Business Needs New Economy Assessment Tools -
Put Yourself to The Test
by Bill Fisher, CEO, Relevancy Systems

With the constant heavy demands made daily on executives, the toughest part of the job can be carving out time to gain some perspective and stimulate your brain to new ways of thinking -- but research shows the returns on investment are high when you do. I’d like to invite you to have some fun and take a minute to answer a few questions about your company. You’ll probably want to ask your colleagues to take a crack at them, too. I’ll follow up the questions with some comments and information I hope will be stimulating brain food for you. 

Put Yourself to The Test
1. In what year was your current investment/business decision-making system devised?
2. How many times has this system been updated? 
3. When push comes to shove and you just have to increase profits, what do you do? 

Medieval Measurement 
Now that you have completed the test, and keeping your answers in mind, consider the following observation put forward by Dr. Michael Hewitt-Gleeson in his book -- Software for Your Brain. Amazingly, most of today's investment and business decisions are based on an invention that has not been updated for more than 500 years! He calls it “medieval measurement.” 

In Venice in 1494, Fra. Luca Pacioli invented double-entry bookkeeping and published the world's first textbook on accounting principles and practice. In those days and on through the industrial revolution, a business consisted of tangible things such as property, buildings, inventories, and cash in the bank. Double-entry bookkeeping provided an organized way of tracking the ebb and flow of these tangibles, and by mapping how money and goods flowed through a business, allowed investors and business people to analyze a business, evaluate risk and return, and assess the wisdom of investing in it. For its time, it was a tremendous breakthrough. But that was then. This is now. The Industrial Age has given way to the Information Age. Yet, astonishingly, double-entry bookkeeping has continued to be the basis of investment decisions for five centuries, and students in business colleges and MBA programs around the world are being taught medieval measurement as if today's businesses were still made up of tangibles, and such a creaky old system were adequate. We have computers that can perform billions of computations a second, yet we are still using pre-Newtonian systems to make our business decisions. This must change. 

Transforming Data into Pictures of Understanding
Let us consider the kind of data used to search for oil and gas as an analogy. Fifteen years ago, seismic data consisted of squiggly XY lines on a long roll of paper. Only geologists and geophysicists could understand this XY information. However, with the development of powerful computers, software programs have added Z (depth) to produce revolutionary 3D pictures of understanding. The result has been a dramatic leap forward in the effectiveness of petroleum exploration. 

Could our current medieval investment/business decision-making system of financial and statistical results be the equivalent of XY squiggly lines of seismic data? Consider these facts: 

  • Between 60 per cent and 70 per cent of all strategic alliances fail -- a fact that has not changed over the last decade -- and the costs are horrific. Seventy per cent of those failures are directly related to problems in relationships and blending the cultures. 
  • Up to 10 per cent of employees are in positions that don’t suit them and the costs are staggering! 
What can we do to update our 500-year-old system? We can move from squiggly lines to 3D pictures of understanding by using measures that identify strategies, tactics, organizational behaviour and movement, and economics within a complex business system. A picture of understanding is worth a thousand explanations, allowing you to: 
  • track Total Available Profit in relation to Actual Profit product by product, minute by minute; 
  • predict the relevance of ideas, products and services BEFORE you agree to buy or get involved; 
  • manage complex relationships, such as behaviour and economics, for user relevance; 
  • analyze the difference between market value and book value; 
  • form better, more relevant, longer-lasting strategic alliances; and, 
  • cut better deals while reducing your annual conflict resolution costs. 
It is crucial to turn paradoxes, dilemmas and critical issues into pictures of understanding BEFORE you implement change. With the right picture in front of you, it is quite possible to assess conceptual models for relevance, and discover counter-intuitive solutions, such as when it’s appropriate to stop selling to increase sales and margins, close hospital beds to save lives and money, or increase prices to keep customers happy. It’s only smart thinking to use pictures of understanding to redefine every job, role or position BEFORE you hire, so you can identify accurately what skill competencies are needed and who has them.

The Living Company
We can create accurate pictures of understanding by looking at a company as a living organism that is made up of cells. Each cell is treated as an asset until proven otherwise. A relevant cell is anything that moves, or has the potential to move, the company towards what it wants to become or achieve. This includes suppliers, prospects, employees, shareholders, customers, procedures and processes. 

