# Information Management and Organizational Entropy

https://www.youtube.com/watch?v=ksdoWzmPGZ0

[00:01] My lecture today is a follow up on my research where I have demonstrated that there is absolutely no correlation between it spending and profitability or productivity.
[00:15] So the question then is, what's the magic reason why you would want to spend money on it?
[00:21] And the answer is structural, you have to learn about the structure of organizations to see whether they're effective or not.
[00:28] Once in a while when I despair about uh progress uh I go to my living room and pick up this stone.
[00:37] I obtained this thing from Professor leaki, the famous Anthropologist.
[00:43] Uh, this is about 450,000 years old, plus minus 50,000 from Kenya.
[00:49] Uh, this is perhaps the oldest artifact created by a human being.
[00:55] And the question then is, how did we get humanity from this to what you are?
[01:04] Humanity from this to what you are learning every day and the answer to
[01:07] learning every day and the answer to that is
[01:08] that is organization the the whole evolution of
[01:12] organization the the whole evolution of mankind is one of increasing level of
[01:16] mankind is one of increasing level of ordering relationship and creating
[01:20] ordering relationship and creating complexity and uh in fact uh when you
[01:24] complexity and uh in fact uh when you look at
[01:25] look at physics uh the theory of thermodynamics
[01:28] physics uh the theory of thermodynamics tells you that uh uh entropy namely a
[01:32] tells you that uh uh entropy namely a lack of organization is the nature of
[01:35] lack of organization is the nature of the universe and that organization will
[01:39] the universe and that organization will dissipate and disintegrate unless
[01:43] dissipate and disintegrate unless organized um the same theory in fact of
[01:46] organized um the same theory in fact of entropy and application of the laws of
[01:49] entropy and application of the laws of physics were applied by Claude Shannon
[01:52] physics were applied by Claude Shannon to the fundamental uh principle of
[01:55] to the fundamental uh principle of information
[01:56] information Theory um and that is really the issue
[02:00] Theory um and that is really the issue today of what information management is
[02:03] today of what information management is all about uh how do you measure the
[02:08] all about uh how do you measure the degree to which information technology.
[02:14] has organized a corporate body or a society and that means that you have to really apply what physicists use to measure entropy.
[02:22] namely to measure the randomness in the system measure the loss of information in a message which is really the Shannon Claud Shannon theorem.
[02:33] and of course looking at deterioration in performance which invariably happened all organizations deteriorate.
[02:39] now whether it is the Egyptian Empire the Roman Empire uh the uh the uh Soviet Empire and so forth.
[02:49] these are all aggregations trying to create an aggregation of organization and without proper care and allocation of resources they disintegrated.
[02:59] so what I would like to now do today is to present you with a new theorem of what it is all about.
[03:05] it is really how you
[03:09] about it is really how you organize uh groups of people Nations.
[03:15] organize uh groups of people Nations societies and so the polarity.
[03:18] societies and so the polarity between uh it whether it's effective or not.
[03:25] not is really the difference between disorder and integration.
[03:27] disorder and integration now that is very uh Loosely uh it's a generality that really doesn't tell you very much about the techniques.
[03:39] tell you very much about the techniques that you have to use to deal with the subject of organization.
[03:43] organization um when you look at any body of a corporation or a government agency or a university you find that the organization is always full of conflicts.
[03:58] there are conflict icting Trends goals strategy requirements change in scope processes Standard Security etc etc a long list uh that consultants make a
[04:10] long list uh that consultants make a good living on and professors write books about.
[04:17] so the question then is not about these individual things that you may be learning.
[04:22] the question is how is it put together and most importantly how do you measure it because if you cannot measure it uh as Lord Kenville said Kelvin said you don't know what you're talking about.
[04:37] so what I will be doing today is I'm going to present you some new metrics of organization or disorganization.
[04:46] now the problem with that is that these kind of data is very hard to come by.
[04:53] luckily uh for the last two years the Office of Management and budget has forced on various government agencies to submit so-called form 300 which is in the public domain you could look at it and uh uh for the Department of Defense which I have some knowledge of uh they
[05:12] which I have some knowledge of uh they have listed 4,121.
[05:16] 4,121 projects which means you have now a proxy for organization in the mirror that is cast by 4,121 projects.
[05:25] by the way the budget for next year is 30.1 billion and it accounts for 19.5% of the compensation for both civilian and service employees.
[05:39] so we are talking about a significant indicator and so what I'm going to do now what anthropologists have always done is when you want to judge what happened to A Primitive Society you look at the Pebbles or the pottery or the burial Customs or the weapons or or or whatever I will be using uh metrics that relate to information disorganization and my case that I'll be presenting today will deal with the organization and disorganization of the
[06:14] organization and disorganization of the Department of Defense specifically what Department of Defense specifically what does the $3.1 billion tell you about uh does the $3.1 billion tell you about uh the degree to which Information the degree to which Information Technology does impact the structure Technology does impact the structure the the cohesiveness of that cohesiveness of that body okay so body okay so far everybody far everybody okay does anybody want to interrupt okay does anybody want to interrupt before I really plunge now into the before I really plunge now into the nitty-gritty the nitty-gritty the details would rather somebody do details would rather somebody do something else it's beautiful day outside well if you want to do some outside well if you want to do some heavy lifting so here we heavy lifting so here we go um when you look at the taxonomy that go um when you look at the taxonomy that the Office of Management and budget the Office of Management and budget provided and they for each project for provided and they for each project for each of the each of the 4,121 project they have a long line 4,121 project they have a long line including budgets for uh 01 02 03 04 05.
[07:15] including budgets for uh 01 02 03 04 05 06 07 so you have a Time series.
[07:18] 06 07 so you have a Time series and then for each of those line items.
[07:21] series and then for each of those line items you have approximately 32 qualifiers.
[07:24] qualifiers who is spending it how they are spending what is the function etc.
[07:27] are spending what is the function etc etc what I have done is I have taken the budget category.
[07:31] etc what I have done is I have taken the budget category which describes what I consider the most simplified description.
[07:34] budget category which describes what I consider the most simplified description of entropy.
[07:35] which describes what I consider the most simplified description of entropy that can be understood by anybody.
[07:37] describes what I consider the most simplified description of entropy that can be understood by anybody and I learned it from the Marine Corps.
[07:40] consider the most simplified description of entropy that can be understood by anybody and I learned it from the Marine Corps the Marine Corp views everybody in terms of are you teeth or are you tail.
[07:44] the most simplified description of entropy that can be understood by anybody and I learned it from the Marine Corps the Marine Corp views everybody in terms of are you teeth or are you tail so the teeth tail ratio is really an expression.
[07:45] description of entropy that can be understood by anybody and I learned it from the Marine Corps the Marine Corp views everybody in terms of are you teeth or are you tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory.
