Public Research

“Black Friday” 2009: A Turning Point

Fri, 27 Nov 2009 08:29:37 -0500

Accendor has been noting a growing desperation in retail during the economic slowdown of 2007-09, and is projecting this to continue out well into the 2010s. During a recessionary environment, the temptation to cut prices or look for “hot” trendy products to keep volumes high is strong. Nevertheless, as a market strategy, this is not usually the right way to go about things.

In Harder Times, Quality Ultimately Sells: The first reaction of the consumer to harder times is to defer and reduce spending. Deferral means that the market segment itself slows; reductions mean people move to lower priced segments (e.g. shifting from meals at a quality restaurant to meals at a casual chain, or shifting to a lower-quality band at a clothing retailer). The temptation at this point is to reduce prices to regain the lost business. This, however, is a brand-shifting move, and one that is difficult to recover from. It is better to hold the line by shifting into basics: items that can be used in many ways in a kitchen if you are a restauranteur, or basic colours and foundations if you are in clothing, to take two examples.

Such manoeuvres, however, are only for short recessions (up to 18 months). After that, the lower quality of goods purchased by moving down in the market segments tells, as the goods begin to wear out. At this point the buying pattern changes, from trying to maintain the pace of purchasing but spending less money to do so, to slowing the pace and buying quality items and experiences that will stand the test of time. Restaurant life will shift from (for instance) once per week to once per month, but the once per month experience will be at a higher quality establishment (to make it memorable). Clothing will be in base colours and fabrics that allow for many combinations, and from quality suppliers that offer the promise of years of use without the items looking worn.

Markets Become More Fractured: Not only does this realization that the economy is likely to stay depressed for a long period of time come to each person in their own time, but where they choose to continue to spend and where they choose to forego spending will differ. In other words, some of the indicators of mass consumption that have underlain market analysis for years will be in question. You may well find that socio-economic indicators do not work well — one family, for instance, will cut back on externally-prepared meals and entertainment so as to afford their large suburban property (which may now have a mortgage for more than its current expected sale value) and the costs of auto-driven commuting, while another sells the suburban home and moves into much smaller city accommodations so as to maintain their dining and entertainment spending. (Meanwhile — regardless of zoning — their former suburban home will likely have more value as a multi-family dwelling, changing the neighbourhood.) In other words, frequent trips to the field to see the changes will be in order. As one retailer found, certain stores constantly failed to sell the merchandise mix given to them by corporate buyers: it took a field trip by senior executives to discover the reason (a demographic shift in the local neighbourhoods that had changed the size mix that needed to be stocked).

Moving Products Up-Market: Paradoxically, it is as the hard times carry on that introducing new products at higher value, quality and price points makes the most sense. Now is the time for real innovation, and for the introduction of new offerings that can become tomorrow’s product core. Their launch cycle will probably not be swift, nor need they be mass marketed, but they can establish themselves clearly in the market. Remember that it was the Great Depression that made all of the fractional electric motor products introduced in the 1930s into “household essentials”, whose rise to mass market adoption was limited only by the diversion of resources for World War II. Remember, as well, that the stagflation of the 1970s is what gave rise to the information technology laden society of the PC and the Internet. In other words, this is a time to position the company for growth: just don’t expect miracles of expansion overnight.

Get busy today working on scenarios of market movement and positioning strategy. Rather than being the group which must “find a way to sell what we have”, this can be the trigger to becoming a group that “points the way to what we need to have available”. Holding the line on reflexive price cutting to maintain share in the early days gives you the manoeuvring room needed for the later introductions and value shifts in the brand. Ensure distribution is focused on high-value products. You need to be known as a supplier worth paying for.

Pareto’s Law Controls Results

Fri, 27 Nov 2009 08:25:55 -0500

Organizations we visit are consumed with “getting it right”, to the point of being immobilized sometimes by their own perfectionism. We do not contest the fact that, in some industries and in some activities in every industry, there is a need for six standard deviations (3.4 errors per million activities) or better in performance: some of these are a function of safety (power plant operation, balancing the grid, air traffic control, and the like) and some of these are mandated (compliance issues, account integrity in financial services). Where this level of performance is required, it is needed, and cost is not the issue.