As in any living organism, if a company lives long enough, all of its cells will eventually be replaced. Royal Dutch/Shell researched the behaviour characteristics of long-lived companies, and in the book he wrote based on the study he headed, former senior vice-president Arie de Geus shows how the strategies and tactics used by long-living companies are significantly different from short-lived quick-flip companies. (His book, The Living Company, is recommended reading for any executives eager for good brain food.)  Understanding the fundamental differences between a living company and a corporate entity is crucial to improving sustainability. 

A successful living company needs an effective way to link its corporate strategy to the behaviour of all cells, and perhaps most importantly, its employees. Pictures of understanding do this by improving your employees’ understanding, focus and performance. By showing employees the big picture and where they fit into it, the pictures reduce their fear of change and connect them as individuals into your corporate strategy. 

Pictures also provide you with immediate feedback and valuable insight. Is this or that critical? Yes/no? Or you can do in-depth analysis on critical high-risk situations. Such analysis might track behaviour-economic relationships for user relevance, for example, by asking how your ratio of prospecting costs (behaviour) to gross profit (economics) compares to what you want that ratio to be (relevance). Speed, flexibility and immediate insight are key. 

Pictures of Understanding Ease Cultural Transitions 
More than half of strategic alliances fail because of corporate culture clashes. Merging two different cultures may produce a costly, unfocused alliance that finds itself in a mud hole. The economics of the deal may be great but if the cultural issues -- the intangibles -- are not addressed properly, you may be heading for the mud hole. The solution is to understand cultural dynamics BEFORE you do the deal, to gain the information you need to keep your strategic alliance focused and on track. 

You need to build a picture of your living company and of the alliance company, then compare their strategies, tactics, behaviour, movement and economics. The next step is to simulate what may happen if the two merge, and apply what you learn to the real-life situation at the negotiation stage. 

How Pictures of Understanding are Developed
Data about behaviour (X), economics (Y), and movement (Z) are combined to produce pictures of understanding that describe what a company must do to increase profit as seen against the backdrop of various kinds of work relevant behaviour. 

Three things a company must do simultaneously to increase profit are: 1. Increase throughput; 2. Reduce money tied up in inventory for sale; and, 3. Reduce money needed to increase throughput. This is our answer to test question No. 3. The traditional answer is increase sales and/or reduce costs. If you’re not familiar with 1-2-3 throughput/bottleneck management techniques, The Goal, by E. Goldratt, is a fun read and a good introduction. 

Three kinds of work behavior are: 1. Relevant – moneymaking; 2. Relevant – non moneymaking (pay roll, tax, etc); Irrelevant – counterproductive (cutting a deal that does not improve 1-2-3). Along with other factors, pictures of understanding show how the company’s “behaviour-nomics” either move the company towards (relevant) or away from (irrelevant) what the company wants to become or achieve (user relevancy model). 

Pictures of Understanding That Become Key Indicators 
Good sale/bad deal ratio: The ratio of prospecting costs to gross profit identifies the total amount of time, money and effort needed to generate $1 of gross profit. One way to improve this key indicator is to track good sales in relation to those that turn into bad deals. Bad deals kill your margins fast. A 3D analysis may reveal, for instance, that turning your agreement/contract process into an interactive two-way writing process can prevent a good sale from turning into a bad deal six months down the road. 

Well-crafted agreements must do much more than simply address the tangibles. They need to reduce the possibility of conflict both now and six months from now. Some traditional agreements/contracts adopt an adversarial us/them tone. It may make lawyers happy, but does little to promote long-lasting relations. Learning to use interactive processes can greatly improve your good sale/bad deal ratio. 

Competitive Intelligence: Even simple pictures of understanding can effectively convey a ton of valuable information about size, behaviour, strategies, tactics and direction. 

A start-up ‘living’ company can be viewed as a Raindrop that hopes to survive beyond splashing down on the chilly street of reality. A shallow Puddle company would hope to survive in the hot sun and not evaporate. There are the quick-flip quick-profit small-cap Puddle jumpers. And then you have the self-renewing long-living River Companies. Finally there are Muddle Companies -- who often make excellent takeover targets. A River Company and Puddle Company forming a strategic alliance will often merge their different strategies and tactics to produce just what they don’t want -- a Muddle Company. But once they’re in the quicksand of a mud hole they don’t know how to say “stop.” 

