The New EA Paradigm 2: Expenses and Assets

Written by John A. Zachman on Monday, 08 February 2016. Posted in Zachman International

Back to the Toyota illustration... now that Toyota has all these parts engineered to be assembled into any Toyota and have pre-fabricated them and have them in inventory before they get any orders... how does Toyota “cost-justify” those parts? They don’t have any orders so there is no revenue. They are not making any money... they are not saving any money in the current accounting period.

In fact, the parts can’t be “cost-justified.” “Cost-justification” is an expense-based concept. They have created an inventory of assets that can be used, re-used in many implementations in many future accounting periods.

What is the difference between expenses and assets?... how many times you use them. If you use them once, they are expenses. If you use them more than once, they are assets.

Why do you need assets? Assets enable you to do something you otherwise are unable to do. If you want to get into the hotel business... you need an asset, a hotel. If you want to produce custom automobiles on demand, you have to have parts already in inventory that have been engineered to be assembled into many automobiles.

The basic problem is, it is very difficult to put values on assets. The accountants have difficulty putting values on assets. How much is this building worth? Hmmmmm. Has anyone bought a building zoned for the same purpose with the same square footage in a 10 mile radius in the last 15 years? How much was the market willing to pay for it? Or, how many rooms can you rent? Can you rent them out for the same price per square foot as in any building in downtown wherever it is? Can you expect 60% occupancy? 62.1%? 51.5% Do you have to borrow the money? What is the interest rate? What is the prime rate? What is the inflation rate? What is your Internal Rate of Return? This is really complicated!

How much is your house worth? How much was it worth yesterday? How much did you pay for it? What will the market pay tomorrow?

I have a good friend who is a CPA and he told me that the accounting rules prevent the Accountants from valuing assets... probably because of these complications and arbitrary assumptions.

All of the illustrations I have used are for tangible assets... what about intangible assets... like intellectual property... or Enterprise Architecture?! (I will develop some more thoughts about the value Enterprise Architecture for you later).

CEO’s Problem

I was in Tokyo for a week and during that time I visited with two CEO’s... one at a Telephone Company and one at a company called JMAC. Both were scheduled for 20 or 30 minutes... courtesy visits for the visitor from out of town. In both cases they turned into 2 or 3 hour visits because in both cases, I told the CEO’s that the problems they were trying to solve were not IT problems, they were THEIR problems.

At JMAC, the CEO was giving me and a friend who was with me a presentation. He was identifying his customers like Toyota, Honda, Mitsubishi, Kawasaki, General Motors, Ford, Chrysler, General Dynamics, Lockheed, Boeing, McDonnell Douglas, Volkswagen, Daimler Benz, you name it! Major Manufacturers around the world.... and he was associating the revenues that JMAC was deriving from them. I turned to my friend and said, “what is going on here?! This guy is giving us a presentation to try to develop some credibility for him in our eyes... WE ought to be giving a presentation to HIM to develop some credibility for US in HIS eyes”!

My friend underlined an acronym on the hard copy in front of us... MITI (I think I have the acronym spelled correctly) It was the Japanese consortium of Government, Banking and Manufacturing that decided they wanted to own Manufacturing 35 or 40 years ago! They have now changed their name... the Japanese Management something or other (JMAC). What might they want to own next? Hmmmmmm.

All of the presentations and conversations in Japan were being translated by interpreters, typically, young women. I don’t know how they do it! In answer to a question, I did about 20 minutes in my own inimitable style... the young lady wrote down three kanji characters. Then she did about 20 minutes on the interpretation!! Good night!! How did she do that?!

Anyway, when Mr. Yamamoto (forgive me for not remembering his actual name!) left the room, he mumbled something and the interpreter said, “Mr. Yamamoto said you made his head hurt.” Yes, I said that his IT team who was in the room could not solve his problem because it was not an IT problem, it was HIS problem.

About the Author

John A. Zachman

John A. Zachman

John A. Zachman is the originator of the “Framework for Enterprise Architecture” (The Zachman Framework™) which has received broad acceptance around the world as an integrative framework, an ontology for descriptive representations for Enterprises. Mr. Zachman is not only known for this work on Enterprise Architecture, but is also known for his early contributions to IBM’s Information Strategy methodology (Business Systems Planning) as well as to their Executive team planning techniques (Intensive Planning).

Mr. Zachman retired from IBM in 1990, having served them for 26 years. He is Founder and Chairman of his own education and consulting business, Zachman International®. He is also the Executive Director of the Federated Enterprise Architecture Certification Institute (The FEAC® Institute) in Washington, D.C., as well as the Chairman of the Zachman Institute™, a non-profit organization devoted to leveraging Zachman International's vast network of professionals and resources to offer services to small businesses and non-profit organizations as they prepare for and experience growth.

Mr. Zachman serves on the Executive Council for Information Management and Technology (ECIMT) of the United States Government Accountability Office (GAO) and on the Advisory Board of the Data Administration Management Association International (DAMA-I) from whom he was awarded the 2002 Lifetime Achievement Award. In August 2015, Mr. Zachman was awarded a Lifetime Achievement Award for “recognition of his long term impact and contribution to how people think and practice Enterprise Architecture today, leaving his mark on generations to come” by the Global University Alliance and LEADing Practice. He was awarded the 2009 Enterprise Architecture Professional Lifetime Achievement Award from the Center for Advancement of the Enterprise Architecture Profession as well as the 2004 Oakland University, Applied Technology in Business (ATIB), Award for IS Excellence and Innovation. In August 2011, he was awarded the Gen. Colin Powell Public Sector Image Award by the Armed Services Alliance Program. In November 2013 he was acknowledged for Achievement and Excellence for Distinguished Innovative Academic Contribution by the IEEE Systems, Man and Cybernetics Society Technical Committees on Enterprise Information Systems and on Enterprise Architecture and Engineering.

Mr. Zachman has been focusing on Enterprise Architecture since 1970 and has written extensively on the subject. He has facilitated innumerable executive team planning sessions. He travels nationally and internationally, teaching and consulting, and is a popular conference speaker, known for his motivating messages on Enterprise Architecture issues. He has spoken to many thousands of enterprise managers and information professionals on every continent.

In addition to his professional activities, Mr. Zachman serves on the Elder Council of the Church on the Way (First Foursquare Church of Van Nuys, California), the Board of Directors of Living Way Ministries, a radio and television ministry of the Church on the Way, the President’s Cabinet of the King’s University, the Board of Directors of the Los Angeles Citywide Children’s Christian Choir, the Board of Directors of Heavenworks, an international ministry to the French-speaking world and on the Board of Directors of Native Hope International, a Los Angeles-based ministry to the Native American people.

Prior to joining IBM, Mr. Zachman served as a line officer in the United States Navy and is a retired Commander in the U. S. Naval Reserve. He chaired a panel on "Planning, Development and Maintenance Tools and Methods Integration" for the U. S. National Institute of Standards and Technology. He holds a degree in Chemistry from Northwestern University, has taught at Tufts University, has served on the Board of Councilors for the School of Library and Information Management at the University of Southern California, as a Special Advisor to the School of Library and Information Management at Emporia State University, on the Advisory Council to the School of Library and Information Management at Dominican University and on the Advisory Board for the Data Resource Management Program at the University of Washington. He has been a Fellow for the College of Business Administration of the University of North Texas and currently is listed in Cambridge Who’s Who.

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