In the good land of Value Chains

I think that the "Value Chain" must be one of the most mis-used concepts in business modelling. Even in the academic world one will find the argument around the concept of "Value Chain" vs "Supply Chain". See the following article on another argument around what means what ( http://www.value-chain.org/en/art/120/ ).

The value that I get out of the concept centers around the conceptual understanding of how a business works, and what processes focus on what (e.g. strategic, support, tactical, or operational ). From an architecture perspective each of these have their own inherent designs!
When one creates a translation of strategy into an operational model the following concepts assist in this:

a) Business Strategy
b) Value Chain consisting of its end-2-end processes
c) Supporting Key Performance Indicators for these end-2-end processes.
d) Defined scenario's for the strategy.
















As I explain to people, this mix is sometimes more art than science; and requires a fundamental systems insight into how the business works. If understood and applied in the correct fashion you should get a very clear model which shows the following alignment/or mis-alignment between:
1. What the customer wants; as defined through a value proposition.
2. What we deliver operationally as a value proposition through the value chain.
3. How we reward people (performance system) to do their work.
4. What the business strategy wants.
5. What the risk of all the above is.

In most businesses I have consulted there is always a disjoint between these, and this always causes middle management a huge amount of stress. Some are worse than others; some are less!
But, the success of this exercise is where you are able to create a "flight simulator" for the value chain through which one can model your business plans across time to understand the what-if impacts of different scenario's - impossible to do if you don't have a value chain model.
So in essence the value chain is NOT that pretty ARIS diagram, or only a Porter Value Chain model!

It requires a deep conceptual understanding of how the company creates value as a system.
Good places to start is the use of reference models, I think the following models are for example good: http://www.apqc.org/ ; or http://www.value-chain.org/ , and then, if you seriously want to get confused, look at the eTOM model http://www.tmforum.org/ . I don't know all of them, but I always prefer to look at something that is simple and logical to understand, especially those that can assist in making my business a little simpler.

Can BPM learn anything from commodity trading ?

As an entrepreneur at heart, I believe that leaders of businesses must find ways to balance the need for creating social capital and ensuring sound business development.

In the past few months I have encountered a number of organisations struggling with direction/new challenges in this financial crisis. This happens as I am requested to suggest/advice on business optimisation via Business Process Management. I remembered a number of key principles I formulated after getting rid of a commodity trading business I had for a few years.

....As they say "if you can't do, teach; if you can't teach, consult; if you can't consult; manage money!".

The following discussion on developing your business through business cycles in the market place.

INTRO......

Commodity trading can be traced back to Sumeria in about 3,500 BC, when baked clay tokens in the shape of sheep or goats were used in trade. From the 19th century onwards, modern commodity trading rooted itself in agricultural products such as wheat, corn, cattle, and pigs.

With the advent of the Internet, doors have been opened to retail customers to take part in various commodity markets, 24 hours a day, around the globe. New markets are even now being created by companies, such as Intrade (http://www.intrade.com/), that allow customers to trade any event in the world (this is really innovative!).

The essence of a business is to make money from buying and selling goods and services between buyers and sellers. As individuals, we too are “mini-businesses”: we get up in the morning to trade our time, skill, and knowledge for a pay cheque at the end of the month. As we grow in professional experience, our responsibilities change from being workers to becoming managers – and, eventually, leaders.

One certainty for a leader is that he or she will have to lead a business through market cycles, gaining experience through the good and bad of the ups and downs of the market. It may take years for a leader to gain enough experience to lead the business successfully through these cycles.

In most instances we can only be clever after the fact – after a product has bombed in the market, or after an economic slowdown has made restructuring and lay-offs necessary.

A good leader ensures that stakeholders experience consistent wealth creation as the business experiences different market cycles.

ON COMMODITY TRADING....

At a practical level, the business of commodity trading is easy to understand and operate. In running the business, a trader will experience “booms” and “busts” on an intraday market tick (see figure). These “booms” and “busts” cause the emotions of the trader to swing constantly between greed and fear.

It is extremely hard to do well in the commodity markets: traders need to learn to control their emotions and to do their trade consistently and rationally.

A good example of business cycles was the boom in the property market. Many new speculators, estate agents and lenders entered this market in the upward cycle, not knowing that it is very hard to lose money in a bull market. For the better part of seven years, a false sense of accomplishment was created as they made profits with very little understanding and knowledge of the market. Unfortunately for them, the law of nature is that what goes up must eventually come down (this happened at during 2008!). In all probability, very few people have defined their exit strategies for when this day arrives, and very few will survive to see the next bull market.

In contrast to this, professionals have defined exit strategies and are able to take advantage of the downturn in the market – and still make good money into the next market cycle.

In a short time span, commodity trading teaches important principles for surviving market place business cycles.

PRINCIPLES....

Use market movements: Markets do not have to move according to defined causal relationships. Markets have their own energy and movement: they will move from extreme to extreme. Rather than trying to explain why the market moves, use movements to create opportunities for your business.

