February 19, 2007

"ENTERPRISE DECOMPOSITION"

There has been a lot published recently about "Enterprise Architecture" and "Information Architecture." I can't say I buy into these theories completely, but it is encouraging to see people trying to get a more global perspective on their company's business and information needs. Where I think they are weak is in the area of truly understanding the nature of information and how it serves the business. We've discussed the properties of information in past essays and I think we will need to revisit it again in the near future; in the meantime, be sure to see:

No. 4 - "Defining Information Requirements" - Dec 27, 2004

No. 29 - "Using Information Strategically" - June 20, 2005

To summarize, we use a simple concept:

INFORMATION = DATA + PROCESSING

This concept makes a distinction between information and data which a lot of people erroneously treat as synonymous. Under the "PRIDE" approach, information is "produced" (it is not stored) and "consumed" by the enterprise (as represented by end-users). On the other hand, data is stored and reused as required. This is a subtle but important delineation. If we buy into this argument that information is a consumable commodity, it is important to understand the consumer. In other words, we must understand the inherent nature of the business in order to properly serve it. This is one reason why, in 1988, we introduced the "PRIDE"-Enterprise Engineering Methodology (EEM) and invented a universally applicable technique called "Enterprise Decomposition" which provides a convenient way to logically model an enterprise.

THE LOGICAL ENTERPRISE

As I've mentioned in the past, there are logical and physical dimensions to information resources; see:

No. 73 - "Logical vs. Physical Design: Do You Know the Difference?" - May 1, 2006

And as mentioned in the bulletin, people tend to understand the physical aspects better than the logical probably because it is more tangible. For example, people understand the physical structure of an enterprise better than the logical. The physical structure can be exemplified by an organization chart depicting reporting relationships. This is fine for describing administrative relationships, but paints a muddy picture in terms of the fundamental duties and responsibilities of the enterprise. The purpose of a logical model, therefore, is to provide a clear and concise description of the enterprise.

Let's begin by understanding the basic characteristics of an enterprise:

An enterprise is a self-contained unit -

An enterprise is able to produce or receive income, administer resources, and produce a product or service. All enterprises produce some form of product or service. Although a product is a tangible commodity that is easily understood, a service is highly intangible and may consist of such things as accounting, legal advice, banking, social work, government regulation, labor, etc. Like a product, a service is a billable or measurable commodity. The sale of products and services implies that an enterprise has clients it serves, whether they are a typical customer, the citizens within a government area, or the membership of a social organization. Some enterprises, such as insurance companies and banks, offer both services and products.

This leads to the idea that there is a simple and universal model for all enterprises:

UNIVERSAL ENTERPRISE MODEL

One area of the enterprise is concerned with producing income, which is typically the goal of a marketing function. Without financial income, all other work will quickly cease.

Another area of an enterprise administers resources, including human, financial, material, equipment and information resources. This includes the areas of accounting, finance, personnel, materials, and information resource management.

The last area of the company is concerned with producing a product and/or service. This represents the outcome of the enterprise and includes such things as manufacturing, consulting, training, or some other form of service, such as legal advice and accounting.

The boundaries of an enterprise can be typically defined by the set of "books" used for accounting purposes. These books, supported by a chart of accounts, describes how money is received and allocated through debits and credits. Ultimately, it defines the scope of the enterprise.

Perhaps the ultimate test for an enterprise is whether it can be spun off and made a separate operating unit. For example, a division within an automotive conglomerate could be considered an enterprise.

An enterprise has a structure, both logically and physically -

Each enterprise has a physical structure that reflects the organization in terms of human and machine resources. It also has a logical structure which reflects the organization of the underlying business functions. Functions are used to define the fundamental duties and responsibilities of the enterprise. Positions are used to define the physical positions or jobs implementing the functions. Resources, both human and machine, are used to implement positions. These resources have specific skills and proficiencies which qualify them for the work to be performed.

Understanding Functions

In order to fulfill the mission of the enterprise, certain functions must be performed. These functions define WHAT work must be performed and WHY. When organized into a hierarchy, functions represent the logical structure of the enterprise. A function, therefore, is defined as a logical grouping of one or more responsibilities for carrying out a specific portion of the mission of the enterprise.

