Terminology Related Techonomics

Acceptable Risk.

Every activity carries some degree of risk for economic or
physical injury. Acceptable risk defines the severity and probability of
injury an organization is willing to tolerate for a given activity in order
to receive the benefits offered by that activity. No risk, no reward. Too
much risk, too much liability.

Automated Bureaucracy.

This is a system in which policies and procedures
have been implemented with intelligent machines rather than human labor.
Best Practices.

The most cost- or labor-effective approaches to endeavors developed
by an industry. Smart competitors learn from others and often
embrace best practices to improve their own operations.

Burdened Labor Rate.

The total cost of human labor including wage rate, all
benefits costs (health insurance, retirement plan, etc.), and employment
taxes (Social Security, unemployment tax, workman’s compensation, etc.).
Burdened labor rates can exceed wages by 50 to 100% in the hidden
economy of mandated benefits.

Business Process Outsourcing (BPO).

The systematic development of a provider
network to perform the basic activities associated with fundamental business
operations: accounting, distribution, record keeping, etc. BPO is a
subset of outsourcing, referring to the information-based activities fundamental
to business operations.

Capital.

Money, particularly as used to fund the productive capacity of organizations.

Capital Formation.

The process of acquiring capital for an organization. Capital
formation is easier in markets with a track record of return on investment
and consistent legal policies.

Chained Dollar.
A measure of inflation based on annual purchase of an equivalent
“basket” of household goods. Instituted in 1996 to replace the inflationadjusted
dollar, the chained dollar benefits from a built-in electronics cost
reduction resulting from the effects of Moore’s Law.

Coase-Downes-Mui Law.
The Law of Increasing Productivity results from considering
Coase’s transaction analysis along with the effect of “perfect
information” noted by Downes and Mui.

Comparative Techonomic Metric.
A measurement combining technical performance
and cost to compare alternative means of performing the same
endeavor. Comparison might be between different manufacturing plants,
different materials, or different processes all producing the same product.
The goal is to determine the best approach (find the “best practice”).

Competition.
A force resulting from the free market in which multiple organizations
perform the same, or very similar, endeavors for commerce. Competition
is the impetus behind techonomic evolution: it causes best practices
to be developed and embraced, leading to greater productivity.

Consumer Price Index.
A measurement of inflation, annually adjusted, used as
a benchmark for the condition of the economic system.

Continuous Improvement.
An operational philosophy seeking to promote
progress and productivity by constantly advancing operating techniques
based on innovation and incorporation of marketplace best practices.

Cost-of-Living Adjustment.
A financial adjustment in entitlement and employment
agreements that increases these payments every year based upon
changes in the Consumer Price Index or other accepted measures of
inflation.

Customer Labor Component.
In an effort to minimize labor costs, producers
have systematically automated manufacture and shifted some labor components
to the customer (“some assembly required”). Franchises are
exceptional at this, with customers responsible for checking out, serving
their own food, and bussing their own tables.

Digital Omniscience.
A hypothetical condition (but one drawing nearer to reality
all the time) in which communications networks become so pervasive,
and computationally capable, that networked computers know everything
about everyone.

Earnings.
Profits an organization receives for performing an endeavor (basically,
revenues – expenses).

Endeavor.
The output of the organization: products, services, or other activities
that create exchangeable value. Transactions spring from the exchange of
endeavors between organizations.

Endeavor Cash Flow.
The measurement of capital and its time value use in the
process of performing an endeavor.

Franchise Effect.
Franchising is a method of organizational growth that consists
of replication of successful “units.” Local operational models are perfected
and multiplied regionally, nationally, and internationally to grow an
organization, while operations in each new location are kept small and
efficient.

Free Cash Flow.
At the completion of an endeavor, this value is the revenue
minus the cost of production including any capital expenses (facilities and
equipment) necessary for production. Free cash flow does not include
consideration for the time value of money as endeavor cash flow does.

Free Market.
Free market commerce is characterized by multiple suppliers,
domestic or international, with equal opportunity to transact business.

Frictionless Economy.
“Frictionless” economy refers to an ideal condition where
perfect information about all supply source possibilities is readily available.
A frictionless economy enjoys abundant information and no procurement
boundaries (tariffs, prohibitions, etc.).

Globalization.
Globalization refers to the increasing connectedness of the world’s
markets, businesses, and production networks. This increase in the distributed
nature of production results directly from the three primary laws
of techonomics: increasing computational capability, increasing communication
connectivity, and increasing productivity of organizations.

Gross Domestic Product (GDP).
This value is the sum of the economic value
of all goods and services produced annually by a nation.

Hand-Held Convergence.
The merging of all communications and media devices
into a single, portable, wireless unit including cell phone, music, radio,
television, Web access, photography, videography, and e-mail.

Hedonic Correction.
An adjustment to the GDP based on the utility of goods
produced rather than the actual money generated from the exchange of
those goods. Due to Moore’s Law, this correction accounts for an everincreasing
contribution to the GNP by technology advance that is not
substantiated by cash flow from purchases.

Hidden Costs.
Hidden costs are all the expenditures for a transaction in addition
to the actual price. These include costs of switching, finding, rejection,
rework, disruption, etc.

Historic Techonomic Metric.
A measurement comparing the current technology
output per unit measure relative to the same production at different points
in time. Because of the limited timeframe for currency relevance, these
measurements typically must use an economic component other than
dollars. Production measurements relative to labor hours, land use,
material consumption, etc. form the basis for historical comparison of
techonomic progress.