But for most activities in an organization we can actually maintain quality and service with slightly less obsessive attention to perfection. This is why, to truly manage cost and yet remain nimble and able to respond when challenged, managers must pay attention to what level of “perfection” is really required — and when that is reached, the quest for more certainty, or more risk reduction, must be brought to a close. These take time, cost money, and delay a market response, all of which penalize the organization for no good purpose.

In studying organizations, we recognize that only the truly entrepreneurial ones are comfortable with the level of ambiguity and potential for problems that Pareto’s Law (20% of the effort yields about 80% of the results) holds out. Yet a doubling of the Pareto principle — taking the second 20% of effort to reach another 80% of the 1/5 of the potential for perfect results that remained — is far more often than not “good enough”.

So what does this mean in practice? It means delegation of the details that are not critical to be worked out after the decision to proceed is made. It means a willingness to recognize an error, recover from it, and carry on. It means accepting that everything that is done is imperfect, but good enough, and open for change in the future. It means providing after-the-implementation services to support the business, fix obvious flaws, enhance what is delivered to fit the real world, and knowing that in a few years what you’ve just delivered will be ready for replacement.

What organizations get from this sort of behaviour is an increase in responsiveness that typically is attributed to wholesale change in methods and operations, but within the context of ways of working that are known and understood. We observe that typically 60-70% of a person’s work in a day is focused on trying to be perfect, trying to avoid error, and continuing analysis past the point of reasonable returns for the effort put in. Converting even half of this to actual progress-making effort is like doubling the throughput of the unit: the odd recovery step here and there is fully paid for before a mis-step is even made.

Moreover, we observe that the accelerated pace does not feel stressful, as most of the stress felt by staff comes from the quest for perfection itself. As a result, there is less overtime, and far less downtime, in such a situation.

Overcoming the desire to be perfect is not easy, and changing expectations up and down the line is a non-trivial task. Still, doubling productivity, or doubling the responsiveness of the organization, pays off directly on the income statement. In turbulent times, when the economy is troubled, isn’t every bit of insurance against a failure to perform worth experimenting with?

Never Stop Upgrading Your Team

Fri, 27 Nov 2009 08:23:43 -0500

Recently, we have been studying a company which has outperformed others consistently for years, through good economic times and bad. Not only has the company itself done extremely well, but as we’ve looked into some of its departments we find the same “outperformance” gracing most of its functions, even the corporate service ones such as IT, finance or HR.

Unlike most other firms, this company never stops interviewing potential additions to the staff. They do not wait for an opening before looking for talent — they are always looking for talent. Their goal, one that managers are acculturated to fulfil, is to continuously hire people that are better than the ones they have. (In this organization “better” is a complex judgement: it is not simply about educational qualifications, experience or demonstrated excellence, but also about how well the newcomer will “fit” with the people already there, and how flexible they are likely to be.)

The company only looks to create a position when a suitable candidate is found. When they have someone worth hiring, they bring them in. As with most companies, there is a probationary period in which the person can be let go if it is not working out. Unlike most companies, they do not worry about “headcount” when they hire, nor do they worry about budget: HR holds a common spending account used to pay for “finds” during their probationary period.

The bringing in of someone who improves the organization offers managers the opportunity to consider other moves. Is someone ready for more responsibility — in need of a new challenge to spark them and their latent potential — or in need of a performance improvement plan (and exit if there is no improvement)? Now, during the new hire’s probationary period, is the time to organize and execute on these changes, since there is no loss involved. At the same time, the decision can be made as to whether to ask for a permanent expansion, a time-limited one, or to transfer someone out of the group (or terminate a poor performer) to make room for the new employee. During downturns there is less likelihood of expansion, but at any time the decision structure is the same.

This approach to talent — to constantly be looking for it — means that, in most cases, this company has first crack at anyone of superior skill who comes on the market. The constant upgrading of groups also keeps existing staff growing in their jobs, and the steady addition of new blood gives the firm a steady flow of new ideas based on others’ experience.

