Monday, February 28, 2011

Lean or Agile Enterprises and Architecture

A Lean Enterprise is very different from an Agile Enterprise as witnessed by the following definitions.

  • Leanness is an organization's ability to create its products cost efficiently and still meets its customers' requirements.
  • Agility is an organization's ability to respond effectively (quickly and successfully) to unexpected challenges and opportunities.
An example of a "lean" professional football team would be one where the coach decides to specialize in one play, say the off tackle play.  With this decision made, the coach could then hire best, toughest, and largest interior linemen in the league, with the biggest, fastest, and toughest full back.  He could then hire walk-ons for the rest of the team, minimizing the salary costs.  He then will practice the off tackle play until everyone knows the play so that they could run it in the dark or blindfolded.  With the best players in the league (for that play) executing it perfectly every time, "three to four yards and a cloud of dust", the team will be unstoppable--for a time.  However, when another team stops them, they have a major problem; they don't have another play to execute and no personnel to execute it with.  So their financially rationale lean strategy will lead directly to the "losing streak" and the "going out of business curve". 

While this example may seem far fetched, I have seen a fair number of economic organization's that have adopted exactly this strategy, in the form of continuous improvement using lean principles. These companies do many right things, but they focus so much on increasing cost efficiencies (and their margins) they forget what will keep them in business over the long haul. 

For example, in the 1960s, General Motors decided to standardize their engines among all their lines of vehicles.  This meant a greatly simplified engine assembly and supply chain processes; that is, a much leaner system using the principle of group technology.  One engine that they decided on was the 350 cid engine.  To go a step further in their "lean initiative", they built a new plant to assemble these engines.  This assembly line of this plant was 1/2 mile long and as fully automated as possible for that time.  So, from the finance engineering lean perspective it should be much more cost efficient than having several lines all producing the 350 in several variations.  The plant and assembly line were truly impressive; even economic textbooks of the time touted it as the ideal of what cost efficiency should be.  However, there were significant start up problems and just as the plant worked these out, new EPA regulations and the first gasoline crisis hit.  The automation of the assembly line was so tightly coupled (one workstation feeding directly into another) that changes proved to be nearly infeasible--tight coupling is a way to increase cost efficiency across the interface of two workstations.  So GM spent a great deal of money to optimize (make lean) a process and an automated assembly line that within a few years could only produce obsolete products.  They designed out most of the plant's agility.  PS--GM learned enough that when they built their Saturn Plant, they built it for agility.

However, it's not only manufacturing that falls prey to lean financial engineering.  In the 1990s, SAP and other software suppliers sold many Enterprise Resource Planning (ERP) systems.  These ERP systems have the same lean characteristics as the GM engine assembly plant.  That is, they used a monolithic IT architecture to minimize and optimize the interfaces among the business functions the system performed.  This reduced the number of processes that the system could support to nearly a single process.  Since many organizations order the functions of their processes to attempt to optimize their complete set of business processes, these ERP systems had a variety of parametric and coding tools and processes to tailor the system.  I saw examples of ERP systems that were so highly tailored, that the tailoring of the system cost more than the original system.  This expensive tailoring is reasonable as long as the business/political and technology environment remains constant--and that is a heroic assumption in this age.  The more tightly coupled a system is, the more difficult it is the change the process the system supports and the more difficult it is to insert new technology.  So most IT software suppliers have abandoned monolithic architecture for Service Oriented Architecture (SOA).  (There are several posts on SOA and more will be coming).  The key architectural concept in SOA is that the functions are loosely, rather than tightly coupled.  IT systems suppliers, like SAP, have and are migrating the systems to this much more agile architecture to avoid both of these issues.

As private, for profit, organizations move through time from producing knowledge-based value to capacity value (that is, their products and services loose their differentiation from others) cost efficiency becomes much more important than product/service effectiveness (see my posts "Knowledge Value" and "Capacity Value").  Economic organizations can have one of three reactions to attempt to survive this change.  First, they can invest in research, development, education and training, second, they can attempt to continuously improve their cost efficiency, or third, they can purchase new knowledge.  Pharmaceutical companies do the first and the third because it is very difficult for them to improve the cost efficiency of their manufacturing processes.  And, if they let quality slip to increase the cost efficiency, they run directly into a very bad time from various agencies of the US Federal government.

