Most Enterprise Architects, almost by reflex, recommend that infrastructure, data, applications and everything else be consolidated and centralized. In other words, Enterprise Architects often act like control freaks, who demand that all diversity and local control must be suppressed, in the name of Architecture purity.
There is one overwhelming reason that architects do this, it is to reduce complexity. In most corporations, IT has gotten out of control and there are way too many systems doing very similar things. So, of course, the first thing most architects do is recommend that systems be pruned and consolidated as much as possible.
But there is something that is often forgotten by these architects. It is the tension that exists in every business between those who want to centralize business operations to realize efficiency and economies of scale and those who want to decentralize to allow local autonomy and local accountability.
Centralization of infrastructure, data and services, although it often leads to greater efficiency, often results in loss of service and loss of control to individual Business Units. You see, fragmented systems often happen, because a BU sees an opportunity and commissions a system to fill that opportunity. This is not an ideal way to build systems, but at least systems get built and they deliver business value. Now, if the architect's control tendencies are successful, new systems will have to go through some sort of central authority, or coordinate with other projects which use the same resources. This almost always means that systems are harder to build because much more coordination is required and more approval steps have to be passed. The BUs are now in many respects worse off. Perhaps the total cost of systems has fallen, but so has their ability to get service.
Local autonomy is essential in most businesses. Architects who forget this, are not serving their business, they are creating an over centralized structure which cannot deliver services to the front line units.
Wednesday, February 21, 2007
Saturday, February 3, 2007
Theories of Production
According to Koskela , there are three production theories for creating products and services:
The transformation theory, which is based on input, process and output (IPO) is the dominant production theory in use today. It is reductionist, it breaks down every process into individual tasks performed by specialists. Activities are tightly organized and controlled; it is consistent with Scientific Management and traditional cost accounting. It seeks to optimize the entire production phase by optimizing each individual task, assuming that minimizing the effort and cost of each task translates directly to maximum throughput and customer value.
Value generation focuses on delivering maximum value to the customer. All tasks and activities are measured and evaluated based on this concept. Activities that don't deliver value are not performed. Production efficiency is redefined as the efficient delivery of value to the customer. There is a strong focus on quality. If the customer does not want or value what is delivered, then activities that lead to these outcomes are considered waste. The theory is based on the assumption that a value focus will optimize the overall process of value delivery and lead to process optimization based on the larger context of value generation. The theory has a focus on quality, profits and ROI, not costs. Note that a process which transformation theory might consider efficient and successful, might be judged from the value generation point of view as a failure.
Flow is focused on realizing value quickly, minimizing inventory and reducing the total latency of production. Fast turnaround lets the market control what is wanted. Production does not occur unless there is a specific request for a product or a very strong expectation of such a request. Flow seeks to increase the tempo of production.
These three theories are very interesting and have many implications. For example, the Chinese economy is successful because it is a source of low cost inputs, maximizing value according to the transformation theory of production. The Chinese production model however, greatly slows down flow and can result in tremendous waste, since customer value is not a focus. By contrast, Japanese companies as exemplified by Toyota above all, focus on value generation and flow. These companies are not afraid to locate in high cost locations, because they know that the cost of inputs is not the only thing that is valuable to control. High cost locations are able to achieve faster flow and realize higher customer value (and therefore higher profits).
Recent data about China has started to raise questions about the performance of the Chinese economy. Chinese companies and operations are not turning out to be as profitable as might be expected, and companies in the Western world with high input costs, that focus on flow and value generation are able to compete with these companies.
Outsourcing of services is another instance, where these theories of prodcution have unexpected ramifications. Outsourcing is about reducing the cost of inputs and therefore reducing the cost of specific tasks, but flow and customer value creation are reduced, due to time lags, cultural issues and communication difficulties. On balance, outsourcing may not deliver the benefits its advocates expect and there are some indications that companies are starting to realize this.
- Transformation
- Value generation
- Flow
The transformation theory, which is based on input, process and output (IPO) is the dominant production theory in use today. It is reductionist, it breaks down every process into individual tasks performed by specialists. Activities are tightly organized and controlled; it is consistent with Scientific Management and traditional cost accounting. It seeks to optimize the entire production phase by optimizing each individual task, assuming that minimizing the effort and cost of each task translates directly to maximum throughput and customer value.
