david w. low & associates, ltd. excellence by design: prototyping the future step

David W. Low & Associates, Ltd.David W. Low & Associates, Ltd.

Excellence by Design:Excellence by Design:Prototyping the FuturePrototyping the Future

STEP

Business ModelingBusiness Modeling

Where it’s beenWhere it’s been

Presented 24-Sept-2007 to Presented 24-Sept-2007 to

STEP ConsortiumSTEP Consortium

by David W. Lowby David W. Low

- Where it is now- Where it is now - Where it’s going- Where it’s going

04-July-2007 © David W. Low & Associates, Ltd. - All rights reserved

It’s important to agree on a few It’s important to agree on a few “working definitions”“working definitions”

• BusinessBusiness– ActivityActivity– ProcessProcess

• InformaticsInformatics– DataData– InformationInformation– KnowledgeKnowledge

• PhilosophyPhilosophy– Wisdom: Wisdom: Thomas JeffersonThomas Jefferson– Excellence: Excellence: AristotleAristotle


Definition: Business ActivityDefinition: Business Activity

… … a single act or closely related set a single act or closely related set of acts executed in furtherance of of acts executed in furtherance of a limited business goal, e.g., … a limited business goal, e.g., … “create purchase order”“create purchase order”

or “deliver product to customer”or “deliver product to customer”


Definition: Business ProcessDefinition: Business Process

… … a sequence or directed network of business a sequence or directed network of business activities designed to achieve a significant business activities designed to achieve a significant business goal, e.g., “replenish office supplies”goal, e.g., “replenish office supplies”


Definition: DataDefinition: Data

Representation of facts, Representation of facts, concepts, or instructions in concepts, or instructions in a formalized manner a formalized manner suitable for communication, suitable for communication, interpretation, or processing interpretation, or processing by humans or by automatic by humans or by automatic means. means.


Definition: InformationDefinition: Information

Well organized facts, Well organized facts, datadata, or , or instructions in any medium instructions in any medium or form. The meaning that or form. The meaning that a human assigns to data by a human assigns to data by means of the known means of the known conventions used in their conventions used in their representation. representation.


In the context of the business enterprise, knowledge tends to In the context of the business enterprise, knowledge tends to connote possession of experience and "know-how" as well connote possession of experience and "know-how" as well as possession of factual information or where to get it. as possession of factual information or where to get it.

Definition: KnowledgeDefinition: Knowledge

Information &

Experience

Knowledge


Definition: WisdomDefinition: Wisdom

“The possession of facts is knowledge, the use of them is wisdom.”

~Thomas Jefferson

The quality of being wise; knowledge, and the capacity to make due use of The quality of being wise; knowledge, and the capacity to make due use of it. Knowledge about knowledge, i.e., meta-knowledge. it. Knowledge about knowledge, i.e., meta-knowledge.


Definition: Excellence Definition: Excellence

“We are what we repeatedly do. Excellence then, is not an act, but a habit.”

~Aristotle

Repeatedly demonstrated ability to achieve the highest quality Repeatedly demonstrated ability to achieve the highest quality results under a broad range of conditions. results under a broad range of conditions.


Our goal, then, is excellence through Our goal, then, is excellence through wisdom wisdom

• The enterprise equivalent of a “habit” is a The enterprise equivalent of a “habit” is a “business process”“business process”

• Much of an enterprise’s “knowledge” is Much of an enterprise’s “knowledge” is expressed in its “business processes”expressed in its “business processes”

• Thus, we create “business excellence” by Thus, we create “business excellence” by increasing the “wisdom” of our “business increasing the “wisdom” of our “business processes” processes”

• This we will do by prototyping our This we will do by prototyping our “business processes” with formal models“business processes” with formal models

Seek the EssenceSeek the Essence

ModelsModels

Limit the RiskLimit the Risk

Build in the QualityBuild in the Quality

Create Superior ValueCreate Superior Value


Examples of models abound ...Examples of models abound ...

• Fashion modelsFashion models

• Role modelsRole models

• Model airplanesModel airplanes

• System modelsSystem models

• Planning modelsPlanning models

• Operations modelsOperations models

• Fashion modelsFashion models

• Role modelsRole models

• Model airplanesModel airplanes

• System modelsSystem models

• Planning modelsPlanning models

• Operations modelsOperations models

• Descriptive modelsDescriptive models

• Prescriptive modelsPrescriptive models

• Discrete modelsDiscrete models

• Continuous modelsContinuous models

• Linear modelsLinear models

• Dynamic modelsDynamic models

• Descriptive modelsDescriptive models

• Prescriptive modelsPrescriptive models

• Discrete modelsDiscrete models

• Continuous modelsContinuous models

• Linear modelsLinear models

• Dynamic modelsDynamic models

What kind of model?What kind of model? Modeling approach?Modeling approach?


mod·el (mŏd’l) n. 1. A small object, usually built to scale, that represents in detail another, often larger object. 2.a. A preliminary work or construction that serves as a plan from which a final product is to be made. b. Such a work or construction used in testing or perfecting a final product. 3. A schematic descrip-tion of a system, theory, or phenomenon that accounts for its known or inferred properties and may be used for further study of its characteristics.

