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What is Business Entropy


  • Michael L. George

    (Institute of Business Entropy)


Entropy was first glimpsed in 1824 when Sadi Carnot, son of the Prime Minister of France, observed that steam engines wasted 97% of their heat energy, and wondered how efficient they could be. An engine works by drawing in heat energy Hi from gasoline and exploding it at high temperature Ti, that energy in the gas then pushes on a piston to turn a crankshaft and do useful work, but an amount of the heat energy Hw is wasted to the environment at temperature Tw , which is about 70F (25C) In 1850 Rudolph Clausius found a mathematical expression for Carnot’s ideas. Clausius found that the ratio of heat to temperature could at best be constant, and he called this constant Entropy. Businesses purchase material and labor, apply them in a manufacturing or service process to create useful products and services. Inevitably business processes must waste some money on effort not really of benefit to customers such as warehouses, quality defects, obsolescence, etc. Is there some minimum amount of waste in a business process? Can we find an equation for this waste similar to that of Clausius that may tell us how to reduce the waste?

Suggested Citation

  • Michael L. George, 2008. "What is Business Entropy," Working Papers 0606, Institute of Business Entropy.
  • Handle: RePEc:geg:wpaper:0606

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    More about this item


    Equation of Projected Cost Reduction; Process Entropy; Information; Complexity; Waste; Little’s Law; Shannon; Boltzmann; Carnot;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction
    • L8 - Industrial Organization - - Industry Studies: Services
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics


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