I've just learned that a paper that was written by Pietro Micheli (Cranfield U), Toby Hatch (Oracle) and myself is now available as a case study on hbr.org. You can find it here.
Tuesday, October 12, 2010
New Book Teaches Business Executives and Anyone Struggling with Dilemmas How to Turn an Unknown into an Advantage
My latest book has just come out, I've been writing about it before in this blog. Here's my best short description of it...
Every day, the news reports on difficult dilemmas in business and public sector:
• In difficult economic times, the government needs to stimulate the economy, yet save costs. Should the government invest in infrastructural projects leading to new jobs, or cut deep in expenditures?
• A banking regulator sees problems at a small bank. If the regulator moves quickly, her actions become a self-fulfilling prophecy, harming the business. However, if the regulator moves too slow, the risk increases. What should the regulator do?
• A bank is confronted with professionals demanding high bonuses. Should it risk public outcry, or defecting professionals?
• How far can you go in interrogating a criminal suspect in order to prevent more crimes or an imminent attack?
• In difficult economic times, the government needs to stimulate the economy, yet save costs. Should the government invest in infrastructural projects leading to new jobs, or cut deep in expenditures?
• A banking regulator sees problems at a small bank. If the regulator moves quickly, her actions become a self-fulfilling prophecy, harming the business. However, if the regulator moves too slow, the risk increases. What should the regulator do?
• A bank is confronted with professionals demanding high bonuses. Should it risk public outcry, or defecting professionals?
• How far can you go in interrogating a criminal suspect in order to prevent more crimes or an imminent attack?
Executive decision-making is fraught with dilemmas, trying to reconcile long-term and short-term needs, and the requirements of multiple stakeholders. Unfortunately, we don't know how to solve dilemmas.
Based on years of research, an international survey and in-depth interviews with executives from global companies such as Cox Communications, Novozymes and Polycom, as well as Dr. Edmund Stoiber, former minister-president of the largest state in Germany and General (ret.) D.L. Berlijn, former commander of the Dutch Armed Forces, I have concluded that avoiding dilemmas is not a good strategy, and that there are perfectly feasible ways of dealing with dilemmas.
All we learn in our business education and best practices is analysis. However, analysis only confirms and strengthens dilemmas. A different toolkit is needed for strategic decision-making: not analysis, but the opposite, synthesis. By bringing together opposite positions, you fundamentally solve business problems, and you raise your organization to a new level of insight.
While almost 60% of respondents world-wide report that they cannot effectively solve any of the standard dilemmas that businesses face, I use many practical examples to describe how the ability to solve dilemmas leads to tangible business benefits. In the book, I describesthe six dilemmas all businesses face, and how to effectively tackle them. Dr. David P. Norton, one of the creators of the Balanced Scorecard, called the book "excellent" and "an important work that will enhance organizational effectiveness."
For answers on how to solve these and more, contact me here.
Dealing with Dilemmas: When Business Analytics Fall Short
John Wiley & Sons, Inc.; $49.95; 240 pages
Available Now; ISBN 978-0470630310
Dealing with Dilemmas: When Business Analytics Fall Short
John Wiley & Sons, Inc.; $49.95; 240 pages
Available Now; ISBN 978-0470630310
About the Author
Frank Buytendijk is a former Gartner Research VP and currently Vice President and Fellow at Oracle Corp. He is an exceptional speaker at conferences all over the world, and is known for his out-of-the-box thinking and provocative style. His professional background gives him a unique perspective on business strategy, performance management and organizational behavior. His work was awarded the "thought leadership award", the "cultural icon award" and "most innovative presentation award". For more information, go to www.frankbuytendijk.com.
Frank Buytendijk is a former Gartner Research VP and currently Vice President and Fellow at Oracle Corp. He is an exceptional speaker at conferences all over the world, and is known for his out-of-the-box thinking and provocative style. His professional background gives him a unique perspective on business strategy, performance management and organizational behavior. His work was awarded the "thought leadership award", the "cultural icon award" and "most innovative presentation award". For more information, go to www.frankbuytendijk.com.
Book review
... and in the series of videoblogs: reviewing a few really good books I recently read. Access the videoblog here. More on www.youtube.com/frankbuytendijk.
frank
Creating options
An important measure of the success of an IT strategy and architecture is its ability to adapt to changing circumstances.
• CIOs are faced with long investment cycles, while technology lifecycles are only getting shorter. IT needs to be ready for trends and requirements that are completely unknown when the investments are made.
• A good part of IT innovation that drives new business opportunities comes from consumer IT, and CIOs need to be ready to link in. Today this comprises the 2.0 world: Trends on the horizon include augmented reality and sensor technology, for example. Analyst company IDC predicts unstructured data will grow at twice the rate of conventional data. Already by 2010, unstructured data will make up the majority of all enterprise data.
• Many businesses are investing in value chain integration, requiring processes and systems to link to a wide variety of processes and systems owned by customers, partners, suppliers, and other stakeholders.
IT offers an infinite range of alternatives and unlimited choice in how to tackle these challenges. Winnowing down a wide range of technology choices requires discipline. CIOs can demonstrate the required leadership by turning unlimited choice into a set of directed options.
• CIOs are faced with long investment cycles, while technology lifecycles are only getting shorter. IT needs to be ready for trends and requirements that are completely unknown when the investments are made.
• A good part of IT innovation that drives new business opportunities comes from consumer IT, and CIOs need to be ready to link in. Today this comprises the 2.0 world: Trends on the horizon include augmented reality and sensor technology, for example. Analyst company IDC predicts unstructured data will grow at twice the rate of conventional data. Already by 2010, unstructured data will make up the majority of all enterprise data.
• Many businesses are investing in value chain integration, requiring processes and systems to link to a wide variety of processes and systems owned by customers, partners, suppliers, and other stakeholders.
IT offers an infinite range of alternatives and unlimited choice in how to tackle these challenges. Winnowing down a wide range of technology choices requires discipline. CIOs can demonstrate the required leadership by turning unlimited choice into a set of directed options.
Choices are not the same as options. Choices, or alternatives, represent all possibilities. We use the term options in the sense of financial options, acquired with the express purpose of being exercised at will. Creating options means taking matters into your own hands. In a skillful hand, a portfolio of options helps decide what initiatives to expand, which ones to delay, where to change direction, and what to expedite. If you have specific options - as opposed to unlimited choices - you are better prepared for change.
Business and IT alignment
I recently received a promotional email for a "masterclass" on business and IT alignment. The training promised answers on the following questions: "how do you know your IT strategy is aligned with your business strategy?", "how can you put together a governance model that ensures IT follows the business?" and "Pitfalls and success factors".
I checked, the email wasn't from 1983, but seriously from 2009. How can we still have that discussion? Has nothing improved in the last 20 years? And moreover, how can business/IT alignment be so misconceived?
First of all, let's define alignment, this is usually skipped already. From a social-psychological, a person is aligned when the self, self-perception and external perception closely match. The self-perception is how you look at yourself, and the self is who you really are. If there is a mismatch you could become delusional, frustrated, and generally uncontrolled. You don't understand yourself. If there is a big gap between the self and self-perception, and the external perception, people expect you to be someone that you are really not. This leads to role distance, and unauthentic behavior too. The same can be said of organizations. If there is a big gap between true organizational behavior and who we think we are, we are kidding ourselves. Did you check out your mission statement and values lately? And if there is a big gap between external perception and the organization's true motives, you spend more time figuring out how to spin your strategy externally than actually executing on it. Quite dysfunctional.
Same with business/IT alignment. Like any relationship, it needs to come from both sides. Business perception about value needs to match the IT perspective. But... functional relationships should be based on equality. If both parties agree that IT should follow the business, you're in a dependent, submissive relationship. Not mature.
