decomposition dependency means-ends Keep efficient IT operations To integrate web-reservation system To make sharp budget increase To develop a single reservation system Full satisfaction Full denial Partial denial IT Dept. To create flexible infrastructure To have an automated and efficient HR system Fig. 1. RCCL business strategy for the alternative maintaining the same budget Picking the best strategy with i* s goal reasoning. Goal reasoning allows us to analyze if considering RCCL s strategic goals alone leads to the selection of one alternative over the others. We envisage three subtypes of analysis: 1. Qualitative: the results of the qualitative analysis for the alternative To maintain the same budget are shown in Fig. 1. Maintaining the same budget does not contribute directly to reducing costs since it does not help to reduce neither IT nor supply chain costs. But, since it involves the continuous use of legacy systems, it entails an increased maintenance cost which threatens to break the system, as denoted in the case study. Furthermore, the lack of new developments in this alternative does not help to offer improved services, nor does it contribute to attract more customers due to the lack of an integrated web reservation or an integrated HR system. As such, if we pick solution one ( To maintain the same budget is fully satisfied, while the other two alternatives are labeled with fully denied), the system is not sufficiently integrated (domain assumption System is sufficiently integrated is not true, hence fully denied label), and as a result the goal To maintain current system is fully denied. The results of qualitative analysis are calculated through label propagation following the rules in [2]. According to these results, we can discard this alternative as it fails to meet any of the strategic goals set by RCCL (fully denying reduce costs and enhancing customer, and partially denying increase revenue). As far as the other two solutions are concerned, qualitative analysis cannot differentiate between them (not shown in the figure, both yielding to partial satisfaction of RCCL s objectives increase revenue and enhance customer ), and thus, this reasoning cannot help us pick the best option among the two.

3 Strategic Decision-Making 3 2. Qualitative with variables: since qualitative reasoning helps us discard one alternative, but cannot help in differentiating between the other two, we consider this variation of the qualitative analysis. To this end, we introduce a set of variables that will help us gain a deeper understanding of the relationships between each alternative and RCCL s strategic goals. For each of these relationships, we assign a variable (a, b, c, etc.). These variables will establish comparisons between alternatives, such as a = b <= c, thus helping us to make estimations about the choice to be made. During the first iteration we link each alternative directly to the target goals. If a relationship is equal across alternatives, that relationship is removed from all of them, since it does not help discriminate the best option. Afterwards, if an alternative is clearly worse, such as the maintain the same budget, it is removed. If there is more than one alternative left, we move to the next level in the goal tree, specifying the relationships between the alternative strategies and the refinements of the higher level target goals. We repeat the process until we obtain a selection criteria. The results of this analysis can be seen in Fig. 2. Revenue Cost [+] Improved New Services More customers Keep up with technology Cost in IT $8M a+b?d Sharp budget Increase f+g+h?i Variable relationships: 1. a = g 2. b < h 3. d? I Criteria: (?d-?i) < f+(h-b) Fig. 2. Qualitative analysis with variables: $8M vs sharp budget increase See how sharp budget increase contributes to improved new services, whereas the alternative invest $8M does not. Furthermore, it benefits more RCCL to keep up with technology. The only condition for choosing the alternative invest $8M as opposed to sharp budget increase is that the difference between the IT cost of both solutions (actual budget cost+unexpected expenses+maintenance cost of the resulting system) outperforms the larger return of investment (ROI) of the sharp budget increase. At this point, a manager with the required information at hand could make a decision. However, in the RCCL case this information is not provided. 3. Quantitative: an alternative approach to qualitative analysis is the quantitative analysis, which introduces exact values to evaluate the degree of satisfaction of goals. The disadvantage of this approach is that it requires quantitative knowledge about the status of leaf goals and the relationships across goals in the business strategy. For quantitative analysis, we assume that goals are satisfied with a degree between -1 and 1, which will be cap-