[07:47] entropy that can be understood by anybody and I learned it from the Marine Corps the Marine Corp views everybody in terms of are you teeth or are you tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth.
[07:50] anybody and I learned it from the Marine Corps the Marine Corp views everybody in terms of are you teeth or are you tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite.
[07:54] Corps the Marine Corp views everybody in terms of are you teeth or are you tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[07:57] terms of are you teeth or are you tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:02] tail so the teeth tail ratio is really an expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:04] expression a mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:06] mathematical expression of Shannon Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:09] Theory and of course the purpose of a defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:12] defense organization is to have teeth and then once in a while go and bite but you have first you must have teeth so.
[08:15] and then once in a while go and bite but you have first you must have teeth so.
[08:17] you have first you must have teeth so the first question you can ask by
[08:21] the first question you can ask by using classification that they were
[08:24] using classification that they were submitted to om I will not comment now
[08:27] submitted to om I will not comment now on the bias how people uh record this
[08:30] on the bias how people uh record this thing I'm just saying on face
[08:33] thing I'm just saying on face value uh
[08:35] value uh 585 projects out of
[08:38] 585 projects out of 4,121 were classified as teeth or
[08:41] 4,121 were classified as teeth or supporting the warf fighter in other
[08:44] supporting the warf fighter in other words 7.6 billion
[08:49] 25.4% of the budget is
[08:52] 25.4% of the budget is teeth uh so by subtraction of course
[08:56] teeth uh so by subtraction of course that tells you that 74
[08:59] that tells you that 74 six is
[09:01] six is tail now the interesting thing then is
[09:04] tail now the interesting thing then is all
[09:05] all right um is this a good ratio and uh I
[09:10] right um is this a good ratio and uh I also have a huge database from the
[09:11] also have a huge database from the corporate world and a company that would
[09:14] corporate world and a company that would have a low teeth to toe ratio would
[09:19] have a low teeth to toe ratio would actually go.
[09:20] actually go bankrupt because what you're basically.
[09:22] bankrupt because what you're basically seeing in these numbers is that for.
[09:25] seeing in these numbers is that for every dollar's worth of teeth there is.
[09:27] every dollar's worth of teeth there is $3 and half dollar worth of tail so this.
[09:32] $3 and half dollar worth of tail so this is brontosaurus you know or or.
[09:35] is brontosaurus you know or or tyranosaurus.
[09:36] tyranosaurus head with lots of teeth but this big.
[09:39] head with lots of teeth but this big body you know which is.
[09:42] body you know which is vulnerable 51% of the total.
[09:46] vulnerable 51% of the total money in the budget or 1,891 project is.
[09:51] money in the budget or 1,891 project is spent on.
[09:53] spent on infrastructure this is an unbelievable.
[09:58] infrastructure this is an unbelievable number and the reason why this is.
[10:00] number and the reason why this is unbelievable is.
[10:02] unbelievable is because uh infrastructure excessive.
[10:06] because uh infrastructure excessive infrastructure cost are clearly an.
[10:09] infrastructure cost are clearly an indicator of chaos and the reason is.
[10:12] indicator of chaos and the reason is there is no way to talk about data.
[10:15] there is no way to talk about data Centric and network Centric operations.
[10:20] Centric and network Centric operations if there is
[10:21] if there is 1,891 foms all protecting their little
[10:25] 1,891 foms all protecting their little budget and their little Consulting
[10:27] budget and their little Consulting contracts through which you have to
[10:28] contracts through which you have to thread
[10:30] thread your your
[10:32] your your Communications so clearly uh uh any
[10:39] Communications so clearly uh uh any ratio of
[10:40] ratio of infrastructure that is in excess of 20%
[10:44] infrastructure that is in excess of 20% and by the way that number is declining
[10:46] and by the way that number is declining because when you look at internet the
[10:48] because when you look at internet the internet infrastructure which is
[10:50] internet infrastructure which is infinitely scalable is incredibly
[10:53] infinitely scalable is incredibly cheap uh my estimate is the internet
[10:56] cheap uh my estimate is the internet infrastructure cost maybe 2 to 3% of
[10:58] infrastructure cost maybe 2 to 3% of total spending if that much
[11:02] total spending if that much okay
[11:03] okay so and I will discuss why this is
[11:07] so and I will discuss why this is so the rest of the uh money is spent on
[11:12] so the rest of the uh money is spent on Finance and Accounting
[11:15] Finance and Accounting 643 Million worth of bean
[11:18] 643 Million worth of bean counting the HR people spend an
[11:21] counting the HR people spend an incredible 2.2 billion um and then you have uh 1.4 billion dollars allocated to planning and budgeting which is sort of Glorious Finance anyway.
[11:36] it's number number shuffling so um all I want you to know is that when you look at the structure of DOD and by the way this analysis can be applied to any other department uh Homeland Security would be a good homeand homework assignment the same for 300 is available and and so you can uh really dish that out as a really a uh term paper people actually may get jobs from that with Consultants of course well-paying jobs now so far what I have given you is in fact the
[12:22] far what I have given you is in fact the best best case.
[12:24] the reason it's a best case is that.
[12:28] case the reason it's a best case is that although infrastructure has been identified as 51% of the cost when you look inside let's say financi accounting.
[12:30] although infrastructure has been identified as 51% of the cost when you look inside let's say financi accounting.
[12:33] 600 over half a billion dollars they have their own infrastructures as well.
[12:36] look inside let's say financi accounting 600 over half a billion dollars they have their own infrastructures as well.
[12:39] have their own infrastructures as well so what shows up is infrastructure in fact is only part of the infrastructure cost but that is not all.
[12:42] so what shows up is infrastructure in fact is only part of the infrastructure cost but that is not all.
[12:45] fact is only part of the infrastructure cost but that is not all.
[12:51] cost but that is not all when you look at the fact that the form 300 Only includes what is declared as it which is $3.1 billion there is an additional approximately $160 billion of stuff that is embedded in weapons and that is avionics that is.
[12:53] all when you look at the fact that the form 300 Only includes what is declared as it which is $3.1 billion there is an additional approximately $160 billion of stuff that is embedded in weapons and that is avionics that is.
[12:58] form 300 Only includes what is declared as it which is $3.1 billion there is an additional approximately $160 billion of stuff that is embedded in weapons and that is avionics that is.
[13:03] as it which is $3.1 billion there is an additional approximately $160 billion of stuff that is embedded in weapons and that is avionics that is.
[13:09] additional approximately $160 billion of stuff that is embedded in weapons and that is avionics that is.
[13:13] billion of stuff that is embedded in weapons and that is avionics that is.
[13:19] billion of stuff that is embedded in weapons and that is avionics that is.