Work Ethic: Which work ethic picture fits you and your company? The traditional 8 to 5+ nose down ass up work ethic or the dolphin work ethic? Let's build a picture of understanding of both and then compare. 

Conway Management has tracked traditional work behaviour in more than 1,000 corporations. This picture of understanding has emerged from their work: 
 •  25 per cent of work behaviour makes money; 
 •  10 per cent is relevant non-money-making (payroll, tax, etc.); 
 •  25 per cent of the time is spent waiting for something to show up or happen; 
 •  40 per cent is irrelevant i.e. counterproductive. 

Companies do all kinds of things that are counterproductive. They form strategic alliances that fail, re-engineer themselves into a mud hole and put people in wrong positions, to name a few. Think of all the extra time, money and effort needed to cover these costs. 

What is the dolphin work ethic? Research on dolphins shows they are very efficient athletes and hunters. In fact, they are so efficient at finding food and converting it to energy that they have lots of time to play. And even while they are playing, swimming in your bow wave, they are developing their athletic skills even further, which improves their hunting skills that much more. 

Wouldn’t you love to swim with the dolphins? You can. Rather than do something counterproductive, go play. If in doubt, go play. Don’t feel guilty, go play. Improve your eye-hand co-ordination, practice your presentation skills, build a picture of understanding. Here’s an example from Whirlpool. 
http://www.fastcompany.com/online/30/whirlpool.html

Managing Skills for Relevance: What good are formal credentials or technical skills if they don’t increase throughput? In assessing the cells of your living company, ask these questions: How does this skill or that training improve the company’s behaviour and economic performance? What is the best way to quantify that? Relevancy-based “behaviour-nomic” descriptions of skills and jobs create pictures of understanding that benefit everyone, and are a significant improvement over medieval measures. 

“Behaviour-nomic” descriptions make the idea of in-house Yellow Pages a powerful application. You could produce maps that show where the knowledge is located – in whose heads, for example.

Managing Information: Beware of information overload -- it’s counterproductive. You and your employees need relevant information precisely when you want it. Pictures of understanding boosts executive productivity and slashes work stress by giving you the relevant information you need, when you need it. 

To implement the techniques and concepts I’ve been talking about here, you can start by learning more about the Relevancy Systems concept and building a Relevancy model. Use it as a communication tool to test ideas for user relevance and to get a good feel for overall potential. Talk with your colleagues about the dolphin work ethic and how it might fit in. 

Relevancy Systems believes in training in XYZ Relevancy techniques as people do their work -- for example, when they prepare to negotiate or write agreements -- and adding tools and techniques to complement your business system as they become necessary. 

Relevancy Systems -- Quality Pictures of Understanding
Relevancy Systems abstracts clear pictures of understanding from complex dynamic relationships. These pictures immediately help to increase efficiency, improve team effectiveness and increase corporate life expectancy, which for many is far too short. The company provides training in relevancy management; designs, sells and customizes relevancy applications and software; and offers personal relevancy training. 

Books the company recommends: 

  • The Living Company, by Arie de Geus, published by Harvard Business School Press
  • The Goal, by E. Goldratt , North River Press, Inc.
  • Intellectual Capital, by Thomas A. Stewart, Published by Doubleday
  • Natural Capitalism, by Paul Hawken, Amory Lovins and L. Hunter Lovins, Published by Little, Brown and Company.
  • I Am Right – You Are Wrong (from rock logic to water logic), by Edward de Bono, Penguin Books 
  • Software for Your Brain, by Dr. Michael Hewitt-Gleeson is available from www.urbanmonk.com/pages/order.htm

Have a question or comment? Contact Bill-Fisher@RelevancySystems.Com
Bill is the designer and owner of Relevancy Systems. He has a background in business systems design, sales, marketing and motivation.

Many more articles on Performance Improvement, Leading Change, Executive Performance and Creative Leadership in The CEO Refresher Archives
   


Copyright 2000 by Bill Fisher. All rights reserved.

Current Issue - Archives - CEO Links - News - Conferences - Recommended Reading