Models serve many purposes ...Models serve many purposes ...



Models serve many purposes ...Models serve many purposes ...Wind Tunnel Wing Design Test

http://www.grc.nasa.gov/WWW/K-12/airplane/foil2.html


Models serve many purposes ...Models serve many purposes ...


ReceptionDecidewhereto wait

Dining Room

WaitingRoom

Bar

Flow from Barto Dining

Room

Flow fromWaiting Area to

Dining Room

Flow toWait in Bar

Flow toWaitingRoom

Flow to Wait

Dining RoomArrival Flow

Dining RoomDeparture Flow

BarArrivalFlow

BarDeparture

Flow

<Admit ArrivingBar Customer>

<AdmitArrivingDining

Customer>

<DiningRoom

Arrivals>

<BarArrivals>

<Dup BarDeparture Flow>

<Immediate DiningRoom Seating Flow>

<Flow toDecisionArea>

No Place toWait Flow

<DecisionArea to

Waiting RoomFlow>

<Lost Customer Flow>

<Bar toDining Room

Flow>

<Flow fromWaiting Room toDining Room>

Flow fromReception toDining Room

<Adjusted Flowto Wait in Bar>

<Dining Room ExitFlow>

<TIMESTEP>

Tired ofWaiting

Flow

<Excessive WaitFlow>

ExcessiveExpectedWait Flow

<Expected Wait Too Long Flow>

<TimeCompressor>

<Time ofDay>

CloseDown

Tired ofWaiting inBar Flow

<Excessive BarWait Flow>

GUESTS IN DINING ROOM

35

30

25

20

15

10

5

0

0 24 48 72 96 120 144 168Hours

Guests in Dining Room Customer

Modeling Within The EnterpriseModeling Within The Enterprise

Up to NowUp to Now

Things to ComeThings to Come

04-July-2007 Page 22© David W. Low & Associates, Ltd. - All rights reserved

Modeling Within the Enterprise: Modeling Within the Enterprise: Up to NowUp to Now

• Modeling to explain the pastModeling to explain the past

• Modeling to optimize the presentModeling to optimize the present

• Modeling to improve the futureModeling to improve the future

• Modeling to gain insightModeling to gain insight

• Modeling to improve process qualityModeling to improve process quality


Explaining the past is the most Explaining the past is the most common motivation to build a modelcommon motivation to build a model

• Accounting models are everywhere, usually Accounting models are everywhere, usually expressed in spreadsheetsexpressed in spreadsheets– Income & Expense reportsIncome & Expense reports

– Balance SheetsBalance Sheets

– Return on Assets, Equity, Investment, …Return on Assets, Equity, Investment, …

• Financial projections …Financial projections …– Claim to explain the futureClaim to explain the future

– But are often just extrapolations of the pastBut are often just extrapolations of the past


Modeling over a time horizon of five Modeling over a time horizon of five years or more is relatively new years or more is relatively new• Valuation of strategic initiatives maximizes Valuation of strategic initiatives maximizes

economiceconomic, rather than , rather than financialfinancial objectives objectives– All these measures are based on projected cash flowAll these measures are based on projected cash flow

• EVA (Economic Value Add)EVA (Economic Value Add)

• SVA (Shareholder Value Add)SVA (Shareholder Value Add)

– All these models seek returns exceeding the cost of capitalAll these models seek returns exceeding the cost of capital

• Dynamic Enterprise Models help define strategiesDynamic Enterprise Models help define strategies– Example: Restaurant modelExample: Restaurant model

– Example: Chinese corn farmExample: Chinese corn farm


Personal forecastPersonal forecast

• Five years from now, Five years from now, allall successful companies … successful companies …– Will routinely use dynamic enterprise models to …Will routinely use dynamic enterprise models to …

• Develop strategic optionsDevelop strategic options

• To analyze strategic initiativesTo analyze strategic initiatives

– Will routinely model Will routinely model allall business processes with business processes with formal modeling toolsformal modeling tools

• Companies that don’t commit to this very soon Companies that don’t commit to this very soon may may nevernever catch up to those that do catch up to those that do


A member of the audience at one of my more stimulating lectures

david w. low & associates, ltd. excellence by design: prototyping the future step

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