This is article begins my 13th year of writing consecutive monthly articles for Information-Management.com. You can view my prior 144 articles in this link dating back to my first one written in November, 2004:
So, what should I write about to celebrate this anniversary? One option is to post links to some of my favorite Information-Management.com articles that I have written in the past. Another option could be to share how I select the topics that I write about. I have a better idea.
For this anniversary article I have chosen to share some reflections on what I have observed during my 12 years of writing these articles and during my 40+ year career. I am now 67 years “young”.
Reflections on organizations’ performance and behavior
My next challenge is to compose what I have observed. Here goes.
• My major frustration has been the slow adoption rate by organizations, especially by their accountants, with progressive enterprise and corporate performance management (EPM/CPM) methods and applying analytics. The software technologies for them are proven. The main barrier is resistance to change – which is human nature. People like the status quo. Other barriers are fear of being measured and held accountable as well as fear of others knowing the truth.
• Companies are finally realizing that customers are the primary source of financial value creation for their shareholders, owners, and stakeholders. Sadly, few accountants calculate profit margins below the product or standard service-line gross profit margin line. As customers in all industries increasingly view their suppliers as commodities then suppliers must provide differentiated services to different customer micro-segments. But few companies assign their expenses for distribution channels, types of orders, marketing, selling, or customer service to customers. What is needed are profit and loss statements reported for each customer with visibility to what caused those profit margins.
• The “digital revolution” is happening much faster than most organizations realize. This includes artificial intelligence, machine learning, and cognitive computing software. Most organizations underestimate this threat to their viability. Organizations must either “disrupt” or “be disrupted”. Companies often fail to recognize disruptive threats until it is too late. And even if they do, they fail to act boldly and quickly enough. Embracing “digital transformation” is their recourse for protection. Organizations that embrace a “digital disruptor” way of thinking will gain a competitive edge and be sustained.
• Many C-suite executive teams are frustrated with poor strategy execution. The executives are good at formulating their strategy. Their problem is they do not sufficiently communicate their strategy to their managers and workforce. And whether they do (e.g., with a strategy map and its associated balanced scorecard) or do not, the executives do not select the most appropriate key performance indicators (KPIs) with achievable target levels to align the behavior and priorities of their managers with their strategy.
• The planning and budgeting processes are broken in most organizations. Increasing volatility and uncertainty, in part due to trade globalization and Internet digitization, is the new norm. An annual budget is out of date within a few months after it is published. What is needed is capacity-sensitive driver-based rolling financial forecasts to continuously and dynamically optimize resources (i.e., the number and types of employees and spending levels) to match supply with demand. This same math is an imperative for calculating the financial impact of what if scenarios.
• True executive leadership is lacking. Management and leadership are not the same thing. The difference is this. Managers cope with complexity. Hence they use organization charts, budgets, and spreadsheets. In contrast, leaders cope with change. They accomplish this by providing their workforce with vision and inspiration. They answer “Where do we want to go?” so that their managers can answer “How will we get there?” and select the projects and process improvements to execute the executive team’s strategy.
• In the past the best leaders had the best answers. Today the best leaders have the best questions. There is too much volatility for them to rely on their intuition, sixth sense, or experiences that got them promoted to their C-suite positions. Leaders accomplish this by creating a culture for analytic (including exploration, investigation, and discovery), empowering workers with decision rights without “approvals”, and allowing tolerance for dissent and mistakes (as long as the organization learns from its mistakes).
• Supply chains compete against other supply chains for the share of a customer’s wallet or purse. Sadly, most companies continue to view their suppliers as the enemy. They continuously negotiate lower prices with additional services that can bankrupt their suppliers. Companies need to view their suppliers as partners rather than as vendors. They need to identify and achieve mutually beneficial actions to generate higher profits for all of the trading partners along the value chain.
• Most organizations over-plan and under-execute. The need for better decisions by executives, managers, and employees requires software systems and EPM/CPM methods with much quicker and shorter implementations times. Rapid prototyping with iterative re-modeling is the proven way to accelerate learning, get buy-in from skeptics, and increase the ROI from implementations. Start small and think big. Few organizations use rapid prototyping.
• Regarding software systems, there is too large of a gap between value identification and value realization. Software vendors sell their customers with features and functions to provide their customers with a shiny new toy. But few customers fully realize all of the value potential that their purchased software can provide.
• Lean management and quality management programs to reduce costs are overrated. An organization cannot decrease its costs into prosperity. Lean and quality management techniques may teach managers how to think, but the EPM/CPM methods point managers to where to think – where the highest return on investment (ROI) and spending opportunities lie.
A Need for behavioral change management
Ultimately what is needed to improve an organization’s performance is more competence by managers with behavioral change management. Many managers apply a quantitative approach of Newtonian mechanical thinking with an MBA run-it-by-numbers style of managing. They see the world and everything in it as a big machine seeking the best pulleys, dials, and levers. This approach speaks in terms of production, power, efficiency and control.
In contrast, what is needed today are managers who apply a behavioral approach. These types of managers view an organization and its employees as a living organism that is ever-changing and responding to its environment. This Darwinian way of thinking speaks in terms of evolution, continuous learning, natural responding, and adapting to changing conditions.
My list of reflections above is a long list. But I have enjoyed a long successful career. I take pride in my being a careful observer of what I see. This article is my way of sharing what I have seen.
(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 firstname.lastname@example.org. For more of Cokins' unique look at the world, visit his website at www.garycokins.com .)
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