Business needs to align to IT, as much as IT needs to align with the business. It's a two way street. The nature of technology dictates so, for starters. If you are a carpenter, and you buy one of those circular saw tables (new technology), you'd better organize your process and work around that table, instead of lifting the table to go to the wood. If IT were to follow the business, deleting text on a screen would have to be done with Tipp-ex. The whole point of technology is to not align with the business, but to bring innovation. New, different, better ways of working. If anything, business should align to technology in order to be more successful. In fact, secretly we do so already. It has become a best practice to adapt the business to the processes built into the ERP system and CRM application, and rightly so.
Then, let's discuss Business/Business alignment. How many times is IT struggling with suboptimal business cases, based on budget held by the business, by having to put in a departmental solutions, because each department is "unique"? IT is often found to be "nerdy" and having "no sense of urgency" for talking about architecture and infrastructure. True, IT driven projects are usually not very successful (the business will see to that), but the only thing worse is a business driven project. Short-term successful, but ill-architected, nothing repeatable, and lots of them combined form one big negative ROI in two years down the road. It is the role of IT to see commonality between functional requirements, and take an integrated approach. It would be a lot easier if the business departments would align with, well, the other business departments, instead of IT having that struggle all the time themselves.
And, while I am on the subject, it's a pity if organizations are still discussing business/IT alignment. The real battlefront has moved on already. The name of the game is value chain integration. Aligning all stakeholders around a successful and sustainable business model. Making sure partners, suppliers and channels all benefit from integrated logistical and administrative flows, while taking into account the requirements of investors, regulators, and society at large. This is how alignment contributes to the business strategy.
But perhaps we should start with something else. Remember the definition of alignment. The self, self-perception and external perception need to closely match. Perhaps the real problem is the gap between self and self-perception. IT people sometimes think too little of themselves, and desperately want to be seen as a 'business partner' and considered of strategic importance. Don't worry. You are. Because of the nature of technology. And IT people sometimes think too much of themselves, claiming they understand the business better than the marketing, operations or sales executives. Don't kid yourself. When was the last time you talked to a customer, and constructed a multi-year deal? Think of yourself as who you really are: at the core of business innovation, while at the same time making sure the business runs smoothly.
Thanks for reading. Rant over.
frank
BBQ = BPM + CRM + EPM + ERM
This summer I bought one of those fancy outdoor kitchens, and it runs on gas bottles. I got one bottle as part of the BBQ, and off we went. After a while the bottle was empty, and I wanted to exchange it, getting my 55 euro deposit back. I found a garden center in the neighborhood that sells that brand. My wife was surprised to see me come back to the car with two bottles: a full one and an empty one. I had not been successful in trading it in. The garden center explained to me I needed a special deposit form, and the original receipt. The special deposit form could be obtained by sending in yet another form to the supplier's headquarters, and they would send the deposit form back. Within. Three. Weeks. Excuse me? 21st century?
A short call to the call center proved them right. Indeed, a complete circus of administration that would make most 'red tape' look pale. And I didn't have the original receipt anymore. I sent an angry email to the contact center, with the request to pass it to management. I pointed out that we both our interests were aligned, I have their bottle that they want back, they have my deposit, that I want back. I further explained, I couldn't help myself as a former management consultant, that processes like this can lead to serious consequences. People might give up and simply dump the bottle in the trash, which would not be in line with the "green image" the gas company wants to portray. I also pointed out the reputation risk. That it would take only one person to set fire to the bottle, and make a funny movie out of it that is posted on Youtube. Frankly, I didn't even expect a response, just got it from my chest, and went on finding out how on earth I could get a new receipt from the internet-shop where I ordered the BBQ.
To my surprise, the next day I got an email from the company's marketing director. I had caused a dilemma, she said (quoting my own research!). Either help an angry customer, but run the risk of fraud (no paper trail), or keep a tight process and lose a customer once in a while. Then she asked "what would you do in this case, Mr. Buytendijk?". That was the most fantastic response you can think of. Showing strength by opening up, turning a complaint in an opportunity, using my negative energy in a positive way. "Service recovery", as CRM specialists call this. It means that complaints that are dealt with will often lead to higher customer satisfaction, even compared to before the incident. Well done.
Over the next days we had an interesting email conversation, for instance about lean and six sigma. The starting point is that processes need to add to customer value. If they don't they should be abolished or changed. This process clearly didn't add value, in fact, it destroys customer value. Although I didn't see the need for such a process (in fact, all you need is to track the serial number on the gas bottle), if the company would insist, first move it to the Internet, second, make it a worthwhile process by supplying BBQ tips generated by the community of users, while registering your bottle. However, what I found out was that these bottles do not have a serial number. That is odd, it is a basic principle in auditing that wherever there is a change for fraud, the flow of goods needs to be monitored. Without identification, there is no monitoring. The lesson we can learn from that is that if the basics fail, no process, or no technology is capable of adding customer value anymore. Unless you get the basics right, all you can do is damage control. And, reasoned the other way around, if you get the basics right, the problems the company has between balancing the needs of the back office (fraud prevention) and the front office (smooth customer interactions) would completely disappear!
Oh, one more thing. I did a little bit of "market research" and found more people who use gas bottles from the same company. In their case it was solved differently. The outlet where they got the product told them to never mind the whole bureaucracy-nonsense, they would exchange it for them anyway. The dysfunctional processes was replaced by a shadow-process, figured out in practice. A solution, yes, but wouldn't it be better to be in control of your own processes?
Process, performance, risk and customer relations cannot be seen as separate disciplines. An optimization from one point of view then leads to problems looking at it from another angle. However, when you take a more integral approach, often a simple solution means a world of difference. Will the gas company take the advice? That's the question, sometimes the simplest advice is the hardest to follow.
A short call to the call center proved them right. Indeed, a complete circus of administration that would make most 'red tape' look pale. And I didn't have the original receipt anymore. I sent an angry email to the contact center, with the request to pass it to management. I pointed out that we both our interests were aligned, I have their bottle that they want back, they have my deposit, that I want back. I further explained, I couldn't help myself as a former management consultant, that processes like this can lead to serious consequences. People might give up and simply dump the bottle in the trash, which would not be in line with the "green image" the gas company wants to portray. I also pointed out the reputation risk. That it would take only one person to set fire to the bottle, and make a funny movie out of it that is posted on Youtube. Frankly, I didn't even expect a response, just got it from my chest, and went on finding out how on earth I could get a new receipt from the internet-shop where I ordered the BBQ.
To my surprise, the next day I got an email from the company's marketing director. I had caused a dilemma, she said (quoting my own research!). Either help an angry customer, but run the risk of fraud (no paper trail), or keep a tight process and lose a customer once in a while. Then she asked "what would you do in this case, Mr. Buytendijk?". That was the most fantastic response you can think of. Showing strength by opening up, turning a complaint in an opportunity, using my negative energy in a positive way. "Service recovery", as CRM specialists call this. It means that complaints that are dealt with will often lead to higher customer satisfaction, even compared to before the incident. Well done.
Over the next days we had an interesting email conversation, for instance about lean and six sigma. The starting point is that processes need to add to customer value. If they don't they should be abolished or changed. This process clearly didn't add value, in fact, it destroys customer value. Although I didn't see the need for such a process (in fact, all you need is to track the serial number on the gas bottle), if the company would insist, first move it to the Internet, second, make it a worthwhile process by supplying BBQ tips generated by the community of users, while registering your bottle. However, what I found out was that these bottles do not have a serial number. That is odd, it is a basic principle in auditing that wherever there is a change for fraud, the flow of goods needs to be monitored. Without identification, there is no monitoring. The lesson we can learn from that is that if the basics fail, no process, or no technology is capable of adding customer value anymore. Unless you get the basics right, all you can do is damage control. And, reasoned the other way around, if you get the basics right, the problems the company has between balancing the needs of the back office (fraud prevention) and the front office (smooth customer interactions) would completely disappear!
Oh, one more thing. I did a little bit of "market research" and found more people who use gas bottles from the same company. In their case it was solved differently. The outlet where they got the product told them to never mind the whole bureaucracy-nonsense, they would exchange it for them anyway. The dysfunctional processes was replaced by a shadow-process, figured out in practice. A solution, yes, but wouldn't it be better to be in control of your own processes?
