New economics models – what impact on enterprise architecture?
The media response was predictable, I suppose: sometimes considered and thoughtful – ‘France offers us all a new perspective‘ – but often sarcastic or dismissive – ‘Sarkozy proposes the joie de vivre index‘. Yet the recent report on economics models [PDF: 3.2Mb], commissioned by French president Nicholas Sarkozy and written by a group of economists including Nobel prizewinners Thomas Stiglitz and Amartya Sen, is full of solid sense – and much of it may be relevant to business-architects and enterprise-architects.
Gross domestic product (GDP) is the most widely used measure of economic activity. There are international standards for its calculation, and much thought has gone into its statistical and conceptual bases. But GDP mainly measures market production, though it has often been treated as if it were a measure of economic well-being. Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions.
The business equivalent of GDP is the financial ‘bottom-line’: it tells us about the financial health of the organisation, but almost nothing about its overall ‘economic well-being’. Hence, as the report’s authors assert, ”the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s wellbeing”:
Well-being is multi-dimensional:
i. Material living standards (income, consumption and wealth);
iv. Personal activities including work
v. Political voice and governance;
vi. Social connections and relationships;
vii. Environment (present and future conditions);
viii. Insecurity, of an economic as well as a physical nature.
All these dimensions shape people’s well-being, and yet many of them are missed by conventional income measures.
The same is true in organisations. Balanced Scorecard, for example, is one attempt to redress the balance, but as can be seen from the list above, it still doesn’t go anything like far enough in exploring the metrics that the organisation really needs.
At the enterprise level, what this is really about is enterprise effectiveness – ‘efficient on purpose’ and the like. So it’s worth reviewing with an architect’s eye the Commission’s main list of recommendations:
- Recommendation 1: When evaluating material well-being, look at income and consumption rather than production.
- Recommendation 2: Emphasise the household perspective.
- Recommendation 3: Consider income and consumption jointly with wealth.
- Recommendation 4: Give more prominence to the distribution of income, consumption and wealth.
- Recommendation 5: Broaden income measures to non-market activities.
- Recommendation 6: Quality of life depends on people’s objective conditions and capabilities. Steps should be taken to improve measures of people’s health, education, personal activities and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction.
- Recommendation 7: Quality-of-life indicators in all the dimensions covered should assess inequalities in a comprehensive way.
- Recommendation 8: Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies in various fields.
- Recommendation 9: Statistical offices should provide the information needed to aggregate across quality-of-life dimensions, allowing the construction of different indexes.
- Recommendation 10: Measures of both objective and subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own survey.
- Recommendation 11: Sustainability assessment requires a well-identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying “stocks”. A monetary index of sustainability has its place in such a dashboard but, under the current state of the art, it should remain essentially focused on economic aspects of sustainability.
- Recommendation 12: The environmental aspects of sustainability deserve a separate followup based on a well-chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks.)
What parallels exist in metrics for the enterprise? How would we identify, support and monitor such metrics? What information-systems and business processes would we need for this? What governance, audit and the like?