Category: leadership

Functional Specialization Solutions

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There are many solutions strategies that can be used to maximize the potential net benefits of functional specialization and overcome the inherent limitations.

First, processes can be defined and optimized to effectively leverage functional talents.  The mechanical and modular paradigms can be refined to incorporate specialists.

Firms can adopt a portfolio strategy whereby the average success ratio largely offsets random failures.

Specialists and generalists can trade positions to increase their effective coordination skills and understanding.

Communications meetings, technologies, experiences and priorities can improve alignment.

Process management can be elevated to a meta-analysis level, with individuals responsible for the success of prospect to customer, concept to product and order to cash processes.

Countries, states and firms can develop long-term partnerships with their suppliers and customers and improve their prospecting, bidding and negotiation skills.

Individuals can improve their situational leadership skills, learning to balance task and people needs.

Firms can greatly improve their means-ends skills, improving staff delegation, board governance and supplier management skills.

In highly diverse and risky product development areas, firms can invest in specialized firms or in competing development teams.

Firms can invest in staff members who are highly skilled in translating strategy into projects and then into operations.

Finally, firms and individuals can increase their understanding of situations where there are two inherently conflicting objectives.  They can learn from the experience of statisticians, researchers and actuaries who routinely manage the alpha risk that a predicted relationship exists when it really doesn’t against the beta risk that a relationship is found to not exist when it really does.

Functional specialization is an incredible driver of incremental value.  Countries, states, firms and individuals will be rewarded for their attention to this factor.  Common tactics can be used to maximize the value of this strategy.

Ch Ch Ch Changes

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The Baby Boomers may have digested more workplace changes (1970-2010) than any prior generation, moving from an industrial to a post-industrial, services, or virtual world.  The post-Civil War generation saw the initial transition from an agricultural to an industrial society (1880-1920).  Their grandchildren saw the full flowering of the industrial world, with incredible advances in manufacturing, transportation and communications (1920-1960). 

Nearly every usual business practice or function in 1970 has been superseded or turned upside down in the last 4 decades.

The office world of 1970 looked much like 1920.  It was hierarchical, manual and rigid.  Secretaries assisted managers.  Typing, filing, shorthand and bookkeeping were essential skills.  Today, only a few senior execs or sales staff members have administrative or executive assistants.  Everyone else completes their own clerical functions as an integral part of work.  Paper ledger forms and 10-key adding machines have been replaced by Enterprise Resource Planning (ERP) systems in even the smallest firms.  QuickBooks offers capabilities that were unimaginable in 1970.

Mainframe computers automated high volume transaction and office tasks in large firms in 1970.  Computers have since expanded to touch every function, moving through minicomputer, PC, network and cloud phases.  Sophisticated applications exist today for every function and industry, including a dozen end-user tools such as spreadsheets, databases, word processing and collaboration/time/task management.

Communications has progressed from rotary phones, party lines and PBX systems to WiFi, VOIP systems, wireless phones and personal digital assistants.  Media has progressed from AM transistor radios through 8-track and VHS tapes to disks, digital downloads, massively multiplayer games and social media entities.

Companies today pursue core competencies, partnerships and virtual structures in contrast with the old vertically integrated ideal or financial portfolios of conglomerates.  Firms are financed through a broad range of instruments and investors throughout their lives rather than with simple stocks, bonds and preferred stocks.

Companies today compete globally and engage in partnerships with suppliers, customers and competitors.  They also compete with suppliers, customers and competitors, including small entrepreneurial start-ups.

Support functions are more important today.  The Personnel function has become Human Resources.  Marketing has assumed a strategically important role in product development and sales management.  Finance is a strategic partner in decisions.  Many functions are outsourced.

Product development is managed through a gates and phases process.

Operations functions have been totally transformed.  Quality has evolved from a technical necessity to an organizing principle.  Processes shape decisions.  Variability and waste are shunned.  The near-perfection of Six Sigma is pursued and achieved.  Firms benchmark and copy best practices.  Forecast based push systems have been replaced with JIT pull systems, reducing inventories to zero and lot sizes to units of one.  Mass production has been replaced by a network of focused factories, modular manufacturing and outsourcing.

Strategic planning has migrated from an infrequent fully integrated top-down approach to an iterative  process that massages top-down and bottom-up factors within a balanced scorecard composed of assets, operations, stakeholders and final goals. 

Suppliers are managed as long-term partners, instead of short-term contractors.  Staff members are treated as partners, even though company and staff initiated turnover is much higher.  Simplistic theory X and Y approaches (employees are good or bad) have evolved into situational leadership type approaches that match task/people dimensions to current needs. 

These generic changes have occurred seen in every industry and function, layered on top of the major technical and professional progress seen in each area. We are rapidly approaching a time when virtual organizations are a reality because they are more effective than forms suited to an industrial era.  Baby Boomers have experienced this whole cycle of change and are well situated to mange the final transitions.