Process, performance, risk and customer relations cannot be seen as separate disciplines. An optimization from one point of view then leads to problems looking at it from another angle. However, when you take a more integral approach, often a simple solution means a world of difference. Will the gas company take the advice? That's the question, sometimes the simplest advice is the hardest to follow.
That time of the year again
(*) Warning. Contains Irony.
It's that time of the year again. Running season. Every year I write in my blog on my jogging efforts. Yesterday I ran the "Singel loop" in the City of Utrecht ("Singel loop" does not translate as "single loop"! Loop = Run, Singel = a canal surrounding a city), a 10km run.
Last year in my blog I used this run as an example of how measurement can tell you anything you want. Last year:
• I improved my personal record for the 10K (great!)
• ... as no. 570 I came in last anyway (hmmm... not so great)
• ... but the system didn't register the people who gave up and never finished (at least I did!)
• I started front row, and came in last, so I must have seen every single runner (social indicator?)
• I improved my personal record for the 10K (great!)
• ... as no. 570 I came in last anyway (hmmm... not so great)
• ... but the system didn't register the people who gave up and never finished (at least I did!)
• I started front row, and came in last, so I must have seen every single runner (social indicator?)
While running yesterday, I found some other examples in running that help understand the subjectiveness of measurement. (Yes, measurement is far from objective!)
Everything is relative
KPIs are used to express one measure of success against a certain base, like revenue per employee. A great way to fluff up your performance. In my case, if I correct my time of 1 hour 16 minutes (1:16) with my overweight, it compares to running 10k in about 1 hour, which is really not bad! Also, it was hot. Does that count for something, comparing performance to other occassions in better circumstances?
KPIs are used to express one measure of success against a certain base, like revenue per employee. A great way to fluff up your performance. In my case, if I correct my time of 1 hour 16 minutes (1:16) with my overweight, it compares to running 10k in about 1 hour, which is really not bad! Also, it was hot. Does that count for something, comparing performance to other occassions in better circumstances?
Measurement system
I use the Nike+ system that counts every step and sends the data to my iPod. Distance, speed, etc. is based on the average step-size. I reckon the system has about a 7.5% margin of error. So when my measurement system said I did run 10km, I still had 750 meters to go. According my definition of 10 kilometer, I did that in about 1:11, which is nicely on target of what I usually run. And as long as that is the only system of measurement, it is fine as long as the margin of error is consistent. One measures improvement (or not), even if the basis is wrong. So in a sense I did make my target of 1:11, as it was based on a different system of measurement.
I use the Nike+ system that counts every step and sends the data to my iPod. Distance, speed, etc. is based on the average step-size. I reckon the system has about a 7.5% margin of error. So when my measurement system said I did run 10km, I still had 750 meters to go. According my definition of 10 kilometer, I did that in about 1:11, which is nicely on target of what I usually run. And as long as that is the only system of measurement, it is fine as long as the margin of error is consistent. One measures improvement (or not), even if the basis is wrong. So in a sense I did make my target of 1:11, as it was based on a different system of measurement.
Measurement tells you about the person measuring
Measuring a subject itself already causes a change in behavior of the subject. Also, any measurement system shows the hand of the person measuring. Choice of metrics (objectives), or relative position (from where was something measured). For instance, I measured that in the beginning of the run I was mostly overtaken by men. Later on, I measured I was mostly overtaken by women. What does that tell? That on average men run faster than women. But it also tells you something about me. I don't run terribly fast (in fact, I was amongst the last to finish).
Measuring a subject itself already causes a change in behavior of the subject. Also, any measurement system shows the hand of the person measuring. Choice of metrics (objectives), or relative position (from where was something measured). For instance, I measured that in the beginning of the run I was mostly overtaken by men. Later on, I measured I was mostly overtaken by women. What does that tell? That on average men run faster than women. But it also tells you something about me. I don't run terribly fast (in fact, I was amongst the last to finish).
Rhythm helps driving performance
I have been writing many times about how quarterly closings are a completely artificial event, that should not impact discounts, etc. The shoemaker charges the same price for fixing your shoes, whether it is March 31st, or April 1st. However, I have noticed there is something to be said for a periodic pace of business. A rhythm helps. I noticed that one song particularly (Eminem - Lose Yourself) kept me going. The rhythm was perfect, it gave me energy and the beat really drove me forward.
I have been writing many times about how quarterly closings are a completely artificial event, that should not impact discounts, etc. The shoemaker charges the same price for fixing your shoes, whether it is March 31st, or April 1st. However, I have noticed there is something to be said for a periodic pace of business. A rhythm helps. I noticed that one song particularly (Eminem - Lose Yourself) kept me going. The rhythm was perfect, it gave me energy and the beat really drove me forward.
Synergy
My time this year was worse than last year, when I ran the race in 1:14. Then again, I didn't train that much, as I have spent most evening and weekend hours on writing on my new book. Ironically enough, the book is on dilemmas. So is this a dilemma? Spending time on writing versus time on training? The book actually argues it is important to find the and/and situation. How can you do both at the same time? Being so energized working on the book that I automatically run more as well? Alas, practice turned out to be different. Time truly has proven to be a constraint. Then again, synergy was achieved, I did come up with the content for this blog while running...
My time this year was worse than last year, when I ran the race in 1:14. Then again, I didn't train that much, as I have spent most evening and weekend hours on writing on my new book. Ironically enough, the book is on dilemmas. So is this a dilemma? Spending time on writing versus time on training? The book actually argues it is important to find the and/and situation. How can you do both at the same time? Being so energized working on the book that I automatically run more as well? Alas, practice turned out to be different. Time truly has proven to be a constraint. Then again, synergy was achieved, I did come up with the content for this blog while running...
Lastly, measurement is about learning, closing the loop. That means this blog is about learning how to learn, which in terms of Argyris and Schoen is called 'double loop' learning. Another reason why "singelloop" doesn't translate as "single loop"...
frank
Can a process be ethical?
Ethics is the philosophical discipline that studies morality. Morality is about what is fundamentally right and wrong, towards yourself as well as to others. I wonder how often 'what is right and what is wrong' is being asked in organizations. It should play an important role in strategic decision-making, particularly in these days, as making ethical mistakes can lead to serious consequences. Most organizations have a code of conduct all employees need to sign. 'Doing the right thing' has become more important than risk management alone.
Many have discussed the idea of what constitutes an ethical organization, or ethical targets and performance indicators. If aggressive cost saving targets leave a procurement officer no choice but to work with suppliers that use environmentally unfriendly materials or even use child labor, that is clearly unethical.
But I have never heard of ethical considerations when designing a process. On the philosophical level, for me, a process is a promise. A process promises that if you use it, the outcome will be timely, predictable, and correct. Processes are often obligatory. You have to use it. If the process itself cannot live up to the promise (because it is for instance too slow), it creates frustration, anger, and in the end lethargy. And it drives people to think of ways to circumvent it. Unethical behavior, yes, but driven by an unethical process.
Considering what is right and what is wrong, ethics in other words, shouldn't only be a strategic discussion, they should be part of every business case, or systems implementation.
Many have discussed the idea of what constitutes an ethical organization, or ethical targets and performance indicators. If aggressive cost saving targets leave a procurement officer no choice but to work with suppliers that use environmentally unfriendly materials or even use child labor, that is clearly unethical.
But I have never heard of ethical considerations when designing a process. On the philosophical level, for me, a process is a promise. A process promises that if you use it, the outcome will be timely, predictable, and correct. Processes are often obligatory. You have to use it. If the process itself cannot live up to the promise (because it is for instance too slow), it creates frustration, anger, and in the end lethargy. And it drives people to think of ways to circumvent it. Unethical behavior, yes, but driven by an unethical process.
Considering what is right and what is wrong, ethics in other words, shouldn't only be a strategic discussion, they should be part of every business case, or systems implementation.
