The Higher You Are, the Less You Know

I recently participated in a provocative discussion thread of a website where the question was asked, “Why do executives fail to act on proposed ideas that could save a company substantial amounts of money?” I was expecting a debate between defenders of an executive team’s prudence and attackers of an executive team’s complacency and competence. To my surprise, all of the comments were of the latter type. Maybe every one of them took angry pills the day they posted their opinion.

I am unsure of the correct answer. I do want to give executives the benefit of the doubt. I sense that an explanation for less risk taking by executives involves the emergence of business analytics and Big Data. It can be explained with a pyramid depicting how power and influence of individuals affects types of decisions.

A power and influence pyramid

The savvy executives are realizing they must now delegate and distribute decision rights deeper down into their organization to empowered managers and employees. This is because of the exponentially growing mountain of data, both structured (numbers) and unstructured (text) including social media, and a speed-up and volatile world. Executives can no longer hoard decisions at the C-suite level. In my pyramid the executives are at the top just like in an organization chart. Their decision types are strategic ones. As examples, what is our organization’s mission? What products and services should we offer to maximize value to our constituents? What altered strategic direction should we navigate our organization toward?

In contrast, at the lower levels of the pyramid are operational types of decisions that should be made by employees who ideally have had the strategy communicated to them by the executives (via a strategy map, scorecard, and dashboards).

With expanding Big Data, the base of this pyramid is widening, and executives are realizing it is futile for them to be able to explore, investigate, and comprehend this massive treasure trove of data. This is why the role of analysts (think “data scientist”) is emerging as being mission-critical. Executives cannot do it all. They must now delegate decision making, and provide analytical tools and capabilities for decisioning to their workforce.

Performance improvement levers

An impediment on improvement is an organization’s approvals process. Too many managers may be involved. Performance improvement actions are the consequence of thousands of daily decisions made by employees. There are two powerful levers for performance improvement and more specifically the execution of the executive team’s formulated strategy: (1) as mentioned, clarifying decision rights, and (2) designing effective information flows.

1. Clarifying decision rights – As organizations grow in size, the approval process gets complex and foggy. Employees become unsure where one person’s accountability begins and another’s ends. Workarounds then subvert formal hierarchical reporting relationships. Clarifying who has what decision-making authority and empowering decentralized decisions lower into the organization brings mission-critical agility – as long as trust is given by the executives and second-guessing by supervisors is minimized. But with more decision rights must come more accountability with consequences. This is the domain of performance indicators against targets and motivational methods.

2. Designing effective information flows – Decisions are based on information. Too often information flows are blocked by organizational silos. Collaboration is important and enabled by cross-functional information flows. To complicate matters, logical and judicious decisions are constrained by the type and quality of information available to employees. Some organizations simply have inconsistent and poor-quality data. Even with a new transactional business system, such as an enterprise resource planning (ERP) or customer relationship management (CRM) system, organizations drown in oceans of data but starve for information in a form that business analytics can mine and that can be quickly interpreted in the context of a problem or needed decision.

Business intelligence does equate to an intelligent business

Executives may be brilliant strategists. But strategists need foot soldiers to carry out tasks. The higher the executives are, the less they can know about what is happening. Yes, there can be summarized reporting and executive scorecards and dashboards. But monitoring the dials is not the same thing as moving the dials.

The era of widespread use of analytics is in its earliest stage. If competency by the work force with analytics is not now a top five priority with an organization, just wait a couple of years. It will be. It is a competitive edge. 

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

A mission is a flame to be taken forward

Respecting or cultivating tradition does not mean to be carrying ashes. It means to continue taking the flame forward!

All organizations are created to solve a problem that a group of people could not solve by acting in an isolated manner.

However, changes in the environment, changes in command and financial pressures may cause this focus to be lost with the passage of time.

Clubs start living on the income coming from the rental of their facilities, or change course in trying to meet their current members' demands - and end up losing their soul.

Business associations end up losing their meaning entirely due to the evolution in their founders' businesses.

There are companies built to explore a mine that is gradually extinguished, or a technology that becomes obsolete.

When the mission ends or is abandoned, an almost obvious option is to rebuild the organization.

Rebuilding means to reunite what is left from the time of the entrepreneurs and presenting the crucial question: considering the current conditions, would it be wise for us to gather and create an organization like the one we have?

Is it worth to continue carrying these ashes, or do we have the strength to continue taking a flame forward?

