The "How" Company

In today's Wall Street Journal, Al Gore and David Blood write a great piece on capitalism and sustainability. They discuss the unaccounted-for externalities built into the cost model of 20th century business, and argue for, essentially, a new accounting that takes into account these costs. Costs like pollution, for example, that is generated by business but paid for by society as a whole (in only some countries, and in only some industries, are the non-product artifacts of business - externalities - tracked and paid for by the business, usually in the form of specific taxes or fines).

21st century business will be different. It will be different, of course, due to globalization. But it will also be different because the factors of the Earth's sustainability will increasingly become an explicit cost of doing business, globally. How are you going to optimize your value chain for external resources that impact, indirectly or directly, the costs of doing business? Traditional approaches don't work, and the value of projecting, or simulating, alternate ways to do business becomes much more meaningful.

Some trends of business in this century:

• New competitive threats are arising because the internet is lowering the barriers to entry into almost all businesses, while at the same time new markets are more accessible than ever before for the same reason
• Profit margins are tightening because the costs of production are lowering and commoditizing
• Non-manufacturing costs as a percentage of COGS are rising due to the lowering of COGS and the increased complexity of the supply chain (even as costs of the demand chain are arguably lowering)
• And, now, we come to understand that last century's externalities - the untracked costs of business detritus - will now enter the system.

From both a regulatory standpoint as well as a cost-competitive standpoint, efficiency is the key to this century's great companies. Efficient utilization of scarce natural resources will result is smoother and less costly relationships between you, your governments, your customers, your suppliers and your employees.

All of these trends - globalization, regulation, sustainability, connectedness - are converging to make the great 21st century company a "how" company, not a "what" company. The capabilities of a company - its "processes" - will better define and differentiate it in 2020 than the specific product it is delivering. Its strategic asset will be its relationships to its customers, governments, suppliers and employees and these relationships will be embodied in the IP of its processes. To Dell, for example, its processes are the equivalent to the formula for Coke Classic. Some of their business processes are already patented - and this will spread to all companies, globally.

We have one customer who reckons the barrier to entry is their business model which embraces ease of billing at the cost of process. Perfecting the process means nobody else will easily be able to connect to their customers, because the cost of processing this unique relationship is too high. Process, not product or access, is the barrier to entry for enlightened 21st century companies.

Today's embedded transaction systems don't come close to enabling this shift. ERP systems are exactly like the mainframes of the 1980's - they have a continued role to play, but they should no longer be the focus of your innovation investment. Like mainframes, their role is now the important but, essentially, commoditized role of the high volume system of record for financial, material and human records. Place your bets on defining the capabilities of your organization in the technologies of business process management: agile systems that allow you to redefine yourself across your own silo'd functional groups and across the boundaries of business to your customers and partners. And allow you to easily redefine yourself over, and over and over again.

Gore and Blood recite the adage that we're "running the Earth like a business in liquidation." For those of you not investing strategically in business process management, you're running your company that way, too.

How can the technologies of business process management help?

First, like with anything, simply understanding your business from a capabilities, or process, perspective will help. This isn't just drawing the pictures of the process, it's understanding the levers of the process where pains and gains can enter the system. This requires a new level of understanding - a new model. It is modeling - but it is modeling at the business level not the implementation level. It is simulation - but not simple simulation that shows you where a bottleneck is. It is richly defined simulation that itself may be an amalgam of real-world data pulled into a "sim set." It is discovery and decomposition and visibility and reporting. It is business intelligence concepts pulled together in the form of process.

It is also about execution, but not necessarily the rip-and-replace of BPEL and workflow and rules... and not necessarily simply the orchestration of services. It's more like the execution of the diagram as The Matrix! - irrespective of the execution of the step in the real world. And then management of the process by understanding the execution - irrespective of the physical execution (which may be performed by any number of systems).

(This is all very abstract, I know. But since the plane is about to land, and I need to send this off, that's all there is today.)

Business process management (lower case) is the backbone of the 21st century company. It's not about workflow. It's not about rules or BPEL or BPMN or any other technology per se. It's about giving you visibility into how you are going to respond to an increasingly competitive market, globally, where barriers to access to your customers are falling each day, and where the factors of production and their costs are changing rapidly. How are you going to respond, every day, every week, every year, to these changes? ERP is for the "what" company. Visible BPM is about the "how" company.

Comments

[bobmcqueen]

Hi
This is the first and my be the only blog I add my comments to.
Phil I am very much in tune with the world view you posted.I think the key Question is "how the how" BRP can be Organic ERP/SAP etc are being mostly use inorganically. The management Gurus of the 21st century have gone a long way to describing the organizational conditions and consciousness that are needed for an organic organization, i.e., an organization that is successful in the marketplace and environmentally responsible.