Peer organizations inevitably point to the extra cost such an approach entails. Oddly enough, most of those who point to the so-called profligacy of spending about 3-5% of the labour budget in transitional expenses fail to comment on the 2-3x increased performance in the company’s results. We’ve come away thinking this is an investment any company could make to start turning its performance around — and as the economy tightens into recession the payback is likely to be more dramatic than in better economic times. Will you get your company’s share of top talent, or will you let your competitors grab it from you?

How Much Information is Too Much?

Fri, 27 Nov 2009 08:19:59 -0500

In amongst all the enthusiasm with which collaboration and increased information flow is being sought are a few managers who are raising some cautions: in particular, they are concerned that we are overloading people with too much information. This is a reasonable concern, but our field observations over the summer suggest that the limits are nowhere near as close as these managers typically think.

Change the Control Point, Increase the Flow: Give a person two hundred pieces of information via individual email messages, and they will struggle to find the time to pay attention to them, often skimming through the balance of their inbox late at night, or on the weekend. (In the normal course of events, important items get “buried” or missed.) Give them the same two hundred items via links sent by email, and over 75% of the links remain unexamined after a week. Give them the two hundred links via a portal page, and they might look at half of them; typically, new ones come faster than they can keep up. But two hundred links via RSS feed — and a feed consolidator, either in their browser or as a separate application — and they will read all of them in a very timely manner (typically, in less than two hours/week), especially when the feed transmits the whole content via the feed reader.

What this suggests, in our observation, is that we can handle quite a bit more information than we think, and one reason we can do so is that a feed reader makes it easy to both scan and return to older items (via its search capability) than does an inbox in an email application. Email works best when the inbox is kept clear (or nearly so). Portals work best when treated as an “action box”: fewer links, but all requiring something now. Feed readers, on the other hand, can be dipped in-and-out of. Their organizing capabilities allow feeds of similar generic content to be blocked together. The user is able to supply a personal order — and thus increase their flow.

The Subconscious is Key: To put information to work, we must take the time for what we take in consciously to become a part of our subconscious. It is in the subconscious that the linkages between disparate pieces of information are made. This seldom occurs quickly: for most people, we really do need to “sleep on it”. This is the second advantage of increasing our information flow via a feed reader process: we take in the mass but do not consciously work on it immediately. After the subconscious connections are forged, the total — and its implications — are available when suitably triggered by a question, new input, etc. This, at the end of the day, is how the phenomenon of that annoying employee who “always has the answers” actually works: the person who does seem to “know it all” is simply someone who has absorbed a lot of background in advance, and integrated it subconsciously.

A “Priming Question”: Often, even better results can be obtained by putting up a set of “priming” questions several days in advance of need. This is actually one of the functions of effective vision, mission, goal and objectives statements, to prime the pump by saying “this is what we’re regularly interested in”. Other, more transient interests, can be met with a simple “overnight” cycle between raising the question and expecting a reply — another good reason to move these out of email, with its hidden expectation of an immediate response.

Paying attention to these psychological factors, and using the right instruments to feed information, allows far higher volumes to be handled. Doing so, in turn, raises more possibilities for effective action within the firm. Prime the pump, use the right channels, and give time for integration, and you will more than quadruple your organization’s ability to deal with complex issues and find challenges and opportunities in advance. At least, that’s what we observed.

Ensure Collaboration Moves to Execution

Thu, 26 Nov 2009 09:58:38 -0500

Much of the discussion that has emerged in recent times surrounding the rise of collaborative management, the peerarchy, etc. has turned on the value of opening up the lines of communication. That value is important. Equally important is the second great potential of collaboration: to move rapidly, but with sure footing, into execution on ideas. Those who look at the public Internet and the many “comment wars” that erupt there fail to note that what is missing in the public sphere is precisely the potential to move into execution (most of the time): without that, the discussion is likely to decay.

Whereas the entire enterprise might be seized with a big idea, when it comes time to transition to execution the discussion needs to break up for a while. The fact is that most domains today are “technical”, in that they embody a body of knowledge: whether the domain is HR, finance, manufacturing, IT, etc. it is filled with “professionals” with expertise. These need to work on execution issues using that professional knowledge.