Exceptional EPM / CPM Systems are an Exception

Many organizations over-rate the quality of their enterprise and corporate performance management (EPM / CPM) methods and supporting software systems as well as exaggerate how comprehensive and integrated they are. For example, when you ask executives how well they measure and report their costs and non-financial performance measures, most proudly boast that they are very good. However, this is inconsistent and conflicts with surveys where anonymous replies from mid-level managers candidly score their scaled answers as “needs much improvement.”

Every organization cannot be above average!

What makes exceptionally good EPM / CPM systems exceptional?

Rather than try to be a sociologist and psychiatrist to explain the contradictions of executives boasting superiority while anonymously answered surveys reveal inferiority, let’s simply describe the full vision of an effective EPM / CPM system that organizations should aspire to.

First, we need to clarify some terms and related confusion. EPM / CPM is not a system and is definitely not a process. It is the integration of multiple managerial methods – and most of them have been around for decades arguably even before there were computers. EPM / CPM is also not just a CFO initiative with a bunch of scorecard and dashboard dials. It is much broader. Its purpose is not about monitoring the dials but rather moving the dials.

What makes for exceptionally good EPM / CPM is that its multiple managerial methods are not only each effective but also they are seamlessly integrated and imbedded with analytics all flavors. Examples of analytics are segmentation, clustering, regression, and correlation analysis.

EPM / CPM is like musical instruments in an orchestra

I like to think of the various EPM / CPM methods as an analogy of musical instruments in an orchestra. An orchestra’s conductor does not raise his or her baton to the strings, woodwinds, percussion, and brass and say, “Now everyone play loud.” They seek balance and guide the symphony composer’s fluctuations in rhythm and tone.

Here are my six main groupings of the EPM / CPM methods – its musical instrument sections:

Strategic planning and execution – This is where a strategy map and its associated balanced scorecard fits in. Together they serve to navigate the organization to fulfill the organization’s mission and vision and the executive team’s strategy to meet the mission’s calling. The executives’ role is to set the strategic direction to answer the question “Where do we want to go?” Through use of correctly defined key performance indicators (KPIs) with targets, then the employees’ priorities, actions, projects, and processes are aligned with the executives’ formulated strategy.

Cost visibility and driver behavior – For commercial companies this is where profitability analysis fits in for products, standard services, channels, and customers. For public sector government organizations this is where understanding the costs of their outputs that consume processes and resources fits in. Activity-based costing (ABC) principles are foundational by modeling cause-and-effect relationships based on business and cost drivers. This involves progressive not traditional managerial accounting.

Customer intelligence – This is where powerful marketing and sales methods are applied to retain, grow, win-back, and acquire profitable, not unprofitable, customers. The tools are often referenced as customer relationship management (CRM) software applications. But the CRM data is merely a foundation. Analytics, supported by software, leverage CRM data to define actions to create more profit lift from customers. They impact the behavior of customers from being satisfied to being loyal.

Forecasting, planning, and predictive analytics – Data mining typically examines historical data “through the rear-view mirror.” This EPM / CPM grouping shifts attention to look forward through the windshield. The benefit of more accurate forecasts is there is reduced uncertainty. Forecasts of future volume and mix are core independent variables from which so many dependent variables have relationships and can therefore be calculated and managed. Examples of dependent variables are the future headcount workforce and spending levels. CFOs increasingly look to driver-based budgeting and rolling financial forecasts grounded in ABC principles using this group.

Enterprise risk management (ERM) – This cannot be omitted as a main group of EPM / CPM. ERM serves as a brake to the potentially unbridled gas pedal that EPM / CPM methods are designed to step hard on. Risk mitigation projects and insurance requires spending which reduces profits and also steers expenses from resources the executive team would prefer to provide earn larger compensation bonuses.

Process improvement – This is where lean management and Six Sigma quality initiatives fit in. Their purpose is to remove waste and streamline processes to accelerate and reduce cycle-times. They create productivity and efficiency improvements.

EPM / CPM as integrated suite of improvement methods

CFOs often view financial planning and analysis (FP&A) as synonymous with EPM / CPM. It is better to view FP&A as a subset. And although better cost management and process improvements are noble goals, an organization cannot reduce its costs forever to achieve long term prosperity.

The important message here is that EPM / CPM is not just about the CFO’s organization; but it is also the integration of all the often silo-ed functions like marketing, operations, sales, and strategy. Look again at the six main EPM / CPM groups I listed above. Imagine if the information produced and analyzed in each of them were to be seamlessly integrated. Imagine if they are each imbedded with analytics – especially predictive analytics. Then powerful decision support is provided for insight, foresight, and actions. That is the full vision of EPM / CPM to aspire to.

Today exceptional EPM / CPM systems are an exception despite what many executives proclaim. If we all work hard and smart enough, in the future they will be standard practices. Then what would be next? Automated decision management systems relying on business rules and algorithms. But that is an article I will write about some other day. 