[13:22] weapons and that is avionics that is part of command and control which is part of command and control which is embedded in the combat information embedded in the combat information centers.
[13:30] centers so they all have their own infrastructures and so there is a whole hunk out there nobody has been able to estimate how much it there is in there.
[13:42] estimate how much it there is in there the last estimate I received was from a u assistant Secretary of command and control the assistant secretary CIO of Department of Defense who said stman when you see a dollar spend reported on form 300 it's like cockroaches you go to the basement and you see three cockroaches there's more than three cockroaches in the basement.
[14:05] now the question is how do you estimate what is the sampling technique for estimating it money which doesn't show up on the form 300 I don't know the best estimate is that at least it equals the $30 billion so we are talking about
[14:22] the $30 billion so we are talking about a 60 to 90
[14:25] a 60 to 90 billion cost for information technology
[14:29] billion cost for information technology to support a $400 billion it uh budget
[14:33] to support a $400 billion it uh budget of the Department of Defense clearly uh
[14:36] of the Department of Defense clearly uh that's where the jobs are and you're
[14:38] that's where the jobs are and you're studying on the in the right subject and
[14:41] studying on the in the right subject and you know there's lots of scholarships
[14:44] you know there's lots of scholarships and U and mortgages to be supported from
[14:47] and U and mortgages to be supported from that kind of
[14:48] that kind of money
[14:50] money um what is intriguing however is that
[14:54] um what is intriguing however is that the um the um ra the tooth to tail ratio
[14:58] the um the um ra the tooth to tail ratio does vary from from
[15:01] does vary from from service um the
[15:05] service um the highest uh infrastructure cost is the
[15:08] highest uh infrastructure cost is the air force uh their infrastructure
[15:11] air force uh their infrastructure consumes
[15:12] consumes 61% of their
[15:14] 61% of their budget the Army has the lowest because
[15:17] budget the Army has the lowest because the Army has been working this thing
[15:21] the Army has been working this thing longest now structure structure is very
[15:25] longest now structure structure is very important now that I've given you the important now that I've given you the aggregate numbers.
[15:29] aggregate numbers uh you have to now look at the uh you have to now look at the qualitative aspects of these numbers and qualitative aspects of these numbers and you say well what is the distribution.
[15:37] you say well what is the distribution pattern of these infrastructure pattern of these infrastructure costs and you then can draw a histogram.
[15:46] costs and you then can draw a histogram you you you have software here to do you you you have software here to do histograms okay well you you get these.
[15:52] histograms okay well you you get these unbelievable interesting left skewed unbelievable interesting left skewed histograms which I have in front of me.
[15:57] histograms which I have in front of me here uh here uh um the um the um bulk of the.
[16:02] um bulk of the project have a budget of less than $2 project have a budget of less than $2 million.
[16:09] million now $2 million in the Department now $2 million in the Department of Defense if you know anything about.
[16:14] of Defense if you know anything about the Department of Defense is what's the Department of Defense is what's called.
[16:17] called maintenance okay you know just the just just the Contracting process takes about.
[16:22] just the Contracting process takes about half of it and I see somebody.
[16:25] half of it and I see somebody knowledgeable here on this subject.
[16:27] knowledgeable here on this subject smiling is that correct?
[16:29] smiling is that correct yeah and half is lucky it's a good number.
[16:32] so what you see here is a highly skewed distribution.
[16:37] and that is there are only 30 projects in the entire Department of Defense.
[16:45] that are in my opinion over the critical math to do any qualitative change.
[16:52] there's only 30 projects like that so what you see here is a fractionated infrastructure.
[17:00] and the moment when you see money dissipated in little pieces to take care of the local um operations in the of the local um foms in the local bureaucracies you will find that you've created a sociological environment that will foster and promote uh local solutions.
[17:25] so if you have that kind of a
[17:28] Solutions so if you have that kind of a left skew distribution the idea to talk.
[17:31] Left skew distribution the idea to talk about Network integration Network.
[17:34] About Network integration Network Centric Communications from the.
[17:37] Centric Communications from the battlefield all the way down to.
[17:40] Battlefield all the way down to acquisition and.
[17:42] Acquisition and the data Centric environment that.
[17:46] The data Centric environment that everybody talks about namely that the.
[17:49] Everybody talks about namely that the information available in a ditch outside.
[17:54] Information available in a ditch outside some godforsaken Village somewhere where.
[17:58] Some godforsaken Village somewhere where somebody is called calling for support.
[18:01] Somebody is called calling for support and you expect that message to come.
[18:04] And you expect that message to come through the various.
[18:05] Through the various echelons the.
[18:07] Echelons the fractionization of the infrastructure.
[18:11] Fractionization of the infrastructure will absolutely assure that unless you.
[18:14] Will absolutely assure that unless you have enormous amount of.
[18:16] Have enormous amount of Labor and error correction and.
[18:18] Labor and error correction and supervision the message will not get.
[18:22] Through so now now that I have described.
[18:25] Through so now now that I have described to.
[18:26] To you uh the tonomy taxonomy the the.
