How do we make sense of ‘value’ in enterprise-architecture – particularly when we introduce the economists’ notion of ‘the market’ into the picture?
In the midst of the same LinkedIn discussion on capability and suchlike, mentioned in the previous post here on product versus service, I’ve been having a great back-and-forth with Charles Rosenbury, around that question of value. In what follows, Charles’ comments are in blockquotes, and my responses are in ordinary-text:
“The market always predicts future values correctly. I say this because, aside from the market, things have no value. Well, some things have value without a market, but not generally things we would be called in to be an architect for.”
Yikes! – apologies, but I’ll have to disagree very strongly on that one:
- it depends on what you mean by ‘value’
- it depends on what you mean by ‘market’
- it depends on what you consider as the scope of architecture
- it depends on what you mean by ‘predict’
- it even depends on what you mean by ‘future’
- value must be measured more than in solely monetary terms: trying to force everything into monetary terms will guarantee architectural failure, and probably business-failure as well
- the boundaries for ‘market’ are recursive, in exactly the same sense as for ‘organisation’ or ‘enterprise’: if you’re not very careful about how to select and describe boundaries, the term itself can be worse than meaningless
- we can argue endlessly about the ‘proper’ scope for enterprise-architecture, but the fact that it is uncertain means that many of these discussions risk being pointless at best, destructive at worst
- any futurist would tell you that there’s no such thing as ‘predict’, especially in the sense that most economists use the term in relation to ‘the market’ – the best we’ll ever get is ‘futures’, not ‘future’
- ‘future’ is, by definition, an infinite variable, from sub-microseconds to astronomical-epochs – which ‘future’ do you mean, because the ‘value’ is different in each!
Sure, we can use economics-concepts such as ‘the market predicts future value’, but in architectural terms they are, bluntly, utter meaningless garbage. (They’re mostly garbage for economics too, which is precisely why our current global-economics is in such a hellish mess…) For an architecture, the practical way out of that mess is:
- be clear and explicit what you mean by ‘value’ (and it must be more than just money)
- be clear and explicit what you mean by ‘the market’ (and also its intersection with the broader shared-enterprise)
- be clear and explicit about your description of the scope of the architecture (and it must be more than just an ‘inside-out’ view from the organisation)
- be clear and explicit about which futures (plural) you’re working with, and the ranges of variance across those multiple futures
- be clear and explicit about the timescales (plural) and how those timescales intersect
It’s only if you do that that you’ll have much chance of making sense of the overall architecture – and hence where terms such as capability, function, process and service fit in with it.
One other quick clarification: value is in the eye of the beholder.
It isn’t just the company that determines value. It isn’t just the shareholders who determine value. It certainly isn’t just the architect or the marketing-department that determines value. Value is co-created by all of the stakeholders, across the whole of the shared-enterprise space – including those who may not be directly involved in any transactions, but are still either active or passive stakeholders in the overall outcomes of the shared-enterprise.
If this isn’t clear to you, you should not attempt to do business-related architectures, because you will cause damage to your organisation and enterprise, especially over the medium to longer term.
You Have Been Warned, etc?
[There was then another follow-on from Charles, to which I replied as follows: ]
“So while one cannot measure everything in terms of money, one must find a common denominator.”
Why? To me, there’s a circular-argument there that you seem to have missed.
“For example, what is the value of the loss of life? In my opinion, the value of life is immeasurable. But I must measure the value as something because I cannot spend limited resources on an unlimited value.”
Nope. That’s a choice, an arbitrary assertion.
For example, your mother cooks the family Thanksgiving dinner. It has very real value to the family: but do you immediately try to convert that value into monetary terms? If you do, don’t be surprised if your mother gets very angry indeed at the insult – which destroys the value of the dinner.
In short, don’t make the mistake of trying to convert everything to money: it doesn’t work. Treat each form of value in its own terms first, and only then, in some cases, do a cross-conversion to money. And remember that the forms of value that you didn’t convert to money still continue to exist – or rather, they do as long as you continue to pay proper attention to them.
“In a business, it is the job of the c-level staff to determine whether something has more or less relative value to the company.”
Apologies, but that’s absolute nonsense. It might well appeal to C-level folks’ sense of self-importance, but the reality is that value is determined as a co-creation by everyone involved in the shared-enterprise. If this isn’t obvious to you, try moving around from the C-suite to the shop-floor, across the customer-space, across the shareholder-space, and across different communities within which the organisation operates.
(By the way, don’t confuse price with value: they’re not the same things at all.)
“The architect may also describe that one solution has more capability than another for smaller differences in cost.”
That one I’ll agree with – as long as it’s fully understood that ‘value’ has a much broader meaning than merely monetary terms.
“Let the accountants worry about the value.”
That’s architectural suicide. Also strategic suicide: by the nature of their work, accountants look back, not forward – hence inane pseudo-strategies such as “Last year +10%”.
“As for the future, it will take care of itself.”
No, it won’t – not for us, anyway. That’s precisely why architects’ responsibilities exist.
“But the future does not exist, and value is temporal. So the value of anything is what it is now.”
Value is dynamic, which is not the same as saying that value is temporal. When you’re dealing with real-people – rather than economists’ imaginary notions of ‘the market’ – you’ll realise that people’s assessment of value depends on an immensely complex interweaving of perceptions of time.
