Today’s Dilbert strip hit on a couple of key thoughts, albeit in traditional Dilbert fashion…
This is a pretty simplistic, yet sadly realistic, manner in which we define corporate agendas. We lay out a concept and expect the organization to translate our words into action. What happens is that often the definition is fuzzy, which allows for all sorts of interpretation and a watering down of execution.
While a little nitpicky here, Increasing Market Share is a goal, not a strategy. Why does this matter? The primary reason is that we need to teach the organization to think along common lines. We need to communicate specificity – tell people exactly what we want. The goal is to increase market share by 5%, and we are going to do this by increasing new product revenues by 10% and by $4mil in cross selling opportunities to our customer base.
Additionally, every company is striving for the same four things – Increase Revenues, Improve Profit Margin, Elevate Market Share, and Enhance Financial Health. It is how we balance these four items that sets us apart from our competition, and how we tell the organization what matters. Will we sacrifice a launch date and potentially our 3rd quarter revenue goal if a product is offline? Will we bend over backwards to keep a customer from defecting? Will we sacrifice margin for a new customer in a new market? The company must know the trade off equation as most decisions impact something else. Without understanding this, people make decisions based on what they want, not what the company wants.
Ask yourself how deep your organization understands its goals? And then compare it to how specific the goals, strategies, and tactics are for the organization? If there is a gap, start somewhere and be very specific of what you want. Changing the culture to be more specific is not all that difficult.
If you have a moment, take a few seconds to fill out a survey. I’ll post some of the more relevant survey results here over time. Basically 7 questions and a place to fill in your answer if you want to share more.
Yesterday in the NYTimes was a story about the speed of the changing U.S. race demographic. As our demographic changes, so will tastes and demand. Many companies have sat atop their markets feeling they are invincible, yet with these changes many of the companies will find out much too late that they were not as solid as they once felt.
Have you asked yourself any of the following:
What percent of our clients come from the majority?
Do we have products that meet demands from all sectors?
Are we at risk if the legislature, or governing boards, can their ethnicity over time?
Where are our biggest threats in this new market?
Where are our greatest advantages?
What else can we do to capture more in this changing market?
Where might new competitors come after our market?
If you are not strategically discussing questions like these, then you elevate your risk of something happening to undermine your position within your market.
We hear and often bemoan comments in many professions, as the judgements often seem settled from the outset. For example, while reviewing an x-ray he took on my first appointment, my chiropractor remarked succinctly, “You are an ideal candidate for chiropractic therapy.”
Surgeons see operations, lawyers see risks, dentists see cavities, policemen see crimes, and consultants see problems. When you are a hammer, life looks like nails.
One of the core reasons strategy management consulting works well is it trains companies to let strategies align wallets. All too often we take the advice of the squeaky wheel, or allow personal politics to drive decision making. Strategy management is about a consistent process geared to drive decisions, fund initiatives, and find those that no longer serve their purpose.
How often do you hear employees complain about certain initiatives?
How often do feel your organizations fund pet projects?
How consistently are decisions based upon closing strategic gaps?
OK, so I upgraded to iPhone 4. I had to do it…it was like an addiction. For some reason, the iPhone has a tremendous amount of cache to it. How do we create brands with this much power? And how do we use this for our own advantage for the longest time?
From a Strategy standpoint, we can discuss and debate a great deal about their relationship with AT&T….
AT&T Exclusive….
From the very beginning the AT&T thing has been called out and questioned. Apple has always been about propriety…and while somethings work it is clear that others do not. I think in the Cell Phone market, this tactic is about to hurt them. By creating the exclusive arrangement with AT&T Apple created motivated competition. Verizon, whom most feel is the superior cellular network, was extremely motivated to come up with a competitive plan as was Google who was just entering the mobile market. It created a substantially sized hole for Google Droid to take advantage of.
What Apple felt was a compelling advantage with the App Store, is now just a “me too”. The Android market is coming on fast, and momentum (prior to the iPhone4) was clearly leaning to the Droid. It is also being argued that the pressure from the Droid momentum had pushed Apple to rush the iPhone 4 to market, thus causing it to make some well known missteps and product issues.
