Sunday, October 23, 2011

The Chief Process Office of an Agile Organization

The IDEF0 Pattern and the Organization's Value Engine
In my book, Organizational Economics: the Formation of Wealth, I use the IDEF0 pattern to model the organization.  This pattern has three internal components, Control, Process, and Mechanisms (tooling and skills).  The Control, directs the Process, while the Mechanisms enable and support.  Therefore, the "value engine" of any organization is its Processes; value being judged by how well the organization is achieving its Vision, Mission, or Goals and Objectives.  This was first noted by Adam Smith in Chapter 1 of Book 1 of his book, "The Wealth of Nations".  This means that an organization's processes are semiannually important to their success.

So why is it that in most organizations there is a CFO and a CTO but no CPO?

The CFO and Processes
While Adam Smith created a word model of the organization that anticipated the IDEF0 model--including the controls and mechanisms around the process--he and his successor economic theoreticians ignored the model in favor of researching "capital", as if capital creates value.  The reason for this is that all economic organizations (businesses) have as one of their objectives (if not their only goal) to "make money", that is, to increase the value of the organization.

Adam Smith made a second mistake.  After demonstrating that tooling is a process multiplier and that capital is only used for acquisition of tooling, he then tacitly assigned all of the increase in the value of a process from the "division of labour" to capital's Return On Investment (ROI), when only the process multiplier part of the increase is due to the use of capital and when most of the increase is due to better processes.  This tacit assignment of value has fit nicely with management, finance engineering, and "owners" thinking and preferences since that time. 

[Sidebar: To many, this presents a conundrum.  Many times, as Adam Smith points out in Book 1 Chapter 1, one of the team members of the organization invents or innovates a new process, procedure, function, method, or tool that either makes the process more effective or cost efficient.  It's not clear, unless the organization is directly funding the research and development, that the invention or innovation belongs or should belong to the organization; but, in most companies in the US it does.  The reason is that one condition for employment is that the new employee signs over all rights to new inventions and innovations whether or not they are created on the organization's time.  Clearly, this is not entirely fair to the inventor--it should be a partnership between the inventor and the organization, that is, sharing of the value of the invention or innovation.  And both the work of Karl Marx and Ayn Rand are founded on this issue.]

If All of the ROI from process as well as the tooling is assigned through the CFO, then the assumption of others is that CFO is making good decisions, when actually, the value created by process has little to do with finance.

The Role and Responsibilities of the CPO
The role and responsibilities of the CPO is to ensure that the organization's processes, tooling, and policies and standards, enable and support the organization's vision, mission, and strategies.  Since this is the discipline of Enterprise Architecture, the CPO should be a trained Systems Engineer and Enterprise Architect (as described in several previous posts).

To meet these responsibilities, the CPO must continuously review which processes enable and support which strategies, what tooling supports the processes, and what policies and standards support the processes and which conflict.  By measuring these, the CPO can direct the organization's investments to support the organization in the most effective and cost efficient manner. 

Because of this responsibility, the organization's CFO and CTO must report to the CPO.  The CFO is responsible for the financial resources of the organization.  These are directed into process and tooling investment by the CPO.  The tooling enable and supports the processes; so, changing the direction or changing type of tooling, which is the responsibility of the CTO, is also directed by the CPO.

For most organizations, this new organizational structure would optimize their ability to compete, or at least would optimize their VOI and their agility.

No comments:

Post a Comment