However, most industries opt for the second, continuous improvement with respect to cost efficiency, especially for companies producing only capacity value.  They attempt to make their processes continuously more "cost efficient".  Frequently, that means becoming sloppy about fit, finish, and the tolerances of components.  In other words, they sacrifice quality to short-term ROI.  In the process they lose their customer-base, as the "Big Three", now "The Detroit Three" found out the hard way.

Notice that of the three reactions that allow an organization to survive and thrive, only the first will increase the organization's future agility, but this reaction and strategy reduces short-term ROI.  From the perspective of Wall St. traders (people that purchase a stock for less than 5 years, not investors like Mr Buffet), this is very bad.  The reason I chose 5 years is that it seems take a new (transformational or market disruptive) product or service to market.  Further, the Gartner Group's Hype-cycle tends to fall into the 5 to 10 year range from the roll out of the first implementation until it reaches the "slope of enlightenment" and the "plateau of productivity" where it is producing the maximum value.  Therefore, it would seem sensible that, if the objective for investment is to maximize long-term gains and have a continuing ROI that 5 years on an investment would be reasonable.  But Wall St. traders don't see it that way because it would greatly reduce their income.  They could no longer simply attempt to maximize the number of trades (the amount of virtual paper they push) and therefore maximize their bonuses; which is nothing more than "Political Value" some of the mediated type, but much of the exploitative type.

As suggested, the problem of creating an agile enterprise is part cultural.  It is also, part architectural (the functional design used), and part the metrics used to measure success.  All organizations attempt to be both effective in meeting their goals, mission, and vision while increasing their cost efficiency.  Architecturally, it is much easier and simpler to construct a system using monolithic architecture than a modular based architecture, like SOA.  This is the reason the SAP and others used monolithic architecture.  Because it's simpler it's more cost efficient; at least initially (but, as discussed, much higher Total Cost of Ownership, TCO).  

Measuring both how lean and how agile an organization is, is difficult, at best; and, unfortunately, it is much easier to measure the cost efficiency of processes and tooling than it is to measure the process effectiveness.  The reason is that the accounting processes have a long history of measuring costs and ROI.  These processes have much more difficulty dealing with "cost avoidance"--which makes cost/benefit analysis hard.  But, they are ineffective as measuring the increase in Production Capability (see my post Infrastructure: A Mission of Government and Govenance for the definition and desciption), especially when the investment is simply to increase an organization's agility, to successfully respond to the unexpected.  So most organization's focus on creating lean processes and managers get bonuses based on increasing cost efficiency.  However, as discussed, if an organization attempts to optimize its leanness, be as cost efficient as possible, it looses its agility.  And that is the rub.

There is one way to get both.  Simplifying the processes can make the organization both leaner and more agile under certain conditions; but, that requires good Enterprise and System Architecture processes, which cost money, which most organizations, currently, do not spend.  Instead, the accounting systems and finance engineering processes ensure that organizations either go out of business, long-term, or spend orders of magnitude more funding and time fixing and repairing poorly architected systems or constructing new systems, than they would by really implementing these processes.

Wednesday, February 23, 2011

Infrastructure: A Mission of Government and Organizational Control

As defined in my post "The Purpose of Government", a government and other organization has a mission to create the environment or infrastructure in which it can achieve its mission.  The process of creation must ensure that the organization a) meets all applicable external and internal policies and standards, b) must ensure that the processes running within the organization are optimally effective in enabling the organization to achieve its vision and mission, while at the same time, c) ensuring that both the processes and infrastructure are cost efficient.  Of the three missions (security, standards, and infrastructure) of governments and the organizational control function of other organizations, the infrastructure is the most complex to create and manage. 