Tale of Two Cities

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In a recent speech at the Carmel Rotary Club, Indianapolis Star editor Dennis Ryerson warned the audience of the risk of a central city meltdown in Indianapolis as he had observed in Cleveland 20 years ago.  As someone who has lived in each region for more than 20 years, this prompted me to collect some historical statistics and speculate on the differential success of these two mid-sized Midwest areas.

In 1900, Indy was two-thirds the size of Cleveland, which at 654,000 people, was the nation’s seventh or eighth largest urban area by various definitions.  Indianapolis was in the 21st-25th range.

By 1930, Cleveland had grown by an astonishing 173%, adding 1.1 million people for a total of 1.8 million, reaching a peak national ranking of 6th to 8th.  Indianapolis was the turtle in this race, adding a mere 200,000 residents to grow by 50% to reach Cleveland’s 1900 650,000 population level, while maintaining a 21st-25th highest population ranking.

By 1960, Cleveland had added another one million residents (50%), reaching 2.7 million residents and maintaining a top 10 population ranking.  Indianapolis grew a little faster on a percentage basis, adding 400,000 residents to reach the 1.1 million population level.  Its national population rank slid to 26th as Sunbelt and west coast cities began to grow.

In the next five decades to 2009, Indianapolis continued its modest 1-1.5% annual growth rate, adding 750,000 residents to reach a population of 1.8M, while sliding to 34th place in the national metro population rankings.  Cleveland reached a peak population of 3M in 1970 before declining to 2.8M in 2009, good for a 26th place metro population ranking. 

In summary, Cleveland grew by 1 million people from 1900-1930 and from 1930-1960, but added ZERO population in the next 50 years!   Indianapolis added a quarter, half and three-quarters of a million people in those 3 periods.  What could possibly account for these divergent trends in cities located only 300 miles apart?

The locations are not very different.  Indy claims to be the “crossroads of America”, while Cleveland has said it is “the best location in the nation”.  Cleveland is on the New York to Chicago train line, the Great Lakes and interstates I-80, I-90 and I-77.  Indy boasts I-70, I-65, I-74 and I-69 interstate access.  Indy has leveraged its location and lower labor costs to become a greater distribution hub.  Cleveland has enjoyed a decade as a mini-hub for Continental, while Indy once served as a minor USAir hub.  Both cities have attracted rural residents from a 100 mile circle, but Cleveland’s area is only half as large due to Lake Erie.

Both cities had strong historic banking companies.  All of the Indy companies are gone.  Cleveland maintained National City Bank and KeyCorp as major banks through most of the period.

Cleveland has maintained a large Fortune 500 headquarters lead.  Firestone, Republic Steel, Uniroyal, Goodrich. TRW, Std Oil, White Motor, Eaton, Sherwin-Williams, Cleveland-Cliffs, Hanna Mining and Reliance Electric appeared in the 1960 list.  Cleveland had grown from 12 to 15 firms by 2009, adding Progressive Insurance, National City, KeyCorp, Parker-Hannifin, PolyOne, Lubrizol and Travel Centers of America.  Indy had 5 firms in 1960: RCA, Lilly, Curtis Publishing, Stokely Van Camp and Inland Containers.  It maintained only Lilly, WellPoint and Conseco in 2009.

On the professional sports scene, Cleveland has maintained football and baseball teams, while adding basketball, but dropping the second level hockey Barons.  Indy added the Colts and moved the Pacers from the ABA to the NBA.  Indy has successfully pursued an amateur sports strategy, attracting the Pan-Am games, the NCAA and many collegiate tournaments.

The cities share historical strengths in their art museums and orchestras, with Cleveland’s ranked higher.  Indy has added the Children’s Museum and Eiteljorg Museum, while Cleveland added the Rock n Roll Hall of Fame museum and lost the Salvador Dali museum.  Neither city has a major state university, with IUPUI and Cleveland State growing in parallel.  Cleveland has Case Western Reserve as a local research university.  Greater Cleveland has a much stronger community college system.  The Cleveland Playhouse and theatre groups offer more than Indy’s scene.  Cleveland’s Coventry/University Heights area is more vibrant than Indy’s Broad Ripple.  Cleveland adopted Michael Stanley while Indy embraced John Mellencamp.

Both cities focused on manufacturing for growth, especially automotive and metal forming manufacturing.  Cleveland had a greater emphasis on basic manufacturing in steel, rubber and plastics.  Indianapolis attracted a significant amount of investment from Japanese manufacturers.  Indianapolis’ health care industry has benefited from Lilly, Roche and IU, while Cleveland has leveraged CWRU University Hospitals and the Cleveland Clinic.

Net, net, Cleveland should have continued to grow slightly faster based on the factors above.  The drivers for Indianapolis’ positive differential growth include:

Better public relations regarding momentum.  Cleveland’s river fire and “mistake on the lake” moniker have hurt.  Indy was able to overcome the “naptown” label through continued positive growth and publicity.

Indianapolis and Indiana have maintained a low tax and low service environment conducive to business investment.

