Generative Transformation – Economic Model – System Dynamics

EA Complexity

By Srinidhi Boray

Enterprise Architecture  Assists in Understanding Enterprise’s Unique Economic Model

Remember : With Increasing Complexity Degree of Freedom Reduces

When System Strives for Extreme Commoditization – Individual Should Strive for Specialized & Unique Competencies

On 26th Feb’ 2009  CNN Reports – Reason for GM  failure blamed on steep Fixed Cost. Cost per day loss $110 Million.

However one may attempt to distort reality, in the end one cannot play with numbers, as numbers are mere numbers. Rational number cannot be irrational number and vice-versa. Math is one among of those pure art, without which no science can ever be validated.  It helps bring immense clarity to observation. When one is severely deficient in this art, then it can conveniently be assumed, that one is also deficient in the process of accurate deduction. This is why, it makes it important to ardently school, paying attention to those rudimentary subjects, that help mind ascertain facts quickly and deal with life with more clarity. Failing which, all architecture design will be a fallacious attempt and distortion of reality. Even Mozart used Math to compose his symphonies, which is akin to Enterprise Architecture. It was because of employing Math, that he produced great order in all his works, despite disorder in his own personal life. After all one must know, it is in the numbers that rich and poor are unequally divided.

Gartner has begun to endorse the view proposed in this article. Check Brian Burke of Gartner discuss Below

As an anti-thesis – this is also said of Maths by Albert Einstein “as far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality. This is where Enterprise Architecture improves upon on by providing better abstraction and logical reasoning by introducing structure derived from  ontology that is intrinsically ‘architecture’.

Enterprise Architecture, via its structure helps in achieving ‘loss of innocence’. When this happens many architectural cross-sections can be derived, such as – business model, information model, solution model, technology model, security model so on so forth. When all these pan out, by attributing cost, the economic model becomes available that can be further analyzed for Total Cost of Ownership, Cost Savings and Return on Investments. These costing perspectives are better clarified by understanding ‘fixed cost’ and ‘variable cost’ and the way they operate within the larger portfolio. A better perspective of all the costing elements helps in performing informed capital planning and investment control needed fr any cost optimization planning. All things abstract add to the variable cost. It is here where standards work and help in reducing the variable cost across the enterprise and firming up the ‘fixed cost’. Anything that cannot be subjected to “loss of innocence” and remains intellectual; becomes available to be exploited for promoting bureaucracies.

All large institutions struggle to gain good control on the fixed cost and find ways and means to reduce the variable cost. Also, institutions are continously pushed towards the ‘economy of scale’ to achieve competitive product offerings. The dynamics introduced by all the economic criterias is a systemic property. It is not the willful desire of any company to attempt ‘scaling of the economy’ and hurt the local interests. If they have to thrive in a competitive environment then they have to follow the fundamentals that defines the nature of that environment. Moreover, it is the unrelenting strife between the order and disorder within the system, that triggers generative transformation, that intends to seek equilibrium in the system dynamics reaching an optimized (cost + process) state.  This drives companies to seek opportunities for lowering the cost. Non scalable and repetitive activities are the work units that have best opportunities to be treated like a cookie cutter component and be rendered at a site where it can be created at the least cost. All most all the activities in the manufacturing sector is non scalable and can be linearly componentized. In the service sector as-well, there are many activities which are non-intuitive and non-scalable, these also become ‘unit of work’ that can be translated into components to be manufactured at a cost effective site. The off-sites (Contract Manufacturers) who render the ‘unit of work’ at a reduced cost, also attempt to achieve ‘economy of scale’. This push-pull brings down the cost and also turns the ‘unit of work’ into a commodity that has a diminishing intellectual worth. Contract Manufacturing is a large and specialized business and all-most all the large electronics manufacturers engage contract manufactures to achieve competitive product pricing. Even IPOD is manufactured taking advantage of pricing advantage that contract manufacturing offers.

Enterprise Architecture incorporates both ‘synthesis’ and the ‘analytical’ process in understanding and describing the enterprise. The analytical reductionism, pans out all the linear ‘uow/s’. While the synthesis brings all those ‘uow/s’ into a process, that most times exists as a fuzzy network (non-linear and non-hierarchy) such that the enterprise can forge into the market competitively.

With all this said, by careful planning self sustaining and profitable IT ecosystem can be built within US by investing in townships and IT infrastructure that takes advantage of the economics of scale. There are lot of towns in US that offers lower cost of living and also very pleasant country side amenities. Such town-ships can be planned to arrest the Gaussian distribution which has riddled the present system resulting into fragmentation.

Economic model is not a snap shot but a process that works continuously to render the overall macro-balance sheet healthy. Please refer link to gain an insight on budget lead Enterprise Architecture Transition Planning Framework.

Link below discusses the possible newer ways of studying enterprise fiscal behaviors when subjected to heterogenous market agents.

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