Value generation focuses on delivering maximum value to the customer. All tasks and activities are measured and evaluated based on this concept. Activities that don't deliver value are not performed. Production efficiency is redefined as the efficient delivery of value to the customer. There is a strong focus on quality. If the customer does not want or value what is delivered, then activities that lead to these outcomes are considered waste. The theory is based on the assumption that a value focus will optimize the overall process of value delivery and lead to process optimization based on the larger context of value generation. The theory has a focus on quality, profits and ROI, not costs. Note that a process which transformation theory might consider efficient and successful, might be judged from the value generation point of view as a failure.
Flow is focused on realizing value quickly, minimizing inventory and reducing the total latency of production. Fast turnaround lets the market control what is wanted. Production does not occur unless there is a specific request for a product or a very strong expectation of such a request. Flow seeks to increase the tempo of production.
These three theories are very interesting and have many implications. For example, the Chinese economy is successful because it is a source of low cost inputs, maximizing value according to the transformation theory of production. The Chinese production model however, greatly slows down flow and can result in tremendous waste, since customer value is not a focus. By contrast, Japanese companies as exemplified by Toyota above all, focus on value generation and flow. These companies are not afraid to locate in high cost locations, because they know that the cost of inputs is not the only thing that is valuable to control. High cost locations are able to achieve faster flow and realize higher customer value (and therefore higher profits).
Recent data about China has started to raise questions about the performance of the Chinese economy. Chinese companies and operations are not turning out to be as profitable as might be expected, and companies in the Western world with high input costs, that focus on flow and value generation are able to compete with these companies.
Outsourcing of services is another instance, where these theories of prodcution have unexpected ramifications. Outsourcing is about reducing the cost of inputs and therefore reducing the cost of specific tasks, but flow and customer value creation are reduced, due to time lags, cultural issues and communication difficulties. On balance, outsourcing may not deliver the benefits its advocates expect and there are some indications that companies are starting to realize this.
Innovation, Risk and Throughput
Innovation is vital for business growth, and is a necessary activity of almost every organization these days. However, organizations often engage in activities which actually stifle innovation, because they don't understand the impact of innovation on their management practices.
Consider a company which has a heavy emphasis on high quality and high throughput in its production processes. Managers and employees are rewarded on their ability to produce, and produce with high quality. Now suppose that these same employees are asked to adopt an innovative but unproven procedure, which if it works will dramatically boost productivity. There is a problem though, the procedure is untried, it may fail, and even if it works there will be mistakes made. Now if compensation is based on throughput and quality only, then there will be strong resistance to adopting the new procedure. There may be the appearance of compliance, but in fact the same old processes will be used in order to get the expected throughput. The innovation will have been tried and found wanting, with no measurable positive results. Obviously however, the innovation was not tried, and now their is a false belief that this particular practice does not work for this company. This is a surprisingly common result.
This is a situation where the risk of failure is placed on the employees, rather than the company, where it belongs. The problem is that companies fail to alter their measurement systems to reflect the fact that innovation has costs. These costs should not be borne by the employees, but by the company.
To resolve this situation, it is necessary to alter standards to reflect the activity, effort and process, rather than the outcomes, and reward employees accordingly. At the same time, other groups will need to understand why standards differ from group to group. This is sometimes hard for organizations to do, especially if the culture of quality and throughput is ingrained in the organization's DNA.
To conclude, management innovation is often a prerequisite for product or process innovation. This is often forgotten in the rush to adopt the latest, greatest ideas.
Consider a company which has a heavy emphasis on high quality and high throughput in its production processes. Managers and employees are rewarded on their ability to produce, and produce with high quality. Now suppose that these same employees are asked to adopt an innovative but unproven procedure, which if it works will dramatically boost productivity. There is a problem though, the procedure is untried, it may fail, and even if it works there will be mistakes made. Now if compensation is based on throughput and quality only, then there will be strong resistance to adopting the new procedure. There may be the appearance of compliance, but in fact the same old processes will be used in order to get the expected throughput. The innovation will have been tried and found wanting, with no measurable positive results. Obviously however, the innovation was not tried, and now their is a false belief that this particular practice does not work for this company. This is a surprisingly common result.
This is a situation where the risk of failure is placed on the employees, rather than the company, where it belongs. The problem is that companies fail to alter their measurement systems to reflect the fact that innovation has costs. These costs should not be borne by the employees, but by the company.
To resolve this situation, it is necessary to alter standards to reflect the activity, effort and process, rather than the outcomes, and reward employees accordingly. At the same time, other groups will need to understand why standards differ from group to group. This is sometimes hard for organizations to do, especially if the culture of quality and throughput is ingrained in the organization's DNA.
To conclude, management innovation is often a prerequisite for product or process innovation. This is often forgotten in the rush to adopt the latest, greatest ideas.
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