Heading to CFO Magazine’s 2011 Corporate Performance Management Conference

As I write this I am winging my way to Dallas, Texas, and the Hotel Fairmont for CFO Magazine’s 2011 Corporate Performance Management (CPM) Conference. CFO Magazine has asked me—given me the honor—of providing blog coverage of the event.
Two other outstanding gentlemen have been invited by CFO Magazine to blog (and Tweet) live from CPM2011. One is blogger, author and founder of CFOwise®, Ken Kaufman, and the other is Gary Cokins, who—while being Principal of Global Business Advisors at SAS—is also an author and blogger. I am much looking forward to meeting these fine writers and, frankly, I find myself humbled to be in the company of such accomplished executives.

The Speakers

As always, CFO Magazine has gathered a stellar array of speakers for this conference:

• Thomas H. Davenport – President’s Distinguished Professor of Information Technology and Management at Babson College and co-author of Competing on Analytics and Analytics at Work
• Dr. Kasthuri Henry – Professor and president of KasHenry, Inc.; Assistant Professor at Southern Illinois University; and Adjunct Professor at North Park University
• Eric Lundberg – Chief Financial Officer at ALM
• Wayne Eckerson – President of BI Leader Consulting and author of Performance Dashboards: Measuring, Monitoring, and Managing Your Business
• Christina Spade – Senior Vice-President of Affiliate Finance and Business Operations at Showtime Networks
• Christopher Poinsatte – Executive Vice-President and CFO of Dallas-Fort Worth (DFW) International Airport
• Roger Blanken – Director of Finance at International Flavors and Fragrances, Inc.
• Curtis Neumann – Associated Director of FP&A at AT&T
• Jay Thompson – Managing Director at Protiviti

Supplemental Workshops

• 102 Improved Performance Management through a Unique Analytical Scorecarding System presented by Forrest Breyfogle, President & CEO of Smarter Solutions Inc.
• 201 Aligning Resources through Integrated Business Planning presented by John O’Rourke, VP Product Marketing at Oracle Corporation
• 301 Beyond the Numbers: Improve Your Company’s Performance in 30 Days with Visual Analytics presented by Kurt Lueck, Practice Director at Analytics8
• 303 Driving CPM with BPM: Unlocking Critical Information through Business Process Management presented by Vince Tornillo, Global Solutions Consultant at Ricoh Solutions Group and Evan McDonnell, VP at Appian

As you can see, it should be a great few days and I will do my best to bring you the highlights and value of the information being presented at this great conference.
For those of you with a special interest in supply chain metrics, pay particular attention to Roger Blanken’s presentation. He’s going to be talking about applying corporate performance metrics in the extended supply chain. International Flavors and Fragrances buys product from almost every area of the world and is wholly reliant on an broad and greatly extended supply chain. It should be interesting to hear what he has to say on the matter.
Also, I have this sense that I will be the irreverent one here. I expect to ask some tough questions and seek real answers from the experts.
One of the things that has me curious, for example, is this:

Who’s guarding the hen-house? CPM initiatives can involve a huge investment in capital and lead to increased operating expenses on an ongoing basis. What are the metrics that tell an organization that making that investment will provide real ROI; and what are the metrics by which the CPM initiatives themselves are measured as to success or failure?

Stand by for the next report soon.

Avoiding a costly “metrics obsession”

This year, 2011, is the centennial anniversary of the publication of Frederick Winslow Taylor’s autograph work, The Principles of Scientific Management. According to Taylor, almost every challenge management faced could be solved through the application of science. This view has become the staple of business schools for the better part of the last century, as a result.

Most small businesses—which, by the way, constitute the majority of all businesses in the U.S.—found the application of “scientific management” to be unduly burdensome. Many entrepreneurs lacked the training in the application of statistics or the time and energy to conduct “time and motion” studies when they knew—by the proverbial “seat of their pants”—that they could make a profit if they took this action or that one.

By the middle of the 20th century, another great voice in “scientific management,” W. Edwards Deming, was beginning to clear the air on the subject, a bit. While Deming certainly believed in gathering data and analyzing statistics in order to improve operations, he was also unequivocal about the limitations of “metrics” in achieving business success.

It was Deming who pointed out, for example, that “The most important figures for management of any organization are unknown and unknowable.” (Emphasis added.)

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“The most important figures for management of any organization are unknown and unknowable.” – W. Edwards Deming

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However, in the 1980s, along came the introduction of the “Personal Computer” (PC) and a plethora of software that enabled small businesses to collect, analyze, store and recall hundreds of thousands or even millions of data points. With the growth of computing power and falling costs of computer hardware and software, the collection of volumes of business data was soon within the reach of even the smallest of small businesses.