There are two reasons for this complexity.  The first is deciding what mission, as derived from the vision statement will produce the most value for the organization (be it government or private).  Does clean water and air provide more value than better medicines?  Is it better to provide an economic safety net for all individuals so that everyone can live in dignity, invest in education to enable more future citizens or employees to share in the knowledge-based economy, or invest in research and development (invention and innovation) to create more knowledge value creating jobs?  There are hundreds of these types of questions with which all public and private organization leaders must deal.  And this is where Arrow's Paradox (Impossibility Theorem) comes in.  Simply put, Arrow's Paradox is the "paper-stone-scissors" problem or the "I prefer A to B, B to C, and C to A" problem.  In these situations, there is no optimal solution.  Unfortunately, these situations occur frequently, especially when dealing with "the public good".  For example, politicians have constituents that feel the environment is the highest priority, others that feels that jobs are the highest priority and rank the health care second, and others that feel public health care is the highest priority and rank environment second; other constituents may put research and development first, and maintaining and updating the physical and communications infrastructure first.  They have to decide on the Mission (the public good) that is the highest priority--and the lobbyists are more than willing to help, for a price.  Clearly, more objective metrics for "the public good" are required--though I suspect these will still be more religious quests than scientific understandings of what is meant by "the public good".

The second deals with the measuring the value an organization has obtained by and investment for achieving its vision and mission from its infrastructure, and from achieving its mission most economically by standardizing its infrastructure.  This is value from standardization is especially true of governments and I discuss it in my post "Standards: A Mission of Government and Governance".  However, even with infrastructure standards in place, knowing where and how to invest in creating and maintaining the infrastructure in a more optimal manner is difficult at best, with metrics; without metrics it becomes rationale Ouija-boarding.

Therefore, measurement and metrics are the key to better aligning the infrastructure investments with the organization's Mission and Vision--can you imagine the US Congress or a major firm's CEO getting real feedback on their investment decisions; this is a major cultural change.

Cultural change aside, it is difficult to identify good metrics for the infrastructure and tooling of any organization because linking tooling to the processes is difficult and linking the processes through the organization's strategies to its Mission and Vision are difficult.  There are two naccent concepts that should help, Production Capability and Value on Investment.  Production Capability (after Dr. Stephen Covey in Seven Habit of highly Effective People) measures the potential of an investment to produce more effectively and/or cost efficently the same product or service.  For example, upgrading an organization upgrades its network to increase its speed and reliability to support some long-term strategic objective for increasing the responsiveness, what is the ROI?  The answer is zero.  So the Wall St. "Traders" (gamblers) who look to increase the company's ROI to make more money NOW will disallow that type of investment and punish the management by cutting their bonuses if they have the audacity to actually make that investment.  Likewise, professional politicians (those that consider filling a political position their profession) are punished at the polls for making similar decisions (e.g., roads and bridges instead of social programs). 

In this age, the reason real leader are punished for making good investments, investments that will lead (long-term) to growing or maintaining the organization's ability to create value is that the accountants and financial engineers that run most economic organzations have no metrics for Production Capability.  For example, what would the current financial engineers say to purchasing an extruding machine that will last more than 100 years?  Generally, NO; purchase a less expensive one.  Yet, as shown on the Science Channel, the Discovery Channel, and the History Channel, there are machine tools for extruding a wide variety of products that have been in service for at least one hundred years.  Now, they look like good investments.

There are at least two reasons Production Capability has never been woven into the fabric of accounting.  First, metrics of Production Capability may be non-monetary, which finance engineers and Wall Streeters cannot accept.  This is one reason that in performing a cost/benefit analysis, the benefits are almost always discounted and the risks are magnified--which leads to analysis paralysis.  Yet, there are many non-financial metrics that may be useful in deciding on future investments.  Second, because the metrics are non-financial, economic organizations have no interest in tracking them, which means there is no good way to manage them, (you can't manage what you can't measure).  Politicians have no incentive to create and manage to metrics, since it would limit their ability to spin-doctor the performance of their (right or left leaning) political perpectives.  The consequences are bridges to no where in one district, while important the bridges in another fall into the river.