But the discussion should be encouraged to continue in a public way. What is to be hoped about the collaborative workplace is that these discussions will start to interlace with each other, so that the different disciplines begin to consider each others’ needs and expertise in refining their own plans for change. Public availability allows interested parties — and occasionally someone asked to “look in on” a group — to participate in a way that an in-department execution planning exercise would not normally allow. The goal is to anticipate many of the considerations which normally are dealt with later, and solve them early in the cycle, when the cost of change is low both in terms of time and money.

For those who simply want to “get on with it” — which often can include some of the most active participants in the development of the original idea — these on-going discussions can be quite frustrating. “Why are we wasting time on this now?” is the cry; “we can solve these issues as we go along”. Nevertheless, doing execution planning before expending serious resources is a move that has been proven again and again to save far more money and to come to market faster than just jumping in once the idea is “approved of”.

Managers, at this juncture, must become facilitators more than they already have been during the idea generation process. Their role can include asking people to “get out of” their normal circles and participate as an outsider in the discussion taking place in another area of expertise; it can require them to pose directional questions to ensure an issue is thought through; they may need to arbitrate a budding attempt to “close off” in the presence of others. The goal is to keep the speed of the group consciousness as expressed in the collaborative environment while respecting real expertise: no easy task!

A growing common document can often be of help here (whose natural home is in a Wiki). This allows all of the different subgroups to update one common emerging view of the tasks at hand to make the idea real. As updates start to slow, a decision can be made to initiate execution.

What are the benefits of this type of approach? First, another “brick of trust” is built: the recommendation wasn’t just approved, but a more comprehensive and faster process for successful execution was championed and carried through to its conclusion. Second, many issues which traditionally come up as scope changes or omissions during large-scale change do come to light, reducing enterprise risk and allowing for changes to accommodate the insights these bring when the total investment is a few hours of time and some writing. It is simply better planning, which can reduce delivery costs by factors of 100:1 or more. Finally, the working across departmental bounds on execution helps open up the organization to still more collaboration going forward: it is the engine for further cultural change.

If the idea is the trunk of a tree, drawing its strength from the collaborative roots it has in the organization, execution are the branches, limbs, twigs and leaves. As with a tree, this crown is much of the mass — and much of what makes for success. Continuing to work peer-to-peer across the execution planning phase makes the cultural change in moving to collaboration far more valuable.

Fundamental Change is a Juggling Act

Thu, 26 Nov 2009 09:55:55 -0500

To make fundamental changes in a company is an act filled with complications. Major change — for instance, a business model change, such as moving from sales to corporations through a sales force to sales to individuals via eCommerce and point-of-sale cards (a change readily observed in the eLearning space) — leads to a cascade of changes, from the structure of the sales & marketing function, to the commission structure, to the shifts in the company’s infrastructure and its support, to the way it handles its accounting (tracking revenue recognition against hundreds of thousands of small transactions is much more difficult than contract fulfilment against hundreds of agreements). That level of change must unfold over time: the best planning in the world would mean the start of the change was grievously delayed while the planning completed, and anything less leads to a cascade of changes, some of which will be unanticipated. Yet fundamental change of this nature is entered into because it is an imperative for survival — even when the company is not already having its difficulties such wide-ranging change is being done because the writing is on the wall, so to speak. In other words, time is of the essence.

The problem, of course, is obvious: the company must continue to operate while the change is undertaken. This means that for an extended period of time all levels of the organization have to deal with being partly in the old order of things, partly in the new order of things, and partly in the chaos that is unleashed by changing the order, and in all the adjustments required while the change is integrated and learnt from. This means that for management every day is a juggling act, trying to keep everything running while simultaneously dismantling great stretches of it and creating the new firm on the go. If mergers & major acquisitions strain a company to its limits, fundamental change often takes it far beyond them — something akin to keeping the three different “worlds” of the enterprise in motion without dropping them as you dance and duck while having bricks dropped on your feet, pies thrown at your face and other interruptions to the challenge of moving everything forward without incident. Those who live through these events in their career understand fully just what an inconvenient truth the reality of events is when one is trying to stick to a change plan and keep the revenue flowing, the costs under control, staff in place and the like.

