Anti-value and Process Measurement

 Anti-value

The problem with Earn Value (EV) has applied by many PMs and Enterprises is that often there is not value achieved. What has been done is to expend effort (work) towards a goal which is hoped to achieve value. Too often lately earned value and effort have been used as interchangeable; they are not. These are two different concepts.

It is said “Value is in the eye of the beholder”. However, if the beholder is not the ultimate consumer of the effort I would contend you may or may not have achieved value. It is my assertion that value is in the eye of the consumer external to the working entity.

The example I use is rather down to earth rather than using abstract deliverables. Take an aluminum billet, rough mill it into the shape of an aircraft wing spar. Many PMs would claim some percentage of EV at this point. “See we’ve accomplished x percent of the steps towards creating the spar, so we’ve achieved x percent of EV.

However, if we stop there can you sell this rough spar to the customer or another customer for the cost of the materials plus level of effort employed?   Typically, not. More than likely the enterprise would be selling the rough billet as scrap or salvage rate (cost of the raw material). So really what has happened is the enterprise has created Anti-Value.

Process Measurement

In 1985 Dr. Arno Schmackpfeffer, et al. put forth an article in IBM’s Journal of Research and Development “Integrated Manufacturing Modeling System”. In that he and his peers asserted there are five primitive activities in a process: Make, Move, Verify, and Rest. These activities are the basis for creating value.

Five Primatives

At his point many would put forth the argument that only one of the five, make, creates value. However, that neglects other forms of value creating activities. These again are in the eye of the consumer.

Does “Move” create value? Clearly it must, as people are willing to pay firms to move things for them. Even investment firms use move to create achieve value: Arbitrage, moving goods from one location to another to gain value from the price differential in locations.

How about “Rest or Store” this activity? Does nothing but leave an item in place, what value is in that? How many people lease self-storage space to keep things? So there must be value in rest or store as people are willing to pay for it.

Now what about “Verify” clearly verify adds not value? With verify the consumer of verify is looking to get assurance that what was accomplished previously was actually accomplished. Auditors and Consultants are examples of service providers that engage is such activities that enterprises are willing to pay for.

Summary

I had labeled the above section process measurement as a correction to a previous blog article https://briankseitz.wordpress.com/2013/11/11/structure-in-threes-process-value/  to put it in better alignment with the assertion I have that value is not achieved until someone is willing to “pay” for it.

In 1998 I had taken the five primitives a little further to develop a quick analysis method for BPR/M engagements. This approach enabled my team to analyze business processes to determine what activities could be eliminated to increase process efficiency and value contributions

Process Analysis

 

Business Value and IT Value: a Disconnect

Over the decades I’ve bounced between working within IT and working within other business functions.  The one conclusion I’ve found, despite all the rhetoric and initiatives to the contrary, IT just doesn’t get it.  The latest examples are the two campaigns on the top of the Hype Cycle:  Agile Development and User Experience / Design Thinking.  Yes these are valuable initiatives, but at the end of the day these are contributory to improving IT’s ability to deliver applications and technology services.  Not necessarily business value.

Many of my pervious IT peers and Technology providers would like to argue the point that these deliver Business Value.  My counter to this is simple:  Does a wrench, shovel, chef’s knife, etc. deliver business value?  Only to the mechanic, landscaper, or cook that knows how to use these productively.  The key words here are “use these productively”  This suggest that IT needs to understand how these tools are to be used -beyond the manipulation of data– and measure their contribution to business value based upon the business value the business itself delivers (i.e., a percentage of the business value, not the entire value).

This then suggests a line of research which should be undertaken to establish how to measure that contribution.  Several times I was engaged in such research:  IBM’s initiative on Strategic Capability Network,  DMR’s Results Chain, and more recently using Benefits Dependency Network.  The problem with all of these initiatives was that they were applied backwards (i.e., here is a technical solution how do I map it to a business result)

Over the past decade I have become enamored by Business Models.  I now see Business Models or fully attributed business models as the connection between Business and IT.  That is to be able to explain IT’s relevance to the business.  My current role within my company is heavily focused on managing the portfolio of technology investments (IT projects).  Initially the organization had as its measures a focus on making delivery of the IT service more efficient.  Whether it helped the business be more efficient or effective was not really on their radar.  Which I could completely understand.  IT in most organizations is constantly a whipping boy, with complaints of late delivery, underachievement, and a lack of responsiveness. Even if business functions themselves have contributed to much of this issue.  Its no wonder why IT is focused on improving delivery above all else.

