Knowing Your Business
by Andrew Spanyi

"Leaders have to live their business. In companies that don't execute, the leaders are usually out of touch with the day-to-day realities." That's what Larry Bossidy and Ram Charan emphasized in their book in 2002 - Execution.

Unfortunately, far too many CEO's don't know their business sufficiently well at an operational level. Consequently, their firms do not execute well and they may leave a pile of money on the table. Why is that?

Thomas H. Davenport and John C. Beck argue that it is due to a lack of focus in their book The Attention Economy: Understanding the New Currency of Business. They point out that "info-stress" caused by a wealth of information that has created a poverty of attention. As a result, many companies suffer from "organizational Attention Deficit Disorder," an illness that show signs of symptoms such as an increased likelihood of missing key information when making decisions, reduced time for consideration of anything but simple information transactions, and a decreased ability to focus.

Others are even more direct. Michael Hammer contends in his April 2004 HBR article 'Deep Change' that senior executives do not understand operations. Hammer claims that executives are more interested in making deals, be it making acquisitions or planning mergers. That may be true.

But there's deeper problem!

And that is the traditional mindset practiced by many leaders today where leaders see the business simply as a collection of boxes on the organization chart. They have neither the experience nor the interest of seeing the business as it truly is - a flow of activities that cross traditional departmental boundaries in providing value added services to customers and thereby creating value for shareholders.

Do you know your business as well as you should? Are you sufficiently in touch with the day-to-day realities? If there's just a trace of doubt in your mind then consider the following.

It All Begins With Strategy!

Knowing your business begins with the ability of being able to articulate your firm's strategy in terms of how work is accomplished. How? In simple, compelling language that people on the front line can not only understand, but also provides them with guidance on what they need to do to enable the execution of strategy.

Makes sense doesn't it? Yet, far too many organizations express strategy in terms of buzzwords and jargon like - we are deeply committed to Operational Excellence - with little substance to back up such generic statements. Ask yourself, wouldn't it be more compelling to add descriptors like 'we will improve on our performance in delivering perfect orders, on-time, with zero defects, from the current level of 98.1% to 99.5%' and 'we will improve our responsiveness to inquiries - first time right - from 87.5% to 92.8%?'

Of course, that demands that leaders of the firm have a clear and shared understanding of the flow of activities and the firm's current performance in delivering products or services and responding to customer inquiries. Do you understand that flow? Are you measuring performance and reporting monthly in operating reviews?

There's ample support for the benefits of having an enduring focus on providing products and services to customers. The best companies do it. Names such as Dell, Southwest Airlines, Wal-Mart and others immediately come to mind. And leading academics such as strategy guru Michael Porter have argued as far back as 1996 that 'ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products and services activities, then, are the basic units of competitive advantage.'

Of course, simply stating that the firm will improve its performance in creating, producing, selling, and delivering their products and services doesn't magically make it so. Leaders who truly want to live their businesses need to make the practice of improving these activities a top priority, and that requires clarity on priorities, making tough choices. In other words, the top team needs to have a shared understanding of which sets of activities - or business processes if you will - need to be improved by how much, by when in order for the firm to achieve its strategic objectives.

Making Performance Improvement a Top Priority

When it comes to improving the firm's broad cross-functional business processes the old adage 'Talk is cheap - whisky costs money' comes to mind. Achieving sustainable performance improvement requires enduring focus, alignment of the firm's resources and increased discipline in daily operations.

Focus is a challenge for many firms. It is not uncommon for firms to have dozens of concurrent projects, unlinked initiatives underway at any one time. How to achieve the required focus? Just consider the points below.

  1. By asking and answering the question 'Which business processes would have to be improved by how much, by when, in order for us to realize our strategic objectives?' the firm would have greater clarity on where to apply improvement efforts/techniques and for what results.

  2. Because of the big picture view, leadership could decide, based on the size of the performance gap that needs to be bridged and the firm's appetite/capability to absorb change, when to deploy an incremental improvement methodology - or more radical process redesign techniques - and which projects to kill.