By making a conscious choice to go with the weaker carrier, it created a vacuum….and in the business world vacuums don’t last long. Verizon and Google have created a very viable competitive piece to the iPhone legacy.
Data Hog
With the iPhone 4 and its video functionality, it is going to need a much better network than AT&T can offer.
AT&T has already leveraged the iPhone platform to change its terms and conditions which the user community is less than thrilled with at this time. The first change was the cloaked ‘Smart Phone Cancellation Policy.’ To cancel a smart phone account, the penalty fee has now doubled.
The second main item was dropping the unlimited data plan. Users are now going to be hit with overage penalties, though AT%T claims the fees are not going to be excessive. While AT&T is offering two levels of data plans, one which allows minimal usage (200 MB per month) for $15 and the other which offers 2GBs per month for $25. The third option is for tethering but is still limited to 2GBs per month.
While I have been told the fees were primarily geared to get people to be smarter with when they were downloading, this is really a ploy to offload the supply and demand issues that AT&T is having with their cellular network. This tells me that AT&T expects their dropped call issue to either continue or perhaps get worse. When you combine this with the unprecedented demand for the data hungry iPhone 4s, I think AT&T is going to have some issues.
So how does AT&T deal with this mess, they are arguably a year behind in launching their 4G cellular network compared to Verizon.
I am sure in the end that Apple has to be less than thrilled that their cellular carrier is the weakest link in its product. It was embarrassed during the iPhone 4 launch when the demo could not find a connection (arguably not an AT&T issue), when a member of the audience responded to Steve Job’s delay in what to do with “try Verizon”.
So in the end by choosing the weaker of the cellular carriers…
1. They created a vaccum which Google Android has exploited extremely well. Apple iPhone may struggle over the next few years as the Android market continues to expand.
2. It created a faulty product due to poor service, and in some ways product and marketing snafus due to the increased competitive pressure around the iPhone 4 launch.
3. Strangely they have become what they once fought against – they are the machine (see video below).
4. If they Apple iPhone market is over taken by the Droid market in the next couple of years, it is perhaps fair to blame the relationship with AT&T. If they would have worked with all markets the Droid market would have materialized much slower.
UPDATED12-23, 2009: Boston.com story about home sales – seems like we have stories with divergent viewpoints. Good example of how a single version of the truth depends upon the story teller…
CNN Opening Paragraph: NEW YORK (CNNMoney.com) — After surging 10% in October, sales of existing homes jumped again in November, growing 7.4% compared with October to an annualized rate of 6.54 million units, according to the National Association of Realtors. (full article)
Boston Globe Opening Paragraph: WASHINGTON—Sales of new homes plunged unexpectedly last month to the lowest level since April, a sign the housing market recovery will be rocky and heavily dependent on the generosity of Uncle Sam. (full article)
Read each…Ahh, the politics of spin, or is it the spin of politics of spin.
November saw a healthy jump in home sales. The good news is that home sales and housing starts are usually very good leading indicators about the health of the economy. Yet the bad news, in this case we have a potentially baked number. The market is being artificially inflated with both lower interest rates and a government subsidy for first time home buyers. What makes this worse is we have created a situation where we know less – we know a number improved, but we have no understanding if the economy is better.
This is one of the fears about designing the right KPIs. We want to find the perfect KPI, or create a list that tries to include everything. What we need are a few KEY indicators to trigger the right conversations about what actions (business levers to pull) to take or not take. We also need to discuss performance and action in a holistic manner and not get caught in panic mode because one indicator seems to be below expectation. We also do not want to trigger an action to artificially improve a number.
For example…Days Sales Outstanding (DSO) can be used as a measure of customer satisfaction. The interpretation is that people pay the bills of the people they like first. If you are able to shrink the number, then you at least have an indication that customers are generally happier than they were last month. If the Marketing VP were compensated on Customer Satisfaction and we used DSO, the VP might change the payment terms. While we might see improvement in DSO, we are probably not seeing an improvement in Customer Satisfaction, which was the goal when we started.
As you are designing KPIs:
Start with your high level annual goals for the year
Build out a system to discuss the implications (don’t just look at the number)
Assign someone to write up the implications on a regular basis
Create a commonly understood definition of the KPI, and document it where it can be easily accessed
I was having a discussion with one of my clients this week and I thought he did a nice job summing up Predicative Analytics.