Academy of Management 2009
More than 8,000 attendees (mostly academics), 35,000 papers submitted, and 1,600 papers accepted. Amongst which a paper on 'scenario-based strategy maps' written by Pietro Micheli of Cranfield U, Toby Hatch of Oracle and myself.
The start of the conference couldn't have been better. I check into the hotel, get into the elevator and am standing next to... Henry Mintzberg. He is one of my heroes, his work "Strategy Safari" was one of the best strategy books I've ever read. I was so perplexed I didn't say "hi" or anything. Then again, can the gentleman please have 30 seconds of peace and quiet in the elevator, people are bothering him all the time.
The number of presentations was overwhelming, covering every conceivable management topic. I was happy to see that the conference guide has contact details of all presenters, so we can ask for their papers.
So Pietro, Toby and I showed our work on scenario-based strategy maps in a bit of a different style. Not a formal presentation, but almost a market. We had an 8"-4" board where we attached a number of slides to, and people were wondering around, stopping at stands they thought were interesting. We got good traction, have been busy all the time.
The bookstore was unbelievably big, with a full range of books from most large publishers. Shopped till I dropped!
Oh, and lastly, Henry Mintzberg did a book signing, so I got my autographed copy of his latest book and was even able to give him a signed copy of my book. Silly, but I had to...
Connecting the dots
Recently I attended a presentation by a member of the board of a large insurance company. He discussed the "lean" implementation the company has gone through. Lean is a methodology aimed at continuous improvement, and it originally comes from the manufacturing world. Obviously it can also be used for administrative processes.
One of the key elements of Lean is to define the customer value that the organization needs to deliver, and then to eliminate everything that doesn't contribute to that goal. The problem with that could be that you stop innovating. Customers usually don't ask for innovation, they just want to do business hassle-free. The insurance company took a great approach. They company didn't simply ask customers, it didn't just analyze data, the company observed customers closely.
One example that was given was the process around customers moving house. Simply optimizing that process is simple: once you know the customer's old and new address, you can immediately change that in the system, and send out a confirmation letter or email. Process optimized, costs saved, unnecessary steps eliminated, on to the next process. But hang on, what if you think this through? How to add customer value? Moving house from an health care insurance point of view is much more impactful. If you move to another city, you may need a new dentist, a new general practioner, new specialists, etc. Why not offer the customer to register them at a new doctor, and point them to the web site where other customers rate their doctor, dentist etc. Customers become a community. Another innovative thing, was that in its scorecard the insurer doesn't only measure the improvements in time, cost and quality for the company itself, but it actually has performance indicators on what it has achieved from a customer perspective. As logical as this sounds, this is a rare thing.
Lean and Six Sigma do not always have to be 'in the box', and simply about cost savings and operational excellence. Really thinking through what adds customer value is the key to innovation, and this presentation I attended showed that clearly.
Strategy Innovation
Usually when we use the word innovation, it refers to improving products or services. Sometimes this is a gradual process, like adding functions to a software product or adding more customer service options (like self-service check-in for airlines). Sometimes innovation can be radical, such as the Nintendo Wii, which changed the game console market almost overnight, or flying cars that are currently being prototyped (a process that will take many years).
But innovation doesn’t always have to be products and services. Business models can be innovative as well. Look at the Apple iPod. Although the design and the user interface are very slick, the true innovation is not in the hardware, but in the integration with iTunes. Apple solved a fundamental dilemma in the music business. The existing business model in music--selling CDs--was declining in popularity. The alternative model, downloading music via peer to peer networks, had legal issues. Apply made downloading easy and integrated enough for people to actually prefer this over downloading music for free.
Another example of business model innovation is software-as-a-service (SaaS), or on demand. The true innovation is not in the license versus subscription structure (Capex vs Opex), but in opening up of new capabilities. Traditionally, only large companies can manage full-functionality software and deal with the global complexity. However, globalization and regulation do not differentiate between large and smaller organizations. The software that a smaller organization could manage would not provide enough functionality to handle their own complex globalization and regulatory issues. SaaS and related models allow smaller organizations to run fully functional software. The dilemma has been ‘broken.’
Business model innovation usually is about ‘breaking the code,’ where code would mean the way you usually do things--how you believe things work. Innovation is finding a way to eliminate those limiting beliefs.
This is the same way of thinking I’d like to apply to strategy, which is full of limiting beliefs as well. One of the most common misconceptions about strategy is that it's about making choices, about the either/or questions. As Porter says, either cost leadership or differentiation. Or, according to the value disciplines of Treacy and Wiersema, either customer intimacy, product innovation or operational excellence. Strategy innovation is about finding ways to do and/and, and eliminate those limiting beliefs.
I believe this is the true goal of operational excellence. The cost savings of heavy standardization will turn out to be not even the most important result, it will be something else: strategic agility, being able to adapt to changing market circumstances faster. Operational excellence, product innovation and customer intimacy, we can’t say one is more important than the other. They’re all equal parts in the mix. Strategy innovation in action.
I wasn't in the room when it happened...
Did you ever wonder where the balanced scorecard came from? It was created as part of a set of workshops by Drs. Kaplan and Norton with a group of companies who were looking for a way to combine financial and non-financial management information. The idea that emerged and that was finetuned over time was to group and connect four areas of performance: financial, customer, process and growth/learning.
I wasn’t in the room during those workshops that led to defining the four perspectives, but I have a hypothesis how it could have happened. In figuring out which non-financial areas to pick, someone may have mentioned the three value disciplines from Treacy and Wiersema: operational excellence, product innovation and customer intimacy. Treacy and Wiersema state that organizations need to score sufficient in all these areas, and need to excel at one.
These three value disciplines map 3 of the balanced scorecard perspectives perfectly: process, growth/learning (innovation) and customer. The fourth perspective had to be the financial outcome of those perspectives.
If it didn’t happen this way, at least it shows the logic of the four perspectives, as they align with other established management theory.
Better business performance requires less control
A few weeks ago, I traveled with my family to Germany. We decided to fly. Due to the status I have on one of the airlines, I am allowed to make use of the business class line at security, also when flying economy. Although no one else was in line, the guy checking my ticket sent me back to the long line for economy class. My wife and children did not have that status. This while 4 security people, let me repeat this: four people, in the business class security people were just standing there, doing nothing, watching the overly crowded economy line. "the rules, sir". The rules, where would we be without the rules.
It reminded me about what I heard about Southwest Airlines. One of the most important performance indicators is "turnaround time", who fast planes can leave again after landing. Southwest realizes this and put NO strict rules and processes in place for the ground staff in place, other than the guidance how important it is. The company lets the ground staff deal with the situation at hand, as the staff sees fit. You can guess the result: excellent turnaround times at the gate.
Back to the airport where I was at. What would be the result if the security people would open up the business class line if there is availability:
- less queues, higher flow, higher customer satisfaction
- lower cost of security, because of better resource load balancing at the line
- more time for shopping at the airport, improving sales and profitability
- no negative impact on security, the procedure stays the same
- better job satisfaction for security people, because they are empowered to make a difference.
- less queues, higher flow, higher customer satisfaction
- lower cost of security, because of better resource load balancing at the line
- more time for shopping at the airport, improving sales and profitability
- no negative impact on security, the procedure stays the same
- better job satisfaction for security people, because they are empowered to make a difference.
Where would we all be without these senseless rule? In a better place. Less rules, more performance. Performance is about people making the right decisions.
frank
BI(g) in Japan
While I am writing this, I am flying back from Japan. I have spoken with many customers, and it strikes me that many of them have the same question. How have other Global organizations implemented BI and Performance Management? How have they overcome a certain problem? How can we close the gap that we have?
First of all, this assumes that there is a gap. Although there is certainly room for improvement - there always is - I didn't think the companies I was speaking with were doing a bad job at all. Not better or worse than elsewhere in the world at least. The recent EPM Index study we recently did in NA and EMEA showed a score of 5.13 out of 10. And if I could take a stab at the level of maturity in Japan, I would rate that in the same category. 5 means lots of opportunity to work on, but also half-way there already.