Functions represent bodies of actions and decisions required to perform the duties and responsibilities of such things as marketing, accounting, manufacturing, sales, customer service, shipping, receiving, inventory, finance, product development, etc. Since they are logical constructs, functions are relatively static. They will only change if the mission or nature of the enterprise changes, such as venturing into new business endeavors. Enterprises with common missions will have similar logical structures. For example, all life insurance companies are logically the same, all electric utilities are the same, automotive manufacturing, banking, etc. They will only differ if the products and/or services differ.

Functions exhibit the following characteristics:

A. Functions rely on other functions to form a whole -

An enterprise will consist of several functions which delineate specific areas of responsibility. Each function will rely on the other functions in order for the enterprise to operate effectively. For example, without an income producing function, such as sales, most companies will quickly go out of business regardless of how well the other functions are performing.

B. Functions denote the three basic levels of activity in an enterprise (policy, control and operations) -

Functions are organized into a hierarchy which denotes the types of actions and/or decisions involved. Policy functions refer to executive decisions where policy is made and objectives are formulated. Control functions relate to middle management actions and decisions to monitor day-to-day affairs and assure that executive decisions are met. Operational functions involve the routine activities or work of the enterprise. These three levels can be charted as a hierarchy showing superior/subordinate/lateral functional relationships.

THE LOGICAL ENTERPRISE
Defines the business of the Enterprise

THE LOGICAL STRUCTURE REPRESENTS A STATIC VIEW OF THE ENTERPRISE; IT WILL ONLY CHANGE IF THE BUSINESS MISSION CHANGES ENTERPRISES WITH COMMON BUSINESS MISSIONS WILL HAVE SIMILAR LOGICAL STRUCTURES

Information corresponds to the three levels. Policy information is used to establish the direction or policy for the enterprise. It includes such things as trend analysis, forecasts, profit and loss, etc. Control information is used to control operational activities and assure that policy decisions are implemented. Typical applications include production control, inventory control, accounts receivables, accounts payable, customer complaint analysis, error notification, progress/status reporting, etc. Operational information is used to perform the normal day-to-day operations of the enterprise, such as shipping, manufacturing, receiving, billing, payroll, processing customer orders/requests, etc.

There is not necessarily a one-for-one relationship between business functions and information requirements. One business function may have multiple information requirements, and one information requirement may affect many business functions.

The benefits from structuring the enterprise using logical functions are that it provides a guideline for establishing a chart of accounts for accounting purposes and can also provide the means to establish "profit centers" in the enterprise.

SAMPLE ENTERPRISE MODEL

C. Functions deal with objects and require information -

Each function has at least one "object" it must deal with or manage. Objects represent facts and events required to operate and manage an enterprise. They may be as tangible as a product, employee or part, or as intangible as a transaction, an order, a shipment, a debit or credit. In order to effectively manage these objects, functions require specific information about these objects in order to fulfill their mission. No single function has a monopoly on an object; they may be shared by many functions.

D. Functions communicate through information systems -

Information flows between functions and is the cement holding the enterprise together. Systems, with their inputs, outputs, files and processes represent the means by which functions interact with each other. They represent the vehicle by which duties and responsibilities are discharged.

CONCLUSION

It has been our experience over the years that all enterprises conform to this logical model as defined by Enterprise Decomposition. Such a model raises the consciousness of the enterprise in terms of its true nature. To illustrate, years ago we were contracted to study a jewelry manufacturer in the U.S. Midwest. By studying their company in this manner, we discovered their true business was more in the purchasing and sale of gold as opposed to jewelry manufacturing. This revelation was an eye-opener for all involved.

The logical model is useful for determining the tactical needs of information internally within an enterprise, but to determine the strategic needs for information, it is necessary to develop similar models for customers, vendors, or any other external enterprise affecting our business. The more we know about these external entities, the better we can devise strategic systems to serve them.

I have heard pundits in the industry say they want to "model information." Interestingly, I cannot seem to get them to clearly articulate this concept, nor do I believe is it feasible to do so. Model a business? Yes. Model systems? Certainly. Model data bases? Of course. But model information? Hardly. Again, information is a consumable commodity. We can identify the need for it by studying the business model; We can demonstrate how it is implemented via outputs and the systems and data base models; but I fail to see how we "model" information. To me, this is all reminiscent of the arguments back in the 1980's over "Information Engineering," a subject where the authors didn't grasp the nature of information or engineering, but it sold a heck of a lot of books.