4 4 Elda Paja et al. tured with the help of performance indicators attached to the goals. This makes quantitative analysis ideal for companies with scorecards and process indicators readily available. Since the RCCL case study only provides partial information about the benefits and costs of each alternative, we cannot run this kind of analysis over the RCCL model. To summarize, strategic goal reasoning shows that maintaining the same budget is worse than the other two alternatives, but it cannot differentiate between invest $8M or sharp budget increase. Furthermore, it ignores two fundamental aspects that influence decision making: (i) risks, and (ii) the business environment. First, risks are caused by factors (internal or external) that affect the outcome of the business objectives and alter the expected contribution of each alternative. Second, the business environment constitutes the industrial context (events, competitors, customers, etc.) in which the company operates. It comprises external risks and driving forces that affect the viability of the initiatives put in place by companies (RCCL in this case) and generates new needs that should be addressed if the company wishes to be successful. In order to discriminate between the remaining two alternatives, in our next iteration we introduce risk information in the form of SWOT factors. 2 BIM modeling and SWOT analysis The outcome of business initiatives is not always the one expected. There are risks that affect the likelihood of getting worse (or better) than expected results. We can represent these risks as SWOT factors. While goal reasoning restricts itself to the interactions between the alternatives and business objectives, SWOT analysis enables decision makers to take into account the existence of strengths, weaknesses, opportunities, and threats. The advantage of SWOT analysis is that it can aid in evaluating risks while having incomplete information. In order to perform SWOT analysis in a formal way and support the selection between alternatives in the presence of uncertainty and risks, we need to map it into the formal framework proposed in [3]. To this aim, we should first elaborate a mapping between their formal framework and our SWOT analysis as follows. The selection of alternatives with risks involved constitutes the set of decision points D = {D 1,...D n }, with each decision point having a number of potential options or alternatives from which to select D i = {O 1,..., O n }. In our case, we only have one decision point with three alternatives, D Investment = {N othing, $8M, SharpBudget}. A set of predicates C captures dependency constraints between them. In RCCL s case, there are no predicates since all the options belong to one decision. The set of model parameters ω enables to accurately estimate the risks and likely outcome of each alternative. This part is missing information from the RCCL case study. The set of optimization goals, partitioned into goals to be maximized G+ = {IncreaseRevenue, Enhance- CustomerExperience, ReduceCosts} and goals to be minimized (none in our case). Finally, v is a goal evaluation function that, in our case, is formed by

5 Strategic Decision-Making 5 the combination of all relationships that go from the goal g alt representing the alternative chosen in the model to the optimization goals. Using this formalization as a basis, we can identify several risks and mitigators that affect the outcome of each alternative, altering its expected result. Risks and mitigators can be modeled by means of SWOT factors. However, as i* does not provide the necessary expressivity for representing these elements, for this task we must make use of BIM [1] instead. Compared to traditional BIM modeling, we make extensive use of influence relationships from goals to SWOT factors and between SWOT factors themselves. This serves to represent that a certain goal (alternative) generates a risk that affects RCCL s business strategy. Furthermore, relationships between SWOT factors allow us to model factors that amplify or mitigate risks, in order to adequately capture the idiosyncrasy of RCCL s context. In Fig. 3 we can see an excerpt of the BIM model including risks and mitigators for the alternative invest $8M, see 2 for the complete model. Heightened geopolitical uncertainty Increased last minute bookings To be competitive in the leisure cruise business Weakening economy Legend: Goal Risk/Uncertainty Reduce costs Increase revenue Situation To reduce costs in IT To get more customers Enhance customer Employee system without integration To improve customer services [+] To integrate web reservation system To keep up to date with technology To have a single view of customer history Integration problems resulting in delays System cannot handle expected customer load To invest $8M on infrastructure To untangle 7 reservation systems To develop a single reservation system Go overbudget Strong R & D Team Fig. 3. SWOT-based risk analysis for the $8M alternative According to the relationships between the business strategy and the risks modeled, we can differentiate between two kinds of factors for our analysis. On the one hand, we have factors that affect the company as a whole independently of the alternative chosen. For example, the company is affected by heightened geopolitical uncertainties, which are increasing last minute bookings that are harder to manage and reduce the capability of the company to increase revenue. These factors are useful to determine if the company will achieve its objectives or needs to introduce additional measures. However, they do not interact with the selection of alternatives. 2

