Which is best: A controlled growth approach? Or one where you grab it all while the going is good?
In the fable the tortoise and the hare, the tortoise won the race. The lesson teaches that steadily and gradually pursuing the direction of a distant destination is a good planning approach. But I am not sure this applies in today’s volatile world.
Risk Attitude Research is Revealing
Geert Hofstede, a Dutch researcher in social psychology, has authored provocative research about how Eastern and Western multicultural differences impact attitudes toward risk. One of Hofstede’s studies developed an Uncertainty Avoidance Index (UAI), which measures a nation’s (or a society’s) tolerance for uncertainty and ambiguity – its appetite for risk. I believe some of the observations from his studies can be applied to implementing business analytics and enterprise performance management.
To abbreviate the details of the study’s findings, it is convenient to describe the two countries with cultures representing opposite and extreme ends of the UAI continuum. By better understanding these contrasting behavioral differences, project champions striving to successfully implement and integrate performance management methodologies and business analytics may better succeed.
In Hofstede’s study, UAI scores can range from 0 (pure risk takers – such as casino gamblers) to 100 (pure risk avoiders – very cautious and conservative). Of all the nations, the U.S. ranked lowest, implying fewer rules, fewer attempts to control outcomes, and a greater tolerance for a variety of ideas, thoughts and beliefs. In contrast, Japan ranked highest in its UAI score, implying high levels of control in order to eliminate or avoid the unexpected. A type of culture such as that in Japan does not readily accept change and is risk averse.
Let’s apply UAI to pursuing business analytics and enterprise performance management methodologies. For example, a dimension that can be viewed for performance reporting (e.g., a balanced scorecard) is a short-term versus long-term planning and outcome horizon. If your organization’s culture is risk tolerant like that of the U.S., then you need to place more emphasis on longer-term viability and select key performance indicators to prevent rugged, individualist executives (like western U.S. cowboys) from high-speed, crash-and-burn behavior. In contrast, if your organization is more risk averse like that of Japan, then you need to place more emphasis on short-term, action-oriented KPIs so that someone can assess if anyone is actually turning the steering wheel as opposed to just holding an unwavering long-term line of direction. The problem might be, however, that the turns in the road may be more frequent and sharper.
Our Sped-up World
The world seems to be in a mode of increasing speed with more volatility, apparent unpredictability and accelerating change.
Examples of volatility include changes in consumer preferences, foreign currency exchange rates and commodity prices, just to name a few. Trends can develop quickly, such as oil dependence, emergence of country economies (e.g., India and Brazil), and instantaneous Internet-based global communications. Unanticipated shocks can come from events such the Asian tsunami, H1N1 flu, or the current global credit crisis. Have the Internet, global communications and relaxation of international trade barriers introduced big sin wave vibrations and turbulence compared to past decades’ smoother rises and falls?
For the sake of argument, let us assume that economic volatility is escalating to become the new normal. How does this affect managerial styles and approaches? An obvious change might be that five-year detailed line-item strategic plans are out the window. A long-term vision and mission direction setting is acceptable, but not the detailed financial projections that go with them. With traditional budgeting, the devil is not in the details. The devil is the details. Reforms to budgeting should involve modeling supported with business analytics. They should also have probabilistic ranges.
Organizational agility and speed to change is replacing the fixed straight-line cruise control momentum. The controlled approach that has worked for Eastern-culture organizations may simply not be an appropriate management style when the highway ahead is full of twists and turns.
So where is the tie-in with enterprise performance management, business intelligence and business analytics (especially predictive analytics)? Agility and speed to change replace momentum. Without strategy maps and their derived KPIs, employee alignment is too loosely connected with the executive team’s strategy. Without insights to customer microsegment preferences and their associated profitability to offer products and services to them, long-term profit sustainability is jeopardized. Without demand forecasting, an organization will be endlessly reactive, not proactive.
Unpredictability can be tamed with today’s powerful business analytics tools. As predictive analytics, including forecasting, provide better accuracy, plans become more reliable and decisions improve.
The message here is that maybe long-term controlled growth is not the wisest approach. Tortoise or hare? Maybe the rabbit is the one to place your bet on.
Gary Cokins is the founder of Analytics-Based Performance Management LLC, an advisory firm. He is an internationally recognized expert, speaker and author in advanced cost management and performance improvement systems previously a principal consultant with SAS. You can contact him at email@example.com. For more of Cokins' unique look at the world, visit his website at www.garycokins.com.