Indy has benefited from being the state capital and the only large city in Indiana, while Cleveland has battled Columbus and Cincinnati for state leadership.

Indianapolis has avoided major racial conflicts.  The 1966 Hough riots in Cleveland contrast with the calming Bobby Kennedy speech after Martin Luther King’s 1968 assassination.

Indianapolis public schools have not fallen as far as IPS.  Busing and white flight had a bigger negative impact in Cleveland where a more established Catholic school system option existed.

Downtown Indianapolis has recovered based upon major public and private investment in the Circle Center Mall, convention center and sports arenas.  Cleveland’s investment in the Brown’s stadium, Jacobs Field, Cavaliers arena, major office buildings and “the flats” has never reached the critical mass required for downtown growth.  Indianapolis’ downtown residential growth has been modest, but adequate.

Indianapolis pioneered the concept of uni-gov, merging the city into the county.  Cleveland has remained an island within Cuyahoga County and a small island within the metro area. 

Indianapolis civic leaders found a variety of ways to preserve and grow the central city and avoid having widespread areas of decay.  As Mr. Ryerson noted, this strategy will be more difficult to maintain as the surrounding counties grow at the expense of Marion County.  Both cities could benefit from some degree of regional government and taxing authority that aligns the interests of suburbs with the central city.

  Cleveland Indy  
  7 counties 9 counties  
       
1900          654         429 66%
1910          913         489 54%
1920       1,426         569 40%
1930       1,784         656 37%
1940       1,817         702 39%
1950       2,154         829 38%
1960       2,734       1,071 39%
1970       3,000       1,248 42%
1980       2,833       1,305 46%
1990       2,759       1,381 50%
2000       2,844       1,605 56%
2009       2,791       1,824 65%
       
1900-30       1,130         227  
  173% 53%  
       
1930-60          950         415  
  53% 63%  
       
1960-2009            57         753  
  2% 70%  

What Customers Really Want

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As organizations and organizational units adopt more customer-focused strategies, there is a need to better understand what customers really want.   Although firms can invest years and decades in marketing research on this question, they can also choose to obtain 90% of the value in a single day by facilitating an honest discussion with key leaders and customers.

 Those who have adopted the quality/process view believe that the first step is to confirm that customers mostly (only) care about the perceived value of final results.  They will pay for a value added process or feature, but don’t care about other activities.  Richard Schonberger proposed that all customer needs can fit into a small number of categories, which can be used to define and prioritize the findings.

Customers value final product or service quality.  More today than before; and more tomorrow than today.  Some customers value process quality, because it reduces their risk, serves their customers or is required by regulators.  What quality level is required to remain in business, to meet expectations or to differentiate a product?

Customers value delivery speed.  Product lead times have fallen from weeks to days to hours to minutes.  Service delivery is sometimes measured in seconds. 

Customers value flexibility.  They expect your firm to have the capacity to meet their orders within standard lead times.  They expect you to make exceptions.  As in the Pink Panther movies, they may agree to a standard lead time or capacity, but when they need an exception, they want you to ignore what they told you before.  Expectations regarding flexibility vary widely across industries and firms and can change rapidly.

Customers seek value.  They want lower prices or total cost of ownership.  They want features and benefits that are cost-effective, which meet their needs or which are market leading.  This is a very broad category, but firms must operate with some understanding of what is expected.

Customers value information.  They want business relations with clear information flows, minimal transaction costs and shared accountability for risks.  Ideally, you anticipate and fulfill their needs in a cost free way, without surprises and take care of surprises of all kinds: regulatory, supplier, customer, competitor, acts of god, etc.

Finally, customers value personal relationships.  This varies by culture, industry, firm and purchasing agent.  Business relations are rarely purely business relationships.  Personal connections, loyalties, favors, culture and understanding often matter.

Firms or business units should understand what their customers want.  They should identify minimal, expected and differentiated performance levels.  They should understand relative customer priorities.  This may require formal marketing research or trial policies or pricing exercises to determine real preferences.  This may require sales, marketing, engineering, production and finance to work together like never before.

A consensus one-page QSFVIP customer profile can help to shape decisions at the strategic and tactical levels.

Project Opportunity Analysis Template

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    Opportunity Analysis – Name of Project
     
    1. Key Strategic Priority Areas/Critical Success Factors
10 A Creatively addresses more than one of the nine key strategic priority areas.
7 B Directly targets a significant improvement in one key strategic priority area.
3 C Contributes to the achievement of one key strategic priority area.
  D Provides benefits, but does not address any of the nine key strategic priority areas.
     
    2. Annual Strategic Plan
10 A An integral and significant preplanned component of the annual strategic plan.
7 B An initiative within the annual plan.
3 C Consistent with focus areas of the plan, but not defined as a planned initiative.
  D Provides benefits, but is not connected to the initiatives defined in the plan.
     