What is needed are Value on Investment(VOI) metrics.  These are process metrics that link infrastructure investments to the process that they enable and support; processes, which in turn measurably link to the organization's strategies, mission and vision.  This VOI metrics should consider at least these four characteristics:
  • Do the process measurably support the organization's strategies, mission, and vision?
  • Do the processes runs more effectively because of the infrastructure investment? (Effectively means that there is a measurable process (and value) effect)
  • Are the effective processes measurably more cost efficient?  This is about the only benefit that most organizations measure--and its really third in importance, or maybe fourth).
  • and does the infrastructure investment provide process agility? (Agility is the organization's ability to successfully respond to unexpected challenges and opportunities--which are possible but difficult to measure)?
Also see my posts Security: A Mission of Government and Governance, Standards: A Mission of Government and Governance and The Purpose of Government.

Saturday, February 19, 2011

Standards: A Mission of Government and Governance

As defined in my post "The Purpose of Government", creating and managing laws, regulations, policies, standards, and process (business) rules is a mission of governments and governance.  Governance through policies, standards, and process rules (which includes laws and regulations for governments) is the key method for reducing inter-/intra-organizational process friction.

As I state in my book, Organizational Economics: The Formation of Wealth (forthcoming), a process is "a set of activities, ordered to achieve some goal."  While process friction comes from many sources, the concept boils down to any phenomena that inhibits the communications of information or the transfer of goods and/services between the activities of a process.

Using an analog or tautology with friction as defined in the military, friction is anything that inhibits optimal execution of the mission and processes.  Consequently, friction can become very expensive.  For example, what would happen to the appliance industries if every power company in the US could choose whether or not to run AC or DC, 24 volts, 110 volts, 220 volts, or 440 volts, and 40 cycle, 50 cycle, 60 cycle, 100 cycle, or 200 cycle current, using any electrical socket of their choosing?  Further, what would happen if every household had to negotiate all of these items plus the number of plugs they were allowed?  This is exactly the type of situation the early stone age people faced.

The result was they started to rely on a strong leader or "wise" (religious) leader to set the policies and standards for living.  As I discuss in my book, allowing a single individual or a small group to set "The Law" enables them to gain Exploitative Political Value for themselves.  Initially, "the people" don't object because the value they gain is significant also.  They are willing to pay the tax because their standard of living has greatly increased. (as I discussed in my post "The Rationale for Taxes").  However, once this individual has gained the advantage, the power to tax, and the exploitative political value, it is easy for that individual to become a despot.

However, the point is that the use of laws, regulations, policies, standards, and rules in conjunction with knowledge and leadership create a multiplicative effect on the amount of value created by organizations.  The government should be able to tax a portion of this to maintain, enforce, and mediate/adjudicate these standards--but not too much, or the organization devolves into some form of tyranny, where those governing the policies and standard acquire great exploitative political value at the expense of the entire organization.

Also see my posts "Security: A Mission of Government and Governance" and "Infrastructure: A Mission of Government and Governance."

Sunday, February 13, 2011

Security: A Mission of Government and Governance

As defined in my post "The Purpose of Government", security for the organization, is the first mission of any government that wants to continue to exist.  There are two categories of "security" internal and external.  The "Founding Fathers" of the United States recognized this.  In the preamble to the US Constitution they stated that part of the US Government was to " domestic tranquility, provide for the common defence...".  This illustrates that security is one of three key missions of government and that there are two categories of security, external, "the common defense" and internal, "domestic tranquility".  Any organization, even a single family must have both, though the forms of each range widely from highly effective to completely dysfunctional.  As you move toward the dysfunctional end of this range, the internal process friction increases and the external "defense" decreases.  As the process friction grows, the value of the organization (family) decreases until it comes apart.  This is true for organizations of any size.  Therefore, all organizations, including the most dictatorial, require some external and internal security.  There are other two posts are Standards: a Mission of Government, and Infrastructure: A Mission of Government that will discuss the other two missions of a government and governance.  Also see The Purpose of Government.

