December 12, 2022

Harmony: 7 Fundamental Management System Elements

In the first article in this series on harmonized Management, Measurement, and Compensation systems, we posited the following: Lesson 1: Successful organizations have rational, documented systems which are purposefully managed to work in harmony. Less successful and ‘dysfunctional’ organizations often have the elements but have not focused on ensuring they reinforce each other to deliver desired behaviors. We are going to explore the major elements of effective management systems in this article. The seven foundational elements of effective management systems are:
  • Business Strategy
  • Value Proposition
  • Goals & Objectives
  • Processes & Metrics
  • Organization Structure & HR
  • Cross-Functional Integration
  • Effective use of Technology.
The management system must address and answer the following four strategic questions:
  • Why are we here?
  • Where are we going?
  • How do we get there?
  • How do we stay there?
We always place our highest emphasis on answering the question, “Why are we here?” Answering the why, after objectively and ruthlessly evaluating the current state and a series of alternatives is the first step to avoiding the outcome which all of us, of course, have never experienced—Insanity. You know, continuing to do the same things the same way, and expecting a different outcome. Healthy companies constantly scan competition, encourage innovation from within, and expect in an uncertain and rapidly changing environment that the business strategy must be flexible. Still, to avoid distracting and unproductive frequent changes in direction, the organization needs a sufficiently long-term ‘North Star’ answer basic Business Strategy challenges. In tandem with the Business Strategy, is a hard-headed understanding of the organization’s Value Proposition. Who are the customers, what do they want, and how much will they really pay? I was working on an idea with a friend of mine a few years back, and we decided to meet with a serially, successful entrepreneur in our area to get their input. Maybe we secretly hoped the individual would be so captured by the opportunity they might even invest? So much for self-deception. The individual listened politely, and when we asked for their feedback, we heard the deadly statement – I don’t hear the Ka-Ching? What they were telling us was they did not see a compelling value proposition that would lead to potential customers opening their wallets to reward us with rapid adoption of our new service. What might we have done to avoid this outcome? Some basic market research would have probably identified what potential customers liked and didn’t like about the service. What would they prefer to see added or removed from the list of features? How intensely did they value or dislike the service? What price points would customers likely find attractive? Answering those questions before moving to far down the business start-up journey is frequently described as a ‘market-driven’ rather than a ‘product or technology driven’ methodology. The market-driven approach relies on external data to form strategies, the product/technology driven approach is based on internal views in search for an audience. We had the opportunity to interview the CEO of Malcolm Baldrige Award winner Milliken, a global firm in the textile, chemical, floor covering, and healthcare segments. He put their market-driven approach this way, “We found it is much easier swimming downstream rather than upstream.” Hmm, wise words of a true market-driven leader. We could go deeper on the importance of market-driven strategies, however we defer to a number of authors for those who are interested. A few to consider:
  • Market Driven Strategies, by George S. Day
  • Competitive Strategy: Techniques for Analyzing Industries and Competitors, by Michael E. Porter
  • Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach, by Martin Reeves, Knut Haanaes, and Janmejaya Sinha.
In many cases, a company has reached the point where is it painfully obvious the current business strategy is not working. The organization has reached that stage politely referred to as Restructuring, Transformation, and possibly Turnaround. Hopefully, the company is not also a bankruptcy candidate, as they have arrived at the realization for change while sufficient cash assets are still available. In some respects a turnaround is more challenging than a ‘clean sheet of paper’ startup business strategy as certain beliefs may already be deeply entrenched. For a thoughtful and straight-forward approach to a turnaround, I recommend the best-selling book Turnaround: How to Change Course When Things are Going South by my friend Lisa Gable. Ok, let’s get back on track. What are the other elements of your management system. We’ve covered the need for a market-driven business strategy and a hardheaded value proposition. Now we need to start to translate those into Goals and Objectives from top to bottom and across all functional areas in the company. This is critical to make sure everyone understands and is aligned with the North Star so they may execute in a coordinated, aligned approach. Going further and deeper, successful execution will require robust business process disciplines with documented processes and most importantly – metrics! That very same Baldrige Award winning CEO shared another gem, If you don’t keep score, you are only practicing. We will explore keeping score in the next article when we dive deeper into the Measurement System. We need to pause and spend a minute on what really determines success– our people. While we have views on effective management techniques, importance of continuous morale improvement, transparency, ethical behavior – right now we are going to focus on the importance of an organizational structure that has the following four characteristics:
  • Balances customer facing needs and internal process efficiency
  • Provides clear definition of management accountability, responsibilities, and delegated authority
  • Aligns people and communications to the North Star, and whenever possible avoids complex structures
  • Encourages teamwork, collaboration, and bottoms-up input for new ideas and efficiencies.