Leadership, to their credit, recognized the problem and moved the activity to a business function.  The results have been amazing, in a short time the focus of the activity has really switched from IT projects for IT benefit to examining business value for the corporation.  While the business value measurement is more educated guess (t-shirt size ranking) than actual metrics, its a great start.  What is missing still –though I’m back to offline R&D on this issue– is the strong tie-in to the business.  As I continue to investigate, I’m now seeing the linkage between business models, strategy and portfolio clearer than when I was working on various planning horizons at IBM Corporate.

Speed, Simplicity, and Results – an equation that often doesn’t balance

How often have you heard in the context of entertainment, he or she was an overnight success? Only to find out later it only took x numbers of years to become such. In an Internet age everything, everything appears to be instant including out coffee.

The Internet brings us everything instantly, or so we think. How long did it take you to get that book from Amazon Prime? Two days, not fast enough! Get a Kindle and get it immediately! However, what are you missing with all that speed? What are the trade-offs? And yes there are tradeoffs.

Like old lessons in engineering, nothing is free, one always has tradeoffs to balance the physical equations. You may not see these or be conscious of these, but these are still there in the background being made. Which is the main point of this article.

It may seem from the start that some old guy is about to pour his heart out about how good times past were. -And yes, they were good. However, what Millennium isn’t already reminiscing about that great time they had at the club last night or even brings it up several weeks later as their friends roll their eyes having heard the story for the fourteenth time already. Good and bad times cement lessons in our memories. But I digress.

Years ago, before PMI existed, project managers latched onto the concept of the Project Management Triangle: Time, Cost, Quality -picking any two dictated the other. Heuristic Functions like this are applicable today as much as we’d wish the Internet would change these.

I’ve working on several projects over the past few years –well decades—each a part in a much larger equation. My previous article, The Virtual Situation Room, hints at such. One fragment of that equation involves Business Intelligence as it’s called today. That is having not only data but information for decision makers to make effective investment decisions within the business. I consider N. Dean Meyer’s Internal Market Economics as a data point in the growing digitization of business.

As such any resource decision –Capital, Intellectual Property, Human, Equipment, etc.—is a statement of internal investment priority to address what Milton Friedman stated as business’s primary if not sole justification: maximizing shareholder value. [While I disagree with the total adherence to economics of selfishness, it is the current trend in business, but I see the pendulum swinging in other direction, hopefully to some middle ground.]

Current Internal Economics aside slightly, I come back to the engineering premise that tradeoffs are made in any decision to balance an equation, often unstated. A brilliant colleague of mine Dr. David Ullman, out of the Oregon academic society, attempted to explicate much of those tradeoffs using an application of Bayesian Analysis. Only to end in frustration. The Business World was not ready for such ideas 10+ years ago, nor the work involved to get those “simple answers”.

Speed is a relative term in Business. What is fast one day, is tortuously slow the next.

Simplicity is also relative and is based upon context. What I see readily apparent, maybe intricate and complex to you.

 

Thus we’re left with Results as the great common ground, or so one would think. However, results are based upon expectations, experience, and context. I order a meal at a restaurant. They serve me my food within a ten minutes, I eat it and don’t get food poisoning. Is that the result I was looking for? Was it satisfactory? Before you answer consider these two scenarios both fit the facts above. First I was at a Fast Food place, the second I was at a 5 Star restaurant.

If all my expectation was to get a quick meal and move on, then a Fast Food experience was adequate. If, however, I was with others and make this also a social experience the above maybe lacking.

So what does this have to do with internal business projects you’re asking now?

Consider the nature of questions leadership has to address. These are often boiled down to quick decisions: Go, no-Go, and Redirect to consider later. They are often looking for simplicity to enable speed in decision making. However; first simplicity often hides important information, and second I’ve always found it takes time to create simplicity. Boiling data and information down to its essence means understanding the truth nature of the decisions to be made and the interactions of variables in that decision.

This morning I am on the 10th iteration of a Portfolio Management initiative I came up with in ’95. I am using writing this article to reflect and document lessons learned for these activities for an upcoming paper for a June Business Architecture conference in DC.

A few insights I’ve come up with this morning as I look back on the various version of this initiative are:

  • Decision-Makers appear to have less and less time to assimilate the information
  • Simplicity is good for speed but often hides the icebergs ahead; so these captains of industry need someone in the crow’s-nest to look ahead
  • Decisions are often made by gut feel, even though analytics has proven to be more accurate
  • Follow-up on results while desired is often not accomplished: Many organizations are professing a learning culture, however the current state of being is most reviews are still flagellation inquiries [management is still a political game]

Business Architecture

There is a lot of “Architecture” out there in the enterprise world?  It seems that the title ARCHITECT once held a lot of cachet.  You’d find someone titled or a book titled with the term architect in it almost everywhere.  However, during my most recent deep dive into the term applied almost all –IMHO– were not architects but designers and in many cases project managers.  I reached this conclusion based upon the definition I used to define architecture.  That definition has as it foundation the understanding of the components, interactions and uses of such used to create a desired entity.  That entity can be as concrete as a house or as abstract as an enterprise.  Which has led me to an interesting linguistic puzzle:  In many organizations and associations there has been a stated difference between an Enterprise and a Business architect.  Yet isn’t the definition of enterprise a business?  So rightly so shouldn’t an enterprise architect be a business architect?