It is clear to me that you can provide leadership in creating a future that is worth emulating throughout the planet. I have been working to understand "how the how" of organizational transformation that keeps things going, while transforming itself.

I think the transformation process is holographic. The sort of ERP integration that's needed at the corporate level is required at all organizational levels and the challenge is to facilitate the transformation process so that it is owned by those who participate in it and, as we are all not yet perfect beings, understanding the human learning that is taking place in conjunction with the organizational learning. I enjoyed the thoughts you offered.

Thanks.

[Phil]

Hmm, I didn't know _this_ post was going to be so controversial! But, Guy, I think you missed the point - probably because I failed to clearly articulate it. Let's try again.

I'll take your comments in order.

Point 1: the simple truth is that mainstream business simulation is today decades behind advanced simulation and visualization techniques that are available and used for complex, life-threatening "processes." Like flying the 787, for example. My post is meant to say: running your business is now understood to be about process, not product. And that means that running the process wrong is, in fact, life threatening. And so business process modeling and simulation have to become richer experiences.

Turns out that most companies do not have theoretical physicists at their disposal to model and simulate their processes... so even those tools that have been available are not good ones. The tools have to become easier to use, and the people need to start using them.

I think we're in agreement on this.

Now, you also make a point I don't fully understand about canned black boxes.... but it appears we are in _dis_agreement about "confus[ing] the simulation with the implementation." In fact, I think we have to con-fuse the two! (I am using the Neal Stephenson definition, here).. In fact that's the point: constantly comparing actual with sim sets, heat mapping differences, is the best way to constantly monitor process improvement. If you believe, as I do, that one of the two foundational problems that bpm technology is meant to solve is change (as in "always changing, and never waiting for perfect to deploy"), then the trend toward a sim "goal" or away from a sim "as was" is key to making good business decisions.

So I don't have visibility into your black box, therefore can't understand your "black box" comment, but I think con-fusing reality with simulation is exactly what's needed in order for humans to have the data to make process improvement decisions.

Point 2: Again, my apologies for dangling a thought out there without explaining it. More on con-fusion, actually. The point of the "Matrix simulation" isn't that simulation = Matrix. As you point out, that would be an infantile equivalency to assert. For bpm, processes need to constantly run repurposed historical data through re-factored process models to determine "what if" results in order to discover business rules more effectively and efficiently. This might be auto-discovery ("always create a bypass around this human activity if 100% correlations occur in data sets of > 1,000 process instances") or it might be guided human "auto" discovery ("show me all possible rules based on a confidence 50% or greater, and show me the bypass, and then run a "sim" using "real" data refactored against the new process"). Is this sim data? Well, it's actually real data. But it's real data adjusted for an altered process.

The lines begin to get fuzzy here... certainly for business modeling tools. So the notion in the post about a "Matrix-like sim" was really meant to convey a deeper connection to real-world data than traditional simulation data, with the result being a more accurate prediction of future results.

Of course, high-end simulators have, for years, been able to consume real-world historical data. But I'm sure you would concede that the population using that type of sim could be expanded and, again, it's not simply a "people and understanding" issue. It's also a tool issue. We have to provide more powerful tools, that are easier to use and _also_ train and empower humans on the whys and hows.

Point 3: I think you misunderstood my context. There will be these hybrid modeling/execution tools that will look different from today's BPMSs. They will be more like "process-centric BAM / BI" than today's BPM tools, which presume an execution context.

Anyway, this has been fun... Thanks for commenting....

Phil

[Guy Bormann]

"...implementation level. It is simulation - but not simple simulation that shows you where a bottleneck is. It is richly defined simulation that itself may be an amalgam of real-world data pulled into a "sim set." It is discovery and decomposition and visibility and reporting. It is business intelligence concepts pulled together in the form of process..."
o What?!! It took business more than 60 years of automated computation to realise there is more to modeling and simulation than mere process profiling?? That makes the "Welcome to the Real World!" all the more insulting when I left Academia as a physicist for the business world.

That will teach 'you' (as a pars pro toto) to confuse the simulation with the implementation, and the model with the simulation...but, granted, you are not alone. It must be the obsession with canned black-box technology.

On the other hand, it makes me happy to see that my modeling skills will become a serious asset in a wider job market.

"...more like the execution of the diagram as The Matrix! - irrespective of the execution of the step in the real world..."
o Well, that is trivially true by the very definition of simulation :-) It is funny we needed Hollywood to realise that.

"...And then management of the process by understanding the execution - irrespective of the physical execution (which may be performed by any number of systems)..."
o Exciting new world, isn't it...when one finally sees the light and realises what can be understood from 'real' simulation (and what NOT!). I hope it is not too late, though, because you need electricity for your computers to chew away on those heavy simulations while there might be very well an energy crisis looming just around the corner.