    3. Mission, Vision and Precepts 
10 A Creatively addresses more than one precept or component of the mission.
7 B Directly targets a precept or component of the mission.
3 C Contributes to a precept or component of the mission.
  D Provides benefits, but the connection to the mission and precepts is weak.
     
    4. Long-term Strategic Plan
5 A Creatively addresses more than one goal of the plan.
4 B Directly targets a significant improvement in one goal of the plan.
2 C Contributes to the achievement of one goal of the plan.
  D Provides benefits, but does not address specific goals of the plan.
     
    5. Program/Product Portfolio
5 A Builds on an existing area of strength, leveraging a core competency.
4 B Provides services the organization has targeted for growth or improvement.
2 C Addresses an area of weakness considered critical to portfolio of services.
  D Serves a new area, a weak area, or one that de-emphasized.
     
    6. Customer(s) Served
5 A Targeted to serve an existing primary customer group.
4 B Serves a customer group which has been identified for growth potential.
2 C Serves a secondary customer group, by leveraging an existing program.
  D Serves a secondary customer group or channel,  which others could serve as well.
     
    7. Proven Demand for this Service
5 A Members, customers and sponsors have paid for this program before.
4 B Marketing research and tests indicate that this is a top priority service.
2 C Marketing research supports some demand, but dollar value is unproven.
  D Some constituents demand this service, but no research or market proof.
     
    8. Brand Consistency
5 A Service reinforces key brand messages and is promoted with existing vehicles.
4 B Service is consistent with key brand messages, but requires separate promotion.
2 C Service connects with some brand messages and requires separate promotion.
  D Service is not consistent with key brand messages.
     
    9. Delivery Channel Environment
5 A Reinforces historical and current programs and values in delivery organizations..
4 B Consistent with historical programs and values in delivery organizations.
2 C Some degree of innovation or stretch that may be a concern to some players.
  D Innovative program designed to introduce change for delivery partners.
     
    10. Financial Resources
5 A Earns a financial payback of investment in one year or less.
4 B Earns a financial payback in two years or less.
2 C Breaks even in more than 2 years, but provides significant qualitative benefits.
  D Qualitative benefits are deemed to exceed quantitative costs.
     
    11. Sponsor/Funding Resources
5 A Creates a strong opportunity to attract new sponsors and contributions.
4 B An attractive project 80% likely funded in a year, without harming programs.
2 C More than 50% funding chance, but may compete with existing programs.
  D Less than a 50% funding chance or clearly competes with existing programs.
     
    12. Information Technology
5 A Uses existing capabilities without modification.
4 B Uses existing or planned strong capabilities with minor enhancements.
2 C Uses existing capabilities, but requires development outside of current plans.
  D Requires pioneering development work to provide appropriate service.
     
    13. Delivery/Operations/Processing Capabilities
5 A Uses existing strong capabilities without modification.
4 B Uses existing strong capabilities with minor enhancements.
2 C Uses existing capabilities, but requires significant development.
  D Requires pioneering development work to provide appropriate service.
     
    14. Human Resources
5 A Service can be provided by existing staff and structure.
4 B Service requires some additions to staff in existing categories.
2 C Service requires new staff skills and minor adjustments to structure.
  D Service requires major initiatives in recruiting, retention and structure.
     
    15. Monitoring and Evaluation
5 A Success is easily measured by existing measurement and evaluation tools.
4 B Success can be measured with only minor enhancements to current system.
2 C Success can be measured, but will require adjustments to existing measures.
  D Success is difficult, if not cost prohibitive, to measure directly.

2010 Graduates: Live a Great Life

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Graduates, I encourage each of you to “Live a Great Life”.  This is your right, your choice and your destiny. 

We each live in three worlds: the world of commerce, the world of choice and the world of community.  I believe that “a great life” comes from balancing these three worlds.  In eighth grade, our industrial arts teacher, Mr. Laurie, told us that our first project would be a foot stool and that it would have three legs.  One student spoke up, “Mr. Laurie, I think it would be better with 4 legs”.  Mr. Laurie calmly responded, “Tom, I have found that 3 legs provide the proper balance for a successful footstool.  If you tried 4 legs, it would take you the whole semester to make them the same length and the final stool would be 3 inches tall”.  As I learned in this school, balancing the three legs of commerce, choice and community is essential to “living a great life”.

World of Commerce

The world of commerce is important as we emerge from the Great Recession.  Completing high school is a great accomplishment.  But it’s not the end of learning.  You will continue to build your problem solving and communications skills and you’ll pursue new degrees and certifications.  Lifelong learning is now required for everyone.

Our guidance counselor, Mr. McGinnis, urged us to be serious about our careers.  He said “choose something which interests you, build skills in that field and focus on one industry”.  In spite of the many options and uncertainties in life, pick that one path and treat it like it’s the only one. 

Securing employment is difficult today.  You can improve your odds by thinking about jobs from the employer’s point of view.  Employers want clear “yes” answers to three simple questions: “Can you do the job?  Are you self-motivated?  Are you manageable?”  Focus on these and you will always be an attractive job candidate.

