Business Entropy (eBook)

2Location and speed

The physicist Lord Kelvin is credited with the statement: "You can't improve what you can't measure." This applies not only to physics, but also to organizations. Edward Deming, the father of quality management, also applied the idea to management. He also coined the saying "In God we trust, all others bring data".

Why are figures, data and facts so important? They provide a good basis for decisions. Of course, some important factors cannot be measured. Nevertheless, decisions are often better if they are made in the knowledge of facts.

Imagine you want to bring about change in your organization. You create new tools, work on product modularization and change processes. All of this has a purpose: the organization should be more successful afterwards than before. But how can you assess whether you have achieved your goal? To do this, you need to know where the organization was yesterday, where it is today and where it wants to go.

This is precisely the task of key figures. Key figures try to express in numbers where the organization stands. Improvements to the processes should lead to an improvement in the key figures. The change in products and processes is a cause that has the measurable effect of improving the key figures.

Exactly this relationship between cause and effect can also be found in the classical mechanics of Galileo and Newton.

2.2Place and speed in physics

So let's start at the very beginning of modern science - with classical mechanics.

Kinematics explains what acceleration in space is. To this end, it examines time, location, speed, direction and acceleration in three-dimensional space. All of this is strongly based on the geometry of space.

Dynamics examines the different types of forces that act on point masses and accelerate them. Newton's axioms establish a connection between force as a cause and acceleration as an effect.

Kinematics and dynamics can therefore be used to predict the movement of particles in the presence of forces. The movement of the particles makes the causative forces observable.

The special thing about classical mechanics is its strict mathematization. Only very few physical observations are assumed as axioms; everything else is then derived strictly mathematically. If these axioms are true, the conclusions must also be correct.

This also helps when transferring the concepts to the world of organizations. If there is a plausible translation of space and time, then derived quantities such as distance, speed and acceleration can be translated purely mathematically. They are then also necessarily valid. This is precisely the strength of the axiomatic method of mathematics. It is based on axioms that are assumed to be true but cannot be proven. All conclusions then result purely from the logic of mathematics.

Let's take a closer look at the kinematics.

Space and time

Space and time are probably the most fundamental concepts in all of physics. All other concepts such as force and energy later build on them. Classical mechanics uses the non-curved three-dimensional Euclidean space, in which there is a uniform time. Today we know that this is only a simplification that does not apply to large speeds, masses or even the smallest objects. For our purposes, however, it is a good starting point.

What is a location in space? It can be said that a particle A is located at a time t1 at the location coordinates (x, y, z). These location coordinates are properties of particle A at a certain point in time.

Figure 1: An object A has the x-location coordinate x1 at time t1.

There is a special feature here: If the particle AB consists of several sub-particles A and B, then the composite particle AB has the same location as the sub-particles A and B (more precisely: it is located at the center of gravity of the system). For this reason, an atom is also located where the nucleus and the electrons are, and a molecule is located where the individual atoms are.

Figure 2: The composite object AB consists of the parts A and B, each of which has an x and y coordinate. The location of AB corresponds to the center of gravity of the locations of A and B.

We will discuss the concept of the center of gravity of composite objects in more detail later.

Speed

It is easy to move from the concept of location to the concept of speed. The velocity v describes the distance a particle travels in a certain period of time. The average speed is the quotient of the location difference and the time difference, i.e.

If you shorten the time span more and more up to the limiting case dt = 0 the instantaneous velocity is obtained. The following applies v = ds / dt therefore the first derivative is formed. Just like the location, the velocity is a vector and therefore has a direction and a magnitude.

Figure 3: An object A has the location coordinate x1 at time t1 and the location coordinate x2 at time t2. The speed is the distance in space divided by the time required.

Acceleration

Acceleration is defined as the change in velocity over time, i.e. a = dv/dt. Both the amount and the direction of the velocity can change.

In the simple case of acceleration a = 0 we speak of a rectilinear, uniform movement. Linear means that the direction is not changed. Uniform means that the amount of speed is not changed.

One of Galileo Galilei's great achievements was to clearly define the difference between velocity and acceleration. In everyday life, there are no straight, uniform movements, because various forces such as gravity and friction always change the velocity. However, it was only by formulating constant velocity as a reference point that acceleration and forces could be investigated in more detail.

Figure 4: An object A is moving. The speed between t2 and t3 is higher than between t1 and t2. The object is therefore accelerated.

The aforementioned concepts of location, velocity and acceleration are therefore related by derivatives and each represent vectors in three-dimensional space.

2.2The location and velocity of the organization

Key figures as a positioning tool for organizations

Where is an organization located? What are its coordinates at a certain point in time? Every organization can be characterized by key figures. If there are n key figures for an organization, it can be described by n values. The location of an organization is therefore the point in the n-dimensional key figure space. It can be specified as an n-vector.

Since there are any number of key figures, every organization has a different place in practice. No two organizations or teams are absolutely identical in all conceivable key figures.

What types of key figures are we talking about?

Key figure principle 1: Key figures for localization refer to a point in time, not a period of time.

If key figures are used to locate an organization in a key figure space, the key figures must relate to a point in time, not a period of time.

Turnover and profit are therefore not suitable as location coordinates because they are properties of a time period (such as a year) and not of a point in time.

Key figure principle 2: Key figures for localization must be relative values.

Secondly, they must be ratios. This is because the location of an organization with two departments should lie between the locations of the departments. This is not true for absolute values.

Equity is therefore not suitable because the values of two companies included in a group would add up and not result in an average value. The group would have a completely different location than the companies it contains.

Relative key figures that relate to a point in time (e.g. a reporting date) are therefore more suitable.

• Equity / number of employees
• Equity / share
• Equity / total capital
• Proportion of disabled persons / number of employees

Evaluations such as satisfaction are also possible, as composite organizations always work with the average instead of the total.

• Average employee satisfaction (because an average is calculated from quantitative evaluations)
• Average customer satisfaction.

The location of an organization therefore corresponds to the vector of its relative key figures.

Velocity of organizations

The velocity in the key figure space corresponds to the rate of change of a key figure.

Key figure principle 3: Key figures that relate to a period of time are velocities.

Key figures that refer to a time period must always include the time period (such as profit/employee/year). They are comparable to an average velocity. If an instantaneous velocity can be calculated from this by reducing the time period, the instantaneous velocity is obtained.

An example of a key figure is X = E/H = Equity/headcount. Let us assume that the headcount H is constant. If we compare the key figure at the end with the beginning of the year, the difference is dX = d(E/H) = dE / H = profit/employee. The speed in this coordinate is therefore dX / dt = the profit per employee per year.

It becomes somewhat more difficult if the denominator of the key figure changes. In this example, the number of employees could have doubled, but the equity is constant. Or both values change. Even...