Defining Business in a Digital Twin

Having a good understanding of how a business operates is increasingly critical for keeping pace with the rate of change in markets and technology. Without it, changes can be painful, costly, and risky.

A prerequisite for understanding business is having a definition that covers the breadth and depth of detail required to give an accurate picture of an organization, its activities, and the way they interact to transact business. Without this, the benefits of automation and IoT will be out of reach.

The main challenge is that you can’t see business. It is a concept with many components, only some of which are physical and thus visible. This has led to the development of definition tools and methods based on conceptual business attributes and ambiguous terminology.

Rather than a top-down end-to-end integrated picture of the business what the tools create is like a collection of jigsaw puzzle pieces that are difficult to join up. This makes definitions one-off and not sustainable - and it is difficult to know where to start.

Keeping it real

The Digital Twin model is a relatively recent development for defining business. It is a digital replica of the real-life attributes of a business and its activities. The basic principle behind this technology is having a direct relationship between the elements described in the model and the real-world artifact or activity being described. There are no conceptual elements since they can distort understanding.

The integrated top-down framework of the model enables the creation of a cohesive comprehensive definition starting at the top with the three basic capabilities that all businesses have in common:

  • satisfying demand,
  • creating products and/or services,
  • acquiring resources (supply).

These capabilities are enacted through transactions that transfer value from one party to another or from one form to another. For example, in a B2B Demand Transaction a customer orders a product, the value of which, when shipped to the customer is converted to debt which is sent to the customer as an invoice, for which the customer concludes the transfer of value with a payment.

The three basic capability transactions

The delivery of products and services and the subsequent transfer of payment can take many forms, but Demand Transactions always start by identifying the source of demand, be it a customer, client, patron, or guest, for the product or service, and the point at which payment is considered settled.

So too with the transactions used to acquire the resources needed to undertake business, Supply Transactions. Whether buying materials, leasing equipment, renting buildings or hiring staff, there are many forms of transaction.

Value Creation Transactions are the most diverse. The transfer of value is internal. They can range from converting material into products, packaging a service, maintaining equipment, and upskilling staff, to the creation and execution of marketing programs to trigger demand and the management of customer relationships. Recognition of the value created by these transactions will vary and may not be reported as such, for example, for staff hired and up-skilled to deliver a specific service, their improved asset value may show in their charge-out rate but will not be recognized in the accounts.

Usually, these transactions will be actioned independently, but sometimes they will be linked, such as when the subject of a Demand transaction triggers a Supply transaction for a product or service, or a Create transaction, such as building a house.

For defining a business from scratch start with the three basic capabilities, initially focusing on the Demand transactions.

Defining a Transaction

Because it replicates real-life the Digital Twin shows the definition of a transaction the way it works:

  • first, the flow of work through the stages of the transaction, from person to person or robot,
  • then, for each stage, the tasks that are undertaken by the person or robot.

The important issue for a transaction is that it is defined end-to-end, passing through departments from one workplace to the next, be it a desk, work centre, the cab of a truck, wherever in the world.

Defining a transaction’s workflow makes it possible to view the transaction end-to-end. Given that there is typically an average of five tasks per stage, viewing a transaction end-to-end through its tasks is impractical. Since they don’t offer an integrated two-tier approach, this is what causes non-Digital Twin tools to create jig-saw puzzle style definitions.

The workflow-level definition is adequate for aiding many business transformation projects, such as introducing a new enterprise software system.

However, since the model is designed to support change, the definition can be extended to encompass more complex engagements, such as automating the workflow. In this case a considerably greater level of detail is required, in particular the addition of how to handle possible exceptions in the flow, since with an automated system EVERY eventuality must be taken into account.

Defining business at the workflow level is simple and fast enough that it makes a good starting point. Following the flow of work through a transaction is as simple as saying, “…so what happens next”. It doesn’t have to be perfect since it is easy to update, but it enables you to get a good understanding of how a business works in a matter of days, from which you can build incrementally.

Subsidiary Transactions

When defining a transaction there will be points in the flow where another transaction is involved, for example an in-flight purchase in an airline journey, or the use of a logistics company for shipping product to customers. Subsidiary Transactions exist to support one or more Primary Transactions, with which they may have multiple touchpoints.

Transaction Variants

In many instances transactions will be similar in which case three options are available. Either copy a transaction and make changes, build the differences into a single definition, or share definitions. In the latter case, the variant operates like a subsidiary transaction, and connects into or out from the main transaction to address the different workflow components.

Actions that don’t transfer value

There are many activities in business that do not involve the transfer of value. They merely alter the state of a Resource - for example, a customer notifying a change of address, or moving a pallet of material that is blocking a passageway. There is always a cost involved with any action, the question is, “Is there any corresponding creation of value, and if so where is it recognized?”

In the examples cited, you may say, “There is a value to keeping a customer’s details current”. This is true, but unless crystalized as income or an increase in asset value the activity is a cost-only Action. As such it behooves the business to eliminate the need for Actions, for example, in the first case give customers the ability to maintain their own contact details.


The final structural element in the Digital Twin model is the physical components, the Resources that are employed in the Tasks to support a Transaction or Action. They take two forms:

  • Consumable resources are acquired or created and then extinguished once their value has been transferred to an Asset resource,
  • Assets are reusable resources in which consumable resources are invested to increase their value. They include equipment, buildings, staff, customers, suppliers, money and intangible things such as strategy, plans, designs, intellectual property.

When initially defining primary transactions, it is helpful to identify the TWO resources that define the transaction (its subject and its recipient). It not only helps scope the primary activities but it also cements critical terminology at the outset - for example, in the following Demand transactions:

  • A distributor will provide a Customer with a Product in a Sale transaction,
  • A library will provide a Patron with a Book in a Loan transaction,
  • A firm will provide a Client with an Auditor in an Audit transaction,
  • A hotel will provide a Guest with a Room in a Stay transaction.

Automating the business

When automating the workflow and tasks of a business there is nothing compared to a Digital Twin model for providing integrated systems - all activity and all data is synchronized in the model. This means real-time control, the ability to make decisions with full knowledge and understanding of the consequences of the decisions. The financial returns are truly enormous.