What assumptions are we making that we do not know we're making?
Heard of Special Purpose Vehicles, a rather grim game of "hide and seek"? Seen this amateurish gaming of stock prices on the last day of last quarter? Ever wondered what a Structured Investment Vehicle is trying to hide? From "Hide and seek" to virtual poker games with real money, where does the games end and where does reality set in?
In order to understand, simulate and reproduce any natural phenomena we need a model, a theory. With that established, simulation can happen, understanding of cause and effect may occur.
But sometimes something unwanted happens: If the model is only approximative and there is money involved a tendency to game the model itself becomes very strong. We are after all humans. Homo Ludens that is.
To understand commerce, and even run commerce and industry we have developed a model, or rather a set of models where the most important one is called double-entry book-keeping, a 514 old model that tries to represent the transactions. Being rather coarse it soon required rules, regulations and referees - after all money is involved so the participants soon found ways to adjust, tweak and even cheat for their own gain.
And with rules duct-taping a two-pages-at-a-time paper based model representing reality what do we get? An increasing tendency to game the system of course. How much of the activity on Wall Street and in the City of London would you think is focused on gaming the system and how much is focused on fulfilling real life tasks like creating new products or repairing bridges? Anybody's guess I would say, but if you ask me, quite a substantial part being gaming the system. Certainly more money in gaming a system than in actually delivering a tangible value. Tangible values have the bad tendency of keeping the margins down, gaming the intangible and invisible has no limits.
Adding more rules will never change that reality. Deregulation or not, no real difference but the time-span before the model functionality is messed up again. Fair-value measurement standards, leverage ratio limits, no skin off my nose - it's all about the referee adding rules. Bailout, new rules, new referees and scared participants will forever be a part of it all. We'll sort this one out now, then we'll sit back and wait for the next one. And mind you, this is no Black Swan, this one is a Plain Goose returning from it's winter habitat. They fly off every now and then, then they return, that should not surprise anybody.
The current crisis is a game crisis, the best way to solve it is to stop the game, simply by moving the activity off the game pitch.
For this you have to look for a new model to represent reality more directly leaving less opportunity to game it. As you cannot create new models based on the old ones one has to start by dumping old models. I would suggest killing off the old Italian model as a good start and replace it with something slightly more modern.
Then of course, accepting the reality that we have the tendency to game any model, keep on refining the models instead of adding new rules.
Apologies extended to my old chums in the investment banking industry, it's not your fault, you've been in it just for the game.
The simplest concepts often take the longest to develop.
Writing, with hindsight, seems to be a stupendous simple concept, still it came into being very, very late in the history of mankind going through three distinct phases (so far): From very complicated and inflexible towards relatively simple and thoroughly flexible.
No doubt that the first practitioners found the power of writing extremely useful and defended their own exclusive use with all means - the most efficient one being "keep it complicated"! Thus the development was reined in, delaying the progress even more.
Keep this thought as you ponder the huge and complicated IT systems running big business today; could there be other reasons than technological for the lack of quantum leaps in development?
But first, how would I describe the concept of writing?
A representation of sounds or concepts and their sequence so spoken words or facts can be recorded, distributed and recreated.
And how would I describe the concept of enterprise software?
A representation of things or concepts and the sequence of things happening so activities can be recorded, distributed and recreated.
In it's most obvious form this would apply to process oriented software as is the norm for many Enterprise Systems. But in truth it does apply to all kinds of software as well, from photo manipulation to social networks - as every activity is a process, a sequence of things happening to be recorded, distributed and recreated.
Lets have a closer look at how writing developed, then compare it to the progress of enterprise software:
1. One to one representation - Logographies
The first natural step towards a writing system - pictures, logos, one symbol representing a full word or even sentence. Later this developed into mashups of two or more "logos" - say "house" + "man" = "home".
Simple as concept but soon becoming quite complicated and rather bloated, and definitely not very flexible - not much humour or poetry expressed, mostly accounting for real-world objects. Man owes four oxen and one pig type of prose.
Some have developed further and are still in use, Chinese characters comes to mind - beautiful to behold but it requires a Chinese literate to remember about 4,000 symbols.
2. Few to many - Syllabaries
The natural next step, the first effort to atomise the words by representation of sounds you hear clearly; syllables. With Syllabaries the power of recreation increased, the number of signs to remember decreased. Still rather complex, so not much humour nor love stories yet.
3. Fewest to everything - Alphabet
Eventually, with a quantum leap in inventiveness, a singular representation of the smallest real-world communication object; the single sound. Then relate each letter in linear sequence to form words that again relate to each other to form meanings.