Second of all, and more serious, the line of reasoning assumes that best practices in the West can be copied in the East. I doubt that. Michael Porter repeatedly said that in his eyes most Japanese companies do not have a strategy. That is quite a statement. Maybe what he meant to say was that most Japanese companies do not fit in his framework? A good theory is characterized by the clarity of its boundaries. Perhaps strategy theory is not universal? What a surprise.
I think in adopting BI and performance management there are three things to consider: management style, implementation practices and software.
The dominant style in Japan is very different than in other areas around the globe. Decision-making processes are much more bottom-up, a.k.a emergent strategies. The role of top-management is to provide council and to guide the process. Compare this to the West, where strategy formulation is seen as the responsibility of top management and then rolled out to the rest of the organization. In the West, strategy is seen as the big picture. In the East, strategy is a process of continuous improvement. OF COURSE the Western style of performance management isn't adopted in Japan.
Honestly, I don't think software is the issue. It can be used in many different ways. I think the real issue is that the implementation best practices do not take different cultures and styles into account. What is needed is a way of describing different styles and culture, and then derive an implementation style from that. I have done some preliminary work in this space as part of my book "Performance Leadership", but by far not enough.
Do you have experience in this field or do you have any suggestions? Let me know.
A reader reacts: "Sticking to the plan" and "Sticking to reality"
Graham Davidson reacts:
"Sticking to the plan is useless, you need to stick to reality, that is changing every day". How often have I heard that as an excuse for not delivering. The trouble is that many people confuse the plan with the deliverable, find the plan doesn't work any more and, rather than modify the plan, fail to deliver. Mostly, in a yearly cycle, the destination hasn't changed, just the method of getting there. As always the best answer lies somewhere between a rigid plan and hoping to take advantage of opportunity and, as always, people use one of these extremes for operating at the other."
In fact, I fully agree with Graham, it must be a choice of words. The plan is often mistaken for the goal, if I may paraphrase indeed. The goal should be clear. Unless there are serious discontinuities, the goal remains unchanged.
What changes all the time, is the way how to get there. A plan must be dynamic. I like the comparison with a term from the military: "strategic intent". The mission is clear, the goal is shared by everyone, and all commander's are aware of each other's task. But can you give detailed marching orders? No. The terrain changes, the moves of the enemy can't be fully predicted. As Field Marshall Von Moltke said: "any battle plan doesn't survive first contact with the enemy".
The trick to a good plan-to-act management process is continuous experimentation.
frank
Key Performance Indicators
Recently, I pointed to an interesting website, www.kpilibrary.com. Jgdprovily responded:
"frank, with all respect, but maybe you do not fully understand what a key performance indicator is, it is a very critical measure for boosting performance and it differs from company to company, even they are operating in the same market and or branche. Just copying KPI's from a library is the dummest thing one can do, and dangerous too."
I don't want to get into a definitions debate on what is a key performance indicator, just a performance indicator, a measure or a metric, but there are indeed different types of performance indicators, based on operations and efficiency, and the ones that are more strategic of nature and focus on business effectiveness.
I think we would all agree that a key performance indicator for human resources would be the absenteeism rate. Lagging of nature, compared to employee satisfaction, leading of nature in terms of organizational productivity. Everyone would also agree that moniting the days sales outstanding (DSO) is an important metric in financial operations, and in today's economy even a key indicator. Conversion rate would be a bottom-line in marketing campaigns and sales channels, no one would argue about that. But does it make sense to come up with your own definition, because it differs from compay to company? Probably not. In fact, organizations would be wise to copy a commonly understood definition. This allows you to:
* benchmark performance, compared to other companies
* get ready quick, so management can spend time on the performance indicators that DO differ from company to company
* save cost on the reporting, by making use of standard software.
* get ready quick, so management can spend time on the performance indicators that DO differ from company to company
* save cost on the reporting, by making use of standard software.
But indeed, some performance indicators are unique, the ones that are connected with the strategy of the organization. It is pretty clear that one attribute of a successful business strategy is the extent to which it differentiates in the market. It is hard to be a winner with a me-too strategy. And even when you are operating in the same market, and have a similar strategy, then there is still a difference in the core competencies and the management maturity of the organization, making that different key performance indicators are needed. Copying those from a library would indeed not be very wise.
Treacy and Wiersema defined three core strategies: operational excellence (aka cost leadership), customer intimacy and product innovation. They point out you need to excel in one of them to be successful, and simply score sufficient in the others. Perhaps this is a guideline on how to choose where to take standard definitions, and where not.
Blindly copying performance indicators from a library can be a dangerous thing, as my reader points out. But trying to do everything yourself is equally dangerous. The answer, as usual, lies in balancing the two.
James Bond gadget needed
I lose stuff all the time. I have to call my mobile phone twice a day to hear where it is. My keys are always gone, and I can’t even count the times any more that I couldn’t find my passport or my wallet. I even have 2 passports and 1 additional identity card, just in case. Great, even more stuff to lose.
What I really need is a variation on that James Bond gadget from “The Living Daylights”. Bond used a keychain that contained stun gas to be released after whistling the first bars of “Rule Britannia”.
I don’t need the stun gas, but would like a device that as soon as I push a button, the things I have tagged with a chip (like my wallet, keys, photo camera, pda, phone, passport etc) start to beep. Like a remote control.
Does anybody know of such a device?
If so, let me know. I just hope that when I get it, I don’t lose that remote control.
TVI - The true measure for profitability
Recently we were hanging up a small cupboard in the kitchen. We carefully calculated where between the walls the cupboard should be – right in the middle, and how much below the ceiling it should be. The cupboard is hanging, but not in the middle and lower than we expected. What we should’ve done is simply hold the cupboard where it should be and draw circles on the wall, with a pencil through the screwholes.
If you listen to what most commentators say about the current financial crisis, there is an interesting parallel to hanging up the kitchen cupboard. The value and risk of the packages of subprime mortgages turned out to be unknown. No real assessment had taken place in buying and selling these packages, just very complex financial modeling. It seems banks have forgotten their true source of profit, being interest margins and fees, instead of buying, chopping up and selling packages of financial instruments.
In fact, most of the corporate scandals, spectacular business failures and the dotcom bubble have been caused by the same phenomenon: organizations forgetting about their core business and true value drivers. Retailers, Telecoms and Media businesses saw their supermarkets as cash machines to finance acquisitions.
In pursuit of maximizing profit and shareholder value, some organizations have lost touch with the reality. And let’s face it, how many organizations ask themselves why they make a profit, and if their sources of profit are sustainable. Some organizations see the world of business as a zero-sum game. Their value creation is someone else’s value destruction. That is not sustainable. Other organizations aim to add value to their stakeholders, and see profits as their reward, that can be invested in even higher added value, a virtuous circle. This is a more sustainable view.
How do we measure if an organization’s profit is sustainable? I think we need a new measure. I’d like to introduce the “True Value Index” (TVI).
TVI = Profit – X / Profit
X = Unfair procurement savings (X1) + Intransparant margin (X2) + Income from
non-primary sources (X3) + Unnecessary cost (X4)
X = Unfair procurement savings (X1) + Intransparant margin (X2) + Income from
non-primary sources (X3) + Unnecessary cost (X4)
X1 - Procurement savings
There is nothing wrong with strong negotiations between the organization and its suppliers, as long as it doesn’t lead to squeezing the supplier below a fair margin. Even if the procurement cost leads to lower consumer prices, there is a negative effect on the value chain. It creates weak links and suboptimal results. Leaving a supplier a fair margin and invite suppliers to closely integrate into administrative and logistical processes and systems could easily lead to higher – and more sustainable -- cost savings. Organizations should assess which part of their procurement savings are unhealthy. This constitutes X1.