[18:30] you uh the tonomy taxonomy the the structure of of the analysis and there's structure of of the analysis and there's lots of details of course behind it um
[18:37] lots of details of course behind it um let me go into the issue of how to solve the problem
[18:44] okay um when you look at history and you know again and again when you examine historical events uh you will find that the infrastructures get answer is and it almost requires either a ability to reform from within which is very rare or it requires a grand design and architecture like the US Constitution to put in a sufficiently flexible structure that will allow the evolution to take place through feedback uh separation of powers and so forth
[19:28] so the Christi in the the information age is what is the
[19:31] information age is what is the Constitution what is the Constitution what is the algorithm for dealing with a phenomena
[19:38] algorithm for dealing with a phenomena of growing
[19:40] of growing complexity and growing
[19:43] complexity and growing cumbersome and the answer is really that
[19:47] uh the fundamental flaw in the infrastructure lies in one element and
[19:51] infrastructure lies in one element and one element only which is
[19:53] one element only which is data if you don't get the data right
[19:55] data if you don't get the data right you will just have to patch and fill and
[19:59] you will just have to patch and fill and splice and integrate and interfac and
[20:03] splice and integrate and interfac and middleware and all of those other good
[20:08] middleware and all of those other good things you are taught here so what you
[20:10] things you are taught here so what you will do is if the data isn't right to
[20:13] will do is if the data isn't right to begin with and uh there is what's called
[20:16] begin with and uh there is what's called promiscuity in how data gets generated
[20:20] promiscuity in how data gets generated and disseminated and
[20:24] and disseminated and aggregated and you are going to have a
[20:26] aggregated and you are going to have a phenomena that is going to cause the
[20:31] phenomena that is going to cause the proliferation of the infrastructure and
[20:34] proliferation of the infrastructure and the overhead
[20:35] the overhead cost now that has been recognized I just
[20:39] cost now that has been recognized I just want to point out to you that the
[20:42] want to point out to you that the Department of Defense Once Upon a Time
[20:44] Department of Defense Once Upon a Time had a deputy secretary who was a nephew
[20:47] had a deputy secretary who was a nephew of President
[20:49] of President Taft in
[20:51] Taft in 1964 he issued DOD directive
[20:56] 1964 he issued DOD directive 500012 which says basically said we
[20:58] 500012 which says basically said we really need standardization of data in
[21:01] really need standardization of data in this
[21:01] this place very
[21:04] place very farseeing
[21:06] farseeing principle um I have a copy uh of this
[21:10] principle um I have a copy uh of this directive it's it's as good today as it
[21:12] directive it's it's as good today as it was in ' 64 I wouldn't change a word on
[21:16] was in ' 64 I wouldn't change a word on it um and of course it just plunked in
[21:20] it um and of course it just plunked in into the stream of DOD directives and be
[21:24] into the stream of DOD directives and be never heard of after
[21:26] never heard of after that um
[21:29] that um when yours truly uh got into the
[21:31] when yours truly uh got into the Department of Defense and did pretty
[21:34] Department of Defense and did pretty much the kind of analysis that I just
[21:36] much the kind of analysis that I just described to you I said aha there is an
[21:39] described to you I said aha there is an answer and it's simple all you have to
[21:42] answer and it's simple all you have to do streamline the data have data
[21:45] do streamline the data have data definitions and create a mechanism for
[21:48] definitions and create a mechanism for creating
[21:50] creating metadata directions and then impose that
[21:53] metadata directions and then impose that on procurement and then in due course
[21:56] on procurement and then in due course the old stuff is going to die and all
[21:58] the old stuff is going to die and all the new stuff is going to mate integrate
[22:01] the new stuff is going to mate integrate communicate cross check and be
[22:04] communicate cross check and be ultimately secure because you'll be able
[22:06] ultimately secure because you'll be able to tag it by security and so um in June
[22:10] to tag it by security and so um in June of 25th of June 1992 a momentous event
[22:15] of 25th of June 1992 a momentous event happened now the new uh deputy secretary
[22:19] happened now the new uh deputy secretary of defense a former Vice chairman of
[22:21] of defense a former Vice chairman of General Motors Donald Edward published a
[22:25] General Motors Donald Edward published a directive
[22:27] directive 5105 uh uh that created a standard data
[22:31] 5105 uh uh that created a standard data element development approval and
[22:33] element development approval and maintenance
[22:34] maintenance procedure and then there are two
[22:37] procedure and then there are two manuals uh each running about 180 Pages
[22:41] manuals uh each running about 180 Pages outlining how to do it uh frankly I
[22:43] outlining how to do it uh frankly I wouldn't pass
[22:45] wouldn't pass anybody u in a course of information
[22:48] anybody u in a course of information science and information management
[22:50] science and information management without being able to answer a quiz
[22:53] without being able to answer a quiz based on questions asked from those
[22:55] based on questions asked from those manuals they are Splendid they are
[22:57] manuals they are Splendid they are outstanding now remember that was in uh
[23:01] outstanding now remember that was in uh June 1992 which was a good year until
[23:06] June 1992 which was a good year until the
[23:06] the election and just a private
[23:10] election and just a private joke and um uh we have had uh recently
[23:15] joke and um uh we have had uh recently in 2004 a partial
[23:19] in 2004 a partial re renewal of this thing but only in
[23:22] re renewal of this thing but only in token the the Royal amount being spent
[23:26] token the the Royal amount being spent on data Administration
[23:29] on data Administration which is in in my view the Nexus the key
[23:33] which is in in my view the Nexus the key to information integration is 64% of the
[23:37] to information integration is 64% of the total
[23:38] total budget so the most important thing uh
[23:42] budget so the most important thing uh which is the the core competency of
[23:46] which is the the core competency of interoperability and War fighting
[23:49] interoperability and War fighting particularly asymmetric War fighting is
[23:51] particularly asymmetric War fighting is is
[23:53] is underfunded um now what is the penalty
[23:58] underfunded um now what is the penalty for not having a standard data
[24:02] for not having a standard data environment I have lots of numbers on
[24:05] environment I have lots of numbers on Project
[24:06] Project costs but what I would like to impart to
[24:09] costs but what I would like to impart to the students is when you look at a
[24:11] the students is when you look at a typical defense department project you
[24:13] typical defense department project you know anywhere from two to $20 million
[24:17] know anywhere from two to $20 million that's that's how these things are
[24:19] that's that's how these things are sliced you'll find that um program
[24:23] sliced you'll find that um program management and integration takes over
[24:26] management and integration takes over 60% of the cost
[24:30] the
[24:32] the hardware is practically trivial it's
[24:35] hardware is practically trivial it's throwaway the hardware cost on a typical
[24:38] throwaway the hardware cost on a typical project is in a 1 to 2% range so all of
[24:42] project is in a 1 to 2% range so all of you who are studying with great
[24:45] you who are studying with great diligence
[24:46] diligence Hardware uh taxonomy and design and what
[24:50] Hardware uh taxonomy and design and what have you remember you studying more and
[24:53] have you remember you studying more and more less and
[24:55] more less and less uh I'm I'm sure that uh The Faculty