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

Your KPIs do not seem to be very Key...

A friend of mine is a sales manager in a large retail store and recently he came up to East Putney to meet me for some lunch. Following on from our usual discussions and a random sighting of Greg Wallace from Masterchef (being his restaurant, maybe it was not that random) we began talking about his recent frustrations at work.

It seems his company has a rather different outlook to how KPIs should be implemented, and this in particular seemed to be his biggest cause of recent frustration. “I have been given 16 KPIs and not one of them is related to the sales”

I was very surprised with this statement. There were so many things wrong with it, it was genuinely difficult to know where to begin. After a few moments to gather my thoughts, I pointed out the following observations:

16 KPIs?! Nobody ever should have this many KPIs; 7 at most. They are designed so you focus on what really matters, so how can anybody focus on and manage 16 KPIs simultaneously to improve performance? It can’t be done and most of his time will be used (and wasted) in reporting.

No sales KPIs? Hang on…I thought you worked in a sales retail store? I found it incredible that in a retail store where it all about sales that there cannot be a single sales KPI. KPIs measure the key processes of your role to improve what you already do. In no circumstance should it conflict with your day-to-day work.

Given to you? Anybody who understands KPIs will be able to tell you that KPIs should never just be ‘given.’ For a manager to take full ownership of their KPIs, they need to feel engaged and accountable. Therefore they need to be involved during the KPI Implementation process. If this part was considered, it may have even stopped the other 2 situations occurring.

My friend agreed with my observations and even offered his own. Despite this, and as we all know, changing policies in large companies is certainly not an easy process. Therefore as it stands, he will continue to manage his not-so-key performance indicators. 

Managing lists: Do not underestimate this art

Organized, productive and calm people can manage lists. You certainly know many representatives of this species, and maybe you even happen to be one of them. But, believe me, there are many people out there who would improve their performance and life quality if they mastered the art of managing lists.

Yes, there are methods and tools available, but they are not universal. Just like there are people who can be organized with half a dozen of yellow post-its sticking all around, others can't manage it even with the help of sophisticated priority, activation and control systems.

Let's propose just 3 important points on this theme:

1. Do not overlook this “science”. Recognize your problem and invest time to minimize its effects. There are many things happening out there.

2. A list is an inventory of future activities. This inventory, just like any other, has some basic attributes and qualities;

a. Not deteriorating;

b. Easily spotting what’s been stored;

c. Not occupying space with useless items;

d. Turnover.

3. The key to this is in the activation process, which occurs at the moment we pick a problem from the list and face it for its solution.

On the image a typical list is presented which almost everyone of us has - and how to manage it better.

In routine control, we all have a failure treatment process and operate a results dashboard. These are two very important tools, but with a limited problem-solving capacity.

* In failure treatment the basic question to be asked 5 times is “why”?

* In the Results Dashboard, if an anomaly is found, we use the simple Fact>Cause>Action resource; for small improvements the old 5w1h is applied.

Well, the tools above are simple and often can't achieve the proposed results. Do not try to take from them what they don't have to offer: it's more practical to recognize that we have a problem, which then goes on our list.

The list quickly grows, and our problem-solving capacity is no match to it. It's necessary, then, to have well-defined criteria to prioritize and - very importantly - not pass a lot of problems on to our subordinates at the same time. By acting thus we lose control of the situation: people start to set priorities based on other criteria and, what is worst - have extremely low productivity, going from one problem to the next.

Knowing how to manage a list keeps the failure treatment processes and results dashboard to become overwhelmed.

After a problem is identified, we need to support the people in charge so that they can find a solution for it, implement it and end its cycle, making sure it will not return.

Does work drive you mad?

We have probably all tried some magic fix at some point; a training course to learn new skills, a smart piece of software that will make everything better. The road to ruin is paved with such good intentions; pretty soon going back and working the same old process gets in the way of doing things differently. The cost of the initiative is lost and no benefits are realised and we default to engrained habits.

When the going gets difficult we batten down the hatches and do what we always did, but work harder at doing it. In most cases, doing what we always did got us in to difficulty in the first place and working harder never fixes the problem; at best it enables us to weather the storm until the problem arises again.

“Insanity: doing the same thing over and over again and expecting different results”.

Albert Einstein

The only real way to realise sustained improvements is to develop effective processes and good habits, and that involves identifying and managing what really matters. Setting and using Key Performance Indicators (KPIs) is an essential step; having KPIs is, however, of no value unless they are used to support and encourage those good habits. What adds value is not the act of measuring, but the adoption of an intelligent approach, one that uses the right measures to develop a continuous improvement culture and to eliminate wasted management effort.