There is a higher than normal likelihood that such fundamental change will be a part of most managers’ lives in the decade ahead. That said, there are some techniques that have worked well to at least make the challenges more tolerable. Here are two:

The Sign-Up Process: Generally, at some point in this transition, the moment of truth comes for the HR framework of the firm: position descriptions must change (and ripple effects mean they generally change in divisional-sized chunks), evaluation criteria alter, a real commitment to developing the new skills needed must be made and fulfilled. One technique, with a long proven track record, that’s used at this juncture is to announce the new order ahead of time. Put up, in a prominent place, a sign-up sheet: one firm (the sort whose headquarters is in a tall skyscraper in the heart of the financial district, with marble and mahogany in the reception area) put up floor-to-ceiling butcher paper at its entrance. Once an individual employee was ready to make his or her transition, that employee would sign the sheet — and by so doing their pay scheme, evaluation scheme, bonus potential and work expectations would change. (In the firm mentioned, the total employee base of this boutique business was 220 professionals: three years after the butcher paper went up there were still 15% of the employees who had not “made the switch”. Upsetting the sense of an employee’s security makes for slow transitions — wisely, this firm realized that no one would actually embrace the new order other than willingly and did not force the residue to come along.)

Test Cases: This approach was used successfully in a unionized environment. Three years before the substantial changes needed to be complete, test cases were proposed for discussion with the union local’s president, not as a “we’re going to do this” but as a “this is the best idea we have so far, what do you think” conversation. By bouncing test cases off the union unofficially in this way (“what if a position could be filled in six of our offices when it opens up rather than tying each role to specific offices?” “what if we kept a position that comes open longer and used the money to fund training to make every unionized employee’s seniority rights usable to them?” “what if employees were responsible for completing their work, designed for a seven hour work day rather than an eight, but we gave them the ability to do it when they wanted, so that someone could work from home, have two hours off in the middle of the day, come in after seeing their kids to school, and so on?”) the company slowly won the union over to the viewpoint that changes were coming yet they didn’t have to be seen as “breaking the agreement” or, worse “breaking the union”. As trust was built, industrial relations became easier; meanwhile, changes could be implemented in the workplace.

Remember that the real challenge is engaging people in the change: most will go into denial mode, hunker down, and try to wait it out. This often takes the form of accepting what can’t be changed (e.g. a reorganization) but not undertaking any other changes. All of this behaviour puts the firm at risk, and yet the only way to get through it is to work through it. Engaging on the basis that denial will be a big part of the picture (as these two examples show) will take you a long way toward the desired end state, even though it seems to perpetuate the period of juggling multiple parallel ways of operating.

Thinking about ... Technology Strategy

Thu, 26 Nov 2009 09:48:56 -0500

So you have a technology strategy, right? A real, honest to goodness one built up in the IT group? We can hear the screams now: “that’s not a technology strategy, it won’t be aligned with the business”.

Our field work suggests something quite different. What passes for technology strategy in this era of aligning with the business and then documenting the strategy is nothing more or less than a list of projects that have passed through the funding sieve. There is almost never any long range purpose, and certainly no sense of strategy that pervades it.

Just exactly who else was supposed to ask and answer the question “what future conditions must we as an enterprise be prepared to face that technology can bring about?”, if it wasn’t a group of technology professionals. Was the business expected to sort out just exactly how your competitive position could be undercut by the early stage work being observed elsewhere in the world, and to commission all the moves necessary not just to meet that, but to do it with attention to the SG&A tied up in IT and the liabilities inherent in the portfolio that exists? To figure out the many steps that connect now to then? To determine which moves had value in and of themselves for the enterprise, versus which ones led nowhere useful if that future didn’t come to pass?

Wouldn’t a business that could do that level of thinking really not need you in IT at all? After all, with that level of insight into the technology question set, everything else could be commissioned from various service providers. No internal people needed.

So let’s get over this view that the technology strategy derives from the business strategy.