[24:59] less uh I'm I'm sure that uh The Faculty here will not be pleased with that but
[25:02] here will not be pleased with that but nevertheless the realistic view is that
[25:05] nevertheless the realistic view is that that the the the issues are partially in
[25:09] that the the the issues are partially in software which is about 6% of a project
[25:11] software which is about 6% of a project cost uh the bulk is really in management
[25:14] cost uh the bulk is really in management which is integration and of course that
[25:17] which is integration and of course that is due to the fact that you have to
[25:19] is due to the fact that you have to continually splice you have to do neuros
[25:22] continually splice you have to do neuros surgery on a running
[25:24] surgery on a running athlete uh that is is um
[25:29] athlete uh that is is um is uh pathetically
[25:31] is uh pathetically disabled and maybe catatonic once in a
[25:35] disabled and maybe catatonic once in a while so what are then the entropy re
[25:39] while so what are then the entropy re reversal rules which I would like to
[25:42] reversal rules which I would like to leave with you in the time
[25:45] leave with you in the time allowed you have to go back to the whole
[25:50] allowed you have to go back to the whole idea that that what matters
[25:54] idea that that what matters ultimately and I'm oversimplifying but I
[25:57] ultimately and I'm oversimplifying but I think you could take that as a sort of a
[26:00] think you could take that as a sort of a 70 80% oversimplification what matters
[26:03] 70 80% oversimplification what matters is infrastructure and data if you get
[26:06] is infrastructure and data if you get that right all the other things are
[26:09] that right all the other things are going to be right interoperability
[26:12] going to be right interoperability costs reliability security and so
[26:17] costs reliability security and so forth so the first thing you have to do
[26:20] forth so the first thing you have to do is you need a dumb stupid infrastructure
[26:25] is you need a dumb stupid infrastructure don't put intelligence into the
[26:27] don't put intelligence into the infrastructure don't onput
[26:29] infrastructure don't onput functionality the great intellectual
[26:31] functionality the great intellectual achievement of Internet is is basically
[26:34] achievement of Internet is is basically a dumb system it has a minimum number of
[26:38] a dumb system it has a minimum number of capabilities but because it's dumb it
[26:41] capabilities but because it's dumb it means that anybody can play even if you
[26:44] means that anybody can play even if you have a
[26:45] have a Macintosh it's a
[26:47] Macintosh it's a joke okay and the other thing is you
[26:51] joke okay and the other thing is you have to remove data from applications
[26:54] have to remove data from applications data is totally separate from
[26:56] data is totally separate from applications that logical separation is
[26:59] applications that logical separation is absolute now we have of course decisions
[27:02] absolute now we have of course decisions that you have to separation the Church
[27:04] that you have to separation the Church of State Jefferson you know the whole
[27:06] of State Jefferson you know the whole Constitution of the United States is
[27:08] Constitution of the United States is based on on separation of church and
[27:12] based on on separation of church and state as a fundamental principle of
[27:14] state as a fundamental principle of governance the strasman collateral of
[27:17] governance the strasman collateral of that thing is separation of data from
[27:20] that thing is separation of data from applications um and that means that if
[27:24] applications um and that means that if you have that kind of a
[27:26] you have that kind of a construct the lowcost reliable
[27:29] construct the lowcost reliable interoperable flexible adaptable system
[27:34] interoperable flexible adaptable system will migrate intelligence to the
[27:36] will migrate intelligence to the periphery for variety and
[27:39] periphery for variety and Innovation rather than some
[27:40] Innovation rather than some standardization on Microsoft
[27:43] standardization on Microsoft desktops uh I mean we I will not mention
[27:47] desktops uh I mean we I will not mention certain Navy and Marine Corp uh projects
[27:51] certain Navy and Marine Corp uh projects here uh is you know as an example of
[27:55] here uh is you know as an example of things where as a way of dealing with
[27:58] things where as a way of dealing with the whole question of
[28:00] the whole question of entropy uh intelligence is being
[28:03] entropy uh intelligence is being standardized as part of the network
[28:05] standardized as part of the network that's not the way to do
[28:07] that's not the way to do it fourth you must enforce standards you
[28:11] it fourth you must enforce standards you cannot get into the infrastructure
[28:14] cannot get into the infrastructure unless you pass through
[28:15] unless you pass through standards and lastly you must create an
[28:20] standards and lastly you must create an environment where your costs are
[28:22] environment where your costs are variable rather than fixed the thing
[28:25] variable rather than fixed the thing that drags down and that accumulat Ates
[28:28] that drags down and that accumulat Ates cost is the fact that the variable cost
[28:31] cost is the fact that the variable cost is negligible and everything is a fixed
[28:33] is negligible and everything is a fixed cost which means it's all
[28:38] intractable um in conclusion then I
[28:42] intractable um in conclusion then I would like to leave with you the student
[28:45] would like to leave with you the student body uh a simple definition what uh
[28:50] body uh a simple definition what uh information management is all
[28:52] information management is all about and please write it
[28:54] about and please write it down your mission is information
[28:58] down your mission is information professionals is to reverse
[29:00] professionals is to reverse entropy thank you very
[29:07] much I'll take questions
[29:13] now
[29:15] now yes you talk a little bit about U not
[29:19] yes you talk a little bit about U not building intelligence into the
[29:21] building intelligence into the infrastructure because the trend we're
[29:24] infrastructure because the trend we're seeing is intelligence in the network as
[29:27] seeing is intelligence in the network as a way of um promoting more security
[29:33] a way of um promoting more security oh
[29:38] well you are not mentioning microsof for
[29:41] well you are not mentioning microsof for instance no you wouldn't
[29:43] instance no you wouldn't me moving intelligence into the network
[29:47] me moving intelligence into the network and into the operating system and into
[29:49] and into the operating system and into the browser is a way of capturing
[29:51] the browser is a way of capturing Monopoly
[29:53] Monopoly position you want me to elaborate on
[29:55] position you want me to elaborate on that
[30:01] the tendency to move intelligence into
[30:05] the tendency to move intelligence into the
[30:06] the network like security and then making
[30:09] network like security and then making the browser in the operating system part
[30:12] the browser in the operating system part of an extended
[30:15] of an extended network is a way of
[30:18] network is a way of creating defensible marketing positions
[30:21] creating defensible marketing positions which are hard to
[30:23] which are hard to dislocate sap is the artist in this
[30:26] dislocate sap is the artist in this thing you go into the app then you'll
[30:29] thing you go into the app then you'll never crawl out let me just give you an
[30:33] never crawl out let me just give you an example the total cost per seat for the
[30:37] example the total cost per seat for the uh
[30:39] uh Marine uh Navy and Marine cost uh
[30:42] Marine uh Navy and Marine cost uh project nmci is about $28,000 per
[30:47] project nmci is about $28,000 per seat and you say
[30:50] seat and you say $28,000 per seat why we are only buying
[30:54] $28,000 per seat why we are only buying machines that on a mass quantity from
[30:59] machines that on a mass quantity from Dell R you less than
[31:01] Dell R you less than $1,800 so where is the other you know