“So the market always has the correct price, but the future may change it.”
Apologies again, but that’s flat-out circular-reasoning. Popular with economists, I know, but absolute rubbish.
First lesson for any enterprise-architect: do not trust a single word said by any so-called ‘economist’ – because they live in an imaginary world of ‘perfect markets’ and ‘rational actors’, and have not the slightest clue about how the world really works. The word ‘economy’ literally means ‘the management of the household’ – which, in essence, is the core of the responsibility-scope for an architect, at the respective scope of ‘household’. The sole focus of almost all ‘economists’, and almost all business-schools, is the management of the money – which is merely the easy part of managing a household. As an architect, to understand what your architecture actually needs, you need to understand the whole of the respective household – not merely an arbitrary self-selected subset of that household. Very, very big difference…
[I then went back to a somewhat earlier post by Charles: ]
“I am not saying that capability does not have value. I am saying that capability is not defined by value.”
I’d strongly agree with you there. I’m a bit worried, though, that you might still be confusing ‘price’ or ‘monetary return’ with ‘value’.
“For example, consider a car company. It has the capability to make a car either red or green. They both cost the same amount to make, but the red car sells for $100 more than the green car because people are willing to pay more for red.”
That’s a price/value relationship, which has little or nothing to do with the capability itself. (It’s an interpretation of a monetary evaluation of the potential use of the capability, which is not the same as the capability itself – ‘has-a’, not ‘is-a’, as you yourself say later, and with which I would agree.)
“The company has the same capability for both, but the value of the capability to make a red one is higher.”
Nope. That’s a ‘valuation’ of the potential return from the use of the capability – an attribute assigned to the capability, not of the capability.
“The capabilities are equal. The values are different. If this is true, then value cannot be a part of the definition of capability.”
Sort-of… but only ’sort-of’. The valuations are different, but not the inherent value of the capability as ‘ability to do something’ – don’t mix these up!
[Charles came back with - to me - rather too much of 'the usual excuses': ]
“Perhaps you live in a utopia where management approves project budget based on non-financial aspects. I don’t…”
…and neither do I.
“so I will have to continue with my belief that management is concerned about the money.”
Yes, management is. But architecture must be concerned about more than just the money - otherwise we will not be able to describe how or where the money comes from. Or goes to. Or how they intersect.
It is possible to do some aspects of business-architecture whilst sticking solely to conventional money-oriented views of how business operates.
It is not possible to develop a viable enterprise-architecture whilst sticking solely to conventional money-oriented views of how business operates.
Be very clear which type of architecture you’re trying to do… because if you try to do enterprise-architecture as if it’s business-architecture alone, you’ll get into an even worse mess than if you try to do it TOGAF-style, as IT-architecture alone.
One of the core fundamentals of all enterprise-architectures is about reframing your communication for different stakeholders. When communicating with the C-suite, you need to be able to reframe your architecture in terms that they’ll understand and can work with. Yet the same is true of communications for every stakeholder-group – and the architecture must treat all of those views as one single, seamless whole, in which “everywhere and nowhere is ‘the centre’ of the architecture, all at the same time”. If you arbitrarily privilege one stakeholder-group over all others in architecture, you will inevitably create an architecture that will fail.
Once again, You Have Been Warned? :bleak-wry-grin:
[Charles came back with a kind of verbal sigh, to which I could only concur...]
“I just wish I could get management to spend the money for the capabilities that will be helpful in the future.”
Yep. And note that that in turn depends on another kind of value, called ‘paying attention’ – which is sometimes associated with money, but does not correlate directly with it, and is often a lot more scarce… :also-bleak-wry-grin:
I know I’ve ranted a fair bit just now – but I hope you can see what I mean about the need to think much wider about value, and hence what ‘service’ and ‘product’ and the like actually mean in real economics and real-world business-practice? Because it’s the latter – the real-world stuff, not the imaginary world of money – on which the architecture actually depends. Yes, it’s sometimes associated with money, but does not correlate directly with it – and many of things we most need to work in architectures do not correlate well with money at all.
That’s a real challenge that we really must address.
Finally, a response to a comment by JD Beckingham:
“Goodwill is an example of a perceptual value being monetized for accounting purposes. All types of value (utility, quality, perceptual) can be monetized. Before doing so they should be well understood in their non-monetized form.”
Very strongly agree that all types of value should be well understood in their non-monetized form.
Also strongly agree that all types of value can be monetized. Whether they should be monetized, or whether it’s actually wise to do so, is a very different question…
‘Goodwill’ is a very good case in point: for certain types of business – mostly very stable ones with stable clientele – it does make meaningful sense in monetary terms, because past-performance and past-relationships do tend to be maintained into the future. However, for many kinds of business – especially in the days of social-media and instant anticlient-revolt – ‘goodwill’ can often be little better than a mixture of wishful-thinking and outright fraud: consider the myth of possession of ‘eyeballs’ that became a key driver to the dot-bomb collapse.
Architecture can definitely help there, by providing a means to explain that rather important difference, to over-monetised business-executives…
And hope this helps in general – over to you, perhaps?