More on values-architecture

Since the previous post on ‘Values-architecture 101‘, the discussion on LinkedIn on values-architecture and values in business continues happily unabated. Still seems worthwhile, and also seems useful to re-post some of it here to make it more generally available.

I know I tend to write long, so perhaps unsurprisingly one person commented:

@Tom You asked for suggestions.

Keep it simple. Keep it brief. That is what business people want.

Yes, true. But business-folks also don’t like the results of simplistic, which is mostly what we get at the moment. 🙁

Condensing the simple out of the complex is darned hard work, which is perhaps why most people prefer simplistic. Even though it doesn’t work. 🙂

The path from complex to simple necessarily goes through something called ‘work-in-progress’ – which invariably and inevitably is going to be somewhat messy, tangled, confusing and the rest. And long-winded, too. Hence, my apologies, ‘cos this is indeed a work-in-progress…

Anyway, for those who don’t mind things that only halfway towards simple, more after the ‘Read more…’ link.

Value versus price

One of the points this whole conversation has stuck on is the confusion between values and price. Almost all of the business-oriented folks, especially in the US, seemed to echo the view of one contributor, Cliff:

Price equals value at equilibrium, so a price should reflect a value.

The short answer is that No, it doesn’t. In that context, he’s using a circular definition in which ‘value’ is described solely in terms of price. Which we’re welcome to do if we wish; but if we do so, we also need to be aware that there are very serious consequences, one of which is that it forces us to measure every possible value in monetary terms (hence the political philosophy called ‘monetarism’, popularised by Reagan and Thatcher amongst others). Since some values – religious faith, for example – make no sense at all in monetary terms, we either have to invent spurious metrics which can seem to make monetary sense, or ignore the value altogether – neither of which choices are viable in the medium- to longer-term.

Cliff then expanded on his position:

If a person buys stock and becomes a shareholder, then yes, they have paid a price. However, if they sell the stock, they realize a value.

And again the answer is No, that’s the same circular definition: “value = realised/realisable difference in price”. In effect, ‘value’ here is ‘potential to obtain resources exchangeable within the transaction-economy’. To quote a famous example, “money can’t buy me love” – it can buy a simulation of it (ie. a transaction) but not love itself (ie. a value – the feeling of loving and being loved). Likewise money can buy the simulation of attention (it’s called ‘advertising’) but it does not actually guarantee the real committed attention of the attention-economy (the underlying value). The fact that the underlying need is not satisfied in each case leads to addictive behaviours that may seem very profitable on the surface (‘sex-industry’, anyone?) but cause serious problems elsewhere, via complex-system feedback loops as per the ‘United Breaks Guitars‘ example.

‘United Breaks Guitars’ is a good illustration of why values-modelling and whole-of-enterprise modelling is crucial for business-architecture. United’s complaints-resolution system was ‘designed’ (by default, not by deliberate intent – see POSIWID) to deny attention and frustrate claims. This reduces the direct impact in the transaction-economy (don’t pay the $1200 repair-claim) but triggers a value-response (‘not being heard’, in the attention-economy) leading to feedback-return via the reputation/trust-economy by someone who knows how to work the transactions of that economy (a musician-songwriter with some skillful friends). In strict finance terms, the company spent perhaps $500 or so (in customer-service staff-time) to avoid paying $1200, so appeared to be in-pocket in the simple transaction-to-transaction value-chain there; but the end-result is a huge reputation-hit with a direct cost of literally millions in staff-time and PR-agency response, on top of a huge hit in stock-price (some $180million, apparently), all of which loss is directly attributable to the nominal ‘gain’ in the customer-service channel.

If you don’t model the value-trails, you have no control and no choice as to how you get hit via the non-transaction economies. That’s why I keep hammering on about values-modelling, and modelling it as value, not solely as price.