  3. By structuring the entire improvement initiative according to business processes there would be fewer overlapping initiatives and more cross-departmental collaboration.

While focus is essential, the alignment of the firm's resources is equally critical in getting results. This is an area where it simply is not enough to delegate projects to department heads and hope for the best. Instead, a collaborative effort is called for. How to do that? The following provides some guidance.

  1. Since improvement of cross-functional activity flows relies on managing by influence as opposed to authority, the practice of naming process owners or stewards who would collaboratively sponsor projects and monitor project progress is useful. This monitoring of projects by a 'Steering Team' of executives who are 'owners' or 'stewards' of the core business processes would serve to reduce the frequency of project collapse which is sometimes observed when improvement is structured on a traditional basis and meets head on with tribal warfare.

  2. Since organizations are both complex business and social systems, an investment in a common method of improvement, with a focus on establishing common language and framework for project analysis, design and implement can pay big dividends.

  3. To take best advantage of IT investments, the application of business process thinking in conjunction with the new generation of BPM enabling technology would serve to deploy technology principally as a means to improve the performance of real activities needed to create value for customers.

  4. Equally, the practice of collaboratively managing the series of activities which cross traditional organizational boundaries would stimulate a greater sensitivity to the human side of change.

Increased discipline in daily operations then serves to boost the sustainability of initiatives and that is done principally through performance measurement and the alignment of rewards and recognition. In this regard, the following points are the basic 'table stakes'.

  1. Tightly integrate the measurement and monitoring of qualitative, customer view metrics such as 'on-time, defect free' delivery of product or service' and 'first-time-right responsiveness' with the traditional financial measures of revenue, profit, cash flow. Assure that these are an integral part of monthly operating reviews.

  2. Assure that at least some part of executive bonus compensation is based on the performance of the broad cross-functional business processes.

  3. Continually communicate the target and actual levels of performance in providing products or services to customers.

  4. Enthusiastically and publicly celebrate early wins. Explicitly recognize individual's and team's contribution to improving performance in providing products or services to customers.

In Theory - In practice.

While most organizations practice some of the eleven points cited above, few have been ale to consistently apply them collectively. Why is that? The well known quip, attributed to Yogi Berra comes to mind, "In theory, there's no difference between theory and practice. In practice, there is!"

In practice, there are a number of significant obstacles which come into play as organizations attempt to achieve sustainable performance improvement through focus, alignment of the firm's resources and increased discipline in daily operations. A few of the major obstacles and pitfalls are outlined below.

  • Many leadership teams are not really teams. Instead, they are a collection of strong, opinionated individuals with entrenched views based on their functional background and bias. It takes concerted effort and time to form a senior management group that sees the business priorities in the same way. Have you invested the time and effort needed to achieve this?

  • Because leaders come to the table with their biases based on prior experience, organizations often have to contend with the 'my consultant is better than your consultant' disparity. This is a sure impediment to achieving a common language and method for improvement. Are you suffering from this?

  • Leaders continue to struggle with the trade-offs related to investing time in running the business and making time available to improve performance, as Repenning and Sterman point out in their article 'Nobody Ever Gets Credit for Problems that Never Happened', in the summer 2001 issue of California Management Review. Is this true for your firm?

  • Changes in leadership adversely impact the continuity of improvement efforts, as the new leader looks upon whatever his/her predecessor did with some scepticism. Is this an issue for your firm?

So, let's return to the fundamental questions. Do you know your business as well as you should? Are you sufficiently in touch with the day-to-day realities? If not, maybe it's time to implement the set of practices outlined above.


Andrew Spanyi is an internationally recognized author and speaker. He has worked with executive teams at global organizations for nearly two decades, assisting them in transforming the way they tend to think about their business. He is the author of 'Business Process Management is a Team Sport, Play It to Win!' Please visit the book's Web site at http://www.anclote.com/spanyi.html. Andrew can be contacted at andrew@spanyi.com or (905) 302-4061.

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Copyright 2005 by Andrew Spanyi. All rights reserved.

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