Be confident about your economic future.  Don’t listen to the nightly news.  The sky is not falling.  The U.S. economy grows by 3% per year on average.  That doesn’t sound like much, but since the Diamond Alkali factory in Fairport closed 30 years ago, the US economy has grown by 160%, from $5 trillion to $13 trillion dollars.  There will be recessions, but you will succeed.

Education, career skills and positive attitudes will make you succeed in the world of commerce.  Always invest in yourself first.  Save the first 10% of every paycheck.  Invest it for your retirement.  When you are 53, you will thank me.

World of Choice

We also live in a “world of choice”.  In 1974, we were emerging from a “world of tradition” and sought a “world of choice” where we could “express ourselves”.  Our parents cautioned us to “be careful what you wish for”.  The number of choices and options today can be overwhelming.  You now have great responsibility for your own future. 

First, you must accept and love yourself as you are.   Believe that you were created just as you are for a purpose.  My classmate, Jim Kulma, shared a book with us in 1972. It was titled “I’m OK, You’re OK”.  It sold 15 million copies because its advice was very sound.

This is not an invitation to be self-centered.  We all need to become more self-aware.  Discover your talents and your non-talents.  Listen to others.  Seek feedback and advice. 

Because we have so many choices, engagement in life is critical.  Many adults, in their roles as workers, family and friends, choose to not fully engage in life.  They try to avoid responsibility for themselves and their choices because they are afraid of making mistakes.  Unfortunately, “there is no place to hide”.  Others will hold you accountable anyway.  Embrace responsibility and make it a habit. 

Engage in life; explore and experiment.  When you are older, you will not regret these adventures, but you might regret the things you missed.  Have the confidence to “take the road less traveled”.  As we learned playing “Milk League” baseball, “you can’t get a hit, if you don’t step up to the plate.”

View life as an exciting journey.  Don’t make it a death march in pursuit of a single goal, like career success.  Don’t think “If I only had a better job, a winning team, a better spouse, a bigger house or a full head of hair, things would be different”.  Joy comes from living life, not from dreaming about or even from reaching goals.

Accept that “life is not easy”.  Life remains a challenge.  Use the “in spite of” strategy.  In spite of the challenges, risks, hurts and pains, I will choose to do X.  If the challenges become too great, get help.  Family, friends and counselors are ready to help.  They all want you to succeed.

World of Community

We all need to earn a living and make wise choices.  But, to be happy, we must also live in the world of community.  We live in a world that glorifies material success and the individual.  However, history, science and common sense tell us that happiness does NOT come from wealth and introspection.  Happiness comes from relationships.  Every wisdom tradition, including psychology, has found that people are truly happy ONLY when they live for something outside of themselves.

In our everyday lives, family matters most.  Family life is difficult.  But, we were created to live with others.  We give and we get even more in return.  On my wife’s nightstand, there is a picture of two identical dogs sitting on a beach, much like the Fairport beach, at twilight, with the quote: “Love does not consist in gazing at each other, but in looking outward in the same direction”.  Invest in a high quality family life.  It will provide the greatest rewards.

Fun social groups matter.  Make time for bowling leagues, youth sports, church groups, boy scouts, girl scouts and playing cards with friends.  These low-cost activities create a high quality life.

Your local community matters.  There is great value in the familiarity, pride, loyalty and common interests of the local community.  Village residents already know this.  Your big city neighbors yearn to find this sense of place, security and belonging. 

Our national community and government also matter.  In a society with 300 million members, it is tempting to be a “free rider”.   We have found that democracy is the best form of government.  It allows the hopes and values of the people to be translated into laws to guide society.  Society needs your active involvement in the political process.  Our future depends upon it.

Finally, spiritual belief matters.  We all have a deep need to matter and to be significant.  This is fulfilled by connecting to something larger than ourselves.  We all ask the same questions: “what is the meaning of life?”, “where did the world come from?”, “why was I created?”, and “what happens in the long-run?”  These religious questions are part of our deepest nature.  Finding your relationship with eternity, mankind, truth and god is a vital part of your journey.

We live in these three worlds of commerce, choice and community.  Your generation inherits a world that is more complex, fast-paced and demanding than those of the past.  Some scholars wonder if we are “in over our heads”, with the demands of life exceeding our capabilities.  I believe that we are blessed to be able to lead even richer lives today.  I agree with the author Harold Kushner who says that God always provides each of us with the strength and capacity to make our journeys with confidence. 

On behalf of the “class of 1974” and the Fairport community, I wish each of you success on your journey.  I am confident that you are very well-prepared for the exciting worlds which lie ahead.

Prioritize, If You Dare!

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“Managers do things right; leaders do the right things”.  In the current environment, where the “right things” of new products, customers and deals are on hold, the best leadership may lie in prioritizing existing operations.  In essence, prioritization is choosing to “do the right things” within the existing portfolio of activities.

