Some analysts dig deep into historical information to glean insights once hidden. Other analysts are obsessed with predictive analytics and Big Data to foresee the future. Are these in actuality the same person or two different rivals with their own ideology?
Crystal ball versus a rear view mirror
Futurists enjoy taking out their crystal ball and projecting future innovations. They are typically wrong. George Orwell’s book 1984 that was published in 1949 did not come close with its projections. In the 1960s I recall a Walt Disney television show describing automobiles that required no driver and were guided by some form of magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try. Although driverless cars are now in our future.
In contrast, historians research the past to determine what lessons might be learned that can be applied today. For example, historians examine the judgments, policies, and actions of past USA Presidents and international government leaders to assess what actions may best serve citizens today. The movie “Lincoln” starring Daniel Day-Lewis is an example.
Do futurists or historians provide relatively “more valuable” information? Futurists make us think by being provocative. Historians through their rear view mirror allow us to reflect on what worked or did not work in the past.
Why is this “more valuable” question relevant for today’s organizations? It is because many organizations 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 author Stephen Bungay’s book The Art of Action he reflects on lessons from war and military campaigns that apply to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team. In his book he draws on battle tactics of the 19th century Prussian army.
Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall down is leading their organization to execute their strategy. Bungay describes this problem as gaps and advises how to close the gaps.
His assertion is that similar to military campaigns in war when a strategy encounters the real world then three types of gaps appear. He describes gaps in terms of expected results and reality: outcomes, actions, plans. Gaps result from the complex and difficult to predict environments that all organizations deal with and are made more severe with globalization – the reduction of international borders for commerce and information. 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 Bungay’s deep knowledge as a historian of military practices, he 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 describes lessons from the 19th century Prussian army in this way. Following an unexpected military defeat the Prussian military’s tactics were reformed. Lower level officers were given more flexible command to make decisions. What mattered is that they fully understood the battle mission. By providing more decision rights to the officer corps, this resolved a problem that the higher the military leaders are from the battlefield, then the less they are aware of the current situation. Officers could pursue local actions as they saw fit.
The Prussian army solution following its prior defeat 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 today’s terms of managerial methods, the parallels of the Prussian army reforms are applying the strategy map and its associated balanced scorecard method with its key performance indicators (KPIs).
The balanced scorecard’s primary feature is the development of a strategy map that visually displays on a single page 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 result in the financial objectives’ outcomes.
The key performance indicators (KPIs) reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives, and by each KPI having targets assigned, the foundation for accountability is established and alignment with the mission and strategy are achieved.
Many critics of the annual budget view it as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted product sales volume and mix. These critics observe that budgeting annual line-item expense limits is more like shackling handcuffs for managers who may need to justifiably spend more than was planned and approved many months ago in the past in order to capture benefits from newly emerged opportunities.
Critics of traditional budgeting advocate abandoning the annual budget that quickly becomes obsolete. They propose replacing the budget’s controls by giving managers the freedom of decision rights. This includes hiring and spending decisions with requiring approvals from superiors. It invokes controls by monitoring non-financial key performance indicators (KPIs) against the targets defined by the executives in the balanced scorecard’s strategy map.
Managers do not escape the need to be held accountable with consequences. The time frame is not annual but rather dynamic with rolling projections beyond one year planning time horizons.
Historians versus Futurists
The message here does not mean 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 measuring their performance and holding them accountable with consequences is effective at closing the three gaps. And this a lesson learned from historians.
(About the author: 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).
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