Structure in Threes: Complexity and Portfolio Managment
May 29, 2014 Leave a comment
Continued research efforts the past several weeks on applying aspects of complexity analysis to the business design project. The past few days I’d reached out to N. Dean Meyer to investigate his concepts around businesses internal behavior is similar to the economics models in which businesses operate in. Just received his book: Internal Market Economics, looking forward to a good read the next few days.
I believe this concept will fit well into the business design modeling and simulation suite I’ve been developing. Next on my list is a reach-out to Wood, Hewlin and Lah (Consumption Economics), their assertion is around the change in business models in Information Technology from complex custom units to simple mass market services & devices or possibly a bifurcation of the market. From my observations I believe this bifurcation is only a precision error, and that the market is becoming a broader spectrum of options (e.g., Complex Custom Units, Mass Customization, to Mass Production Devices & Services).
This will eventually lead to different price points in the information technology ecosystem. Which will yield a more complex environment businesses to operate in and decisions that will be more complex. Instead of a functional decision and then a cost per feature stage gate process a more nuanced decision process that will need to balance utility, acquisition cost, operational costs, opportunity costs and constraints with the various benefits these enable or inhibit.
Thus the requirement to add complexity analysis, lifecycle analysis (on multiple levels), and benefits management as components of an advanced IT Portfolio Management System -which in itself is a fairly complex decision management system.
For the purposes of piloting I’ve been modularizing each of these concepts into individual models that will be integrated into a single system. This will allow for each model to be “tweaked” as desired.
The complexity formula I’ve settled on is a mashup of Jacek Marczyk, Hugh Coutney, and Paul Schoemaker’s research:
= System Stability * System Fragility:.
System Fragility = System Structural Complexity * Level of Uncertainty (** Hugh’s Categorization of Uncertainty):.
System Structural Complexity = Quantity of Informational Elements * Quantity of Activity Elements
**Informational Elements and Activity Elements are currently derived fro BPMN diagrams
The complexity model is implemented in EXCEL at present. The Economics Models are in process of elicitation; hopefully to be completed end of next month.