Saturday, February 12, 2011

The Rationale for Taxes

As I describe and discuss in my book, Organizational Economics: The Formation of Wealth, there is a good rationale for taxes.  As I describe in the book and discuss in the post entitled "Political Value", any organization can generate mediated political value, in terms of real dollar savings.  Actually, dollars, Euros, or any other currency are artifacts and work products of mediated political value.  And as I describe in my book and post entitled "The Purpose of Government", there are three purposes for a government or for a non-government organization, governance.  These purposes are: security, standards, and infrastructure (You will find posts on each of these). 

In brief, good governments provide external and internal security to their citizens so that the individuals do not have to spend much of their time and accrued value defending what little they have.  Many movies illustrate what happens when this is not so, as do all dictators (dictators provide internal security at the expense of living--I define living as at the nexus of existence and chaos.  Existence is merely surviving in a highly structured setting, while chaos is surviving in a lawless region, as depicted in the "wild west" movies.  Security benefits everyone, as the anarchists tend to forget, and enables them to create value (form wealth) in a reasonable way.  However, the citizens must pay for the collective security.  Paying for this security is reason number 1 for taxing a portion of the increase in value that the citizens accrue.

Reason number 2 is that good governments and governance decide on policies and standards, which, as I discussed in my post entitled "The purpose of Laws, Regulation, Policies and Standards", is to reduce inter-/intra-organizational process friction.  Process friction is very expensive.  As discussed above, simply having a standard currency greatly reduces the cost of transactions (selling and buying products and services).  Many of these standards save lives.  For example, if everyone could choose which side of the road to drive on, or when to stop or not at stop signs, driving would turn into an existing and deadly demolition derby.  The consequence is that civil and highly technological organizations and societies live and create wealth based on laws, regulations, policies, and standards.  While these can be perverted by unscrupulous individuals, like the greedy individuals, organizations, industries, religions, and dictators attempting to create "unlevel playing fields" (turning mediated political value into exploitative political value), still mediated value provides the opportunity and possibility for all citizens to create value and wealth--that is, standards are a value multiplier.  They don't create value themselves, but they do multiple the value of the products and services produced.  In fact, the manufacturing industry has used "group technologies" to build products based exactly on this type of standardization.  For example, these firms only allow a certain maximum number of fastener types in a product, even if the fastener is stronger, longer, etc., and costs more than "exactly the right" fastener.  The reason is that standardization greatly reduces support costs and therefore Total Cost of Operation (TCO).   Consequently, some portion of this wealth must be taxed to ensure that useful laws, regulations, policies and standards are enacted, enforced, mediated and/or adjudicated, and audited.

Reason number 3 for taxes is that all organizations require an infrastructure that is accessible to all members of the organization.  Again, having good roads, bridges, reliable electrical power, safe drinking water, good educational services, and even phone, cable, and Internet services all reduce the process friction for the processes that create value.  Again, they must be paid for.  If they private and unregulated products and services, they become monopolies with all of exploitative political costs associated.  Therefore, they should be public, paid for by taxing a portion of the value created by having this infrastructure available.

Now comes the hard.  All of these security, standards, and infrastructure services of government can easily be paid for by their value multiplicative effects through the reduction in process friction.  The question is how to distribute the rest of the increase in value they create.  Until the 1930s in the US, the answer was that it went to the people that "directly" created value or the owners of the private concerns (i.e., the Wall St. investment banks).  However, under FDR and his "New Deal", an additional large percentage of the value created by governance was put into a "safety net" for those out of work in the hope of restarting the economic engine and relieving suffering.  LBJ went very much further with his "Great Society" entitlements.  These have drained funding from security, standards, and infrastructure to the point that, in the US, all of these are tottering.  The politicians have forgotten the linkage between value creation of governing and the amount of value that these can create.  Additionally, many, many special interests fight to have their "fair share of the pie" increased. 

The consequence is a faltering economy.  President Obama should be applauded for attempting to focus government on its core business, security, standards, and the infrastructure.