In one sense, of course, it needs to. There’s no point in designing a future that no one else will sign up. Really, the processes of business strategy — and the business is seldom unified on what is strategic, division by division — and the process of technology strategy play into and off of each other. In other words, this is an on-going dialogue.

To play, you need to have things to say. Hence the starting point for the discussion must be a technology strategy to be presented as what’s called a “straw man argument” to kick the discussion off.

An example may help here. We have a client which is currently in the public sector, but, as a government-owned corporation, could easily be privatized, or have the restrictions on a private market in their services removed. Will that happen? At the moment no one knows (and with an election pending within the next year you can be sure the government won’t risk its re-election by tipping its hand). But, if you were forming the technology strategy for this company, a key element would need to be a roadmap to a lower SG&A point (this firm would probably lose share), and a much more flexible product line (their offerings are deeply equivalent to their systems). This would all be worth doing whether anything changed or not — it should add up to a more flexible and lower-cost base — but as it’s a multi-year, multi-aspect change that’s required it qualifies as strategic, not tactical.

With it in hand, in turn, perhaps the business can use these thoughts to focus their own change initiatives (which are underway). The dialogue commences, with the enterprise the winner. How different this is from waiting to be told what projects the business has decided on, and then scheduling the work up to the spending limit!

Why would you put SOA on the agenda as a formative element of your technology strategy? For the options it, done properly, would open up. Why would you put portfolio renovation on the agenda? To remove roadblocks to that architected future. Why would you box off certain key areas for bespoke (custom code) potential, and fix others as package realms? To work to a cost profile, and hence an SG&A profile that moves in the right direction. All of these are decisions we see organizations taking, yet few of them have either laid out the big picture, nor taken it to the business. They are trying to do the right things in the margins, at the edges, and on the backs of the project schedule.

If you don’t have a technology strategy, you are creating a corporate risk. As most organizations also don’t have a proper governance process (such as a Governance Board), this risk goes largely unnoticed. But, governance process or not, the responsibility still exists. Best to be at the work, we think.

How Solid Are Your Foundations?

Thu, 26 Nov 2009 09:43:18 -0500

Most business people judge the quality of the IT portfolio by its external appearance. The more towers, balconies, bits and pieces, and the more ornate the resulting mix of applications, the better, goes the thinking: we have systems for just about every purpose we could need. (The counterpoint to this, of course, is the backlog, which contains a steady stream of projects to add yet more bells and whistles, and little additions, onto the substructure of what exists.) Who, then, will speak for the foundations, if not IT architects?

In our travels, we often ask questions about the portfolios in use. Over 95% of all companies we have visited have, in our view, fairly typical, and less-than-stellar, foundations. There is no single data model animating the whole, nor is the corporate data anywhere near close to “clean”. A typical company had over 700 bridging spreadsheets (data extracted and saved to be accessed by a tool such as Excel, manipulated, then put back into another system), over 20 different report writers, more than half of all job steps in their overnight processing simple data sorting and consolidation, or transfers from one package to another. Core pieces of the portfolio were written in obsolete languages: in one installation, the company’s key revenue protection system was written in a language that no one on staff knew, and that the local labour market had mostly abandoned, making the task of simply finding someone to work on this component — required every time a product specification or option changed — into a three month delay.

We call this phenomenon “a castle floating in the moat on the foundations of a cottage”. It is an effect of adding onto the portfolio without going back and reinvesting in core components over a long period. It is responsible, in most of the enterprises we’ve visited this year, for over 70% of the base budget of the IT organization, is inevitably on the critical path to getting anything new done, and is slowly rotting out the overall competence and quality of the technology being made available to the firm. It is, in other words, a competitive liability.

Architects can be the key group to bring this issue forward in a comprehensive and structured way, for if they don’t understand the inter-relationships between the parts, who else would? What they need to bring forward, however, is not just a problem list, but a plan of attack, which takes outstanding commitments such as depreciation into account, and shows the business how a comprehensive rebuilding program can lead to a lower cost, more flexible and more responsive portfolio to go forward with. In two different client situations, the core of their respective migration strategies fit comfortably into a twenty-four month period of hard work: it represented at each company more than 75% of everything IT would do during that period, but it fit within the existing spending levels. One took up the task and is now reaping the rewards, even though there is another year’s work left to do; the other failed to start, and has watched the share of spending just to stand still and keep patching the mess they have grow by another 5% per annum.