There is nothing wrong with strong negotiations between the organization and its suppliers, as long as it doesn’t lead to squeezing the supplier below a fair margin. Even if the procurement cost leads to lower consumer prices, there is a negative effect on the value chain. It creates weak links and suboptimal results. Leaving a supplier a fair margin and invite suppliers to closely integrate into administrative and logistical processes and systems could easily lead to higher – and more sustainable -- cost savings. Organizations should assess which part of their procurement savings are unhealthy. This constitutes X1.
X2 – Intransparent margins
There are two sources of profit. A part of the profit is based on true added value, and a fair premium. The second source of profit is based on market intransparencies, customers not knowing the same product or service can be obtained elsewhere at a better price. Intransparencies can be caused by a lack of information, market access or illegal practices such as price-kartels. Due to globalization and increased power of buyers, markets move more towards a model of “pure competition” where buyers nor sellers have the power to alter the market price of products and services. Organizations should assess to which extent their profits are based on a fair premium, and which part is based on intransparency, being factor X2.
There are two sources of profit. A part of the profit is based on true added value, and a fair premium. The second source of profit is based on market intransparencies, customers not knowing the same product or service can be obtained elsewhere at a better price. Intransparencies can be caused by a lack of information, market access or illegal practices such as price-kartels. Due to globalization and increased power of buyers, markets move more towards a model of “pure competition” where buyers nor sellers have the power to alter the market price of products and services. Organizations should assess to which extent their profits are based on a fair premium, and which part is based on intransparency, being factor X2.
X3 – Income from non-primary sources
Organizations have income from different sources. For the true value index we should count only the income from the organization’s core businesses. Of course treasury should contribute to the organization’s income, but this should be the core business (in fact, if the return of treasury is higher than the return on the core business, the organization is in the wrong business or has serious business model issues). Also, revenue coming from non-core activities should be evaluated. Either it is deemed vital, which means it should become a core activity, and be managed as such, or it should be discounted from true value. Treasury income and revenue from non-core activities form X3.
Organizations have income from different sources. For the true value index we should count only the income from the organization’s core businesses. Of course treasury should contribute to the organization’s income, but this should be the core business (in fact, if the return of treasury is higher than the return on the core business, the organization is in the wrong business or has serious business model issues). Also, revenue coming from non-core activities should be evaluated. Either it is deemed vital, which means it should become a core activity, and be managed as such, or it should be discounted from true value. Treasury income and revenue from non-core activities form X3.
X4 – Unnecessary cost
Creating the TVI should not lead to the thought that only direct costs are healthy. If this were the case, there would be no brand marketing – just lead generation, or no investments in IT infrastructure – just tactical implementation, and no innovation – just milking the cash cows. That would be very unhealthy. In fact, it seems in many businesses the indirect costs are growing. However, once in a while organizations do build up excessive overhead, some ‘fat around the waist’, that needs to be removed. Sometimes organizations sponsor activities that cannot be linked to business results or social relevance– if only PR. The assessment of these cost lead to X4.
Creating the TVI should not lead to the thought that only direct costs are healthy. If this were the case, there would be no brand marketing – just lead generation, or no investments in IT infrastructure – just tactical implementation, and no innovation – just milking the cash cows. That would be very unhealthy. In fact, it seems in many businesses the indirect costs are growing. However, once in a while organizations do build up excessive overhead, some ‘fat around the waist’, that needs to be removed. Sometimes organizations sponsor activities that cannot be linked to business results or social relevance– if only PR. The assessment of these cost lead to X4.
As you can see, TVI is not a mathematical formula, it consists of various assessments. In putting together a profitability management program, TVI might be an important instrument. The discussion around the various assumptions and evaluations may be as important as the actual result. And if the TVI index is lower than, let’s say, 2/3, you could say you’re in trouble, or about to hit it.
Could the TVI be a predictive indicator for business failure?
frank
P.S. I would like to thank professor Wim Scheper of Deloitte for the wonderful discussion a few weeks ago that led to this line of thinking.
Performance comes from Venus, management from Mars, Part II
I've been jogging, and I’ve been progressing – slowly – in the last year. Where last year I did the 4 mile run, this year I was doing 6 miles (10km). Here's a picture.
My end time was not too good, I was slow even according my own standards. 1:14:13. I ended as number 3762. But then again, with 5500 people in the race, it could’ve been worse.
My preparation wasn’t optimal. The run was two days after Open World, and the evening before we had a big dinner with friends, with a glass of wine (or two…). I really felt that during jogging the day afterwards, the last 3 kilometers were not easy.
While jogging, I had this thought about my previous blog on “Performance comes from Venus, and Management from Mars”. I explained that performance deals with matters of the heart (passion, endurance, teamwork, skills), while management deals with matters of the mind (rules, processes, control, discipline).
I learned an important lesson. There can be no performance without management. Passion is great, and I was certainly not lacking it, but without the discipline the result will not be great.
This is also true with other areas of life. You can only become a great artist if you practice, practice, practice. And wisdom comes from examining a few of your own scars once in a while.
I don’t think it is different in business. Performance management starts with discipline. Putting together good management processes, clear definitions, a collaborative working style. That should be the focus for most organizations. And putting in a little bit more jogging training needs to be my focus.
PS. In the meantime, I did another 10K run, the Maliebaanloop. What do you think of the following ways of describing it?
• I improved my personal record for the 10K (great!)
• … as no. 570 I came in last anyway (hmmm… not so great)
• … but the system didn’t register the people who gave up and never finished (at least I did!)
• I started front row, and came in last, so I must have seen every single runner (social indicator?)
• I improved my personal record for the 10K (great!)
• … as no. 570 I came in last anyway (hmmm… not so great)
• … but the system didn’t register the people who gave up and never finished (at least I did!)
• I started front row, and came in last, so I must have seen every single runner (social indicator?)
You see, measurement can tell you everything you want.
Performance comes from Venus, management from Mars
Performance has everything to do with passion, motivation, dedication, skills, teamwork. Performance is about People. Management is all about control, procedures, guidelines and regulations. Management is about processes and systems. In other words, Performance comes from Venus, and Management from Mars.
Seen this way, ‘performance management’ is a bit of a contradiction in terms. I have been exploring this idea for the last three years, and many of the posts in this blog have been inspired by this journey. And this journey has had a deliverable that I am very proud of…
In 2008, my book called “Performance Leadership” has come out. It is published by McGraw-Hill and it is available world-wide.
Often, people start to behave strangely when confronted with performance indicators, management reports and targets. They sit back after the target is made, and push things to the next year, or start spending excess budget as much as they can. Management sometimes spend more time explaining why certain numbers are not right, instead of trying to increase sales. And people have endless creative ways of playing the numbers.
This goes for people and their behaviors within the organization, but also for organizations in relation to their environment, their stakeholders.
What would happen if we apply lessons in the field of personal development to performance management? Stephen Covey (Seven Habits of Highly Effective People) teaches us that people should ideally develop on four dimensions. The physical dimension is needed to stay healthy, and have energy for the other dimensions. The mental dimension helps us get ahead: where are we now, where do we want to be, how do we get there? The social and emotional dimension helps to develop ourselves as balanced people who are an asset to their environment. The spiritual dimensions, lastly, helps us to think about what we stand for, or in other words, what we want to be remembered for.
How does that translate to performance management? The physical dimension is comparable to managing day-to-day operation. These must be efficient, so that there can be the appropriate management attention for improvement and innovation. The mental dimension nicely dovetails with strategy, asking yourself the same question: where are you now, where do you want to be, how will you get there? But that is where performance management usually stops, it’s all we ask ourselves. And as organizations are living organisms, according to the Covey-parallel, we leave half on the table.
How do we manage the social dimension of the organization? How do we make sure that the value we add, is not substracted somewhere else? Are we really running a transparent and responsible business? At first glance, talk about the spiritual dimension seems far-fetched, but it isn’t. Every organization has core values, has a certain culture, attrachts certain people and has a certain image. This describes what the organization stands for, which has a huge impact on the bottom line.
Do you want to know more? Check out www.frankbuytendijk.com.