So in the World According to Reed (WOTR) – “queries answer questions, analytics creates questions.” My response was “and Strategy Management helps us to focus on which questions to answer.”
Reed Blalock is exactly right, traditional BI is about answering the questions we know. Analytics is really what we create with data mining – we look for nuances, things that might give us new insight into old problems. We use human intellect to explore and test. And yes, there is a little overlap. But what is really happening is that we have a different level of human interaction with the data.
BI is about history, analytics attempts to get us to think, to change, and idealistically to act.
The danger with both of these is that they can be resource intensive. Neither tool, or mindset should be left to their own devices. What is needed is a filter to identify the priority and purpose. This is where strategy management and scorecarding comes into play. We have built out massive informational assets without understanding where, when, and how to use it. We have pushed out enormous reporting structures and said “it’s all there, you can find anything you need” yet we scratch our heads when we see adoptions levels are low.
What we have typically not done all that well is build out that informational asset by how it helps us be more productive along product lines, divisions, sales region, etc. We have treated all dimensionality the same. Why, because it was easy. The BI tools are tremendous in how quickly you can add any and all dimensions.
“But because you can, doesn’t mean you should”
As we built out these data assets, we did not align them to performance themes. We have gotten better with some key themes, like supply chain management, and human resource management, but what about customer performance? We might look at sales performance, but that is a completely different lens than customer performance.
How do we determine which assets to start with…what assets do we need to be successful 3-5 years from now, or what are our biggest gaps to close today. Think about customer value, or employee satisfaction (and that doesn’t mean more HR assets). Think about your gaps in Strategy.
How often do we discuss…
Are our customers buying more or less frequently?
What are our best, and better customers doing?
What are the costs associated with serving our least profitable customers?
Performance Management is composed of three distinct disciplines, Strategy Management, Operational Performance Management, and Financial Performance Management. It is a systematic and standardized management and communication process to proactively enhance performance gaps.
Strategy Management – to set direction, foster alignment, and communicate priorities
Operational Performance Management – where we execute our goals and objectives by creating customer value along with our core processes. This is also the most widely defined as each industry handles this somewhat differently, but how we manage it should be integrated with a common process.
Financial Performance Management – to provide insight into what resources we have and how best to use through monitoring and reporting upon the budget.
In addition to this we need to use within the same system our enabling support structure. This includes managing technology, culture, people, etc. Each element needs to be improved upon based upon strategic need, thus helping to eliminate personal politics and squeaky wheels. Below is my Performance Management framework.
Gary makes a great point that most people create a framework that is intentionally incomplete to enhance their offerings (and I completely agree). I built the above framework with the goal of a complete framework. It is not perfect, but I feel provides a strong starting point to assess our process improvement gaps.
In the end, management is just a process, albeit a very important one. It needs to be enhanced and improved to leverage the most of the management talent.
In terms of delivering goods or services to the consumer, the supply chain is not created equally. More often than not, one part in the chain controls the bulk of the profits. How did they get there? They most likely earned it (though there are some interesting examples of other methods). They have the power in chain to manipulate and control the negotiations. They are the perceived value provider.
Where do you stand in terms of delivering value to the consumer?
What do the other parts in the supply chain offer in terms of value?
Can this chain be altered either from someone in the chain, or perhaps a whole new value chain?
What are your relations with the people in control, or with the entire chain?
Depending upon your business model, this could be a potential opportunity or threat. We need to understand our position in the supply (or value) chain and if the position is changing. We may not need to do it constantly, but we need to make sure someone owns the process and it is built into an ongoing management discussion. At the very least it should be part of the strategy development plan.
There are a number of ways companies are “greening.”
Some are creating green initiatives and tasks
Some are creating green strategic objectives
Some are merely applying green make up
In all likelihood, the success will be based upon the level of seriousness and commitment the organization applies. This is a fad, and leaders will emerge. Those leaders will reap enormous benefits, the others will be average.
Traditionally, we have talked about 3 business focuses: Product Leadership, Customer Intimacy, and Operational Excellence. In each of these cases, you could link “green” strategic objectives, initiatives, and policies into each of these categories. You could also create a 4th category to trigger discussions about priority and focus of the organization. A great example here is Patagonia. They live their commitment to evnironmental stewardship as they understand their clients playground is the environment.