Friday, February 11, 2011

The Risk Management Process

A Risk is "an Unknown"; it has not been determined.  It is not an Issue (or a Problem).  That is, a risk has at least two attributes that differ from an issue or problem:
  1. A risk may occur or may not occur; an issue has occurred.
  2. If a risk occurs, it will be in the future; an issue has occurred, which means it's here and now.
This implies that a risk has a probability of occurrence may be accepted, that is, and the person need do nothing but watch the probability.  If the risk increases in its probability of occurrence, then the person may want to do something.  Therefore, the person can change the design to avoid the risk, or the person may transfer the risk to someone who understands the unknown (converting it into a known), or the person may research or investigate the risk thereby mitigating it.  Consequently, when a risk is identified and assessed, it may be:
  • Accepted--The person does nothing but watch for changes in the probability of occurrence and impact on effort if it occurs. 
  • Avoided--The person changes the direction of the effort to avoid the unknown.
  • Transferred--The person hires a person knowledgeable in the field of the risk
  • Mitigated--The person plans and execute a research effort to turn the unknown (risk) into a known.
In creating, developing, or implementing a new product or service a risk is an unknown in the design to meet the customer's requirements. The process for managing risks during development has the following activities.

1. Identify--Knowing what you don't know is always THE key problem.  It's hard know know what you don't know.  That is why risk identification is so important.  Therefore, everyone on the team from the production worker and administrative assistant to the most senior Systems Engineer must be able to add candidate risks.
2. Assess--A Systems Engineer must assess all risks in terms of the probability of occurrence and the impact if it occurs.  The probabilities can range from highly improbable to highly probable and the impact can range from minimal to catastrophic.  The systems engineer will use a team of Subject Matter Experts (SMEs) to help determine both the probability and impact.
3. Disposition-- Once the Systems Engineer has assessed the risk, he or she will disposition it in one of the four ways described above.
  • Accept--attach it to a risk "watch list".
  • Avoid--change the design to reduce the risk.
  • Transfer--get insurance against the risk and/or hire an expert in what you don't know.
  • Mitigate--investigate and research the risk to turn the unknown into a known.
4. Watch--create a risk watch list of the risk assessments.  This list must be updated on no less than a bi-weekly bases, since risks assessments can change quickly as the detailed design is created.
5. Feedback--When a risk assessment changes, it may need to be re-dispositioned.
6. Mitigation Planning--if the Systems Engineer decides that the risk must be mitigated (the most expensive way to reduce a risk), then a team will need to create an investigation or research plan.
7. Mitigation Execution--Once the mitigation plan has been created and the resources for executing the plan have been allocated, the design and development team will execute the (mitigation) plan.

This completes the ongoing, cyclic, activities of risk identification and management; one of three or four standard Systems Engineering processes and responsibiltiies.  PS--All risks have cost, schedule, and technical impacts; to say a risk is a schedule risk or a technical risk is plain silly.

