A Primer on The Role of Automation Technology in Managing Transactional Complexity

One of the primary reasons behind the difficulty of automation is
complexity. From a technical perspective, this relates to the
attributes of data that pertain to structure, type, and form. From a
behavioral perspective, it has to do with varying needs and
requirements, and preferences unique to organizational entities or
people as individuals.

Largely driven by the private sector, most process automation
initiatives continue to face challenges due to the dynamics inherent and
characteristic of the market. There is simply no way for private
companies to accurately predict the fluctuations in market demands and
preferences. Since their sustainability is based on making their
products viable across a wide spectrum, competition naturally dictates
that a differentiator must be established in order to out perform the
competition. It is in this area where variability increases. Unlike a
a broad/generic approach, companies that wish to differentiate
themselves would have to cater to a specific segment of their target
market without alienating their larger base of customers. This area of
differentiation offers higher returns due to its uniqueness and value
proposition, but it also offers the highest levels of variability since
customer A will not have the same requirements as customer B--they will
always be differentiated.

You can imagine the amount of work that has to be done for private
companies to build automated systems that could adequately handle such
high levels of variation. But most of the time, they are left without a
choice. They either do it, or die. This inherent complexity gave rise
to the formation of industry consortias that were dedicated to creating
acceptable standards that could be shared within industries to allow
more efficient communication flows without having to sacrifice
differentiated service methods. These firms realized that they spent
hundreds of millions of dollars in sorting through the noise of data and
very little in terms of acting on data. Since then, several prominent
standards groups began to rise to the occasion and begun publishing
structures and methods that would allow firms to focus on differentiated
services rather than on making sure they understood each other.

Standards like the Internet, HTTP, EDI, XML, ebXML, and UDDI came as a
result of this collaboration. Over the past decade these standards have
been slowly adapted by major software developers into their products
giving their customer the ability to manage the technical aspects of
complexity. Today, unless a software comes as compliant out-of-the-box,
companies would not even visit the idea of making use of it. UDDI
<http://www.uddi.org/specification.html> which stands for Universal
Description, Discovery and Integration, for example is a standards
repository of structures and rules to allow companies to electronically
share and exchange data seamlessly regardless of geography.

Admittedly these standards cannot readily address the more prominent
issues of behavioral variability especially in the general market.
Companies often have to alter their directions at the blink of an eye in
order to capitalize on an opportunity that may never present itself
again while minimizing the risks that typically come with such rapid
movement. When this happens, they expect systems to generate the
information they need, when they need it--and usually, that was yesterday.

To control behavioral variability, software systems employ a rule-based
approach to parameterizing activity. These rules are a set of defined
algorithms that control where, when, how and who can use the system or
access the data. This is the layer that enforces policy and unique
process flows that is specific to each organization or company. This
layer encapsulates the uniqueness or differentiated activities of every
organization and units within that organization. Accounting, for
example, maintains a set of constraints and processes that are unique
from the processes of Sales or Manufacturing, or Inventory Management, etc.

We begin to encounter problems when each of these units superimpose
their uniqueness as a de facto that should govern the processes of
another department, or another organization. In reality, there is no
need to integrate processes at the functional level. The only thing
that concerns Accounting when it comes to Inventory Management, Sales,
or Manufacturing is data--and the specifics of data can be clearly
defined and more easily shared and exchanged. While the 1+1 clearly
equals 2 in this equation, how organizations chose to approach this has
presented more problems than was necessary. Even good governance, the
Sabranes-Oxley, or whatever standard you choose to employ, does not
warrant a tight-coupling between different functional processes.
History shows us that this untenable. And if we are to apply Reeds law
to map out future trends, the likelihood that we can gain mastery over
this is close to nil. It introduces more problems than its worth.

Your thoughts?

--
Dennis Reyes, Ph.D.
dennis@dbreyes.com

"Learners prepare for the world for tomorrow."

