2 years, 22 days ago

The Digital Future: Services Oriented Architecture and Mass Customization, Part 3 B

From Previous PartsPart 1 discussed the four ages of mankind.  The first was the Age of Speech; for the first time humans could “learn by listening” rather than “learn by doing”; that is, data could be accumulated, communicated, and stored by ve…

3 years, 2 days ago

Organizational Economics and the Enterprise Architecture of a Religious Organization

The Question

A reader of my blog, who is a minister in the Methodist Church, commented on one of my posts, (this is my paraphrase of the question)”How do you measure the benefits of a religious organization, like a local church?”  Or, “How would I apply Enterprise Architecture to religious organization”, since I posit that all organizations can benefit from Enterprise Architecture, as I’ve discussed in several previous posts.
This post is written with a slant toward the Methodist tradition, of which I am a part, but will apply equally well to all religious organizations.

An Organization’s Enterprise Architecture

Within Organizational Economics, any organization’s Enterprise Architecture has three sub-components, Mission, Governance, and infrastructure.
·         Mission: What the organization is supposed to do; it’s goal, target, or objective.
·         Governance: Within what parameters or rules it can perform its mission.
·         Infrastructure: What personnel, intellectual, physical, and financial support it has for achieving its mission.
To support the Missionof an organization, its leadership chooses Strategies(approaches or plans) for going from where it is to where it wants to be.  It implements these strategies using tactics, plans that account for the organization’s Governance and Infrastructure (its rules and talents/abilities/support).  Management then executes the tactics in operations(the actions of the organization).  The operations have two components, processes and tooling.
Additionally, the leadership and management of the organization is responsible for legislating, enforcing, and adjudicating some or all of the laws, rules, and/or regulations the make up the organization’s Governance[Sidebar: For an individual Methodist churches this would be called Administration.]
Finally, the organization must provide for its Infrastructure, “the tools and talents” it needs to perform the operations.  These tools include financial, physical, and intellectual.  For a religious organization this would be the money, time, talents of the adherents and the buildings, property and assets of the organization.

Processes and the OODA Loop

All processessupporting the mission or infrastructure of any organization fall into the OODA model of Col. John Boyd.  The OODA, as discussed in several previous posts includes four step: Observe, Orient, Decide, and Act.

Observe

Initially, data is gathered by observing some aspect of the current state of the Universe.  This includes data about the results of their previous actions.  In point of fact,
Datum—some observation about the Universe at a particular point in four dimensions
Data—a set consistent datum

Orient

The Orient step in the process is an individual’s model of how the world (Universe) works (descriptive) or should work (prescriptive).  These models are sometimes called paradigms. 
Rules from Governance enable and support the Orient step, by structuring the data within the individual’s or organization’s model.
Information—patterns abstracted from the data.  This is the start of orienting the observations, the data and information.  The pattern analysis to convert data into information is derived from the organization’s model of its environment or Universe.  For religious organizations this is found in its “bible” and its organizationally related texts like the “Book of Discipline” of the Methodist Church.
Knowledge—identified or abstracted patterns in the information.  Using the same paradigm, environmental model, or model Universe, people analyze and abstract patterns within the information.  This is their knowledge within the paradigm.  When they can’t fit information into their model, they often discard as aberrant, an outlier, or as an anomaly.  When enough information doesn’t conveniently fit into their model the adherents have a crisis.  In science, at least, this is the point of a paradigm shift.  In religion this is a reformation (the reforming of the “bible” and/or the “book of discipline”, that is the rules of governance.  While in science some conservative adherents to the old model lose their reputations after a time, in religion people on both sides of the model’s discontinuity lose their lives.

Decide

Once the organization or individual has the knowledge, he or she uses input their knowledge within their models of the Universe to make decisions.
Wisdom—is the understanding of the consequences of the application of knowledge.  
This is the hard part of the OODA Loop because it’s difficult to understand both the consequences and the unintended consequences of a decision.  If your paradigm, environment, or Universe model is good, or relatively complete, then you’re more likely to make a good decision.  More frequently than not people, even religious people, make decisions that are “Short term smart and long term dumb.”  Part of the reason is that they are working with a poor, incomplete or just plain wrong paradigm (view of the world or universe).  This is where the Risk/Reward balance comes in.  When choosing a path forward, what are the risks and rewards with each path?  [Sidebar:  A risk is an unknown and it is wise to understand that “you don’t know what you don’t know”.]

