David W. Low & Associates, Ltd. David W. Low & Associates, Ltd. Excellence by Design: Excellence by Design: Prototyping the Future Prototyping the Future STEP
Jan 05, 2016
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 Page 3© 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
04-July-2007 Page 4© David W. Low & Associates, Ltd. - All rights reserved
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”
04-July-2007 Page 5© David W. Low & Associates, Ltd. - All rights reserved
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”
04-July-2007 Page 6© David W. Low & Associates, Ltd. - All rights reserved
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.
04-July-2007 Page 7© David W. Low & Associates, Ltd. - All rights reserved
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.
04-July-2007 Page 8© David W. Low & Associates, Ltd. - All rights reserved
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
04-July-2007 Page 9© David W. Low & Associates, Ltd. - All rights reserved
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.
04-July-2007 Page 10© David W. Low & Associates, Ltd. - All rights reserved
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.
04-July-2007 Page 11© David W. Low & Associates, Ltd. - All rights reserved
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
04-July-2007 Page 13© David W. Low & Associates, Ltd. - All rights reserved
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?
04-July-2007 Page 14© David W. Low & Associates, Ltd. - All rights reserved
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 ...
04-July-2007 Page 15© David W. Low & Associates, Ltd. - All rights reserved
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 ...
04-July-2007 Page 16© David W. Low & Associates, Ltd. - All rights reserved
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 ...Wind Tunnel Wing Design Test
04-July-2007 Page 17© David W. Low & Associates, Ltd. - All rights reserved
Models serve many purposes ...Models serve many purposes ...
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.
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
04-July-2007 Page 23© David W. Low & Associates, Ltd. - All rights reserved
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
04-July-2007 Page 24© David W. Low & Associates, Ltd. - All rights reserved
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
04-July-2007 Page 27© David W. Low & Associates, Ltd. - All rights reserved
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
04-July-2007 Page 28© David W. Low & Associates, Ltd. - All rights reserved
A member of the audience at one of my more stimulating lectures