Sample Strategy Map - designed from public documents
During the 2008 Presidential race, Sarah Palin created a great amount of buzz for a number of products. Patagonia bucked the trend in support of their beliefs:
“Patagonia’s environmental mission greatly differs from Sarah Palin’s,” Patagonia rep Jen Rapp told the WSJ. “Just wearing the clothing of an environmental company does not necessarily make someone an environmentalist.”
How committed are you to the success of your green programs?
Are you ready to forgo revenue today, for sustainable benefits?
Is green an executive agenda, a marketing initiative, or grass roots initiative?
Scorecarding, or Strategy Management, is a journey. It is more important we get started and learn and adapt as we go. One reason why scorecard projects stall is that organizations expect immediate maturity. It takes time to understand the different stages, and the different stages are important and valuable points of learning.
Start small and focused with a team that has a well defined management process.
Don’t make changes every month, give the concept a quarter to learn. Then meet to make the changes.
Use the concept to facilitate conversations about what creates value.
A few months ago during the Presidential inauguration, a concept I have kicked around a bit presented itself in a vivid example. What stuck me was all the pomp and circumstance, all the background noise. Did I really want to hear the opening prayer, the closing prayer, all the singing, and the poetry? No, I wanted one thing – to hear the message this President was going to deliver on how he was going to set up his presidency. Everything else was in a way, distraction.
As organizations, how often do we set a clear and concise goals for the organization and the individuals? How many times do we repeat what someone else just said?
When we design KPIs for the organization, do we create a single measure for a goal and use other analytics for support? Or do we create a number of ways to view the goal? If we create many definitions, we allow for people to pick the one they want. Use KPI design as a way to gain clarity of a goal. Use Scorecard design to gain clarity of purpose.
I recently read a few blogs from Jonathan D. Becher and it reminded me of a couple of stories. I did a couple of webinars a year or so ago with the lead in being a question about how well do you know your corporate strategies. What I consistently found was that 80%+ of the respondants could not cite the strategy off the top of their head. This is clearly not new research as their are a number of people/companies that cite very similar numbers.
I think there are a number of factors at play here:
Corporate Strategy has no lasting communication vehicle. It is often discussed in conference calls and writen on walls, but we have no effective, living tool. We need to build a communication plan around articulating strategy. Here is a reference to an older blog of mine on Strategy Maps that touches on this subject.
We often lack a consistent framework for Strategy (or a single version of the truth), so we end up with a number of different frameworks for defining strategic objectives. Corporate uses one framework, the business units another, and then each department creates something new as well. What we end up with is too many messages and no clarity into priorities. All of this becomes to difficult for anyone person to understand, so they just go about their day doing the things that want to do or that are easy to do.
We also have unstated strategic objectives, or as Oski refers to them in a comment on this blog post, “shadow strategies” where the organization says one thing, but actually does another.
There is also personal politics and empire building that is probably more widely used than anyone would care to admit. I have seen too many examples where people talk more about how big their team is than provide the value their team creates. If this is what is top of mind, it is probably an indicator of their motivation.
We don’t have a strategy management process. Strategy is done independently from budget, or we hire some consulting firm to develop it and then the binders and reports are placed in an archive.
I once listened to the VP of a services business unit describe the levers available to him to drive the business. Here is his formula. While I agree with him about the formula, it was clear that we need to understand the difference between levers and drivers.
If these were all just levers, would we not be justified in pulling the levers as quickly and as hard as we can? If we make a small adjustment to the formula, we can take the argument another step farther.
If we breakdown Average Deal Size into its components of hours and rate, we identify the one item that can probably be used as a short term lever – Rate. We can lower or raise our rates much easier than the other items. The other items require longer term programs. We need to train our sales force on new ways to improve winning percentages and shorten sales cycles. We need to create marketing programs to find new opportunities.
It is one thing to understand the drivers of the business, but we usually need to build programs around the levers to understand how they impact the business and how/when they should be used. If we are not actively managing the levers, they are really just mathmatical drivers.