[31:05] $1,800 so where is the other you know $225,000 and the answer it is the thing
[31:08] $225,000 and the answer it is the thing was glued in and is being glued in into
[31:10] was glued in and is being glued in into an
[31:13] infrastructure the the infrastructure
[31:15] infrastructure the the infrastructure the data and the applications are welded
[31:18] the data and the applications are welded together thereby establishing a revenue
[31:22] together thereby establishing a revenue stream for whoever does that did I
[31:25] stream for whoever does that did I answer your question
[31:28] answer your question understand
[31:29] understand better to Microsoft sa that I do with
[31:34] better to Microsoft sa that I do with the network
[31:37] itself well Microsoft will to the extent
[31:41] itself well Microsoft will to the extent possible and this was part of the
[31:42] possible and this was part of the antitrust when you know they wedged the
[31:45] antitrust when you know they wedged the browser which is should be clearly
[31:47] browser which is should be clearly outside of the
[31:49] outside of the network they forced the Communication
[31:52] network they forced the Communication Center and the browser right into the
[31:54] Center and the browser right into the operating system as a way of
[31:56] operating system as a way of establishing a franchise which can be
[32:00] establishing a franchise which can be upgraded and source of Revenue so just
[32:02] upgraded and source of Revenue so just as they say always follow the money I
[32:05] as they say always follow the money I mean if you have a technical question
[32:06] mean if you have a technical question another gold nugget for you if you have
[32:10] another gold nugget for you if you have a technical question that you don't
[32:11] a technical question that you don't understand just follow the
[32:13] understand just follow the money it's amazing than what answers you
[32:16] money it's amazing than what answers you get okay other questions
[32:20] get okay other questions yes to tail ratio if the tail being
[32:25] yes to tail ratio if the tail being bigger is a uh
[32:28] bigger is a uh sense of disorder going towards the
[32:30] sense of disorder going towards the continue of disorder what would be your
[32:33] continue of disorder what would be your Optimum for integration how big would
[32:35] Optimum for integration how big would the teeth have to be in ratio to the
[32:37] the teeth have to be in ratio to the tail for you to have a well integrated
[32:40] tail for you to have a well integrated um well- running not disorganized or
[32:44] um well- running not disorganized or operation or
[32:45] operation or Corporation excellent
[32:48] Corporation excellent question
[32:49] question uh how do you design a mammal that is
[32:53] uh how do you design a mammal that is going to deal with a dinosaur right and
[32:56] going to deal with a dinosaur right and the answer is dar does it you go
[33:00] the answer is dar does it you go in and reality will tell you which way
[33:05] in and reality will tell you which way to go in other words if you have to go
[33:09] to go in other words if you have to go into combat in
[33:12] into combat in FIA you you know you cannot afford too
[33:16] FIA you you know you cannot afford too many onlookers out there okay
[33:20] many onlookers out there okay so there is no answer to your question
[33:23] so there is no answer to your question what you have to do you have to look at
[33:25] what you have to do you have to look at specific
[33:26] specific cases and then based on those cases
[33:30] cases and then based on those cases judge whether it makes sense or
[33:35] not and you know there's lots of stories
[33:37] not and you know there's lots of stories I can give you lots of
[33:40] I can give you lots of stories uh but um basically it means
[33:43] stories uh but um basically it means metrics and looking at performance you
[33:45] metrics and looking at performance you have to see what is the performance well
[33:49] have to see what is the performance well let me give you a
[33:51] let me give you a case the most
[33:55] case the most uh active an aggressive competitor today
[34:00] uh active an aggressive competitor today in the Pacific is
[34:03] in the Pacific is Singapore uh about five years ago a very
[34:07] Singapore uh about five years ago a very large US Corporation heard that
[34:10] large US Corporation heard that Singapore wants to be the information
[34:12] Singapore wants to be the information island of the Pacific they published it
[34:14] island of the Pacific they published it we want to be the information Island and
[34:16] we want to be the information Island and they say well come on guys you know you
[34:19] they say well come on guys you know you know what can you guys do so they put
[34:22] know what can you guys do so they put together a small delegation I was a
[34:25] together a small delegation I was a member of the delegation go and have a
[34:26] member of the delegation go and have a look at the Singapore and how they do
[34:29] look at the Singapore and how they do it and I spend days and days going
[34:33] it and I spend days and days going visiting Data Center and so
[34:36] visiting Data Center and so forth well there was hardly any tail it
[34:39] forth well there was hardly any tail it was all
[34:40] was all teeth I came back and said these guys
[34:43] teeth I came back and said these guys are going to be
[34:44] are going to be winners and we see that already the the
[34:48] winners and we see that already the the the singaporeans are teaching the
[34:50] the singaporeans are teaching the Chinese much of the success that exists
[34:53] Chinese much of the success that exists today in China rapidly growing and
[34:57] today in China rapidly growing and taking over markets politically and
[34:59] taking over markets politically and otherwise is due to the fact that they
[35:01] otherwise is due to the fact that they are basically replicating small singapor
[35:04] are basically replicating small singapor franchises on
[35:06] franchises on Mainland
[35:08] Mainland so to answer your question which is a
[35:10] so to answer your question which is a very good question uh and again this
[35:13] very good question uh and again this goes to the faculty you are to study
[35:16] goes to the faculty you are to study patterns of success and patterns of
[35:19] patterns of success and patterns of failure and you have to see how uh
[35:24] failure and you have to see how uh Walmart ate up Kmart
[35:29] Walmart ate up Kmart and and really don't listen to the
[35:31] and and really don't listen to the glossy stuff you know the Fortune
[35:33] glossy stuff you know the Fortune Magazine stuff actually go and look at
[35:35] Magazine stuff actually go and look at the numbers it's absolutely amazing how
[35:38] the numbers it's absolutely amazing how this little Predator from Arkansas you
[35:41] this little Predator from Arkansas you know out of the boonies Bentonville
[35:42] know out of the boonies Bentonville Arkansas never ever heard of those guys
[35:45] Arkansas never ever heard of those guys ate up everybody how did they do it
[35:48] ate up everybody how did they do it study
[35:50] study it okay yes sir a little better the
[35:54] it okay yes sir a little better the differences between the teeth and the
[35:56] differences between the teeth and the tail
[35:58] tail find do you ever find it difficult to to
[36:01] find do you ever find it difficult to to to classify a project as either teeth or
[36:03] to classify a project as either teeth or tail or Reser any overlap in a project
[36:06] tail or Reser any overlap in a project could it oh yeah and and and the
[36:08] could it oh yeah and and and the tendency will always be uh when you sell
[36:11] tendency will always be uh when you sell a project particularly congressional
[36:14] a project particularly congressional committees uh you will just say well you
[36:16] committees uh you will just say well you know this is going to do blah blah blah
[36:18] know this is going to do blah blah blah blah blah you know for the Marines and
[36:20] blah blah you know for the Marines and so forth and and so now you really have
[36:23] so forth and and so now you really have to do then a reality test you have to
[36:26] to do then a reality test you have to look at the app ation and see how much
[36:29] look at the app ation and see how much of this application will get below the