Act

Once the decision is made people act on those decisions by planning a mission, strategies, and so on within their paradigm.

Religious Organization’s Orienting Model

Joseph Campbell’s four categories of functions of religions: include: the metaphysical, the cosmological, sociological, and pedagogical.  While there may be much quibbling with some of what Mr. Campbell writes, the four functions of religion (and perhaps culture) ring true.

The Metaphysical Function

Awakening a sense of awe before the mystery of being
“According to Campbell, the absolute mystery of life, what he called transcendent reality, cannot be captured directly in words or images. Symbols and mythic metaphors on the other hand point outside themselves and into that reality. They are what Campbell called “being statements” and their enactment through ritual can give to the participant a sense of that ultimate mystery as an experience. ‘Mythological symbols touch and exhilarate centers of life beyond the reach of reason and coercion…. The first function of mythology is to reconcile waking consciousness to the mysterium tremendum et fascinans of this universe as it is.’”
This is truly the “religious function of the four; the other three tending to be more cultural than religious.

The Cosmological Function

Explaining the shape of the universe
“For pre-modern societies, myth also functioned as a proto-science, offering explanations for the physical phenomena that surrounded and affected their lives, such as the change of seasons and the life cycles of animals and plants.”
While there still is much proto-science, science is serving the cosmological function in today’s culture and has identified many patterns in information and knowledge, and clarified many previously fuzzy concepts and theories.  Still, at this time, religion plays a significant role in many “ultimate” questions.  These include: What was there before the Big Bang (if there was one), what architected “the laws” of the Universe (e.g., the speed of light), why am I here, and what happens to me after I lose consciousness in the process of dying?

The Sociological Function

Validate and support the existing social order
“Ancient societies had to conform to an existing social order if they were to survive at all. This is because they evolved under “pressure” from necessities much more intense than the ones encountered in our modern world. Mythology confirmed that order, and enforced it by reflecting it into the stories themselves, often describing how the order arrived from divine intervention. Campbell often referred to these “conformity” myths as the “Right Hand Path” to reflect the brain’s left hemisphere’s abilities for logic, order and linearity. Together with these myths however, he observed the existence of the “Left Hand Path”, mythic patterns like the “Hero’s Journey” which are revolutionary in character in that they demand from the individual a surpassing of social norms and sometimes even of morality.”
More than any other the sociological function of religions leads to culture, to cultural conflict, and religious wars.  This is the key reason for the incessant wars among the three great monotheistic religions—especially when “the authorities” in each want to hold the political power that comes with the cosmological function (the function of how the Universe and God work).

The Pedagogical Function

Guide the individual through the stages of life
“As a person goes through life, many psychological challenges will be encountered. Myth may serve as a guide for successful passage through the stages of one’s life.”
Within the context of a given combined metaphysical, cosmological, and sociological model or paradigm, teaching the paradigm becomes important so that members of the organization can navigate in an orderly manner through the model.  Order reduces risk and increases cost efficiency, while creativity increases risk but may increase effectiveness.  All religious/cultural models work to decrease risk for its adherents and teaching the adherents the cultural behaviors is seminally important for the religious organization to last.

The Methodist Denomination; an Example

All religions create prescriptive paradigm or orienting model that include all four functions (or dimensions) as discussed by Campbell.
All religious orienting models are based on religious authority; either priests, shaman, etc., “Holy” texts, or both.

The Catholic Church before 1500

The Catholic Church before Luther and the Reformation and before Guttenberg and printing used both written text and Clerical Authority, with the latter being far more important.  Clerical Authority caused the burning and killing of the faculty or the library and museum (university) at Alexandria, the extermination of the Templers, the near extermination of the Huguenots, and Inquisitions killed hundreds of people and attempted to rewrite science (see the biographies of Galileo, Copernicus and others).  A big part of this was that the Catholic Church’s hierarchy believed their paradigm that they were the final authority on knowledge and wisdom.  They’re model included an Earth centered Universe with the Pope or Jerusalem at the very center.  This meant that they were always right and competing models damned the heretics to Hell.  To this was added a major dose of politics; e.g., “The ends justifies the means” inferred to the Jesuits.    