Learn More About:

Applied Knowledge Management
[http://appliedkm.blogspot.com]

Supply Chain Management
[http://blogs.ittoolbox.com/supplychain/emerging]

Mental Models and Contemporary Issues
[http://trendsofthought.blogspot.com]

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How Small Businesses Can Use World Class Technology and Management Practices

How Small Businesses Can Use World Class Technology and Management Practices

The single biggest inhibitor that keeps micro, small, and even medium
sized businesses or companies from implementing world class technology
and management practices is the cost involved in adopting these. Before
detailing how small businesses can adopt world class systems, let us
first look into the factors that increase the cost in implementing
technology or world class management practices.

First, you have to deal with the issue of entrepreneurial control. Most
small businesses are managed by its founder or founders who may have
inherited the business or began by using their nest egg or savings to
start what they believe is a way to sustain themselves and even promise
a better future for their families without having to hold down a 9 to 5
job working for someone else. Entrepreneurs want to directly control
what happens in their businesses and never really think about the
exchange of their time for money. Since they look at their businesses as
the center of their universes, they are led to believe that doing it
themselves the traditional way can help them save and therefore realize
more profits.

Second, you also have to consider the geography or location of the
business. In Asia where labor is cheap, most entrepreneurs would rather
hire more people that invest in technology. The same goes for most
African, European, and Latin American based small businesses. The only
exception to this are those located in advanced economies where the
cumulative and aggregate cost of labor is much higher than the cost of
investing in world class technology over a five year period. In emerging
economies, labor is disposable, technology is not. Most even operate
without a working business plan. The general approach and direction of
the business is dictated not by an understanding of market forces, but
on the gut-feel of its founder.

Third, entrepreneurs are characteristically averse to risk. Some
entrepreneurs are specialists in their area of business and were at one
time senior employees themselves who feel that their company or the
promise of world class businesses simply failed to deliver on its
promises. They instead believe that they could offer a better
alternative without having to place any stock into the promise of
technology. Most even end up completely discounting what they have
learned throughout their careers thinking that those do not apply to his
or her situation or circumstance.

While there are several other reasons that I could include, let us
instead stop and think about the three reasons that were given. If you
will notice, every reason stated has a counter-argument that could be
offered as a response, and proven ways of doing things that could even
render the reasons stated without merit. But in every instance, what we
encounter is that entrepreneurs have to first deal with the issue of
mindset and of course, relevant knowledge. Hence, this advice is
applicable only to those who wish to grow and sustain their businesses.
Those that are content with the ever decreasing markets and thinning
margins need not employ technology to their advantage.

So how can small business use world class technology and management
practices to improve their businesses? Here’s how.

1. Develop a detailed assessment of your cost from the following
perspectives: savings and opportunity loss, tax planning,
long-term sustainability, internal processes, customer preferences
and shifts, buying power for supplies, maintenance, customer
relationships, the cost of money, culture and competitive environment.

2. Calculate your process cycle efficiencies as well as your market
performance. Calculating for PCE is done by dividing the number of
processes over time. Calculating for market performance depends on
which aspect of performance is being measured. Generally, you need
to focus on critical to quality as defined by your customers.

3. Develop a working snapshot of your competitive environment.
Understand the what, how, who, and when variables that your
competition employs. It is important for entrepreneurs not to
disintermediate. Disintermediation never helps the long-term
sustainability of the economy—at any level. The purpose of your
snapshot is to help you define new areas of opportunity that
complements and supplements but does not destroy the competition.
You have to distinguish between good competitors and bad
competitors. Never attempt to destroy good competition.

Wait a minute! Nothing of the three items mentioned anything about
technology. That is true, but all of these require technology enablers.
Without technology, it would take the entrepreneur an inordinate amount
of effort to develop the essential information to help them make
decisions that will benefit their businesses.

The tight coupling between technology and management practices enables
speed of execution. Small businesses need to leverage their size to
maximize agility. But without the necessary data that could help them
develop relevant information that leads to knowledge which is
foundational to progressive activity, the size of the small business
will never serve the best interests of its founders.

