Contemplating a Theory of the Enterprise

This is some brain storming to figure out how to think about a "theory of the enterprise" that I want to create.

One of the inputs is that there is already a "theory of the firm". That is an economic theory that is used to understand things like why firms (i.e. businesses, organizations) exist; understand boundaries between firms; why firms are structured the way they are structured; what drives actions of firms; and how to test theories.  That is not really what I want.

Another input, as I point out in this blog post, is the fact that Object Management Group (OMG) and the Enterprise Knowledge Graph Foundation (EKGF) are "championing the use of enterprise knowledge graphs".  This appears to be their definition of a knowledge graph:

"An Enterprise Knowledge Graph is a governed, semantics‑first, graph‑based representation of an enterprise’s concepts, relationships, rules, and facts; integrating data and meaning across systems to create a unified, machine‑interpretable foundation for analytics, automation, and the effective use of artificial intelligence within the enterprise."

Another input is this graphic which provides a comprehensive set of the categories of modules of Odoo which is an ERP system:

Similarly, this list of "the twelve business systems" is somewhat similar to the Odoo module categories:
  1. The Enterprise Management System
  2. The Financial Management System
  3. The Facilities Management System
  4. The Equipment Management System
  5. The Employee Management System
  6. The Information Management System
  7. The Customer Development System
  8. The Product Development System
  9. The Supplier Development System
  10. The Operations Management System
  11. The Service Management System
  12. The Improvement Management System
The American Accounting Association defines an "accounting information system" (AIS) relative to a "management information system" (MIS).  Basically, AIS and MIS systems are part of the broader set of systems employed by an enterprise:


From an accounting perspective, here is how an accountant might look at the accounting parts of an enterprise information system.  There are some number of subsystems or subledgers that feed the general ledger.  Again, this is only the accounting system(s) of an enterprise, they record FINANCIAL transactions only.  (i.e. there are nonfinancial things going on in an enterprise that never flow through an accounting system)


Basically, what I am seeing is somewhat of a "matrix" of different possible approaches to organizing the information processing systems of an enterprise.

Now, ISO/IEC 15944-4:2015 Accounting and economic ontology takes a different approach to describing an enterprise.  They describe an enterprise in terms of "business events" and "workflows" and "resources".  To understand this better, look at these terms, and look at these relations between those terms.

Seems that rather than looking at individual systems, they are looking at the underlying events of an enterprise.  ACTUS does the same thing but ACTUS is specifically for financial institutions.

Several years ago I created this graphic that shows the different types of "events" of an enterprise. To briefly explain this, "situations" spawn "events".  Some of those events are business events,  others are not business events.  A business event might be relevant and important, or it could be nonrelevant and unimportant.  Business events can be "financial" in nature and flow through an accounting system or "nonfinancial" and flow through other systems of an enterprise (i.e. not the accounting systems). Some financial events are "financial contracts" and involve only cash or cash equivalents; other financial events can be "business contracts" and will typically resolve to cash and cash equivalents, but exist in an intermediate state of say "inventory" or "goods" or "services".

When people talk about "knowledge graphs", they seem to tend to think of things that look something like this image below. Yes, this is a knowledge graph; but it is a RAW knowledge graph.  By "raw" I mean that there is no high level model being used to deal with the information within the knowledge graph.


Contrast the above to the knowledge graph below.  Yes, what you see below is a knowledge graph.  But that knowledge graph uses a high level model to organize the knowledge within the knowledge graph. To get to what you see below, I use a business report model conceptualized and made implementable by XBRL International's Open Information Model (OIM), Object Management Group's Standard Business Report Model (SBRM), via my Seattle Method.


Effectively, I think I might be seeing an enterprise knowledge graph differently than say OMG and EKGF.  I am not fixated on the knowledge graph itself; I am fixated on doing things with the knowledge graph.

In my view, the core pattern that I see is what I call an "information block".  I know this works for all the "financial business events" of an enterprise.  So basically, you get this:

I have this tested and working for general ledger transactions per what I call my "record to report" example.  This is the best version of that, my MINI 2026 reporting scheme and report. I have tested this for subsidiary ledgers, working papers, audit working papers, and financial analysis models.  All work  great. Intuitively, it seems that this same approach will work for nonfinancial business events.

Here is how to look at those examples using this older version of the working proof of concept. First off, an enterprise is a "state machine" and from a financial perspective, an enterprise is absolutely a state machine.  The "state" is the enterprises "resources" (i.e. assets), "obligations to third parties" (i.e. liabilities), and "obligations to owners" (i.e. equity).  That state is shown by the balance sheet. Changes in state are shown by the business events. Those changes in state can be reorganized in the form of roll forwards of the balance sheet accounts (here is one example for a roll forward of cash and cash equivalents, each balance sheet line item has a roll forward); the income statement and the statement of changes in equity show why equity changed state; the statement of cash flows shows the changes in state of cash and cash equivalents.  Policies explain details.  Subclassifications show line item details.

Accounting is a deterministic system.  Basically, for all financial business events, an enterprise is the financial business events is a knowledge graph that underlies and "feeds" a set of hypercubes (a.k.a. pivot tables). Those hypercubes further feed artificial intelligence.  These hypercubes are not like the "cubes" of today's BI.  These hypercubes are way, way more sophisticated and capable. This is my vision. Think modern semantic spreadsheet; a new type of tool that is going to replace the 800 electronic spreadsheets that the average Fortune 1000 company uses to create it's compliance report and the "bucket brigade" used to manage those 800 spreadsheets.

Yup, this will become an industrial process.

And so, my focus for my forthcoming "theory of the enterprise" will not be the enterprise knowledge graph; but rather what you  can do with that enterprise knowledge graph.  That is how you figure out what an enterprise knowledge graph needs to be; do something useful.

And so, I think it might be safe to say that my MINI 2006 Working Proof of Concept Financial Reporting Framework can be considered a partial example enterprise knowledge graph. Sure, only for financial oriented business events; but an enterprise knowledge graph none-the-less.

It seems that an enterprise, at least the financial "stuff", can be described and explained using a set of global open industry standard model-driven semantic-powered multidimensional hypercubes that make enterprise information interpretable by artificial intelligence. Intuitively it seems  that the nonfinancial "stuff" will work the same way, but with less "semantic scaffolding" because unlike financial "stuff" which follows the double entry bookkeeping mathematical model, nonfinancial "stuff" does not.  But given that financial statements, which I have tested, also contain nonfinancial "stuff"; both the financial and nonfinancial "stuff" should both fit nicely into these hypercubes of information.
An enterprise seems to be described and explained using global open industry standard model-driven semantic-powered artificial intelligence enabling multidimensional hypercubes of information. Dynamic and pivotable to boot.

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