Prioritization begins with the calculation of net benefits.  Maximizing benefits or minimizing costs is insufficient.  Priorities reside in those activities with the greatest net benefits.  This can be defined as benefits minus costs, as a payback period or as return on investment (ROI) or net present value (NPV) for large projects.  The comparison of costs and benefits is the essence of this approach.  Calculating risk-adjusted discounted values of after-tax cash flows within an asset portfolio is usually just “nice to have”.  Rank ordering available projects by their net benefits is the next greatest source of value.

The Pareto Principle says that 80% of net benefits are delivered by 20% of activities.  Mathematically, with any reasonable range of costs and benefits, this relationship holds true.  In simplest terms, the Pareto Principle says “cut off the tail”.  It also focuses on the concept of relative value.  We want to compare the ratio of benefits to costs, investments or activity. 

This applies to time management, where a log of time for one month reveals 10% of activities that should be eliminated.  The bottom 10% of products, product categories, stores, bank and library branches face the same indication that they are not cost justified.  Customers, divisions and business units face the same reality.  Some make money, while others do not.  Activity based costing calculations indicate that the lowest performers cost the firm more than was apparent.  Even individual performance can/should be considered on a rank-ordered basis.  The bottom 5-10% should be identified annually and considered for performance improvement plans in every group of 10 or more employees.

In emergency situations, triage must be applied.  Limited resources must be applied ONLY to the activities that can benefit and survive.  Those which will fail receive no investment.  Those which will succeed anyway, receive no investment.

At times, a two-dimensional grid should be used to determine activities which will deliver benefits.  In the classic Boston Consulting Group approach, business units are categorized by high and low growth and margin potential.  The top right units with high growth and margin potential get all of the investments and high-powered managers’ attention.  Low growth and margin businesses face divestiture.  High margin, low growth businesses become the proverbial “cash cows”, generating cash flows to feed other units.

Opportunity cost is a fundamental concept in prioritizing opportunities.  There is no absolute scale of expected returns.  There is only the “next best alternative”.  Even when business units have poor prospects, they must be compared with the realistic opportunity costs of doing nothing or divestiture.

Prioritization does not apply just to eliminating the negative end of expected business results.  Investments should be made in those activities with the greatest potential.  The Gallup Strengthsfinder approach applies this to human performance, demonstrating that natural talents provide the greatest relative return.  Firms should invest in those products and markets with the greatest potential.  They should also invest in facilities, equipment, IT projects, researchers and sales staff who deliver incremental value.  Many firms are inappropriately constrained by ratios and potential future change management costs.  Investment and product portfolio managers understand that there is value in starving losers and investing in winners.

The most sophisticated version of prioritization is employed in the principle of comparative advantage.  David Ricardo’s theory of international trade applies to countries, companies and units.  Comparative advantage says that relative benefit/cost ratios between countries, firms and units determine the best possible distribution of production.  ONLY those who are comparatively most productive should produce goods or services.  More than a century later Michael Porter applied this to companies, determining that those with true core competencies would succeed in the long run. Treacy and Wiersma’s book on “The Discipline of Market Leaders” indicates that firms can only have competitive advantages in one of the three areas of product innovation, customer intimacy and operational excellence.  Only the “best of the best” will prevail in the long run.  Outsourcing of non-essential functions is indicated.

Given the clear economic advantages of prioritization, why is this not universally applied?  Net benefits, the Pareto Principle and comparative advantage are beyond the comprehension of some economic actors.  Comprehensive, systematic calculations are applied only by a specialized subset of firms and functions. 

Perhaps more important is the personal cost-benefit calculation of individuals.  I could prioritize activities by relative benefit-cost, but I would be subject to criticism for eliminating the bottom 10%.  Perhaps it is better to not “rock the boat” and avoid the penalties of change management.

Some sophisticated managers follow the advice of Dr. Deming who highlighted the great risks of overreacting to random variations.  Managers should set an appropriate time-frame when using relative performance measures.

Dr. Deming also preached that managers need to “drive out fear”. For some employees, any rank ordering or evaluation of performance creates fear.  Some individuals believe that people should not be subjected to performance standards or rankings because this is not “fair”.  For most organizations, the essential competitive nature of employment and corporations is understood and accepted. Highly risk-averse individuals should not be employed by firms which face competitive pressures.

This does not contradict Maslow’s theory that security/safety is at the base of employee motivation.  Security oriented individuals should be guided to careers and positions which meet their needs.  The other 80% of employees should be counseled to understand the long-term competitive nature of labor markets.

Prioritization is an effective and essential business strategy in all business conditions.

Goals of an Integrated Planning and Control System

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The proliferation of planning and control systems has led to a large number of goals.  Fortunately, they can be consolidated and categorized to facilitate the development of an understandable consolidated system.  The essential goals are eternal, but the growing complexities of the business environment and processes have increased the number of goals worth monitoring.  On the planning side, firms need to prioritize, clarify, align, communicate and prepare. 