Thursday, February 10, 2011

Rebuilding Jobs in the United States

Types of Value
There are three types of value: knowledge, capacity, and Political.  In previous posts, I’ve defined and described the concepts of Value, Knowledge Value, Capacity Value, and Political Value.  Briefly, Knowledge creates value.  An inventor can use new knowledge to create what is currently called “disruptive technology, that is, technology that makes a significant number of products and services obsolete.  Or, it can create value by adding new and unique functions to existing products and services.  Capacity creates “more of the same” value.  As knowledge defuses through the industry or industries, customers come to expect it as part of all products or service of that type.  Then suppliers compete on the bases of price rather than unique functionality.  They lose their “pricing power.”  So the products and services turn from producing knowledge value to producing capacity value.
There are two types of Political Value, Mediated and Exploitative.  Only the Control function of the IDEF0 model of organizations can create political value.  The control function is either the leadership or management of the organization, or the governing body of some political unit (e.g., country, state, or local).  Mediated political value is good in the sense that it provides security, and policies and standards.  These reduce intra-/inter-organizational process friction by standardizing interactions to make a “level playing field” with minimum negotiation, which reduces process costs to all organizations or units within the organization or political unit—the key reason for governance.
However, those responsible for ensuring “the level playing field” can tilt the field to the advantage of those that, in one way or another, recompense them for the change.  I call this exploitative political value.  It’s political value that creates influence or real value for the “gatekeeper.” At its worst, it’s the way tyrants, dictators and other of that ilk gain value.  The owner of the plantation is the archetype of the gatekeeper.  As the Lord of the manor he owns everything with the vassals and serfs all working to create value for him.
The Current State
Currently, in the United States, there is a system of value exploitation of entrepreneurs and knowledge workers by financiers and large corporations.  I suspect that it was not created with malice aforethought, but through political exploitation nonetheless.  This is how the system works.  Frequently, the inventor or innovator/ entrepreneur must use venture capital (from investment bankers among others) to develop their concept and to get the necessary processes and tooling into place to make the product or service, that is create the production capability. Then and only then does the product or service have a chance to make knowledge value.  Once the product or service starts creating the knowledge value, the venture capitalists sells off the organization to a major corporation.  How? Because the venture capitalist (loan shark) insisted on owning more than 51 percent, just for the loan of the money—generally more like 90 percent or more.  What does the knowledge creator end up with, generally little more than the shirt on his or her back.  The venture capitalist makes a bundle and the major corporation milks the rest of the knowledge value and as much capacity value as possible.  So, in the what is the point in creating new products and services?  While this is a simplification (as witnessed by Steve Jobs) and there are many nuances, still this system produces the most value for finance engineers on Wall Street and other investors, but not for the true economic engine then knowledge creators.  These are the people that create the products and services that create the jobs.
Additionally, the Wall Street and Corporation Finance Engineers follow the “use it up” philosophy.  They do not invest or take any risk they can possibly avoid; and they go a long way to avoid risk.  That includes not spending any additional research and development and not spending on any new tooling or support.  In fact these finance engineers are a bit like the previous owner of my boat. 
In 1995, I bought a sailboat.  I could afford it, barely, and, basically, the boat was sound, at least according to the boat’s surveyor.  I soon found that what the surveyor thought was sound, I didn’t.  For one thing, the handles on the through-hull shut-offs were corroded so badly that some of them fell off (the through-hulls drain water in the sinks, the cockpit, and so on, through the hull into the water.  The shut-offs prevent water from coming in if one of the hoses that’s attached to the through-hulls fails.  The failure would sink the boat—not my idea of a good situation.  Further, there were many more problems of this nature. 
The reason that there were so many problems is that the previous owner used the boat for racing; and, he had done well.  But, he put no money into the boat’s maintenance other than the minimum needed to keep the boat racing.  Like all good finance engineers, he had used the infrastructure resources up.  During the first year I had it, the boat was always at risk of sinking.  Since, I’ve spent four or more times as much getting the boat seaworthy and into good condition as I originally spent of the boat.
British Petroleum learned this lesson of short-term financial engineering thinking, twice, once with the Alaska pipeline blow-outs and once with the gulf oil spill.  In both cases, maintenance was not performed, because it cost too much and would take too much time, and both ended in catastrophe.  Now the United States faces the same problem.  Federal regulations to insure and maintain the financial systems were removed from the financial industry, due to greed by Wall Streeters, the result they got big bonuses and the federal government, us, got stuck paying their bills.  The roads, bridges, electrical grid, and other components of the physical infrastructure are near or beyond their designed life.  Yet, Federal, State, and local governments spend the minimum to “fix” them and hope.  The government should have spent to create jobs was spent, instead, on social welfare.  Likewise, the system of regulations—many conflicting overload all job creating organizations—while tilting the playing field for the few.