With that puzzle aside, I again started to ponder my activities around Portfolio Management.  Much of what I’ve seen and experienced in large corporations in regard to Portfolio Management has been around economic prioritization.  That is “We has a fixed budget, how can we spend it all to receive the greatest return on each individual investment?”  This inevitably results in a effort to stack rank projects by simple ROI or in the case of IT projects KLO (keep the lights on).

Most recently I watched several organization build up a portfolios (aka backlogs) of projects to be prioritized and executed.  Many of these projects were classified as either KLO or Innovation projects which were given the highest priorities depending upon who in executive leadership was overseeing.  However, deeper investigation revealed that these where neither, but rather what I would call optimization projects (see portfolio management project portfolios).  While not a bad thing doing such gamesmanship results the enterprise as a whole not achieving the optimum return on investment strategy.  That is to say senior leadership has developed a strategy and middle to lower management, though well meaning, compromises achievement of such through their efforts of local optimization.

The way out of such conundrums is not having senior leadership make every investment decision down to the smallest detail though.  My belief is the best way to ensure investment optimization for the enterprise is to make the business architecture explicit and develop a consistent means to determine alignment, interdependency, and priority of current and future desired states.  Though looking at the existing enterprise’s state as a whole — what needs to say the same, what needs to change and when– an optimum path to an uncertain future can be charted.

The problem with such an approach is that it is often looked upon as complicated, thus is rejected out of had as lately the management trend is make things simple.  Which is rather ironic given we are in an time of multiple priorities and the second generation of the information age.  Such thinking is both comical and disturbing, given that many high tech companies are pushing products for Business Intelligence and Analytics to gain actionable insights yet they are still managing their own investments with nothing more than glorified spreadsheets.  Maybe I should not be so critical of the state of industry, given how long it has taken other engineering and design disciplines to mature into well understood principles to be applied.

In either event I’m now about an eight (real swag) through defining a comprehensive enterprise design methodology and associated curriculum for the book.  In architect-speak, I’ve laid out the rough framework and have started construction/acquisition of components for the methodology.  Two moths in, I may have to push back my anticipated book completion date.  One the positive side my employers will gain the benefit of this research and hopefully be able to apply it to their advantage.

 

Enterprise Portfolio Management -Thoughts and Insights

Woke up early this morning to the buzzing in my head…An idea that Options Theory as currently applied within more sophisticated enterprises for IT Investment was off the mark.  I’d spent the past year going through application of approaches such as Black-Sholes which for external markets tracks well.  However, for IT Investments there is something slightly askew.  That uncomfortable feeling of what and how finally popped in my head this morning.

Several things about the standard approach to Investment Markets Options Theory rely upon market forces to determine value.  However, within the Enterprise Ecosystem value is not measured by standard economics of buyer/seller in the traditional sense.  Arbitrage in the market does not apply in the traditional sense.  The investment is either exercised for its perceived utility or not; typically based and prioritized upon return on investment of the asset (in the broadest sense of the word asset).   In corporations however there are two economic systems at play:

  • External Ecosystem, the one in which the enterprise participates in.  Here the economics that investment professionals typically discuss and where options theory approaches such as Black-Scholes apply.  One can apply hedging as in Black-Scholes to capture the best Risk/Reward.  Within this ecosystem market dynamics have investments flow between investment vehicles based upon perceived future value.  With items other than perishable commodities the perceived value is not always inline with standard accounting practices.  When valuation of corporations occur Intangible assets such as “Customer Good Will” and “Intellectual Property” are used as a filler to account for the difference between residual value of physical assets in general accounting practices  (i.e., cadaver accounting) and investment accounting.
  • Internal Ecosystem, a set of economics that is governed more strongly by general accounting practices; costs and benefits must somehow be in balance.  However, a semi-closed system is assumed within such an economic system.  That assumption is later adjusted each quarter or year by increasing an Intangible Asset valuation on the books.  This ecosystem is driven by several factors: Asset Depreciation and Utility Value of Assets deployed.

These two economic systems interact through several interfaces of which not all are visible or easily measurable.  Monetary funds go into the Internal Ecosystem from the External Ecosystem on the assumption that these funds will be used to purchase assets and through utilization of these assets return more or increase in value the enterprise.  This in the external system takes the form of stock price or dividends.   Which in many US based firms now provides a stronger drive to the internal dynamics of a publically held corporation.