Strategies (Based on the Christian Protestant Paradigm)

Enter, initially, Luther and Guttenberg.  In 1455 Guttenberg has perfected the printing press and began to print the Bible so that by 1500 there were a comparatively large number floating around, as well as many other books with both ancient and “modern” ideas.  In 1507, Professor Dr. Luther challenged the authority of the Catholic Church hierarchy, saying that the scriptures, not the Pope and his minions held the core to the Christian paradigm or prescriptive model of how the Universe should work and that all people should be allowed to read these and interpret them for themselves.  This change or shift in strategy was greatly facilitated by the increasing number of printed scriptures.
This meant that people had to learn to read, which meant they learned to write.  The ability to write meant that many more people had the ability to express concepts, ideas, and theories across space and time.  Learning was not just for the clerics and clergy.
One consequence for the Catholic Church was that science took on the cosmological functions, reducing the church hierarchy’s political authority.  Another was the increased risk of “Christians” against “Christians”.  And finally there was the blossoming of intellectual and economic wealth; since knowledge is the root of all wealth.

John Wesley, Adam Smith, and the United States

In 1783, John Wesley had his epiphany; he called it his “heart-warming” experience.  He continued his work among the poor and ostracized, attempting to bring them into the church.  These people had been tenet farmers and owners and workers in “cottage industry” manufacturing that supported the farmers and the estates on which they worked.  These people were being displaced by the new and very controversial mass production using powered tools; that is, the nascent industrial revolution of the early and middle 1700s. 
These people migrated to towns and cities in search of work.  Many that migrated had no skills that were needed in the new industrial economy.  With the debtor laws then in place, they ended up in prison or worse.  By 1811, the displaced workers formed radical groups, called Luddites, who destroyed machinery, especially in cotton and woolen mills, that they believed was threatening their jobs; which the machines were.  These were the people that Wesley sought out and these were the people he reached.
As his “cult”, the Methodists, continued to grow, he a) had to have help; additional “clergy” to preach, teach, and comfort the cultists, b) these people needed to read but many couldn’t, and c) most of the rest of the very early Methodists couldn’t either.  Wesley set about educating his clergy and many of the cult members by teaching them to read.  In turn, reading and other skills taught in Sunday school were used by these “Methodists” to compete for jobs and to become entrepreneurs in their own right; that is, the Church of disciplined learning, demonstrated that there was a “Method” to John Wesley’s heretical madness. The Methodist Sunday School (A real school teaching reading, riting, and rithmtic) enabled Methodists to compete for better paying jobs and join the “Middle Class”.  This follows Wesley’s admonition, “Earn all you can, save all you can, give all you can”.  This is really the credo for the knowledge-based Enlightened Capitalism as espoused by Adam Smith.
As espoused by Smith, Enlightened Capitalism is really about ensuring that there is an even economic and regulatory platform for all individuals to start from; no one individual being favored in an economic or political sense or even perceived as such.  This means that all individuals feel they have a chance to succeed to the full measure of their God (or nature) given talents.
In 1789, the framers of the United States Constitution used many of the concepts from the An Inquiry into the Nature and Causes of the Wealth of Nations.  These include:
·         Defense of the country
·         Support of the country’s infrastructure through creation and maintenance of standards that cross state boundaries and support of intra-country communications.
Everything else was left to the states and the people.  The Methodist church and other religious organizations noticed there was a need for, what is now called, “a social safety net”.  This was initially for its members.  So they constructed and supported hospitals, orphanages, old folks’ homes, and so on.  Many of the most prestigious hospitals still include the name of a domination or religious organization.  Many modest sized towns ended up with a Catholic and a Protestant hospital, while cities might have two or three of each plus a Jewish hospital.
In the 1880s and 90s, most Christian churches recognized the need for kids to have physical activity, since fewer of them were “working the farm”.  So, along with Sunday School to teach them to read, the churches built gyms for them to play in.