For more information on "PRIDE"-EEM, see:
http://www.phmainstreet.com/mba/pride/ee.htm

OUR BRYCE'S LAW OF THE WEEK therefore is... "Enterprises with identical missions will also be identical in terms of logical structure."

"PRIDE" METHODOLOGIES FOR IRM

Friends, the "PRIDE" Methodologies for Information Resource Management (IRM) is a common sense solution for Enterprise Engineering, Systems Engineering, Data Base Engineering, and Project Management. The methodologies include defined work breakdown structures, deliverables, and review points that promote quality and the production of industrial-strength information systems. Building information resources is a science, not an art form. Our methodologies clearly explain the concepts that govern them, which remarkably, is derived from engineering/manufacturing practices. Now you can get these acclaimed methodologies for free at our corporate web site at: http://www.phmainstreet.com/mba/pride/

MY "PET PEEVE OF THE WEEK" IS "HOMEOWNER ASSOCIATIONS"

I have served on several board of directors over the years for a variety of nonprofit organizations, but I don't think I can find a more thankless job than serving on a board of directors for a Home Owners Association (HOA). I served my HOA a few years ago as Vice President, and then President. I got involved because the Association was screwed up financially and its governing docs required considerable update. During my year as President I was able to turn the Association around, from operating in the red to operating in the black without having to raise dues. Further, we able to make sweeping changes to our governing docs and made the board more accountable for their fiduciary responsibilities. Basically, I made the trains run on time.

Despite all of my efforts, there were those in the neighborhood who wanted to run me out of town on a rail. I think the problem here is that I see nonprofit organizations as no different than a commercial enterprise and should be treated as such. Others do not share this view and think it should be run as some sort of "feel-good" club. Its not. I don't care what the nature of the association is, a nonprofit organization is a legal entity that has responsibilities to its constituents. Not surprisingly, the officers of organizations such as Home Owner Associations are often well meaning volunteers with some time on their hands, but haven't got a clue as to how to run a business.

Believe it or not, some people get involved just to gain a title and establish some sort of notoriety. I remember one pompous Past President of our Association who loved to attend neighborhood cocktail parties, shake everyone's hand and say, "Hi, I'm President of the HOA." I found this amusing as this was the same clown who almost bankrupted the Association.

Then you have the problem of the cranky retirees who have nothing better to do than complain about the slightest thing, such as a blade of grass out of place. Instead of offering assistance to help out in some capacity, they would rather sit on the sidelines and bitch.

Like I said, I've been involved with a lot of nonprofit organizations over the years, many of which exhibit the same characteristics. But I would have to say that Home Owner Associations are perhaps the worst, which I affectionately refer to as "Snakepits."

Such is my Pet Peeve of the Week.

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AND FINALLY...

I received an e-mail from Bernie DeMarco in Chicago, IL who wrote me regarding last week's essay, "IRM: Putting all the Pieces Together."

Bernie writes:

"I was surprised about your comments on Information Resource Management. I thought IRM was passe."

Thanks Bernie for your note,

Passe? Well in this age of Agile Methodologies and power programming tools, you might think so. But IRM is an important management concept for controlling all of the resources needed to satisfy the information requirements of an enterprise. It requires a much more global perspective than what most people in IT currently have. As such, it is not for everyone. But it should begin with top management who will only adopt it as a management strategy if they appreciate the value of information in the running of their business. This is most definitely not the same as establishing a value on our physical technology resources. For example, executives in Japan are just now waking up in terms of the role information plays in competing on a global basis and are more inclined to accept the concept of IRM. But passe? Hardly.

Again, thanks for your e-mail. Keep those cards and letters coming.

MBA is an international management consulting firm specializing in Information Resource Management. We offer training, consulting, and writing services in the areas of Enterprise Engineering, Systems Engineering, Data Base Engineering, Project Management, Methodologies and Repositories. For information, call us at 727/786-4567. For a complete listing of my essays, see the "PRIDE" Special Subject Bulletins section of our corporate web site.

Our corporate web page is at:

http://phmainstreet.com/mba/

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Since 1971: "Software for the finest computer - the Mind."

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