I’ve had the pleasure to work with some excellent human resource departments and Chief People Officers. They’ve translated the desired characteristics of an effective organization into reality with intelligent implementation of performance planning, measurement, and counseling tools along with competitive compensation benchmarking to support fair and equitable compensation programs. Much of what we discussed on business strategy, value proposition, processes, and structure are the science of management systems. The role of HR is critical in turning the science into an environment in which people want to work, feel valued, and are open to new ideas and approaches. HR, using some science and equal part art and heart, become guardians of the health of the management systems. One of the most challenging elements of strong, durable management systems is the importance of cross-functional integration. Another way to describe the topic – how do we avoid those crippling silos. Research & Development don’t talk to Sales, Product Management doesn’t seek input from Sales, and no one talks to Finance. I’ve seen many well-intentioned CEOs and C-level executives decry the presence of silos, and commit themselves to make them disappear in the New Year. I’m originally from the South, and we are used to seeing those annoying vines covering trees up and down our roadways – we called them kudzu vines. Over time, they completely cover the trees and seem impossible to irradicate. Like silos. One writer called kudzu, “The Invasive Vine that Ate the South.” The only way to get rid of kudzu is send people into overgrown mess to chop, cut, and pull those weeds out the old-fashioned way. I’ve formed the opinion that good intentions, goals that requires cross-functional collaboration, and even co-dependent measurements and compensation awards do not succeed on their own. The only way to turn silos into collaborators starts at the top of the organization. Every C-level executive and their direct reports must model collaboration with their peers, and absolutely demand it throughout their organization. Talking about the importance of collaboration, and then disappearing into your functional conference room or Zoom meeting without the participation of your cross-functional partners simply reinforces that collaboration is a ‘Do as I say, not what I do’ fable. As my friend and one-time CEO, Alan Parker, said about effective organizations, “A fish rots from the head.” I never fully understood what that meant, was it something from The Godfather? However, in this case I think the imagery captures the lesson. Technology. Can’t manage without, but what a wonderful world it would be without passwords, cybersecurity, and 24/7 emails and texts from your manager. Thanks for listening, let’s turn to a more professional review of the importance of technology as a foundational element to keeping the management system integrated and connected to the goals and objectives. The advent of Enterprise Resource Planning (ERP) systems marked the integration of individual enterprise functional and process applications into an integrated platform. Now it became easier to see real-time what was happening in the supply chain, tightly connecting sales orders to the manufacturing floor or service delivery centers, turning contact sales administration software into CRM platforms enabling sales funnel management, outbound demand generation campaigns, and a variety of data-intensive customer information for action. Across my career, I’ve participated in several evolutionary generations of technology application. The first generation had large central processors crunching data for accounting, payroll, engineering, and other departments using indirect inputs (card decks, tape reels) and time delays between gathering data, formatting data inputs, running the job, reviewing those fanfold computer outputs, and then feeding the beast next week, month, etc. Useful, but more valuable as data crunchers rather than information tools. In the first generation, different divisions and locations withing the organization probably developed their own, unique data applications thereby limiting the ability of an enterprise to consolidate data. Without consolidated information, more centralized management models characterized by slow decision-making and slow feedback on the success of new products or other decisions and programs. Kicking off the second generation, innovators realized the advantages of Common Systems, think one Cost Accounting system rather than ten, one payroll systems, on Materials Management System, etc. This reduced the overall cost of Information Technology, enabled more rapid consolidation of data, while still relying on large central computers to crunch the numbers. Relatively primitive improvements were