Can’t wait to hear your feedback…
What business can learn from public sector
People working in the public sector get to hear a lot they should run their operations more as a business. And business is considered to be more advanced in management than public sector, so we all think.
Actually, I think business has quite a bit to learn from public sector, when it comes to performance management. I recently did a bit of research with my colleague Nigel Youell, and we found the following five lessons to be learned from the public sector:
Linking aspirational goals to concrete performance indicators
Businesses, particularly in public companies, are run with a fairly short term horizon. Quarterly results, and a year to prove a new strategy is right. The public sector is more used setting aspirational goals, that really speak to the imagination -- and try to measure the progress towards those goals. The City of Boston has found some proxy metrics (performance indicators that are not precise but correlate with a certain goal) to measure "opportunity and hope." For instance, they measure the annual school dropout rate, the number of young adults so-called BPL programs, or the number of youths and families referred for services by streetworkers.
Transparency
The public sector is much more used to living in the transparent world, perhaps every business executive should function in the public sector to learn how to deal with that. In my Hyperion days I blogged once about school scorecards in my home country, The Netherlands. If you go to www.onderwijsinspectie.nl (School Inspection Board), you can select any school in the country and see how it is rated by the inspection board. Schools are living in a competitive world too, their budget is linked to the number of pupils they have.
Enterprise-wide
I recently wrote about City-wide Performance Reporting (CPR) in New York City, as an excellent example of performance management. They have shown it is possible to align a complete and complex organization. A total of more than 40 city agencies and organizations were involved in creating city-wide performance indicators.
Cause-and-effect
Business life is largely hierarchic of nature. Performance management shows us how we have contributed to corporate goals, but usually not how we contributed to the goals of our peers. I think in the end peer contributions are equally important than individual rolled-up contributions. Or let me take that back, I think they are MORE important, because if you do peer contributions really well, there is increased leverage in reaching the corporate goals. There are multiple examples in the public sector where managers between services collaborate. For instance, social services (streetworkers) may have a positive effect on school results, by keeping children of the streets. And positive school results are correlated with crime rates. In the public sector, cause-and-effect relationships are more defined horizontally.
Continuous improvement
Ok, public sector is notorious for heavy spending at the end of the year, to get new and increased budgets the next year. That's wrong, but it equally happens in corporate life. Again, New York City shows it can be different. In their CPR initiative they are not measuring towards fixed goals, they are measuring year-over-year comparisons. In other words, going for continuous improvement.
Stakeholder orientation
Network Rail (NR), the railway infrastructure organization in the UK, truly understands performance management "21st century." Performance improvement is not about maximizing your own goals, but looking at both stakeholder contributions and requirements. For instance, although passengers are not customers of Network Rail (they are customers of British Rail, Virgin, etc), still they are stakeholders, and performance indicators are put in place to see who NR achieves for passengers. Also, NR actively monitors the success of their suppliers, as part of a strategic relationship. Business, mostly focused on shareholder value maximization, can learn a great deal from this.
So what can the public sector learn from business? Would love to hear your thoughts...
frank
Jean Michel Jarre
I recently visited a Jean Michel Jarre concert in Zurich. Yes, yes, I realize this shows my age, but I've been a fan since I was twelve. For those of you who don't know Jean Michel Jarre, he is the pioneer of electronic music, and an inspiration for many trance and techno dj's still today. Without Jarre, techno music would have been very different.
In this tour, Jarre played his successes ("Oxygene") from the 1970s, and used only his old analogue synthesizers, no modern equipment at all. He brought a 1920s theremin, a mellotron, various Moog modular synthesizers, and many more.Click on this link to get an overview of the instruments he has been using. Fascinating.
Ok, call me pathetic, but it all of a sudden dawned on me, during the concert, is that there are a few important lessons to learn for us in IT.
First, the seeds of innovation can often be found way in the past. Take for instance the popularity of dashboards and scorecards. The best practices (and worst nightmares) have been very well documented in the 1980s already, during the days of the executive information systems. However, I see a lot of reinventing the wheel going on.
Further, software does not solves problems, people do. Implementing IT requires skill, craftmanship and passion. I would not be able to get the results Jarre gets playing his instruments. And it took him years of mastering them.
Lastly, we shouldn't overengineer things, trying to solve everything with complex IT solutions.. Jarre had only one projection screen, just a few lights, and a large mirror hanging above the stage so we could see what was going on behind the keyboard. Simple solution, maximum effect.
It was a great concert.
--frank
CIO or CTO
I recently had a very interesting discussion about the role of IT management. It is the current best practice to define the role of the CIO as a change agent within the organisation. He/she needs to help the organisation to use information, particularly performance information, to gain competitive advantage by leveraging the information asset to improve decison making at all levels in the organisation, from the strategic level right down to all operational levels of the organisation. This is partly about technology, but much more about organisational change -- about governance and about enabling new business models.
Traditionally, a CTO's focus is much more narrow, and focused exclusively on technology. How do I optimise the technology we own? How do I drive cost out of our technology platform? What hardware and networks do we have? Who should be our strategic suppliers of technology? How do I improve the reliability of our technology?
However, I am not sure if I think this is the right way forward. In my opinion CIOs would do good to become more of a CTO for the coming years. Here's why:
- Consumerization of IT. The colleagues in the business may know more about IT than you and have very sophisticated requirements. If they talk about making mash-ups and you think it involves gravy and potatoes, you will have a credibility problem. If the IT dept and the CIO are not IT savvy, the business will not only go outside and buy solutions, but they will create their own solutions. I would want my CIO not the best business person, but the best IT guy, just as I would want my CMO to be a marketing expert.
- IT is increasingly about value chain integration. Connecting processes, systems, people across suppliers, customers, employees, everyone. Much of the IT budget will be spent outside the organization; more than 50% will be no exception. This requires a strong infrastructure focus for the CIO, to manage the common foundation. For the future, applications will increasingly leave the IT realm; 2.0 techniques plus service-oriented architectures create business process frameworks, in which power users largely implement and maintain applications themselves.
- Most new business models are IT-driven anyway. Allowing consumers to configure their own orders (mass customization) and track the progress requires advanced web-based applications. Smarter analysis of customer data is achieved through advanced CRM analytics. Many new services are about supplying additional information to consumers; in other words, business intelligence becomes a product and value proposition of its own.
In all these trends the CIO has the largest business impact, being a techie!
--frank
Are you profitable? I'm sorry, that is just not enough!
The newspapers report on it almost daily. Activist shareholders such as hedge funds build up a small percentage of shares and sends the board a letter, sharing their ideas of a new strategy. Splitting up the company as the divisions independently are worth more than the total company.
No wonder, the way how we typically organize ourselves as a multidivisional company may easily lead to that situation. Divisions or business units are seen as a portfolio. Each of them need to be profitable independently (in Dutch we call this "need to be able to hold up their own trousers"), and usually they are managed from a certain distance, based on financial results. Most performance indicators measure the business unit's contribution to the group.
Although we can't justify the existence of business units that totally depend on others (they would be service units then), I think managing based on contribution, the portfolio approach, has gone too far. What's the value of being part of a multidivisional company as a totally independent business, just contributing profit? I would say the value is negative, it doesn't justify the cost of the holding. There should be synergies, or leverage. Of course this starts with some economies of scale of shared IT, shared finance and HR, but ultimately synergy is not about costs, but about opportunities.
I think we need a new control model, not based on measuring contibution, but measuring leverage. What cross-sell opportunities did it create? What innovative techniques did it share? What markets did it open for others to leverage? How did it optimize its planning not for its own sake, but for the benefit of the group (think about this one really hard)? This all justifies being part of the group. And this is what a balanced scorecard really should be about.
In a world of hypercompetition, we need all the collaboration we can get. If we don't cross-sell, we leave money on the table. Local optimizations have a overall negative impact on the companies margins. If we don't innovative across the board, someone else overtake us. Pretty tangible business cases. But perhaps the most important business case is somewhat intangible of nature. In a global economy, organizations need to be authentic, need to stand for something in order to be recognized, need to speak with one mouth. A "bunch" of business units, each contributing to maximize profit, are an unlikely structure to do so.