The number of symbols decreased again and the number of words, sentences and meanings became limitless allowing for it to spread beyond the palace based scribes. At last humour and poetry came to life. And with popular use some of the power structures came under pressure, in fact the first alphabets and democracies happened at more or less same time and place.
Still not perfect though; it's lacking the ability to capture, distribute and recreate directly and simply the time context. That still requires many paragraphs in the right sequence and representation of many real world objects (both concrete and abstract), all in one place. Thus the media expanded from simple tablets, drinking cups and plates to scrolls and later books, documents and forms. Enter historic source analysis, misunderstanding, misrepresentation and, as is highly visible these days; twisted political ads in heated Presidential elections.
Now to the information technologies. Obviously IT started where writing left off, but there are progress parallels:
1. One to one representation - Documents, Forms and Transactions
Starting with the latest writing technology and representation methods; nothing more elaborate than representing the documents, forms and transactions as if they're first class objects was conceived. And that in simple terms is where we are. More or less.
Even an effort to move away from paper-forms in bits and bytes, replacing them with IT specific objects could not free itself from the old ways: Ask SAP what "BUS2089" is and you'll get the answer "Employee Trip Business Object". A single multi-object representation for a distinct abstract notion. Very Chinese.
With this model the number of "information representations" simply explodes, Chinese becomes real easy in comparison. It's usually called "information overflow" and the unscalable wall of complexity looms.
2. Few to many - Tags, Search, Non-double-entry book keeping
Now this is somewhat different from the Syllabaries, but still represents the next logical step forward.
The forms, documents and "business objects" still exist but tags and other metadata has been added so each representation makes more meaning. There's a clear drift towards this lately, and exemplified by Workday who even moved away from the pure context based transaction representation (double-entry book keeping methods).
3. Fewest to everything - Singular objects, Semantic relations, Activity flows
At last the documents and forms can be split into the smallest singular objects using relations and records of any change to allow for no limits to representation and recreation, the lowest possible complexity (exactly same as reality) and far fever symbols/functions/representations to remember. The technology exists, the mind lags.
As you would expect, this is what Thingamy is trying to do - introduce the software analogue to the alphabet with (currently) 29 "symbols" to represent any real world object, activity and time context.
But, "no model nor theory is 'right', there are only some that awaits being proven wrong". To get anywhere one have to work hard to prove the current "right" model wrong, then start the work to prove the next model wrong, rinse and repeat. No time for rest :)
In these tax return days, please raise your hands all who love accounting. Anybody?
Accounting - double-entry bookkeeping - transactions. Basically unchanged since 1494.
Did they have computers in 1494?
So why do we keep doing it the same way the Venetians did it?
The double-entry bookkeeping has one requirement: Register transactions.
When your product changes owner it's deemed to be a transaction. No, hang on, not always, you have differing rules there, from country to country, from year to year. So what you register as a transaction one year may not be a transaction the next. A moving target indeed.
In practice we try our best to reflect the transaction by a an invoice, a contract, a bill of transport or a receipt of delivery. Then that travels to the accounting department who's main purpose is to make educated guesses as to what bill, receipt or invoice best reflects what the tax authorities rules as that particular transaction in section 93, part 3, clause 34.
Next year clause 34 is amended and comparing last year's results with this year is like comparing apples and bananas.
In reality most of "how we do things" in business is a direct result of the 514 year old accounting method. It created the invoice, the bill-of-whatever, the report - no other need for such massive resource wasting documents and reporting requirements.
Then you have Enterprise Software, the stuff that has made the world's best and brightest production and retail companies amazingly efficient. Guess what principles these are built on. Yep, transactions. 514 year old methods nicely translated into efficient code. Not to mention the invoices, bills-ofs, documents and forms, yech.
Is that fair to the code? Is that really smart at all?
The thing is - I do not disagree with the concept, I merely disagree with how it's done, i.e. accounting as in methodology:
Today: You make up your mind as to what report or activity that best matches the current and local rules, then register that as a "transaction". Then you make best use of that piece of manipulated data, raw data with somebody's logic stuck to it. Any changes at a later date requires unsticking the transaction, reapply a different logic (rule) and stick it back into the system.
As a result you end up comparing apples with bananas, reconciliation bloating your OH and days, weeks or even months gaps between reality and reporting of that reality. (Nice way to architect a management control system eh? Drive a car by proxy.)
Tomorrow: Register what really happens when it happens, not the transaction but what really, really happens: Widget is created, widget is painted red, widget changes owner, widget leaves our warehouse. These activities are direct results of tasks, again results of work orders and all such can be captured. If your Enterprise Software is meant for that first and foremost (and not to exist in order to register transactions), well then you have the raw data onto which you can apply some logic in the form of templates at the back end: One for UK GAAP, one for German GAAP, one for last year's rules, one for this year's rules.