Even before the dominance of the Internet as a means for sharing data and collaborating across huge distances, many small-to-mid-sized business executives and managers had become enamored with the ability of computers to store and retrieve data. Even if they were entirely unaware of the pronouncements of Frederick Winslow Taylor, these executive and managers came to believe something along the lines of: “If we can collect and access enough data about our operations, we will be able to manage flawlessly.” The obsession with metrics had, indeed, come of age.

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The mantra of the “Obsession with Metrics” crowd: “If we can collect and access enough data about our operations, we will be able to manage flawlessly.”

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Another all too frequently heard proverb from the metrics-obsessed crowd is this: “You can’t manage what you can’t measure.” This, of course, has a tincture of truth to it, but is misconceived. There are all manner of things in which management is involved in “managing” in some way or other that are not not subject to objective quantification.

Here is a (non-exhaustive) list for your consideration:

• Corporate culture
• Customer relationships (we even have software that is supposed to do this!)
• Employee relationships (we have both software—human resource management applications—and entire third-party firms that engage in this kind of “management”)
• Customer loyalty (some companies even have “teams” or “departments” engaged in “managing” this aspect)
• Creativity / innovation
• Leadership
• Ethics
• Supply chains (especially the ‘relationships’ that really make them work; not just the inventory ins-and-outs)

Now, let me very clear here: I do not oppose the application of sound scientific principles to business when the application of such principles is done in an environment where cause-and-effect can be reliably demonstrated.

The correct statement is this one: “If you cannot define the ‘process’ and the theory underlying the cause-and-effect relationships in the ‘process,’ then you cannot manage it.” More importantly, if your theory is wrong, you will not get the results you expect.

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“If you cannot define the ‘process’ and the theory underlying the cause-and-effect relationships within the ‘process,’ then you cannot manage it.”

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This clear and correct statement explains why some companies actually see significant improvements in their business results after implementing new supply chain “management” (SCM), customer relationship “management” (CRM) or human resource “management (HRM) applications” while the vast majority of companies see little or no improvement.

Understanding your existing business processes (hint: it is likely they are NOT what you think they are) and tying them to a theory that will help you understand the cause-and-effect within your processes is not as hard as it seems. Nevertheless, most businesses fail to do so simply because they don’t know they need to do so! They think they already understand them—but do not.

That’s why no matter how many “metrics” they throw at the problem and—sadly—no matter how much money they throw at “fixing” things, they typically see little or no improvement in the things that really matter—like making more money!

There is a better way!

Business Processes and Real Management – Part 3

Simply put: If there is no process, it – whatever “it” is – cannot be managed.

The key point here is to separate mere intuitive decision-making from the act of “management.”

Management implies the existence of “a process,” – that is, an understood cause-and-effect relationship in a sequence of dependent events leading to a predetermined goal. There are three critical elements to this definition of “management” and “a process”:

1. The “process” must have a goal or outcome. If there is no goal or outcome that can be stated in advance, then there is no point in attempting to “manage” it, for to manage it would be to somehow affect the outcome of the process (e.g., improvement). If the goal or outcome of the process is not understood or has not been articulated, then there is little need for the act of “management.”
2. The “process” must include more than one step or event, and the steps or events must be related by their sequential dependence. One cannot manage, for example, “the big bang.”
3. The “manager,” in order to manage effectively must understand both the goal of the process and the process itself.

If we return to the examples given, whenever an executive must deal with sales operations as mystical mojo that is carried out in some seemingly inexplicable way by certain persons who were hired because they have a demonstrated facility for working this “mojo,” then that executive cannot be said to be “managing” the “sales process.” He or she may be managing many things related to sales, like the expenses related to sales, the number of salespeople, the sales territory assignments, and more. But he or she cannot be managing “the sales process” any more than he or she would be said to be managing a group of witch doctors in the work they do.

Let me go further to say, that even though the executive may have a “prescribed sales process” that includes a number of “steps,” even if those “steps” are canonized in some CRM (customer relationships management) or other software application; and even if the salespeople are required to “check-off” against these prescribed “steps”; if such “steps” are subject to frequent manipulation by the salespeople or sales managers or if a near-constant series of concessions are being made to the demands of salespeople or sales managers in accommodation to their claims of “mojo,” (or something equally nebulous) then no real “sales process” exists in such an organization. Also, if management is repeatedly kowtowed by what amounts to little more than “threats” that “bad things will happen” if salespeople’s and sales managers’ demands are not met in this matter or that, then I would allege that no “sales process” exists.

Now, I hear you asking: “What difference does it make if we have a ‘sales process’ as long as we are making sales and surviving?”

To that question, too, there is a simple answer: If, as an executive, you do not have a real and manageable “sales process,” then you are at the mercy of the economic winds and the fickleness of fate. In the absence of a manageable process, you cannot know what actions will lead to improvement. Despite your title as “executive,” your only recourse is to try this or try that, because you have no comprehension of the actual cause-and-effect dependencies that lead to more sales or better sales.