--frank
Accountable or Responsible
-- The telecom company had to come back twice to fix your triple play installation (telephony, internet, cable television), yet the telecom company proudly publishes very high service levels and customer satisfaction.
-- You complain about the service or the cleanliness in a public facility and they point you to a sticker providing you with a 1-900 number for "suggestions and ideas," $0.49 per minute.
-- The agent in the centralized call center of the police doesn't recognize the name of the street where you report an accident in, and also doesn't know about the roadworks that make it hard to reach the place.
-- The helpdesk reports high effectiveness rates, 80%+ of all inquiries are solved immediately, and tickets can be closed again. At the same time, the employee satisfaction survey show a high dissatisfaction with IT.
-- The hospital informs you that you are on the waiting list for the waiting list?!?
-- . . . and you recently received an email survey asking you how satisfied you were with the previous satisfaction survey.
These are all actual examples of what happens if you drive too much efficiency.
In the last twenty years, most public and private organizations have gone through multiple rounds of reorganization, squeezing cost out while aiming for operational excellence. Governments have privatized healthcare and social services, to be more run as a business, and have introduced competition. Companies have outsourced business processes to shared service centers that offer economies of scale and strict division of labour. Although the cost structure has improved significantly, there are adverse effects.
Now, on top of the requirements for even more increased efficiency and operational excellence, organizations are faced with the need for being accountable as well. If not addressed well, it can lead to dysfunctional behaviors, running the numbers instead of running the business. This effect is documented very well. The police station doesn't want to get called directly anymore, because then calls are not registered in the central system, that is needed for reporting. Hospitals create an unoffical waiting list before you get on the actual waiting list, because the official waiting list counts for the statistics. Every department of the telecom operator claims to have 95% success rate, but as a value chain it scores 0.95 x 0.95 x 0.95 x 0.95 x 0.95 = 77% success.
At the same time, optimizations led to a high level of specialization. Management guru Mintzberg explains how modern enterprise often traded in "mission goals" (what do we like to achieve) to "system goals" (how can we manage our process). Another way of saying this is that organizations focus on accountability, instead of responsibility. Accountability focuses on displaying what you do. Responsibility on what you achieve for your stakeholders, such as your customers, your partners, your investors and society at large. In organizations that are highly optimized towards specific activities, instead of in charge of a complete process, it is even very hard to take responsibility, every department is simply a small link in the overall chain. Then accountability is all what is left.
If you are not in touch anymore with the end result for consumers or citizens, all you can do is set goals for your own part in the process. All you can do is measure your input and your output, but not your effect. All you can do is create controls to optimize your performance and minimize your cost. And no one is responsible anymore for the overall result.
Don't get me wrong, I am not opposing accountability. However, I am against playing games with performance indicators. We should organize ourselves so that we can take responsibility for what we achieve. And that is not that hard to do, if we let go all kinds of organizational "best practices" and start thinking for ourselves. So not only measuring our own stuff, but also what we achieve for other. And most of all, let's not talk about "internal customers" anymore, but call them what they are: colleagues, with the same objectives and the same customers. And one last piece of advice: if you notice that performance indicators stand in the way of doing the right thing, it would be great to take responsibility and do the right thing, never mind the performance indicators.
--frank
The myth of the one version of the truth
Since the dawn of MIS (Management Information Systems), the most important objective has been to create a single version of the truth. That is, a single set of reports and definitions for all business terms, to make sure every manager has the same understanding. Most organizations have many different definitions of the business terminology they work with on a daily basis. This is often visible with common business words such as "revenue," "number of employees", and "number of customers." For any given market, there are specific terms that have different meanings within the industry and to the outside world, such as the word "flight" for an airline, "account" for a bank, and "student" for a university. There is actually a rule for this:
The more connected a term is to the core of a business, the more definitions of it exist.
In the last 20 to 30 years, countless efforts have been made to identify different versions of the truth and collapse them into a single definition so that all business departments can align along the same meaning of business-critical terminology. Rarely have these exercises been successful. In fact, I would call most of them misguided. There is a reason for so many definitions. If a term is closely connected to the core of the enterprise, many business functions will add their unique interpretation of that word. You might wonder what value a business department brings to the organization if it does not have its own unique view. This doesn't mean every single definition for a term is valid and useful. On the contrary, many may be redundant. The challenge, of course, is how to decide which definitions are valid and which ones are not.
A good example can be found in the software industry. If we look at the term "revenue," many versions of the truth emerge during and after the sales process. Here are just a few variations:
- Gross revenue: Total sales before software discounts, customer bonuses, and lead incentives for partners. Customer bonuses may comprise discounts on or free consultancy, training or other services.
- Net revenue: Total sales after software discounts, customer bonuses, and lead incentives for partners.
- Net own revenue: Net revenue minus royalties. Royalties are fees that need to be paid to third parties whose software the company resells as part of its own portfolio.
- Recognized revenue: Due to compliance regulations, not all revenue on the contract may be recognized in the period the contract is signed.
- Revenue U.S. GAAP: Revenue, including corrections based on U.S. reporting regulations.
- Revenue Local GAAP: Revenue, including corrections based on reporting regulations specific to the country where revenue is recognized.
- Management revenue: Total revenue as the base for internal reporting, using net revenue as the starting point. Revenue recognized in other countries but belonging to the account management structure in the manager's country must be added. Revenue recognized in this country but realized for an account manager in another country needs to be subtracted.
- Commission revenue: Revenue specific to a sales person, upon which his or her variable income, bonuses, and other incentives is based. Corrections may appear for recognized revenue for and from other account managers.
- Invoiced amount: The amount that is invoiced and received in the current or next period. This amount may not all be revenue for the current quarter. For instance, multiple years of maintenance revenue is invoiced upfront.
- Statutory revenue: Recognized revenue aggregated to the legal entity level. A sales office in a specific European country, for example.
- Fiscal revenue: Revenue for a fiscal entity for which corporate income tax (CIT) needs to be paid. Legal entities and fiscal entities are not necessarily the same.
- Revenue for value-added tax: The total of invoiced revenue broken down into the various categories of VAT.
- Cash inflow: Invoices paid by customers in a certain period, including other sources of income such as interest.
In this somewhat simplified list, there are thirteen variants of revenue. In many cases, management reports will refer to the generic term "revenue" for many of them. Which definition of revenue is actually meant is often determined by the manager or business domain for which the report is created.
How Different Versions of the Truth Provide Insight
With the idea of a value chain in mind, having different versions of the truth provides additional insight. However, this insight only occurs if these different versions of the truth are placed into context. One way of doing so is to create a revenue report that cuts across the various definitions of revenue, such as:
gross revenue > net revenue > net own revenue > recognized revenue >
management revenue > commission revenue > invoiced amount >
statutory revenue > cash inflow
By organizing the different definitions of revenue in a flow, we can see which existing definitions make sense and lead to alignment, and those that add to confusion. The former definitions should be kept, the latter eliminated. In a sense, the revenue report-with the various definitions of revenue that it includes-has created the long-wanted single version of the truth, almost intuitively. There are no synonyms possible anymore, as all terms appear in the same report and the combination of them represents a single flow of revenue. We have essentially created one context of the truth.
This one context of the truth brings not only more alignment, but also a deeper understanding of the business. For instance, an account manager may already know the difference between gross and net revenue-but through net own revenue, sees that his or her contribution is really low because of all the royalties that have to be paid to third parties. Or the account manager may notice that his or her clients take a very long time to pay their invoices, negatively impacting cash inflow. Through management revenue figures, a sales manager may see how much of the revenue is not realized for his or her geographic region, possibly leading to a reassignment of customer accounts. Lastly, looking at statutory revenue, all managers see how their operational decisions affect external reporting and compliance.
Want to know more? Send me an email, and I happy to share the examples I have collected working with many customers on the subject.
--frank
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