The Changed Mission

Politically correct, social liberal cultists in the Methodist denomination have turned the strategies of this denomination from a focus on religious activities to forcing societal change through political action (tactics).  They no longer give any weight to the other religious functions discussed by Campbell.
In my opinion, in doing so, they have lost focus.  The consequence is that young adults (gen X and Y) see no difference between the Methodist Church and the Democratic or socialist parties, other than possibly this is the organization to belong to, if you want to earn your way into heaven, (but more about Heaven and Hell in my other blog).  So they see no reason to join the Methodist Church.  Those that are looking for a religious organization head to fundamentalist churches, even religious cults, like James Jones’ Jonestown.  But defining social injustice is even harder and religious organizations have three other functions.  “Wicked Clowns lives matter” is an organization for “social justice”, but does that serve all four functions of a religion?
Remember while “Social Justice” is easy to proclaim, it’s hard to remember the individual as embodied in the song “Easy To Be Hard”
Especially people who care about strangers
Who care about evil and social injustice
Do you only care about the bleeding crowd
How about a needy friend
I need a friend

Choosing a Mission, the Governance, and Infrastructure to Support a Religious Institution

The Three Great Principles

For a Christian church community any mission should be founded on the three great principles of Christianity. 
·         Love and respect God no matter what
·         Treat all others as you would want to be treated
·         Try to be your ownself at your very best all the time.
The first, in the Christian Bible is that, “Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy mind. This is the first and great commandment.”  If a religious institution forgets this principle, it is no longer a religious organization, but possibly a civic or political one.  Additionally, from any serious reading of history, it is the principle all people find most difficult to inculcate into their being and also the one that has caused more wars and more massacres than any other.  The reason is that many religions believe they have a lock on God will and how to please him/her/it.  Their mighty God has given them the right to enslave or kill anyone that espouses any variation from their orthodoxy.  This is true of all closed religions.
However, any Christian denomination must have this as their chief goal and guiding principle.
“The second is like unto it, Thou shalt love thy neighbour as thyself. On these two commandments hang all the law and the prophets.”  This is the chief principle of all civic and political organizations, as well as a secondary principle of religious organizations (at least this is what most religious organizations espouse).  This principle is the basis for all laws internal to a culture.  Most people, even those espousing religion, follow the law rather than inculcating the principle into their lives.  My mother said most followers of a particular Christian domination followed the principle of “sowing their wild oats six days a week and praying for a drought on Sunday.”  Hundreds of laws are needed to ensure that not too many “wild oats” are sown.
There is a significant problem with “loving your neighbor as yourself” and that is, many (most) people hate themselves in one way or another.  This may be caused by poor brain wiring, by bad experiences, or both.  This is the reason that I include the third principle.  People, especially young people, try to distance themselves by drink and drugs, and destruction of anything that might be beautiful. Why; because they can’t stand or understand themselves and act out on those feelings.  That is, “I’m entitled and if I can’t…then I’m being disrespected.”
So any local church mission statement must include teaching “my own self at my very best all the time.” (Which is impossible for any human but should be the goal of all humans).

Organizational Architecture and the Protestant Church

A Mission Statement and the Strategies

There are four dimensions of “my own self”: mental, physical, social, and religious (notice these fit well with Campbell’s functions).  As discussed earlier, John Wesley intuitively understood that the Methodists had to address all of these within the organization that he created.  First and foremost, it addresses the religious needs of its adherents.  Second, from the history of Methodism, it is plain his “methods” and governance created a secure internal environment for his adherents and that their openness combined with discipline continued to attract more.  Third, his Sunday school addressed their mental dimension, while including gyms, etc., addressed the physical.  And like his mentor, Jesus of Nazareth, the people of early Methodism “…grew stature (the physical), wisdom (the mental), and in favor with God (the religious), and man (the social).”
Any mission statementor goal and the strategies for achieving the goal should include a balance of all four religious functions, rather than a great emphasis on just one.   Having said, there need to be a set of strategies for meeting the goal.  These should encompass all four dimensions.  Once these are decided on, the church organization must decide on processes (ordered sets of activities or “methods”) that move the organization toward the goal. 

Processes and Governance

However, the strategies and processes must be limited to those that can function within governance of the organization.  If the mission simply cannot be met within the rules and regulations of organization then either: 1) the governance should change, 2) the strategies should change, or 3) the processes.  The simplest to change are the processes; the most difficult is the governance.  One other thing, the mission or goal should not be changed.