One of my first Scorecard exercises is one of my favorites. It taught me a great deal about the power of scorecarding. I did what I suspect most people do. I interviewed all the VPs and developed a long list of KPIs. I then used an excel spreadsheet to organize the KPIs. I put the KPIs down the rows, and theVPs across the columns. Then to help visualize the data, I placed “red” cells where VPs were directly impacted by the KPIs and “yellow” cells where the VPs were indirectly related. I did not intend the colors for anything other to call out attention for each of the VPs.
By choosing the “red” and “yellow” I had each of the VPs concerned that they were under performing in each of those areas. I had to explain a number of times, the reason for the colors.
The first lesson was that by associating colors with performance, I clearly had the attention and focus of the executives of this team. It sparked a number of very strong conversations about performance.
The second lesson is that communication is just as important. By doing a less than stellar job of communicating (at least from a visual sense) the information, I wasted a tremendous amount of time that should have been used for more strategic discussion.
Scorecarding can be a very powerful tool, but it needs to be used appropriately.
The Strategy Map is one of the more interesting tools in terms of Strategy Development. I know most people want to describe it as a Strategy Execution tool, but I see it as a great check to the overall health of your strategy?
Do you cover things other than the financial outcomes in terms of your strategic objectives?
Do you consider the customer voice, or desire?
Do you know where you are in your strategy lifecycle?
Some people like to design complex strategy maps that take months and months to develop with strategic objectives to cover all contingencies. The font becomes too small, and the word optimize shows up too much.
What if we took a different tact? What if we use the Strategy Map as a santiy tool, to test the strategies to make sure they are top of mind and easy to digest? Instead of creating too many objectives, we focus on clairty of thought. We use the tool to make sure the organization can understand what we are doing and to then use the map to define the initiatives and performance measures that align their department with the overall corporate goals?
A common Scorecard design is to list a bunch of business facts – how many customers, total square feet, total employees, inputs, etc. While these can be important business facts that executives need to know, they may not be manageable numbers. By adding them to the scorecard, they take up valuable real estate and misdirect focus.
As you are thinking through your scorecard design, take some time to consider if an item is a REAL KPI, or just a business fact. Then design the scorecard to focus on objectives with potential links to business fact report(s).
I made the argument that Key Performance Indicators and Key Risk Indicators are really the same thing, yet a nuanceworth discussion is initiative management. We launch new factories, new products, training programs, marketing material, etc all the time, yet often do a sub-optimal job managing the project. And execution waters down further as we try to manage the portfolio.
Even though initiatives are different than performance indicators, we need to account for their management within the same framework. We need to understand our objectives, the priorities, resource constraints, milestones, etc in order to more proactively manage the business to achieve more strategic goals. We need to enhance our ability to discuss our progress to our goals (both annual and strategic) and how all the KPIs and Initiatives are working together to achieve the end.
As you design your scorecard, you should consider the story it tells and the goal of the process. One of my favorite starts to a project began with this opening line from the client…
“I know we are doing it wrong, just be gentle when you tell us how bad…”
In this specific case, they were trying to build a cube for slicing and dicing within the Scorecard environment. (And in all fairness to my client he had inherited this design and was trying to figure out how to use it). They ended up with multiple depths of scorecards along a number of different dimensions. Analysis was very difficult as that was not the purpose of the tool. In the end we built a cube for this and found a management report that was perfectly designed for a scorecard. This report walked through KPIs for new customers, existing customer purchases, average deal sizes, average debt.
Often a great place to start with Scorecarding is to find an existing management report. Now the tool can easily be integrated into the management process.
These are two terms that the BI world uses interchangably. The only thing they should have in common is that they both can visually display data.
Defined:
Scorecards are tools that help facilate discussions around strategy and operational performance management. The indicators (KPIs) should foster discussions about corporate direction, resource allocation, priorities, and initiatives.
Dashboards should be used for tactical discussion triggers, like inventory orders, technical support, phone coverage, etc.
What should be happening with these tools is a far more structured use for each (and throw in reporting as well). All too often these tools are used without discipline which leads to mulitple versions of the truth, lack of focus, red herrings, miscommunication, and ultimately a waste of time and energy.
IT and business users need to work together to better understand what each tool can provide, when that tool will be used, how it will be used, how it will NOT be used, and who should be using them.
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