6 6 Elda Paja et al. On the other hand, we have factors that affect each specific alternative. The first risk generated by the invest $8M alternative is the risk of lacking an integrated employee system, which may dampen the increase in revenue and increase the maintenance costs due to the difficulties of managing a large HR base. Second, there could be problems integrating the web reservation system that have been unforeseen, thus affecting all the optimization goals of RCCL. Third, there is the risk that the developed system is not scalable enough to handle the expected customer volume, thus affecting customer. Finally, there is the risk of going over-budget. However, this last risk is mitigated by the factor strong RCCL s R&D team, making it less likely for RCCL to deviate from the initial planing. In comparison, the sharp budget increase alternative (omitted in Fig. 3 due to space constraints 3 ) introduces fewer but more prominent risks than the invest $8M. First, it is more likely to exceed the estimated budget before achieving its mark than a project with a smaller scope, which is easier to estimate. Furthermore, it is likely to overestimate the ROI generated by the alternative. Finally, there is an increase in the need of trained people to operate the new completely overhauled system. According to these risks, SWOT analysis shows that the alternative invest $8M is less likely to fail since the associated risks have less impact than in the case of sharp budget increase. Using these results we can already make an informed choice on what alternative to select. However, it is worth noting that SWOT analysis fails to capture information about how the business environment where the company is operating affects its strategy. Thus, in the next step, we complement this analysis taking into account also the Five Forces analysis. 2.1 Modeling and Reasoning with the Five Forces Every company operates in a certain business environment, which varies depending on the activity of the company. In this business environment there are a number of driving forces which ultimately determine the success of the company. A systematic approach for supporting decision making should take into account the existence of these drivers too, and analyze how the business strategy derived from each alternative contributes to achieving success with regard to each driving force (i.e., handle the threats stemming from each force). In order to implement the Five Forces analysis, first we create a representation of the Five Forces in a separate model. The reason behind this separate representation is to have a skeleton of the Five Forces model independent from the company model. This allows one to focus on building the company model, and link it to the Five Forces model. Similarly, here, after the creation of the Five Forces model, we specify the relationships between RCCL s business strategy and the Five Forces. This is important to capture how the different alternatives affect the goals that contribute towards the business drivers. 3 See for the complete model

7 Strategic Decision-Making 7 RCCL Strategy Influence rel. Force (Five Forces Model) New improved services (Part. Sat.) + To handle rivalry Customer (Conflict) + Get more customers (Part. Sat.) + To lower customers bp Get customers via web (N/A) + To lower suppliers bp Via travel agents (N/A) - To obtain differentiation To increase customers search and switching costs Less competitors To handle rivalry/ competition To increase the number of customers To lower customers bargaining power Availability of substitutes To be strategically strong To lower the economic importance of clients To lower suppliers bargaining power To lower the likelihood of new entrants To lower the likelihood of substitutes To lower the importance of the products to the firm Innovation in technology To lower search and switching costs Availability of alternative suppliers High exit costs High entry barriers Profitable industry Availability of entry barriers Fig. 4. Five Forces analysis for the invest $8M alternative In Fig. 4 we can see a representation of the Five Forces model for RCCL, which has been connected to the business strategy for the invest $8M alternative. As we can see, the Five Forces model contains several factors that shape the cruise line business environment. First, the business context has a clear lack of competitors, as few companies dispute most of the cruise line market. Second, there are a number of substitute products which increase the customers bargaining power as they will choose an alternative if the price is too high. Third, there is a large number of available suppliers, which helps driving supplier prices down. Fourth, the innovation, high entry barriers, and high profit margins are likely to drive the apparition of substitutes. Finally, fifth, the high exit costs and existing entry barriers also serve as a protection against the likelihood of new entrants in the business environment, which helps RCCL to be safe from new competitors within the cruise line industry. Note that in RCCL s case, there are in fact only three (out of the five) driving forces related to its strategy, namely customer bargaining power, supplier bargaining power, and competitive rivalry. From these three driving forces, only two of them are affected by the invest $8M alternative, as shown in Fig. 4). A similar situation is depicted by following the sharp budget increase alternative, although higher risks are present. Specifically, the overestimated ROI risk in this alternative may affect negatively the ability of the company to lower the bargaining power of customers. Additionally, the overestimated ROI may also affect the capability of the company to invest in enhancing customer, which may limit the differentiation from competition. However, the sharp budget increase alternative is likely to compensate for this effect by enabling RCCL to offer improved services, which will have a positive effect on differentiation. As we can see, the Five Forces model reinforces our previous conclusion. Since the invest $8M alternative provides similar benefits while presenting less risks in the current context, requesting a sharp budget increase may not be the best option. Furthermore, the Five Forces analysis makes clear that RCCL should pursue other options that improve its performance with regards to the driving

8 8 Elda Paja et al. forces, since the current alternatives partially ignore the Five Forces, which can harm RCCL s performance in the long-term. References 1. Jennifer Horkoff, Daniele Barone, Lei Jiang, Eric Yu, Daniel Amyot, Alex Borgida, and John Mylopoulos. Strategic business modeling: representation and reasoning. Software & Systems Modeling, 13(3): , Jennifer Horkoff and Eric Yu. Finding solutions in goal models: an interactive backward reasoning approach. In Proceedings of the 29th International Conference on Conceptual Modeling, volume 6412 of LNCS, pages 59 75, Emmanuel Letier, David Stefan, and Earl T Barr. Uncertainty, risk, and information value in software requirements and architecture. In Proceedings of the 36th International Conference on Software Engineering, pages ACM, Eric SK Yu. Towards modelling and reasoning support for early-phase requirements engineering. In Proceedings of the Third IEEE International Symposium on Requirements Engineering, pages IEEE, 1997.