Recessions are, oddly enough, a good time to tackle an issue like this. Architecture groups should be putting their plans together, focused on risk management, early benefits, staying within existing spending levels and how the resulting simplification will play out in the business. The “sale” will be made at the top: you can cure all your technology issues, but the decision will be made on money and risk. When you receive the call to cut the budget again, be prepared — you just might find yourselves building new foundations for the future.

In Favour of barely Repeatable Processes

Thu, 26 Nov 2009 09:38:44 -0500

Observation in work areas never ceases to amaze us. There are so many myths that are believed about business — and all it takes is a pair of open eyes to set them aside.

Take, for instance, how work in offices is done. Let’s take a process we have seen recently: from invoice received, through approval, to payment.

Most companies we have observed have a policy in place that requires that invoices not be paid any faster than a specified time, regardless of offered vendor discounts or other incentives. (Our observation is that this is, on average, 45 days from receipt of invoice, with a binomial clustering around the 30 and 60 day marks — with most of the actual payments between either 30-45 days or 60-120 days.) There is also a (typically, ERP package-driven) process defined, which sends a request for authorization to pay to the responsible manager in the chain of command leading to the department that originally commissioned the purchase of goods or services; this then releases the item to the accounts payable queue for processing. (Some organizations apply additional steps at this point; others merely queue the payment and ensure the proper budget codes are assigned.)

Where things become more interesting is when the real world steps in. Few of these companies have formal capabilities to transfer authority: if the responsible manager is “out” for an extended period, or simply does not clear their queue, the policy-mandated days tick by with no action taking place. As a result, there are two informal processes overlaid on the formal one: one that occurs — with widely varying steps for engagement — to get the appropriate sign-off to take place, and another, in accounts payable, to process items out of arrival sequence to meet a company commitment to payment.

Neither of these overlays — nor others we have observed — are in any way encoded in software. They are roughly similar from one intervention to another, but effectively unique: this is what we call a “barely repeatable process”. A barely repeatable process has the same outcomes as a highly repeatable one (the kind we gather requirements for and encode in software) — in other words, there are termination signals and intermediate gate-keeping checkpoints — but how these are reached can be highly variable.

Our field observations have shown us two other things of note. First, in companies that commit to (and keep their commitments come what may) a payment guarantee (e.g. “we pay on the thirtieth day after receipt of invoice”), it is the barely repeatable mechanisms that keep the company’s word time and again. To ensure this happens, there is in practice a great deal of fluidity in getting things done, from delegation of signing authority, to acceptance of “pro X” signatures (often hard to do in electronic systems), to a great deal of initiative taken in accounts payable to signal potential problems (e.g. running an aging analysis of payments not yet approved in order to intervene). Companies with more encoded in the formal process did less of the behavioural adjustments — and often missed their targets and commitments as a result. Second, there is a growing use of back-channels — instant messages, for instance — and discussion of process bottlenecks in collaboration environments — where the practice of making adjustments is the norm.

We believe, from our observations, that the more the notion of bare repeatability enters into process design the more likely it is the enterprise will have the fleetness of foot and adaptability required for the emerging business environment. Our study of outsourcing situations confirms this: successful deals allow for many continuing adjustments; unsuccessful ones hold both parties to the “letter of the agreement” and lack flexibility.

IT solution architects and designers will need to “unlearn” much of their process thinking in order to adapt loosely coupled components, each doing one small task well, to the world of barely repeatable processes. Packages will need to revert to being simply tools and not the determinants of how work is to be done. Managers will need to reward creative adjustments rather than try to further tighten down the process and remove the ability to react or respond. All in all, it will be a difficult transition. But, when it costs less and gives better service, why not make the effort?