As a result you have only apples or only bananas, no reconciliation and real reports in real time. Drive with direct steering.
First step to better business, better use or resources, a greener world, better profits and more time for the family is - well, rather simple: Disentangle us from the 514 year old methods!
Good riddance to accounting as we know it. It will happen.
I believe we are making a huge and unconscious mistake in how we handle knowledge; how we capture, organise and distribute facts and information for assimilation. It might have a wide-ranging negative impact on all what we do, and I think we should do something about it.
Knowledge is the source of our wealth, well-being, and hope for the future.
Knowledge is facts, information and skills acquired by experience or education.
Thus the most important aspect of knowledge is how and in what form it is captured and distributed for the most efficient assimilation.
As we cannot have all knowledge in our personal RAM at all times we need systems and ways to have the right information and facts delivered at the right time, and in a form that we immediately understand - preferably without any previous and specific training.
That is what makes organisations work better, that increases global wealth and well-being, in short, that yields more efficient resource use.
And in practice it's about the single most important aspect for education, knowledge management, politics, global warming, enterprise software and almost anything else. Do not underestimate the importance of how knowledge is handled.
Let me keep it simple and divide the handling methods into two distinct ways:
When asked "what word is the odd one out among these three - cow, chicken, grass" and your answer is "grass" - then you lean towards organising life by Categories.
Also known as taxonomies, hierarchies, tags, classes, branches and similar.
That's when you want to acquire some knowledge about the honey bee and find that it has a latin name - Apis mellifera - mellifera for "honey" of the family "apis" for bee, with no less than 10 more super-categories and you really need to be a highly trained zoologist to assimilate the official knowledge.
Tag this post with "education", and someone looking for tuition fees might read it, not precisely what you meant.
Categories are nouns, they are boxed, limited and requires training and acceptance and belief that the definitions are "right".
Categories are dogmatic as in "accept it" and quite theoretical as in taxonomies based on the male reproductive organs.
Categories requires distribution of common rules and understanding of what each category entails, without that knowledge categories are rendered useless. Or worse, it becomes a source of discord and destruction. This requirement was perhaps always one of the driving forces for the educational system, second only after the historic need for dogmatic religious training.
When asked "what word is the odd one out among these three - cow, chicken, grass" and your answer is "chicken" - then you lean towards organising life by Relationships.
When we observe that "honey bees" fly, "honey bees" gather nectar, flowers produce nectar, nectar attracts bees, bees get covered by pollen, pollen is brought to other flowers by bees, nectar is converted to honey by the bee... we establish Relationships.
Relationships are endless collections, a web where relationships can easily be followed without training nor much education, and that still could diffuse more precise knowledge about the bee and all that it touches directly or indirectly than any strictly logical taxonomy could do.
That's when you may do a (IT based of course) multilevel query of the full population of all IBM'ers (if you work there) for: "Everyone that know C++, speak Italian, have friends that live in Rome and where those friends ride bikes and have a bike my size to lend out".
Relationships describe how a cup needs liquids and a mouth, thus makes it a cup.
That's how children learn, they observe and "get" the relationship between the objects in their vicinity. That's how our mind works, empirical, learn from observation.
Relationships are verb phrases, based on real activities. It's pragmatic and not theoretical and have no boundaries as the relationships links everything in one way or the other.
Relationships are human in form while still useful for all other things, after all, all relates to the observer, the human being.
In your daily life you would say "Chanterelles are yellow, look like beakers and are really good when sautéed" instead of "Cantharellus cibarius of cantharellaceae family of the Basidiomycetes class". Relationships instead of Categories is what comes natural, and the listener does not have to be a highly trained mycologist.
Not so at work with it's category-based forms and questionnaires and hierarchical positions. Heck, even archiving, the high priesthood of categorising is a proper profession!
So why do we still bother with the Category method if the Relationship method is better in all aspects?
Because of technological limits. Organised life required organised facts and information, and for that technology had to be employed.
Categories worked well in the two-dimensional reality of pen and paper where the multidimensional Relationships could not easily be represented. So frameworks suitable for paper were devised - taxonomy, organisational hierarchies, narrative reporting, accounting and even the last kid to the block, tagging.
But now, yep, Relationships are "made for" modern information technology with its ability to represent multiple dimensions and query links for any number of steps with great speed.
Time to refocus on the single most important issue in all what we do: How we capture, distribute and assimilate facts and information - in short how we handle knowledge.
Make that better, then the rest follows - economic efficiency, better resource use and simplified and better educational methods.
Relationships, not Categories, will save the planet.