Inflation-Adjusted Dollar.
A traditional measure of inflation based on yearly
purchase of basic commodities without correction for technology advance.
Interdependency.

This term is the opposite of self-sufficiency. This is the concept
of community wherein all members produce and exchange endeavors with
others in order to survive and prosper.

Just-in-Time Delivery.
JIT is a manufacturing process where supplies are provided
only when needed, eliminating large inventories, storage facilities,
or extensive amounts of work in progress.

Law of Increasing Productivity.
This term is
synonymous with the Coase-
Downes-Mui Law and the Third Law of Techonomics. This Law predicts
continuing improvement in productivity due to transaction analysis powered
by perfect information.

Law of the Mean.
All things tend toward an average unless external forces
maintain a difference.

Law of the Ubiquitous Global Network.
Synonymous with Metcalf’s Law and
the Second Law of Techonomics, this Law predicts the World Wide Web
will continue to grow until every person, and most objects, become addressable
on a wireless, ever-present network.
Law of Ubiquitous Computing.

Synonymous with Moore’s Law and the First
Law of Techonomics, this law predicts incorporation of intelligent microcomputers
into an increasing array of products as microprocessor cost
diminishes exponentially. Virtually every product will be “smart” and
getting smarter all the time. Human intellect will add less value to the
bureaucratic or “standardized” workplace, and more to pure research,
technological innovation, and creativity of all sorts, as machine intelligence
automates more labor.

Lean Organization.
A business that has trimmed most of its organizational
overhead by outsourcing support functions to the most effective supplier.

Macro-Multinational.
This term refers to a very large multinational firm that
exhibits the characteristics of a nation because of the extent of its operation,
revenues, and global influence.

Make-or-Buy Decision.
In transaction analysis, a layman’s term referring to the
decision about the most effective way to carry out an endeavor. Basically:
Shall I do task X myself or hire someone to do it for me, so I can
concentrate my efforts and resources elsewhere?

Mass Customization.
A manufacturing process wherein the customer chooses
the configuration of a sophisticated final product, and the manufacturer
makes it to order. Twenty-first-century business networks and electronic
data interchange make this mode of operation possible on a scale never
before conceivable.

Media Convergence.
The merging of all entertainment information into a single
delivery platform: television, music, video games, Internet, etc.

Metcalf’s Law.
Named for the observation of Bob Metcalf, founder of 3Com,
this law is the mathematical observation that the connections on a network
grow exponentially relative to the number of users. (Connections = 0.5
×
(X
2
– X), where X is the number of nodes.)
Metric.
A measurement developed from available data to monitor a key performance
trend.

Micro-Multinational.
This term refers to a start-up company with a core leadership
team, typically in the U.S., leveraging international labor for development
and manufacture in order to minimize the capital needed for
starting and expanding operations.

Moore’s Law.
Named for Gordon Moore after an observation he made in a 1965
technical paper. He stated that electronic transistors would be packaged
twice as densely every 18 months, hence reducing their costs or increasing
their performance proportionately.

Organic Evolution.
A theory stating that living organisms sprang from a common
ancestor or a few ancestors and, over the eons, morphed into the diverse
life forms observable today. This occurred through a continuing process
of mutation and natural selection (the environment favoring survival and
reproduction in organisms possessing even slight mutations/differences
that helped them in some way: slightly better eyesight, speed, coloration,

etc.). As used here, the term is synonymous with Darwin’s Theory of
Organic Evolution.

Organizational Evolution.

A theory about the progress of organizations that
states they advance in a process similar to the one proposed by Darwin
for organisms. Technology causes mutation; the economy serves as the
environment; competition provides the filter for natural selection; adaptive
organizations grow and prosper; dysfunctional organizations die. Over
time, organizations become more efficient and productive as they evolve
to improved operational structures. In this book, the term is used synonymously
with the Techonomic Theory of Organizational Evolution.

Organizational Span of Control.

This is based on the number of individuals
reporting directly to the next level of organizational management. The
span of control is low (< 7) in a vertically integrated and traditionally
managed organization. The span of control is large in a “flat” organizational
structure where personal control is augmented by electronic communication
and performance management.

Outsourcing.
Transferring endeavors from internal performance to an external
supplier. With “perfect” information, the impediments to procuring goods
from external sources are minimized or eliminated, leading organizations
to more purchasing (external) rather than internal production.

Natural Selection.
The process wherein organisms compete for life resources in
order to survive and are favored in their environments, or not, due to their
characteristics (see Theory of Organic Evolution). Natural selection, also
known as the survival of the fittest, plays a pivotal role by winnowing out
organisms that are unable to successfully compete, leaving the stronger
organisms to procreate and produce the next generation.

Planned Obsolescence.
A design technique used to estimate the useful life of a
product and create the design specifications, and hence the end product,
around the desired useful life of the product.

Perfect Information.
Absolutely perfect information for making decisions would
be free, complete, accurate, timely, and actionable data. This is an ideal,
but the closer the approach to this information, the higher the confidence
in decisions. Perfect information favors outsourcing in the make-or-buy
decision.

Performance/Cost Ratio.
Techonomic metrics combine elements of technology
measure with economic considerations. Performance/cost ratios can be
used for comparing stock values, manufacturing processes, resource use,
etc.

Positive Cash Flow.
The time difference between receipt of customer’s money
and requirement to pay suppliers can provide money to an organization.
If an organization’s endeavor is sale of computers, for example, that
organization may receive a customer’s money months before payment is
due to vendors who supplied the computer’s components. Online ordering,
mass customization, and favorable supplier terms lead to enhancing positive
cash flow.