made for humans to interact with the applications, using ‘dumb’ terminals with green screens for input and output. Third generation enterprise IT leaders developed integrated data application crunchers that brought multiple business processes and departments together into one larger application. Thus was the emergence of Enterprise Resource Planning systems, named as they were first leveraged in manufacturing. Systems integrated Manufacturing Engineering, Product Development, Cost Estimating, Material Management and Production Control, Timekeeping and manufacturing floor management, and Cost Accounting. These expanded fairly quickly to embrace either proprietary sales and customer support applications, or saw the emergence of standalone tools. One of the significant barriers to overcome at this stage were the large number of software and hardware assets in place developed with different standards, interfaces, and making it almost a square-peg-in-a-round-hole problem for integration . Interface with the data applications became increasing near real-time and more in the control of the user with the introducing of the personal computer. Analytical tools emerged (and disappeared) such as Lotus 123, Excel, Word Perfect, and Word all running on PCs. The fourth generation became the grand era of interoperability., no small feat. Now it became important that the functional module that ran on an IBM AS400 could run on a DEC distributed system, that media files (DVDs) could be read on PC/Windows machines, Apple Macintosh OS, and other platforms. PCs got faster and lighter (laptops for mobility) and software providers merged/swallowed smaller competitors, ERP systems added HR and other functions, and sharing of data became easier in private enterprise networks and this new thing called the Internet. The fifth generation became possible with the ubiquitous presence of the Internet at affordable data transmission and data storage costs. Hardware and application software providers continued to make their devices and applications smaller, faster, and with Moore’s Law a laptop user pretty much had the computational power of a second-generation mainframe computer. The real innovation in the fifth generation was the ability to share data and files across departments, divisions, companies, and continents. And as datacenters emerged and the cost of storage and virtual sharing applications matured, the stage was set for the next generation. Before move to the sixth generation, we must acknowledge the other major hardware innovation for mobility came with smart mobile phones and tablets. Now your interface didn’t really crunch numbers, it connected to Cloud applications that contained data and content, which you accessed from anywhere at any time using the Internet. One of the earliest applications that was widely adopted addressed communication via email and text. Again, a profusion of standards emerged with the Blackberry, every mobile phone manufacturer, even pagers. AOL and Yahoo turned out to be the early Cloud service providers with personal email services allowing individuals to communicate with each other using the providers software as a service offering. At this point, we are in the sixth generation which has all the features of the fifth generation, however two important features emerged as dominant factors. First, why buy hardware or software when you can ‘lease’ from a Cloud service provider? You no longer worry about technology obsolescence, and since everything works everywhere, you move your proprietary software, data, and communications services into the Cloud and datacenters. The second major factor was the convergence of multiple mobile standards into essentially two standards: Apple iPhone and iOS, and Android. We went through the abridged history of business technology to make the point that today there is no excuse for an organization to not have real-time, anywhere including mobile, management dashboards. Decision-making has been sliced from days and weeks to minutes and hours. Everything is global, and your competition can be where you least expect or want them in no time. The game isn’t who has the best hardware, software, or platform — it’s about the data, stupid. Data rules, and the next generation(s) will see the impact of artificial intelligence, new forms of computing, and making the harmony of your Management, Measurement, and Compensation systems ever more important. Lesson 2: Management Systems define Why are we here, where are we going, how do we get there — with a passion for repeatable, definable processes. The next article in the series will address the role of harmonized Measurement systems.
In this article:
Defines the seven foundational elements of effective management systems.
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