Is that really how you want to run what is arguably the leading edge of your business enterprise?

Suggested Reading:

Reengineering the Sales Process

©2010 Richard D. Cushing

Business Processes and Real Management – Part 2

1. (continued) In the second scenario, the owner or chief executive is not in charge of the sales team. In fact, the firm has generally hired an experienced “sales manager” based on this persons history and background of producing sales at some other firm in the same or a similar industry. This person has then hand-selected a team of salespeople, the sales manager often doting over them making certain that each is uniquely satisfied with their particular arrangements. This is a variation on the same prima donna theme, but with a layer of middle management.
   
   In both of these cases, however, the general attitude of top management at the firm is that, while they may give lip-service to something they call their “sales process,” when one digs deeper, it becomes abundantly clear that the “sales department” is really surrounding by mystique. Each hand-picked salesperson has his or her own mystical mojo that is performed in a somewhat ritual-like fashion. This mojo, when properly carried out and when not too much interfered with management and administration produces a life-stream of sales to support the rest of the company.
   
   In these situations, the rest of the company’s executives and managers are under the implicit understanding that “I must not mess with the salespersons’ mystical mojo or things will go badly for the whole company.” Frequently, even top executives fear treading too much on the mojo, for fear there will be bad repercussions.
   
   
2. The second matter is that comes to mind is “sales commissions.” On numerous occasions I have asked executives, “How do you calculate and pay commissions?” A simple question?
   
   To this simple question, I am not infrequently given a simple answer: something along the lines of, “We pay commissions based on gross margins.”
   
   Simple enough, don’t you think? Until you begin to dig into the details. Then one starts hearing things like this: “Well, yes, we do pay commissions based on gross margins. But, if our buyers get a special deal on a purchase, we pay commissions on the ‘regular’ gross margins, not the actual gross margins of the sale of those special purchases.” Or, “Yes, we do pay commissions based on gross margins but, because the contract we signed with salesperson X is different from the deal we reached with salespersons Y and Z, the way we calculate ‘gross margins’ is different for each of salespersons X, Y and Z.”
   

So, I hear you ask, “What is the similarity between my daughter’s situation and the two examples I just mentioned?” The similarity is this: In each case the executive in charge called their decision-making a “process” (or, in the academic world, a “rubric”) or suggested that they were managing “a process” (i.e., “the sales process”). However, close inspection revealed that each decision was being made on a case-by-case basis without reliance upon a process or rubric, at all.
Note, my objection is not to the case-by-case decision-making – although I offer that this is likely not a sound approach to managing a growing SMB. Rather, my objection is to the managers’ beliefs that they are actually managing to a “process” or by “a process.”
(To be continued)
©2010 Richard D. Cushing

Business Processes and Real Management – Part 1

I had a conversation with one of my daughters on the way to the airport today. She was telling me about something that went on with regard to management decision-making at her work. (She works in the field of education, but the principle I wish to discuss applies everywhere, in every type of organization.)

The scenario is something like this: An executive (and here I use the term “executive” in the broadest sense, meaning any manager in a position to not only choose, but also to execute upon the decision made) states that he or she is going to make a management decision based upon a process (or, in this academic environment, a rubric – a process for scoring an otherwise subjective decision). However, upon further discovery and discussion, it becomes apparent to all involved that whatever “process” or “rubric” is ostensibly being applied is purely subjective and intuitive to the manager alone. That is to say, what is pretended to reduce an otherwise purely subject and intuitive decision to a “process” – a “rubric” – is merely that, a pretense. The decisions being made remain purely subjective and intuitive and are not correlated to a “process,” at all.

Now, let me be clear. I am a free-market guy. I believe that business owners and their executive agents should be able to hire, fire and make other management decisions at will. I am fully committed to the fact that they may do as they please so long as their actions do not include coercion or deceit. In this scenario, it is not the executives decision with which I take issue – which is why the decision itself is not discussed herein.

What I wish to discuss is how many times executives and managers are themselves deceived as to the presence of a “business process” or any kind of rubric by which they manage. From my experience, if I spent time cogitating, I’m certain that I could come up with a large number of examples. However, for brevity’s sake, let me just toss out a couple.

1. Foremost in my mind are the numerous discussions I have had with executives over the years regarding so-called “sales management.” I say, “so-called,” because I have too many times been faced with one of two variations on the same theme in this regard. The first is where the owner of the small-to-mid-sized business (SMB) was the companies first salesperson (which is quite natural, as the organization was likely an outgrowth of some entrepreneurial venture) and remains today as the firm’s sales manager. He or she has, over the years, created a sales team of hand-selected folks, and the executive is convinced that each of these salespeople is unique and each requires special handling – a sort of prima donna approach.
   

(To be continued)

©2010 Richard D. Cushing