Prescription for Jobs

Using the architecture found in “Organizational Economics: The Formation of Wealth”, which is about to be published, there are five things any organization, including the US Federal Government to keep their value growing and increasing the number of jobs as the knowledge-based continues to accelerate.
1.       Research and Development – Fundamental to staying competitive is knowledge.  Only knowledge value creates real high-paying jobs; only knowledge creates knowledge value; and only research and development can create knowledge.  All public and private organization must invest at least 10 percent of their “profit” on R&D.
2.       Training – Learning must be a continuing part of everyone’s life. With additional knowledge, people need to understand how to create new knowledge and how to convert it into products and services.  All public and private organizations should invest in education and training for their members.  For the Federal Government, the WWII GI Bill is a primary example.
3.       Rebuilding or Maintaining the Organization’s Infrastructure – All organizations, both private, but especially public, should look to invest heavily in rebuilding or maintaining and upgrading their infrastructure.  This should be done instead of social welfare, bonuses, or dividends; and that is hard.
4.       Rationalize Policies, Regulations, and Standards – All public and private organizations should use Enterprise Architecture to help the leadership ensure that policies and standards are reducing intra- and inter-organizational conflict, not conflicting with one another, and keeping the “playing field” as level as possible.
5.       Rationalize and Optimize Investments by Organizations – All public and private organizations should use Enterprise Architecture, in the form of Mission Driven Architecture to help them determine the optimality of their investments in R&D, and Infrastructure.  Policies and standards must support the organization’s mission, strategies, and processes.
Though I disagree with his social welfare agenda, President Obama got it exactly right when he made all of these points in his 2011 State of the Union message to Congress; but how they are implemented will decide how well the US does in the future.
The Time Horizon for Growth
Unfortunately for most politicians and their constituents, and most managers and their investors, instituting these strategies are not short-run methods for “starting the economy”.  These are not 3 month or six month fixes; instead they are the methods the United States used to grow its economy during its first 300 years.
Generally, there is about a 30 year gestation period from the first implementation of a new technology until it is makes a significant contribution to the organization’s ability to produce value.  I think it could be persuasively argued that the boom in technology that President Clinton to credit for, is a direct result of NASA program that Kennedy Administration pushed, both with a Mission and with funding.  The bust cycle of the George W. Bush Administration was caused as much by the Johnson Administration’s “Great Society” entitlement programs and the destruction of the real research programs at the same time, as by many of the later missteps, including deregulating banks, by President Clinton.
For example, in the 1940s, science fiction included Dick Tracey’s communications watch.  In the 1950s, Isaac Asimov described a tablet that acted much like a PC, but with no keyboard, but linked to a global data network.  In the 1960s, the first cell phones appeared—but were prohibitively expensive.  It was not until the late 1980s and early 1990s, that cell phones started to “takeoff” as a product and service.  Now, in 2011, the iPhone and its competitors make the Tracey watch look out of date, and the iPad and its competitors have all of the functions (and more) that Asimov described.  So it takes 30 years for the evolution to complete.
But it is a process of Circular Cumulative Causation.  The more R&D that’s done, the more possibilities for new products, services, AND jobs that are generated; the more infrastructure that’s created, the more current and future jobs that are created.  However, unless we can stop always taking (killing the goose that lays the golden eggs) and start investing using the strategies above, the United States will continue to grow poorer relative to those countries that get it right.  Because all wealth is ephemeral and trying to invest only in risk free assets is one simple way to lose the value and the wealth.

Friday, February 4, 2011

An Example of Enterprise Architecture Changing the Structure of Government

The Department of Interior's (DOI) Methodology for Business Transformation (MBT) is the archetype of an enterprise architecture process that has and is transforming a major unit of the US Federal Government.  According to members of the team, when the process was finally fully operational, it saved the DOI at least $500 Million in a year--however, that was after 9 years of development and implementation of the process and development and instantiation of the Asset and Enterprise Architecture Repository--to the tune of tens of millions.  Even then, the process still had a steep learning curve and was in constant update.  This is a problem with most current Enterprise Architecture efforts at this scale; they cost too much and take too long to show results.  Consequently, either the efforts are starved for resources into failure, or due to changing management, never have enough data and metrics to demonstrate their value.

The Enterprise Architecture process and repository I have a notional design for, will start to function within 3 months of the start of the implementation of the process. It will have some very modest results during the first year.  These results will compound during the following years.  After one year, the results should be measureable, barely; after three years significant, and after five years, transformative.

Also See my posts "A New Structure for the US Federal Government Executive Branch--A Really, Really Wild Hare" and "Using Enterprise Architecture to Reduce the Federal Debt"