Infrastructure

These follow the practices of organizational architecture.  Finally, the religious organization has to work within the limits of its infrastructure and support systems (even though with the right blessing these may greatly multiple to feed the “my own self” of all members).
8 years, 2 months ago

Changing the Congressional Budget Office to the Congressional Enterprise Architecture Office

The Current Mission of the CBO
Currently, the mission of the Congressional Budget Office (CBO):

is to provide Congress with objective, timely, nonpartisan analyses needed for economic and budget decisions and the information and estimates required for the Congressional budget process” [from CBO TESTIMONY Statement of Robert D. Reischauer Director Congressional Budget Office before the Joint Committee on the Organization of Congress,[the] Congress of the United States]
The director broke that into three operating strategies:
1. Helping the Congress formulate a budget plan;
2. Helping the Congress stay within that plan; and,
3. Helping the Congress consider policy issues related to the budget and the economy.
The Problem with the Current Mission
This Mission and Strategies is part of the economic, political, and social problems currently facing the United States, and, potentially, a source for the solution of those problems. The reason that the CBO is part of the problem is that finance engineering has influenced Congress to emphasize the “financial” part of an overall Enterprise Architecture. That is, Congress proposes functional and component changes to the US Federal Government and the CBO responds with an analysis, which Congress can choose to spin-doctor to its political purposes. Consequently, Congress can choose to support any industry; examples include agriculture (subsidies) and housing (mortgage deductions, etc.), gambling (gambling deductions), and so on.
A Solution the Congressional Enterprise Architecture Office
As I demonstrate in my book, Organizational Economics: The Formation of Wealth, the body performing the controlling (see IDEF0 post) and governing functions of any organization has three Missions, Security, Standards, and Infrastructure.  This is particularly true of any organization that has a spatial domain.  These missions appear in the Preamble of the US Constitution and throughout that document.
Given these three high-level missions, and my discussion of the role and responsibilities of the Enterprise Architect (as a sub-discipline of Systems Engineering), what the US Federal Government needs is a real implementation of the FEA Framework and a formal Enterprise Architecture process.  This process aligns the departments’, agencies’, and other organizations’ of the Federal Government with the three high-level missions of government. 

Additionally, Enterprise Architecture proposes where develop, transform, reform, end or otherwise change the organizations’ missions, strategies, processes, and tooling.  For the US Federal Government, (or any other organization of this scope and size), the EA process must be recursive, but traceable and integratable.  The CBO is in the position with some of the responsibilities for doing this. 

Why not have Congress empower them as the Congressional Enterprise Architecture Offiice?

8 years, 2 months ago

Changing the Congressional Budget Office to the Congressional Enterprise Architecture Office

The Current Mission of the CBOCurrently, the mission of the Congressional Budget Office (CBO):”is to provide Congress with objective, timely, nonpartisan analyses needed for economic and budget decisions and the information and estimates required for t…

8 years, 2 months ago

Housing, Finance, and Government: Three "industries" that produce Minimal Value

The thesis of this post is that it is pretty silly to base an economy, like that of the United States, on housing, finance, and government, which is what Wall St. and Pennsylvania Ave. seem to want to do.

Types of Industries

All organizations are constructed from three types of sub-organizations, which are within their domain.  The Domains would normally be considered as political unit as per example, a city, county, state, or country.  However, even in private organizations, these types of organizations exist, within the organization’s functions and departments.  These organizational categories[i] are:
·         Primary Industry – Organizations that are in an industry that creates a product or service that is exported beyond the boundaries of the domain within which it is produced. 
·         Secondary Industry – Organizations that are in an industry that enables and supports one or more of the processes of the primary industry within the domain it operates.
·         Tertiary Industry – Organizations that in an industry that enable and supports both the primary and secondary industries by providing services that support the environment in the domain within which the primary and secondary industries operate.
As I demonstrate in my book, Organizational Economics: The Formation of Wealth, the primary industry (or industries) is the economic engine that forms the value of the organization for other organizations. Hamel and Prahalad called the turbine of this engine, the organization’s core competence.[ii] It produces the value for the organization.  All other “industries” enable and support this engine.  For example, the economic engine and primary industry for Detroit Michigan, has been and continues to be the automotive industry; in “silicon valley” it’s information technology, the State of Iowa is agriculture, and so on.
Secondary industries are sub-contractors and suppliers of hardware, software, and services to the primary industries.  These industries would include auto parts suppliers, tool manufacturers, transportation within the organizational domain, and other organizations directly supporting the primary industry or industries.
Tertiary industries are organizations that enable and support the personnel, or the domain’s infrastructure.  Schools, colleges, and universities, banks and other financial services, municipal services (e.g., electric, communications, roads and bridges, sewer, water, and so on), food stores, and other stores, hospitals and other medical services, restaurants, fast food outlets, and so on.  In other words, the majority of economic activities within an organizational domain.  Additionally, tertiary industries includes all types of construction.  It also includes the defense (see   Security a Mission of Government).  These industries are where most of the economic activity of an organization occurs.
Some organizational theoreticians include quaternary industries as a category.  These activities include standards and policies (see Standards a Mission of Government) and infrastructure (see Infrastructure a Mission of Government and Organizational Control).