In each of these cases, the entrepreneur will quickly find out, for
example, that labor costs are more expensive than technology over a
three year period. Labor will always be factorial in nature—its
incidental costs is compounding over time. Another is that of loss of
opportunity, the cost of buying and cost of goods. Without employing
technology to the entrepreneurs advantage, they would not be able to tap
the critical information they would need to minimize costs and losses
while maximizing returns and profits.

By employing technology the right way, small businesses can reduce the
losses associated with employees leaving (with the complete list and
relationships of your customers and suppliers), costs associated with
suppliers and their performance, etc.

Here are the areas where small businesses can employ technology:

1. Business Planning
2. Invoicing and Order Tracking
3. Customer Relationship Management and Marketing
4. Enterprise Resource Planning
* Bookkeeping / Accounting and Financial Management
* Inventory Management Control, Transportation and Demand Planning
* Service Management and Point of Sale Systems

I suppose the litmus test of the applicability of technology for small
business is whether this is applicable at the family-run micro retail
store level. It is applicable. All of the areas listed above apply to
all forms and sizes of businesses. The only difference is the amount of
“spend” that courses through each area.

It must be noted, the profit is a function of managing the cost of
investment against what customers are willing and able to pay for those
products and services in exchange for their time and effort. It is not
about eliminating costs but reducing costs to increase realized profit.
As such it will involve a proportionate investment. Bottom line, it all
depends on the willingness of the entrepreneur to employ technology to
benefit their business.

Of course, the basic requirement to employ technology is a personal
computer. These are so inexpensive nowadays. Even expensive software
systems can run on 10 year old computers running on a Pentium I
processor with less than 100 MB of memory and 2GB of hard drive storage
capacity. These personal computers can be acquired for as little as $100
USD or even less, depending on where you opt to buy used equipment.

What world class technologies are available for the small business?
Entrepreneurs need to realize that world class does not necessarily mean
paying the highest price for the technology or service. World class is
found in the substance of the technology or service provided.

Open source technologies have the substance without the excessiveness of
postured costs and provide you with solutions to help you enhance the
efficiency of every areas of your business operation.

All the entrepreneur has to invest in to employ world class systems are
the following:

1. Personal Time (for learning)
2. Personal Computer
3. Internet Connectivity (if available in your area)
4. Professional Services
5. Communications

Depending on the size of your business, you can avail of inexpensive but
professional services. In fact, it is recommended that you do. Make sure
to employ small business owners who can provide you with those services
as the price of their services will not be inflated. Employing
professional services will reduce errors in implementing technology and
the learning curve required to use technology. To complement the value
extracted from professional services, entrepreneurs must read relevant
books to help them improve on understanding, knowledge, and skill. Books
are an inexpensive but are an effective means of learning better ways of
doing businesses or learning about what the market, or your competition
is doing right.

In most cases, the expense involved in employing technology are tax
deductible since they are part of your immediate capital and operating
expenses. Rather than pay a larger tax amount, it would be better if you
invested in technology to help you build a stronger business.

If you are a business owner or executive that runs a small to medium
sized operation who would like to know more about how to leverage
technology effectively and inexpensively, send me an email at
dennis@dbreyes.com <mailto:dennis@dbreyes.com>. I will be more than
happy to engage you in conversation and extend my services.

--
Dennis Reyes, Ph.D.
dennis@dbreyes.com

"Learners prepare for the world for tomorrow."

Learn More About:

Applied Knowledge Management
[http://appliedkm.blogspot.com]

Supply Chain Management
[http://blogs.ittoolbox.com/supplychain/emerging]

Mental Models and Contemporary Issues
[http://trendsofthought.blogspot.com]

-----------------------------------
IMPORTANT NOTICE
The information contained in this electronic mail is intended for the use of the individual or entity to which it is addressed and may contain information that is privileged and/or confidential. If the reader of this message is not the intended recipient, or the employee or agent responsible to deliver the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by telephone and return the original message to us at the above address via the Postal Service. Thank you.