In spite of the countervailing winds of entrepreneurship and empowerment, in a dynamic world with greater value at stake, firms need to set key priorities at the top for direction, values, strategies, investments, projects, critical success factors and key performance indicators.  Without them, even in the best conditions, managers and staff will ineffectively make decisions “as well as they can”.  Clear priorities and expectations can significantly reduce the zero-sum game of internal politics.  Senior management needs to proactively clarify the priorities, trade-offs and commitments made to all stakeholders, including investors, customers, suppliers and internal departments. 

A well-designed strategic plan and its related structures effectively align the decentralized, specialized, outsourced, matrixed and virtual resources of today’s firm.  Intentions, decisions, opportunities, authorities and best practices are clearly communicated.  The well-defined expected and desired future state allows individual functions to optimize within their frameworks.  Long-term commitments are made and managed, allowing business units and functions to flex within the context and pursue immediate opportunities.  Commitments are made at every level at the right time, with confidence.  Scarce resources are devoted to priority objectives and secondary projects consume no resources.

An effective planning process prepares the firm to face the unknown.  Participants at all levels have devoted time to organization level thinking about direction, situation, gaps and solutions.  If simulations, sensitivity analysis and emergency preparedness work has been done, some level of preplanned formal responses and tools has been defined, providing a base and confidence for managing the challenges that were not expected.

On the controls side, the system needs to deliver results while managing assets and risks.

“What gets measured gets done”.  Objectives that are measured and reported receive priority management and staff attention.  Today’s digital dashboards expand the number of goals to be pursued and more clearly communicate their status to everyone in real-time.  This greatly increases the motivation by staff to improve their real performance (and sometimes beat the system).  The quality revolution attempts to move this feedback loop to a higher level, with staff understanding customer needs, defining their own goals, measuring performance and developing quantum leap improvements to serve easily understood definitions of success.

The accounting staff has always been charged with safeguarding the firm’s assets.  In the analog world, this was straightforward.  Today, it requires a deeper understanding of intangible assets such as patents, supplier relations and brand value.  In spite of the loss of firm loyalty, it is apparent today that employees are the most valuable assets for most firms.  Employees need to feel valued for their skills and contributions, and be given opportunities to build their skills and apply their talents.  The human resources management system (job descriptions, evaluations, compensation) needs to be effectively integrated into the overall planning system.  An effective process system also builds the knowledge management value of the firm by documenting processes, accumulating knowledge and improving the rate of knowledge transfer through training and sharing.

In the post-Enron, Sarbanes-Oxley informed world, risk management has become an important board level topic (because board members have new responsibilities).  Developing basic and advanced internal controls to prevent and detect theft is a classic controller responsibility.  Administrative policies and procedures have long been used in large and small firms to increase the degree of compliance with management’s expectations by managers and staff.  Most firms have been subject to some level of regulatory oversight, audit and compliance.  All firms have reported financial results to external stakeholders within generally accepted accounting practices and tax laws.  Firms have always thought about the risks of natural disasters, but today’s decentralized and electronically supported worlds require much more attention to a variety of 10%, 1% and 0.1% risks.  Firms have used insurance policies for basic risks for centuries, but today they must evaluate and guard against a much wider variety and degree of business risks.  Finally, complex and decentralized firms are subject to Murphy’s Law and the role of the weakest link.  The sheer number and impact of risks has caused them to make openness and transparency a top value.

An integrated planning and control system needs to address all of these goals.  Planning must prioritize, clarify, align, communicate and prepare.  Reporting must deliver results while managing assets and risks.

Both/and Trumps Either/Or

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The business and political worlds are catching up with what the great religions have long known and science has discovered in the last 200 years.  The deepest understanding and practical progress in all fields is driven by a “both/and” approach, rather than by a deterministic “either/or” approach. 

Post-enlightenment westerners have struggled to fully digest the slippery, evolving dynamic nature of the Asian concept of yin and yang.   Many believers, clerics and secular leaders have simplified, denied or ignored the deeper meanings of the Christian trinity, relationship with Judaism and tension between the vertical (God) and horizontal (community) demands of the faith.  The fully developed religions provide training, terminology, sacraments and advice to attract, retain and grow members, without reducing “the mystery of faith” to a simple recipe.

The western scientific tradition meets the heartfelt needs of man for a deterministic description of the universe, delivering the potential for security expressed in Maslow’s “hierarchy of needs”.  Aristotle, Euclid and Newton are rightfully celebrated for their authoritative development and formalization of logic, geometry and physics.

Nineteenth and twentieth century science shattered the deterministic paradigm, replacing it with a probabilistic paradigm.  This was presaged by Hegel’s philosophical method of thesis, antithesis and synthesis.  Thomas Kuhn’s mid-twentieth century history/philosophy of science documented both the human process of how science progresses and the Necker Cube-like way in which a new paradigm destroys the old and blinds us to any new ways of perceiving.