Types of Value

In the first chapter of Organizational Economics, I describe three types values, knowledge value, capacity value, and political value. 
Knowledge value (see Knowledge Value) is value created by an increasing knowledge-base and includes research and development (invention and innovation), and knowledge transfer (education). Products based on new scientific discoveries and transferred into production are the most high valued.  Unique user interface designs like the iPhone or innovative medicines are examples of knowledge value. 
Capacity value (see Capacity Value) is “more of the same” value.  Once a product has been perfected and competitors have brought out versions, then what Adam Smith called “the invisible hand” starts to force reduction in cost of the product.  Many economists refer to the as commoditization of a product, but its value is in capacity production—which produces capacity value.
Political value (see Political Value) is of two types, mediating and exploitive.
·         Mediating (or mediated) political value is created by reducing the organization’s internal process friction.  Examples of mediating political value include contracts, laws, customs, codes, standards, policies, and so on.  In the military, mediating political value (reduction in process friction) comes from “the rules of engagement” (e.g., don’t shoot your fellow military).  The reduction in process friction is very often the difference between a process adding value and a process absorbing value.  The regulation of markets (and the processes of markets, themselves) is such an example.
·         Exploitive political value is indirect or “siphoned” value.  It is caused by someone in the position of responsibility or authority using the position for the reaping of value to their own benefit; “The Lord of the Manor” is the archetypal example, those these include dictators, lobbyists, bankers, day traders, and many judges and legislators.  Further, as I describe in my book, in many cases it includes various religious authorities.

Housing, Finance, and Government as Value creators

My thesis is  that housing, finance, and government either do not create value or very little value.  I base this on the understanding on how these fit within the dimensions described in the previous sections.

Housing

A house is worth a house.  While that seems to be a tautology (and it is), too many people forgot that during “the housing bubble”.  What that saying means is that the value of the house is only what value it imparts to the consumer of the house’s value.  The house is never worth more than when it was built, unless it is maintained and upgraded.  And even when it is upgraded the value of house begins to decrease as it is used (what’s being used, at the most abstract is its value).  The problem, recently, has been that governments tend to inflate their money supply—money being a reserve of value.  With the inflation of money (that is, the decrease in the value of money) the price of a house to increases—though its value remains the same; it’s worth one house.  Likewise, when the housing market “goes down”, the price of the house goes down, but the value remains the same; one house.
House construction and remodeling is a tertiary economic activity.  It produces some capacity value (more of the same value) for the builder and construction workers, but once completed and purchased, it starts loosing value.  In giving the people of the organization a place to live, a house supports the secondary and primary industries of the organization.
Obviously, this is not an activity that enables and supports the formation of wealth for an organization.  Consequently, basing an economy on housing, or at least a significant portion of an economy is foolish and silly.  Yet, in the period from 1995 to 2007, that is what many Americans built the perceived wealth on, and what the United States did.