A good kpi system does not cover walls with obscure charts, or simply present the same data as a flashy dashboard, but makes achieving excellent results easier and faster. Qualitin’s ICG approach does that; it drives ownership and accountability throughout an organisation, it empowers and obliges everyone to focus on what matters to customers and stakeholders and it saves significant management time; that is why I’m an enthusiastic Qualitin Partner.

Historians versus Futurists – Who is More Valuable?

Futurists enjoy taking out their crystal ball and projecting future innovations, but they are typically wrong. For example, George Orwell’s book, “1984,” which was published in 1949, did not come close with its projections. And in the 1960s, I recall a Walt Disney television show describing automobiles that required no driver and were guided by a magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try.

In contrast, historians research the past to determine what lessons might be learned and applied today. For example, historians examine the judgments, policies and actions of past U.S. Presidents and international government leaders to assess what actions may best serve citizens today. The recent movie “Lincoln” is an example.

But which group -- futurists or historians – provides more useful information? Futurists make us think by being provocative. Historians allow us to reflect on what worked or did not work in the past.

This question is relevant for today’s organizations because many enterprises fail to successfully execute their executive team’s plans and allocate an appropriate mix and level of resources to complete those plans. This involves strategy and budgeting – two disciplines that are widely criticized today. 

Historical Lessons Applicable to Strategy Execution and Budgets

In the book, “The Art of Action,” author Stephen Bungay reflects on lessons from war and military campaigns that can be applied to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team.

Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall short is in leading their organization to execute their strategy. Bungay describes this problem as a gap and advises how to close the gaps.

His assertion is that, similar to military campaigns in war, when a strategy encounters the real world, three types of gaps appear. He describes gaps in terms of expected results and reality, particularly related to outcomes, actions and plans. Gaps result from the complex and unpredictable environments that all organizations deal with and are made more severe by globalization. The three gaps are:

1. The Knowledge Gap - The difference between what we would like to know and what we actually know.

2. The Alignment Gap - The difference between what we want people to do and what they actually do.

3. The Effects Gap - The difference between what we expect our actions to achieve and what they actually achieve.

Based on knowledge as a historian of military practices, Bungay observes that a key to successful strategy execution is delegating more decision-making authority to managers and employee teams. 

Empowering Managers and Employee Teams

Bungay recounts lessons from the 19th century Prussian army. Following an unexpected military defeat, the Prussian military reformed its tactics. Lower-level officers were given more flexible command to make decisions. What mattered was that they fully understood the battle mission. Allowing the officer corps to make more decisions resolved a problem: The higher-ranked military leaders were from farther from the battlefield and less aware of the current situations. Officers could pursue local actions as they saw fit.

The Prussian army solution was the institutionalization of military genius with centralized and elite generals, and increased accountability of the field officers with rewards based on their performance and outcomes. This reform was successful, and the army conquered other countries.

In terms of today’s managerial methods, the parallels of the Prussian army reforms are the application of balanced scorecard methodology and the adoption of “Beyond Budgeting” concepts, first written about by Robin Fraser and Jeremy Hope.

The balanced scorecard’s primary feature is the development of a strategy map that visually displays a dozen or more cause and effect-linked strategic objectives. Using four sequenced components (referred to as “perspectives”), the linkages move from employee learning, growth and innovation to process improvement initiatives to customer loyalty objectives, which all impact the outcome of financial objectives. The KPIs reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives and, with each KPI assigned targets, the foundation for accountability is established and alignment with the mission and strategy is achieved.

The “Beyond Budgeting” concept views the annual budget as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted volume and product/customer mix. It acknowledges that budgeting annual line-item expense limits are more like shackling handcuffs to managers; they may need to justifiably spend more than was planned for and approved many months ago in order to take advantage of newly emerged opportunities.

This method advocates abandoning the annual budget, which quickly becomes obsolete. It proposes removing the budget’s controls by giving managers the freedom of decision rights, including hiring and spending decisions without requiring approval from superiors. It invokes controls by monitoring non-financial KPIs against the targets defined by the executives in the balanced scorecard’s strategy map. Managers do not escape accountability, and there are consequences. The time frame is not annual, but rather dynamic. Historians versus Futurists

The message here is not that organizations should not be researching emerging and imminent new technologies and methods, like analytics and big data. The message is that granting decision rights to managers – but holding them accountable with consequences – is effective at closing the three gaps. And this is a lesson learned from historians.

Gary Cokins, CPIM (gcokins@garycokins.com; phone 919 720 2718) http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and book author in business analytics and enterprise performance management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, EDS, and SAS.