What Other Balance Sheets Tell You

Mon, 23 Nov 2009 10:02:40 -0500

Organizations that keep track of social values — environmental impacts and mitigation, community problems and mitigation, etc. — and non-financial elements important to the business — knowledge & leverage, for instance — are not new. Casting them into the form of a balance sheet/income statement pair, a modified form of accounting, for the purposes of understanding these issues internally is. What’s more, in our observation, it puts these issues into a much stronger framework, even if the modified approach never is allowed out of the enterprise’s secure document zone.

Why Does This Matter? We turn to the Kaplan & Norton “Strategy Map” (and its predecessor, the “Balanced Score Card”) for our answer. Every organization we have seen that made use of these tools ended up subordinating the other categories (market/customers, process/innovation, learning & organizational development) to the financial measures. In other words, there is a tendency to “unbalance” the balance in these systems, and find a way to ultimately tie the other categories into the financial result.

It’s highly unlikely this is going to change anytime soon. It is driven both by the common corporate organizational model that privileges the CFO to bypass the COO and by the nature of the public markets, which take a financial view of success and failure. Rather than fight this bias, which is deeply entrenched, we find that the move to work with it that a new balance sheet approach brings is actually more practical.

For make no mistake, the social scorecard, the environmental scorecard and the means of judging the quality and productiveness of your knowledge work and intellectual assets are essentials for a successful business today. It is difficult to generalize here, for different industries present different opportunities and abilities to “escape needs” (a major oil company, for instance, is well aware that it is in a declining exploration business, that profits are linked to not making investments, and thus the goodwill a social approach might bring bears no fruit because no new highly-profitable and long production run major projects are planned), but more companies need to take a broader view than simple “our firm only” profit and loss to thrive — and those that do so intelligently (few would now choose to follow the auto makers into running the social service network of a small province or country, as they do with their health care and pension benefits) tend to outperform their competitors who ignore the issue.

How To Use the Information: What making the calculation and reporting of these so-called softer factors does is to make repeatable and systematic the company’s view of the effects of its actions in these spheres. Back in the 1920s, when basic business accounting and reporting was being made repeatable and systematic (the FASB guidelines, etc.) the resulting approach made it possible to compare one year to another, or one company to another, in a way that made debates about “how this was calculated” or “how do we know that” less pressing. Out of this came the standard business case, the standard projection, standard budgets, etc. — all tools that we take for granted, yet were, in their day, innovations in management.

All pollution — and Greenhouse Gases (GHG) or carbon emissions are as much pollution as the more obvious forms — works on the basis that the commons (streams, air, etc.) are an infinite sink, and hence of no value to protect. Carbon credits, therefore, do not allow a business to see if it still externalizing carbon, simply in someone else’s account (as many carbon reduction via work-from-home schemes are doing). A true balance sheet, however, would need to link these two, in the same way that putting one’s intake of fresh air or water downwind/downstream from one’s outflows makes the effects of pollution more obvious in the business: it ties the cycle together. So, too, decisions to locate in one community over another, or to allow a community from which one draws employees to degenerate.

Lest this sound as though business should become the ultimate social agency, the limits also become clear in this type of accounting. Better schools in a community lead to a better employment base, which benefits the firm and offsets costs, but producing top decile schools may have no further effect — and thus propose a limit on investment in programs offered or subsidies given. On the other hand, helping to fund a wellness-centred health regime and adequate levels of primary care works to maintain a healthy work force, one with fewer concerns for ailing children or parents, and fewer interrupted schedules. In other words, the elements of societal well being that aid the corporation are worthy of the corporation’s efforts.

As for knowledge work and intellectual capital, few firms know what is yielding dividends, and what is not. These fundamental measures of the value of innovation, in turn, act as a counterweight to the relentless need for efficiency and efficacy, reducing processes to their lowest cost and mass market levels of quality. All of these trade-offs, in other words, become susceptible of repeatable business case treatment — and thus the corporation’s ability to decide these issues improves.

At this juncture there is little agreement on what these should look like, or which measures count. That’s all right: as with strategy maps, these must be (at this point) configured to need. But the use of these tools is proving themselves. Consider how you might experiment in these areas — and what you might get from the knowledge they make visible.