A value is based in a feeling. The only link between price-based ‘value’ and value in the broader sense is that the actual or potential availability of funds creates the feeling of certainty that transactionable resources will be available as and when required. That feeling of certainty (or desire for it) is only one amongst many values in play in an organisation’s enterprise: if we stick to the delusion that ‘value = difference in price’, we are forced to attempt to model a complex multi-dimensional context in only one dimension. That would be a guaranteed path to failure in any other form of business-analysis: so why on earth would we think it would work any better in this one?

So again, I do insist that it’s essential to think broader: to understand value in business, we need to model it as value, not via a crude kludge that tries to force it into a price.

Keep the focus on values, not politics

One of the most serious booby-traps is getting confused between politics and values – political views and ‘solutions’ are outcomes of values-themes, not the values themselves. And although politics and the like definitely do have impacts in business, it’s the values themselves that we need to track, because they’re the lead-indicators that matter: by tracking them, we can pre-empt potential problems long before they surface in the political milieu. In the discussion itself, this came up, for example, in another comment from Cliff, which started as follows:

A side comment, just to show that I have feeling for the social issues that Tom has raised.

So I perhaps need to reiterate that my point about the social-issues is in terms of their business impact, not about the issues themselves. In that particular case, I was trying to keep all of the discussion strictly to the theme of the thread: “What is value in business?”

To illustrate what’s really going on here, it’s useful to do a business-oriented value-analysis starting from the next part of Cliff’s comment:

I am a big believer in transaction taxes/fees that encourage investors to hold investments for awhile – even for market insiders or “specialists” who currently can perform stock trades without any fees of any kind. There is currently no “impedance” in the system and I am very worried about the direction that speculation is headed and how unstable it might make the entire world economy. Capital markets are needed but they are currently set up as a scam by the trading community to skim money from the entire capital market environment, much as the US “federal” banks (which are not actually US banks at all) skim a percent off the top of the entire US money supply creation process.

Note first that transaction-taxes are a method to tackle a symptom that we interpret in systemic terms as ‘lack of impedance’. But if we go straight to impose taxes without exploring the underlying issues, we’re likely to fall into the classic IT-industry trap of pre-packaged ‘solutions’ looking for a suitable problem – the cart-before-horse’ syndrome. (For US folks especially, there are also some serious concomitant questions about where that money will go once it passes into government hands. 🙂 )

If we do a conventional business-architecture from the traders’ point of view, our business-model would use a conventional organisation-centric view of the enterprise, and hence would cover only those stakeholders directly engaged in the transactions: the trader, the client, and various ‘middle-men’ roles. It would cover only the monetary aspects of the value-propositions and the like. It would also be built in accordance with current law, and hence would assume zero-tax transactions. Zero-tax is clearly preferable for all the direct players in the transaction: it’s more profitable for the trader, and (probably) cheaper for the client. Within that closed circle, everyone’s happy – probably.

But the point is that the real enterprise in that context does extend beyond that closed circle. Whilst everyone’s ‘making money’ within the circle, there are huge externalised costs (in many different senses of ‘cost’) in the broader ecosystem: local ‘efficiency’ ends up destroying whole-of-system effectiveness. But these costs are invisible from within the circle, because we’re only modelling the direct-transactions.

It’s probable that the core social value in play here is ‘fairness’, which in practice is expressed in a variety of different forms, some of which are very well described in Cliff’s comment above. But note that this is nominally external to the closed-circle – yet their existing business-model depends on zero-taxes. If transaction-taxes are introduced, that business-model becomes non-viable. Which for them is a very serious business-architecture problem – yet it’s one which, at present, they have no way to see.

So if I’m a business-architect working for one of the traders, how do I ‘surface’ that critical dependency? The answer is to do what I’d been describing in all of my posts to that discussion:

• extend the architecture-model to the whole enterprise, not just the client/prospect border
• model the cross-dependencies between transaction-economy, attention-economy and reputation/trust economy
• include values as values (not solely in monetary form) within business-architecture models

This is not trivial: an unexpressed, unreleased value will keep on building until it eventually explodes, destroying not merely the business-model but at lot else whilst it’s at it. A colleague, for example, was once at a creditors’ meeting which very nearly became a lynch-mob – stock-traders, you have been warned! 🙂