The Heisenberg uncertainty principle demonstrated that the location and speed of material items was dependent upon the measurement applied and was inherently uncertain.  At the same time, it became clear that the location (energy level) of an electron was only probabilistic!  Kurt Godel’s impossibility theorem destroyed the hope of defining a Euclidean basis for a fully functional arithmetic and algebraic system of mathematics that could include the concept of infinity.  Darwin’s theory of evolution included the concept of random events in populations determining the future of biological species, without necessary guidance from god.  Biology then described the details of genetics, which includes random mutations, reproductive combinations, multiple genes, developmental sequences and the impact of the environment.  Freud described the role which unconscious thoughts, drives and the “mind” can play in determining consciousness and behavior.  Statisticians defined populations, estimates and metrics, emphasizing that there are inherent conflicts in making estimates.  Finally, Einstein developed the theory of relativity, making time, space, matter and gravity functions of each other.  Ironically, Einstein unsuccessfully devoted 20 years of his life to finding a unified theory that would combine all aspects of physics into a deterministic framework.

In the last 50 years we have seen the development of insightful “both/and” approaches throughout the business and political worlds.  Management has evolved from unilateral theories X, Y and Z to situational leadership which uses both task and people factors to deliver results.  Effective thinking coaches have defined the best use of convergent and divergent thinking skills or six thinking hats to improve results.  Jim Collin’s “Good to Great” book highlights the central role of a fixed vision/goal and flexible means/strategies.  Gallup’s Strengthfinder approach to personality profiles overcomes the “either/or” nature of Meyers-Briggs, concluding that some individuals do have apparently conflicting “talents”.  Bottom-up and top-down planning approaches have been incorporated into the balanced scorecard framework.  Goods production has evolved from custom craft work to mass production to a combined lean manufacturing pull system.  Goldratt’s book “The Goal” provides further insight on how defining the goal is logically distinct from the means of reaching the goal.  “Best practices” project management has evolved from informal management to fully prescribed sequential tasks to a new hybrid approach that retains the broad project stages, but allows cycles to resolve issues when needed.

In economics, the Keynesian revolution overturned “Say’s Law” which deterministically stated that supply always creates its own demand.  In governing, representative democracy seems to balance various needs.  In politics, the “third way” attempts to use market mechanisms to deliver liberal objectives.  In religion, the reformed faiths attempt to adapt received faith to current knowledge and realities.

The “both/and” approach is not inherently best, but everyone should be challenged to consider it at all times based upon its impressive track record.

I’d like to thank Mark Cavell, Annamarie Melodia Garrett and Doug Loudenslager for their contributions to identifying this pattern.

Screening for Leadership Experience

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As firms return to a normal economy where success is determined by the ability to set and implement a distinctive strategy, develop new products, processes and customers, and align functional resources in a project based matrix structure, it is time one again to screen for leadership in the hiring process. For the last 2 years, with an abundance of candidates and a preference for risk aversion, hiring managers, human resources and recruiters have laser focused on finding the very best match between a candidate’s industry, functional and positional experience for an open position, without regard to long-term considerations. Hiring managers should insert more behavioral interview questions about leadership into the process and they should screen for evidence of leadership success in the resume review and screening interview process.

Ask ten experts to define “leadership” and you’ll get ten different answers and lists of competencies, but they’ll cluster into a few areas such as building teams, being self-aware, growing personally and professionally, displaying trust and integrity, communicating effectively, motivating/influencing/persuading, helping others to succeed, setting and sharing a strategic vision, taking risks, innovating, being responsible, making tough decisions, showing tenacity and taking a long-run view of what is best for the organization as a whole. A simple leadership checklist can be used to identify candidates who have the leadership experience needed to succeed.

Leadership Screening Checklist

1. Positional responsibility, staff count, manager count, functional variety.

2. Cross-team member, positional leadership, selection by others, larger projects.

3. Non-work leadership roles, professional and civic groups.

4. Progressively responsible roles and promotions across career.

5. Professional mastery/certification and CPE in one or more areas.

6. Five year tenure at most employers.

7. Variety of recommendations available/given in 360 degree fashion.

8. Internal or external teaching, training and documentation experience.

9. Projects/assignments in new, challenging or unpopular business areas.

10. Projects/assignments in high value, visibility or risk business areas.

11. Matrix experience in product development, IT, M&A, national account management.

12. Formal mentoring, association or accountability partner experience.

13. Strategic, product, marketing, financial or operational planning leadership role.

14. Top-level responsibility for a function or business unit of any size.

15. Variety of headquarters/field, line/staff and domestic/international experience.

16. Variety of industry, function and organization size experience.

17. Change management experience through start-ups, rapid growth, turnarounds, recessions, acquisitions or reorganization.

18. Implementation of new professional methods and technologies.

19. Human resources recruiting, retention, promotions, transfers and morale.

20. Responsibility for new products, sales, suppliers and negotiations.

Organizational success today requires leaders who are experienced and confident in challenging and ambiguous environments. Screening for this broader experience and capacity may be more important than hiring someone who has done exactly the required role at the closest competitor for the last five years.