However, the value of individual assets inside a corporation is not as simple as those in the external ecosystem.  Inside the corporation assets are combined with a purpose in mind, to create a utility value.  While the individual assets are accounted for in general accounting practices the utility value of a configuration of assets is typically not.

An example; a machine is purchased, a process developed to use it and others to create a product or service, supplies/consumables are also purchased, and people trained to create and sell the product / service.  This creates some value if the product or service is consumed by the external ecosystem in exchange for revenue.   Ten years later the internal assets have been depreciated in value to zero, yet the enterprise is still getting utility value from this configuration of assets.  One year later a competitor’s product / service attracts enough consumers to make the enterprise’s offering unprofitable.  The assets once providing utility value, though zero accounting value through depreciation, are now in negative territory.  Now we’ll complicate things.  One of the assets in the configuration was a computer.  It can be reassigned to do other tasks thus extending its utility value in another configuration.

Thus the value of assets in an internal ecosystem’s portfolio needs to be managed differently.  Those management practices need to more strongly account for internal utility value that it contributes within an hierarchy of abstract portfolios that support an enterprise’s participation in the various value streams in which it is a member.  That insight realized this morning has been what has been driving me to revise the portfolio management practices I had defined for previous employers –though better than none– seem not adequate for the task.   With that insight in mind developing the economic methods –for what I’ve called Level 5 Dynamic Management that are closer aligned to how an enterprise operates internally– appears more attainable and palatable than just inserting a standard Black-Scholes model.

Structure in Threes: Concerning Architecture

There is a broad debate within the various enterprise architecture communities 1) What is Enterprise Architecture 2) What is the value of Enterprise Architecture, and 3) Who is an Enterprise Architect and how does s/he accomplish work.  This text will present my own opinion on this topic, the three questions above, and more.  This is based upon my own experiences practicing this arcane discipline.  I do not propose this is the definitive answer to such questions –but rather an effort to document an ontology of the architectural concerns with methods and tools I’ve collated over the years to manipulate these variables– though a publisher may later add hyperbole in an effort to sell the book.

This work is being design to be used in a digital format as there will be many cross connections to the multidimensional space I believe Enterprise Architecture exists in.  If you are reading this in book form be prepared to flip forward and backward to get the full context of what is being discussed.

Structure in Threes -the Preface

Decided to start a little early actually writing the book.  I know by the start of next year I’ll have restructured the original outline to better address the objectives I have, but I though several chucks of material could be written as these are unlikely to change much in the later editing process or will just move to new locations in the book.

PREFACE

It has been close to thirty years since John Zachman coined the term Enterprise Architecture and introduced business to the Zachman Framework. Over the years the metaphor has been used and abused, technical religions have grown around methodologies and still the term Enterprise Architecture is derisive.

  • Is it an activity that produces a plan for building various systems?
  • Is it the actual plan for an Enterprise?
  • Is it a methodology to produce standard compliant designs?
  • Is it a collection of diagrams that represent different types of information about the information systems used in an enterprise (Zachman Framework)
  • Or maybe a specific set of standard components organized in a specific structured way

When I started the initial concept for this book years ago I had considered creating a text that would provide methods for designing an enterprise; this being the goal of Enterprise Architecture or at least my belief is the goal. However, over the years experience has taught me five things:

  1. Nothing is simple when explaining yourself [Lesson taught by John Zachman]
  2. Words have different meanings depending upon the context and experience of others [Lesson taught by Michael Kutcher, John Sowa, Gil Laware, and Frank Kowalkowski]
  3. The difference between a methodologist and a terrorist is that you can negotiate with the terrorist [Lesson taught by IBM CIM Architecture Department and TC184/SC4 & SC5 working groups]
  4. Thinking in the abstract and in multiple dimensions while technically possible by most, is often avoided in most enterprises in the name of speed and comprehension [Lesson taught by most managers and mid-level executives I’ve had to deal with]
  5. Nothing is foolproof as fools are so dam cleaver and Nature always sides with the hidden flaw [Murphy you were an optimist]

Those insights came to light over the years of associating and working with those I consider giants and mentors in the field. Included in this book are vignettes of how those insights were developed; if for no other reasons than to pay tribute to my mentors and colleagues and to establish part of the context for the content in the book.

That being the sand I started building this work upon, I realized I needed to answer several questions first before I introduced my approach to Enterprise Architecture. The book itself is meant to be a practical guide on “practicing” Enterprise Architecture, a theoretical text explaining my perspective on what Architecture or more specifically Enterprise Architecture is, and how these fundamentals are expressed in practice.

 

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