[36:32] of this application will get below the Battalion
[36:34] Battalion level I I
[36:36] level I I usually you look look at these Mega
[36:39] usually you look look at these Mega projects and then they say okay now now
[36:42] projects and then they say okay now now show me where are the installation what
[36:44] show me where are the installation what are the application who's going to use
[36:47] are the application who's going to use them uh I was horrified when I showed up
[36:50] them uh I was horrified when I showed up in the Department of Defense that the
[36:52] in the Department of Defense that the soldiers got nothing when I got into
[36:55] soldiers got nothing when I got into Xerox the whole company dependent on its
[36:59] Xerox the whole company dependent on its maintenance people you who maintain uh
[37:03] maintenance people you who maintain uh machine that kept failing and burning up
[37:05] machine that kept failing and burning up and all of that thing you know this was
[37:07] and all of that thing you know this was in the
[37:08] in the 60s and I say well all right how much
[37:10] 60s and I say well all right how much money are you spending per capita this
[37:13] money are you spending per capita this is a very good metric by the way it
[37:15] is a very good metric by the way it spending per
[37:17] spending per capita uh how much are you spending for
[37:21] capita uh how much are you spending for the service people in the field the
[37:23] the service people in the field the answer about $32 per capita per year
[37:27] answer about $32 per capita per year okay basically they were printing punch
[37:31] okay basically they were printing punch card that they gave them out that they
[37:32] card that they gave them out that they had to fill out then I asked well how
[37:35] had to fill out then I asked well how much are you spending for financial
[37:39] much are you spending for financial analysts well we cannot tell you so I
[37:43] analysts well we cannot tell you so I said well okay you know I'm I'm running
[37:46] said well okay you know I'm I'm running this thing so I put a meter on this
[37:48] this thing so I put a meter on this thing the financial analysts were
[37:51] thing the financial analysts were spending more money on it than their
[37:53] spending more money on it than their salaries they were using APL which me
[37:57] salaries they were using APL which me those days was very fashionable and that
[38:00] those days was very fashionable and that could burn out money and so you really
[38:04] could burn out money and so you really have to look at structure and the
[38:07] have to look at structure and the purpose of my message today my is don't
[38:11] purpose of my message today my is don't just look at spending don't look at
[38:13] just look at spending don't look at technology start looking at structure as
[38:16] technology start looking at structure as a property of an Information Society did
[38:19] a property of an Information Society did I answer your
[38:22] I answer your question what off thought to go with
[38:24] question what off thought to go with that PA says whatever examining it's the
[38:28] that PA says whatever examining it's the teeth is the essence of what that is
[38:31] teeth is the essence of what that is about the essence Air Force although
[38:34] about the essence Air Force although doesn't like to admit it his job is to
[38:36] doesn't like to admit it his job is to haul to drop food B people and when you
[38:41] haul to drop food B people and when you examine the essence then you can use
[38:45] examine the essence then you can use theories yeah how much of that goes into
[38:48] theories yeah how much of that goes into targeting that's that's teeth okay and
[38:51] targeting that's that's teeth okay and then you say well all right you guys are
[38:53] then you say well all right you guys are spending 8.5 billion dollar how much of
[38:56] spending 8.5 billion dollar how much of that goes for doing what you're supposed
[38:59] that goes for doing what you're supposed to do and you get a number and it's an
[39:02] to do and you get a number and it's an interesting
[39:03] interesting number okay any questions from the
[39:06] number okay any questions from the students I I I prefer to have student
[39:09] students I I I prefer to have student student
[39:12] questions yes um there was a are you a
[39:15] questions yes um there was a are you a student yes I am okay we had a couple
[39:19] student yes I am okay we had a couple discussions in class based on your books
[39:20] discussions in class based on your books and everything on Outsourcing and
[39:22] and everything on Outsourcing and Outsourcing and trying to see if you're
[39:25] Outsourcing and trying to see if you're Outsourcing the the the real reality is
[39:28] Outsourcing the the the real reality is that you're Outsourcing you're saving
[39:29] that you're Outsourcing you're saving money but in all reality you're not I
[39:32] money but in all reality you're not I just wanted to see if you can actually
[39:34] just wanted to see if you can actually talk about that a little and how are you
[39:35] talk about that a little and how are you not saving money where actually you're
[39:38] not saving money where actually you're sending a job and you're getting it
[39:39] sending a job and you're getting it cheaper but in reality you're you're
[39:41] cheaper but in reality you're you're spending the same money or you budgeting
[39:43] spending the same money or you budgeting everything
[39:45] everything okay if you Outsource something that's
[39:49] okay if you Outsource something that's faulty you're not going to get any
[39:51] faulty you're not going to get any better even if you get it
[39:53] better even if you get it cheaper you understand
[39:56] cheaper you understand that so Outsourcing is not a solution by
[39:59] that so Outsourcing is not a solution by the way I you can come to my web page
[40:02] the way I you can come to my web page just published an article I've studied
[40:05] just published an article I've studied the Outsourcing ratio for 1,100
[40:08] the Outsourcing ratio for 1,100 companies it's on my web page stan.com
[40:10] companies it's on my web page stan.com and I showed that companies that don't
[40:14] and I showed that companies that don't Outsource too much are actually more
[40:18] Outsource too much are actually more profitable than companies that are very
[40:19] profitable than companies that are very heavy
[40:21] heavy outsourcers the current decline by
[40:23] outsourcers the current decline by General Motors which is a National
[40:26] General Motors which is a National Disgrace
[40:28] Disgrace is largely the result of the hollowing
[40:33] is largely the result of the hollowing and divestment of General Motors of its
[40:35] and divestment of General Motors of its fundamental
[40:37] fundamental skills now there is a time for Outsource
[40:40] skills now there is a time for Outsource I have always outsourced but you have to
[40:42] I have always outsourced but you have to be again it's a structural issue you
[40:44] be again it's a structural issue you have to pick what you Outsource and you
[40:47] have to pick what you Outsource and you have to be very careful that you
[40:53] have to be very careful that you are Outsourcing not just to cut cost
[40:57] are Outsourcing not just to cut cost because there's always somebody who can
[40:59] because there's always somebody who can do things cheaper but that is not the
[41:02] do things cheaper but that is not the way to Prosperity the way to Prosperity
[41:06] way to Prosperity the way to Prosperity is to get more teeth and sharper teeth
[41:09] is to get more teeth and sharper teeth so the question you should ask not do I
[41:12] so the question you should ask not do I get cheaper uh toothpicks or cheaper
[41:17] get cheaper uh toothpicks or cheaper toothpaste but do I have a greater
[41:21] toothpaste but do I have a greater capability did I answer your question
[41:24] capability did I answer your question are you an outsourcer or anything like
[41:26] are you an outsourcer or anything like no okay all right okay
[41:30] no okay all right okay any
[41:32] any yes you're a student yes I am okay okay
[41:37] yes you're a student yes I am okay okay for commercial business because you're
[41:38] for commercial business because you're talking about the dod that and the dod