Have a great product: Make sure that you have a product that consistently produces good profits for the business through all business cycles. It must have an edge in the market place.

Make wise decisions: Making decisions in business is what leaders do. You cannot be right all the time, but when a decision produces the wrong results, have an exit strategy in place to take care of it.

Plan, design, and implement: You will never know everything! Start as soon as possible to engage in the real market to learn what you do not know. The deed rather than the word is priceless!

Cut your losses: Accept that markets and situations can turn against you and your business. Cut your losses if they do. It is good to acknowledge that you were wrong. It is bad to get stuck in a losing situation, not knowing when to get out.

Expand the business: Expanding the business from one to two customers does not imply double the effort. Complexity grows exponentially as volume and capacity grows in the business. Understand this and deal with it appropriately!

Stick to your game plan: Make sure that your business has a game plan that works in all business cycles. Stick to it, and do not listen to “experts” when the going gets tough. Focus on your plan, and trust your experience and gut feelings.

Accept that tomorrow is another day: If you are not comfortable about a decision or situation, let it pass. Tomorrow is another day for business and profit.

Principles define the value system of individuals. Internalising and following these principles helps them to lead a business successfully.

IN CONCLUSION......

The principles presented in this article are the product of experience gained in running a commodity trading business, and come from having fast-track insight into how markets work on a daily basis.

Business is complex because it is driven by people who are emotional beings. In market movements the emotions of greed and fear are stirred, making it very difficult to be logical, consistent and rational about leadership decisions.

Leaders build a solid foundation for survival in all market cycles by acknowledging the emotions that drive our actions – but also by sticking to solid principles for business development and management.

Market movements are not new, and will continue to be part of our lives. Capitalism's first market boom was the Dutch tulip mania that started in 1633. The market went crazy as people pawned their houses and estates to buy rare tulip bulbs. And then fortunes were lost when the market crashed four years later.

We should get to know ourselves, learn from history and the world around us, and use it to build our capacity and capability as leaders. Only so will we lead our businesses to wealth creation for their stake-holders: our employees, their families, and our shareholders.

.....and this is the advice that still sticks when I look at business plans, strategies and implementation of Business Process Management initiatives -> we can't ignore the basics, or history !

Can you make a million from Open Source Applications ?

The first version of the Siyaka BPM center of excellence was born as an initial idea between the Department of Industrial Engineering, Computer Science and the Department of Science and Technology’s Tshumisano Trust (an initiative which I can never spell or remember how to spell correctly), based on my involvement with the department of trade and industry where we created a wholesale fund which was intended to fund small entrepreneurs (www.samaf.co.za). As part of my exposure to the LSM 1-4 market, I experienced the lack of funding and expertise in this market place, and also maybe how technology could/can contributed to their upliftment.

I was so inspired that I even got articles published on subjects such as “the MBA for the poor”, or “An Economic Development Model” etc. Going around industry trying to find solutions that were going to support this business case even proved harder to be. Coupled this with dynamics of Government, I eventually fled to where an entrepreneur would go – how to do with the least amount of money! Just before this I lost a couple of bar in an IT venture, so development of an IT solution was totally off – financially, physically and emotionally.

This only led to one path – the holy grail of IT : Open Source . With bits and pieces we wired a few servers together, went to the internet and downloaded from ERP to Business Intelligence to Workflow to Banking to whatever looked like it was going to provide a cheap alternative for creating a business application environment (you know; give Bill Gates and al those people a go!).

The hardest lesson learnt – the average Industrial Engineer doesn’t posses a degree in Computer Sciences; so it become extremely frustrating and lonely trying to get IT people to open source their time to implement these solutions (thus, no quick double click on an .exe file and there you go scenario). So in all honesty, the effort to make this work makes it extremely hard for open source applications to take off, except if its complexities become hidden in cloud computing and the user can use it for free or start paying if it takes off.

But not all in vain, in the past three years we have managed to get a number of OS applications to work, with the top scorer our OS Stack Architecture which we use to process our process intelligence queries. At the heart of it lies a reconfigured MySQL database which proved hard to be beaten from a speed and reliability perspective (and its free!). The worst experience – OpenBravo as an open source ERP application; after weeks I could only stare at a green screen with definitely not a user-friendly interface. Our content management system, Alfresco is cool, the Business Intelligence suite Pentaho powerful, but to create data cubes; back- breaking!

Simulation modelling? Yes I can show you OS that does this – but if you remember SIMAN/PASCAL programming under the wings of Prof Paul Kruger then you don’t want to return there, or go and live in Sweden to become a housebound programmer. So instead, we have started to find cloud computing applications to be rather helpful and easy to use, although you pay small amounts for certain functionalities. Here, I refer to something like www.gooddata.com which amazingly processes your data into a cube for analytics, although we have moved to the next level of simple to use applications such as www.sisense.com and www.processmodel.com – not expensive, but it does the job for an industrial engineer who wants to balance man, machine and money.