Finance

Finance includes two subtypes; banks and markets.  The Wall Streeters, (e.g., bankers, hedge fund managers, stockbrokers, pension fund managers and so on) have forgotten that a bank is a value battery and “a market” is the transfer point for the value.
Banks dilute stored value of money through investments that increases risk and potentially increases the amount value through the implementation of discoveries and inventions as new products, systems, or services.  In and of itself, investing cannot increase the amount of value only reduces it.  Only when the money is invested in innovative ideas or the production capability (seeROI Vs VOI) does the value increase, so that, for example, loaning money for a house does not increase the value of the house or create value of any sort.   However, if a bank loans money to a farmer to buy seed or farming implements, the bank has made an investment that does create capacity value—food.  Consequently, banks are tertiary activities that do not produce an increase value, but they loan their repository of potential value (Money) to primary and secondary activities that do.
In the process of each transaction, the bankers siphon off some of the value as a “transaction” fee.  This siphoning is converting potential value into exploitive political value; and exploitive political value is value that is quickly destroyed.
Markets have two missions.  The first is to measure the value of a material, product, or organization. The second is to transform value from real to potential and back; that is trade materials or stocks for money (potential value) or money for materials and stocks.  “Making a market” does both of these; and in this Internet age, anyone can do this.  That is, the person can buy commodities, hold them, and sell them.  In the process, the price of the commodity (be it materials, products, or stocks) converges on a price.
Again, market are tertiary activities that can convert knowledge and capacity value into potential value and the reverse.  And, again, the “market makers” and “stock brokers” that siphon a percentage off, because they are “providing a service” (which to some degree they are), are converting some of the value and potential value into exploitive political value.  Unfortunately, a good many Wall Streeters have turned the markets into legal mega-slot machines, gaming them through “day trading” and even “micro-second trading” to siphon off a much value as possible as quickly as possible, converting it into exploitive political value.

Government

According to my Book, Organizational Economics: The Formation of Wealth, and as note above in this post, a government has three  missions—security, standards, and infrastructure (see. Internal and External security, standards, and infrastructure are mediating political value and all three are tertiary activities, that is, necessary but not sufficient conditions for the growth of value within the domain of the organization.  Further, the second and third activity can be Quaternary.  That is activities, like the enactment of laws and determination of regulations, policies, and standards that enable the standards and infrastructure activities.  These activities are very susceptible to manipulation for personal gain.  The personnel that enact or fund the activities can enjoy an extreme amount of exploitive political value, as I describe in my book.  In the past, it has been the lord of the manor, dictator, duke, king, emir,  priest, shaman, rabbi, Imam, or other religious leader.  Today, lobbyists must be included as they encourage the lawmakers to create uneven economic playing fields that favor one activity or one industry over another; this includes unions and other “not for profit” organizations as well as economic organizations. Consequently, mediated political value is at best much more easily converted into exploitive than either knowledge or capacity value, and is the catalyst for the conversion of these.
In this age, “Entitlements” are the single biggest place that creates exploitive political value.  These safety nets drain value from the infrastructure portion of government.  They are popular because the exploitive value goes into the pockets of the many rather than the few and popular with politicians because Entitlements buy votes.  But, entitlements are unsustainable for any organization as Greece and Italy have proven, and like the United States is likely to prove, now that the population is addicted to Entitlements.  For example, the occupy Wall St. movement feels that all college graduates are “entitled” to jobs (so what value is art history or black studies to an economic organization?).

The Net Result

Too much “unearned income” in too few wallets; too much “Entitlement income” in too many wallets.  I think what I’ve shown is that having an economy based on housing, finance, and government, like that toward which the United States is heading, is a sure recipe for going out of business.
We still have time, but do we have the leadership?

[i]These categories of industries were generally accepted in the 1920s onward, as primary: mining, and agriculture, secondary, manufacturing, and tertiary, services—these definitions are outdated and don’t get at the underlying concepts.  Therefore, I’ve redefined them for a more general meaning of the concepts.
[ii]G. Hamel and C. Prahalad, Competing for the Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow, (Boston: Harvard Business School Press, 1994).

8 years, 2 months ago

Housing, Finance, and Government: Three "industries" that produce Minimal Value

The thesis of this post is that it is pretty silly to base an economy, like that of the United States, on housing, finance, and government, which is what Wall St. and Pennsylvania Ave. seem to want to do.Types of IndustriesAll organizations are constru…

8 years, 3 months ago

The Chief Process Office of an Agile Organization

The IDEF0 Pattern and the Organization’s Value EngineIn my book, Organizational Economics: the Formation of Wealth, I use the IDEF0 pattern to model the organization.  This pattern has three internal components, Control, Process, and Mechanisms (t…