[41:41] talking about the dod that and the dod doesn't measure Itself by what Wall
[41:43] doesn't measure Itself by what Wall Street it doesn't do IA OA or any of
[41:45] Street it doesn't do IA OA or any of that type that structure so when you're
[41:48] that type that structure so when you're saying that for a company to look at its
[41:51] saying that for a company to look at its structure and um it's disorder to find
[41:54] structure and um it's disorder to find out whether or not it's strong pretty
[41:55] out whether or not it's strong pretty much andg
[41:57] much andg will that reflect if they if they focus
[42:00] will that reflect if they if they focus on that rather than on the numbers that
[42:02] on that rather than on the numbers that Wall Street wants to know will your
[42:04] Wall Street wants to know will your theory um manifest itself and make Wall
[42:08] theory um manifest itself and make Wall Street happy because that's pretty much
[42:10] Street happy because that's pretty much how a corporation defines
[42:13] how a corporation defines itself wow you really are you really
[42:16] itself wow you really are you really have heavy Avenue let's go over Wall
[42:19] have heavy Avenue let's go over Wall Street first because you know you can
[42:21] Street first because you know you can always beat
[42:22] always beat that the problem with Wall Street is
[42:25] that the problem with Wall Street is that they by and large measure Roe and
[42:29] that they by and large measure Roe and Roa now think about it Roe or Roa is a
[42:33] Roa now think about it Roe or Roa is a ratio of profits divided by capital on
[42:36] ratio of profits divided by capital on the balance sheet
[42:38] the balance sheet right the question is is the capital
[42:42] right the question is is the capital that fby
[42:44] that fby your sometimes honest accountants
[42:46] your sometimes honest accountants account for is that a measure of a
[42:50] account for is that a measure of a company and the answer is no because the
[42:52] company and the answer is no because the value of the company is not shown on the
[42:55] value of the company is not shown on the accounting statement the bulk of the
[42:57] accounting statement the bulk of the measure of a company is in its knowledge
[43:00] measure of a company is in its knowledge Capital which doesn't show up in any of
[43:02] Capital which doesn't show up in any of the financial statement okay so far so
[43:05] the financial statement okay so far so good okay so that takes care of Wall
[43:09] good okay so that takes care of Wall Street okay now let's go get
[43:11] Street okay now let's go get constructive how do you evaluate a
[43:15] constructive how do you evaluate a company which includes what really
[43:17] company which includes what really matters which is knowledge
[43:19] matters which is knowledge Capital what you have to do you have to
[43:22] Capital what you have to do you have to start using a different approach to
[43:26] start using a different approach to economics
[43:28] economics and that
[43:31] is the factor of
[43:33] is the factor of production used to be land labor capital
[43:39] production used to be land labor capital okay and human beings never showed
[43:43] okay and human beings never showed up you what what economic stat do you
[43:46] up you what what economic stat do you have samuelon samuelon never figured out
[43:49] have samuelon samuelon never figured out human capital okay so what you have to
[43:51] human capital okay so what you have to do then you have to say what matters in
[43:55] do then you have to say what matters in the information age is knowledge
[43:58] the information age is knowledge Capital now how do you calculate
[44:01] Capital now how do you calculate knowledge Capital it turns out that the
[44:04] knowledge Capital it turns out that the knowledge capital is the true residual
[44:07] knowledge capital is the true residual profit after you treat Capital as a
[44:11] profit after you treat Capital as a commodity let me repeat
[44:14] commodity let me repeat that there is a technique for doing that
[44:17] that there is a technique for doing that called Eva economic value added in
[44:20] called Eva economic value added in economic value added the accounting
[44:21] economic value added the accounting profit statement is not the profit of a
[44:25] profit statement is not the profit of a company the economy value of a company
[44:28] company the economy value of a company is profit minus rent for shareholder
[44:32] is profit minus rent for shareholder capital and then if you something left
[44:34] capital and then if you something left over that is the contribution of
[44:38] over that is the contribution of knowledge I have about 20 articles on
[44:42] knowledge I have about 20 articles on this do you guys teach about knowledge
[44:44] this do you guys teach about knowledge Capital
[44:46] Capital here books what we use your books no no
[44:50] here books what we use your books no no no that that book doesn't have that that
[44:53] no that that book doesn't have that that that's for graduates too that's for
[44:55] that's for graduates too that's for graduates I I have quite a bit I have
[44:58] graduates I I have quite a bit I have actually uh a 150 page uh ebook on
[45:03] actually uh a 150 page uh ebook on knowledge capital and how you do the
[45:05] knowledge capital and how you do the calculation and you know you're welcome
[45:08] calculation and you know you're welcome to
[45:09] to it so to answer your question how do you
[45:14] it so to answer your question how do you then evaluate a company now whether it
[45:16] then evaluate a company now whether it is Department of Defense or whether it
[45:19] is Department of Defense or whether it is a private Corporation or Xerox
[45:22] is a private Corporation or Xerox doesn't matter what you do is you look
[45:27] doesn't matter what you do is you look at the residual
[45:30] at the residual cost and that is knowledge Capital now
[45:33] cost and that is knowledge Capital now in the public sector it's a little
[45:35] in the public sector it's a little tricky but basically the knowledge
[45:37] tricky but basically the knowledge capital is the cost of what's called
[45:39] capital is the cost of what's called reconstitution in other words if you
[45:42] reconstitution in other words if you take the third Armored Division after
[45:45] take the third Armored Division after Kuwait and send them home because you're
[45:48] Kuwait and send them home because you're going to save $120
[45:49] going to save $120 million a
[45:52] million a year what you have to understand fine
[45:55] year what you have to understand fine that's operating as it's o M but it's
[45:58] that's operating as it's o M but it's not you know what om operations and
[46:00] not you know what om operations and maintenance that's om M om penny
[46:04] maintenance that's om M om penny pinching what you have to understand is
[46:07] pinching what you have to understand is what is the knowledge Capital if you
[46:09] what is the knowledge Capital if you need a third armored which we needed
[46:11] need a third armored which we needed again and the answer is the
[46:13] again and the answer is the reconstitution cost of a third armored
[46:16] reconstitution cost of a third armored is the knowledge Capital that is what
[46:20] is the knowledge Capital that is what that is slick very slick that's very
[46:24] that is slick very slick that's very slick okay I run out of time I've run
[46:27] slick okay I run out of time I've run out of knowledge
[46:30] out of knowledge Capital um Let me let me offer the
[46:33] Capital um Let me let me offer the following all my all my lectures come
[46:36] following all my all my lectures come with a
[46:37] with a warranty I'm a vendor with a warranty uh
[46:41] warranty I'm a vendor with a warranty uh for 90 days I will take email
[46:45] for 90 days I will take email questions to Paul at strasman s r a SS
[46:52] questions to Paul at strasman s r a SS mn.com I will not do your homework
[46:54] mn.com I will not do your homework assignments I may give you home work
[46:57] assignments I may give you home work assignments and I'll be very pleased uh
[47:01] assignments and I'll be very pleased uh that uh some of this may be of interest
[47:03] that uh some of this may be of interest to you thank you very much
[47:06] to you thank you very much [Applause]