The real value of practising what you preach

Sometimes you need to ‘practise what you preach’ in order to fully understand the benefits of your product.

Everybody 'knows' what the benefits of their products are. For instance, I could tell you how simple, practical and effective our KPI management System is and why it is more powerful than alternatives on the market. But that does not necessarily mean you fully understand its true value. This is something that certainly applied to me and why I now understand the importance of practicing what you preach.

At Experian UK, I was the system administrator for 600 system users across our business units. It was my duty to support all the KPI Managers with the system; explaining how to use it and why.

The trouble was though, I was only supporting the process and not part of the process. I was on the outside and therefore not embracing what ICG was really about.

Clearly I always liked the product. So much so that I even ended up joining Qualitin! But it was the day of our Partners event where I understood ICG's value. This is the day where I knew I would be required to present my KPIs, results and proposed actions.

Having all your data on display for everyone to see meant there was no hiding away. Everybody could clearly see what my targets were for the month and what I had actually achieved. Everybody could see my red KPIs (unfortunately there were a few that day I recall) and so I explained what I intended to do about improving the situation for next month.

It was at that moment though where it all made sense. Firstly having my data on display had provided me with the necessary self-discipline to be appropriately prepared for the meeting. I did not want to be shown up after all. Secondly, everybody was less interested in the fact a couple of my KPIs were red. The focus was far more on my analysis of the situation and what I intended to do about improving it.

Therefore now when I describe ICG to someone I would no longer just use the words ‘simple, effective and practical’. These just describe ICG as just a tool and certainly do not provide ICG justice. Instead the words ‘ritual’, ‘forward-thinking’ and ‘self-discipline’ are a better match because these words describe what ICG does, not what it is.

Now, and only now I can now honestly say I understand the true value of my product.

Maslow's pyramid

This is an excellent case to illustrate a fact I had problems to understand: the accuracy of the information that brings us knowledge is much less important than the emotion it fixates in our brain, and which begins to influence our decisions.

I've learned from Falconi the importance of philosopher Maslow's work, which in the last century brought an important human focus to Deming's statistical theories. It played with the brain's right side, rounding the edges of the TQC's logical-mathematical approach.

Of Maslow's lessons I have permanent memories regarding human motivation:

1 - Our natural state is that of dissatisfaction (or neutrality); we have satisfaction impulses. Motivation is the product of the frequency and range of these peaks.

2 - These satisfaction peaks happen when we solve problems related to the 5 layers of basic necessity, characterized by Maslow as:

a. Physiological - such as hunger, sleep...

b. Security - maintaining job, patrimony...

c. Social - being accepted by family, friends...

d. Self-esteem – being free, independent, recognized

e. Self-actualization – achieving your own potential, working on what is your vocation, self-development.

3 - There is a hierarchy: the most basic needs must have been satisfied so that the superior layers may become important. If we are thirsty, as long as we don’t have anything to drink we'll have few social concerns, for instance;

4 - Later, I read in another book by the same author that above self-actualization there is donation, donating what we have for the benefit of others (a Maecenas is a good example).

Because it is a hierarchy, with more or less basic needs, almost every author refers to as a pyramid and represents it as such.

It is a very good representation, but Maslow' books don't have any images.

We can go into further detail as there are other more advanced needs said author presents and discuses.

To me these 5 suffice, added of a sixth layer representing many needs. They've helped me a lot in understanding and explaining routine motivational problems. If we hold a meeting to discuss Maslow, everybody will quote his pyramid and the five basic necessities. What others have for extra content is of very little importance for the (meaningful and representative) 80%... 

Written by: Claus Süffert

Ministers - 12 or 40?

This is a little story we used to tell when, in the early days of quality learning, we began to understand what to lead means.

The question was asked: which is the ideal number of team members we must have in our organization?

Which number would you say, without thinking much about it? Answers used to vary from 3 up to 20.

The correct answer, however, was:

IT DEPENDS!

If the team is well trained, completely aware of what they have to do, and the leader only does that which he alone can do... a conductor commands up to 180 musicians in a philharmonic orchestra!

Each of the musicians is thoroughly trained, has a sheet music that tells him in detail what has to be done... and the conductor only sets the rhythm!

Imagine if he tried to jump from one musician to the next, correcting the violinist's strings tension, replacing the drummer at some crucial point, or singing at such a high note as the soprano was not being able to reach...

In other words: the number varies, depending on the clarity of the instructions given, people’s training and... a leader who doesn't get in the way!

You can apply this reasoning to your company...

Written by: Claus Süffert