Finding cockroaches in the business!!

Back when we were all and green on process change management being a key aspect of IT business performance management projects, we were referred to an Oil Exploitation Company to develop a few key performance reports using data extracted directly from the company’s financial and operational al databases.

About mid-term in the project we were discussing the progress with the chief sponsor and expressed a concern that buy-in was taking too long.  He laughed and said,

clip_image004“The project has already uncovered so many problems in our data, I am not surprised as people are so busy chasing the bugs that have come out from under the rocks being turned over “.

That moment of truth allowed a project low profile project to bring about successful business change that removed reducant processes and added significantly to the business growth. It was a turning point to learn how we determine the delivery value management of similar projects.

When large retail bank called us to tell us they were falling behind the market, it was not to a request to come and build some reports. They knew the key information they needed, to react to a much faster responsive market was not available until way past the use-by date. That was directly threatening their ability to make business decisions and remain competitive. “Busines is walking out the door and we don’t know it until is too late,”  the CEO told me and we need to fix the processes so we get our information fast

Be it a bug infestation or blocked arteries shows how information, when throttled, becomes is almost valueless.  This picture shows  response time value of the week to week business data of the Bank when it is  available 3 weeks into the next month.

Best Response Time Value

clip_image002The Bank had what seemed a quite a different problem to our Oil Barons,  who had bad data that constrained timely usefulness of reports. In the end, the Bank was just not getting it fast enough so they could plan.

This is the story about how we approached their problem.

When we looked at what the Operations and Executives used to manage the business, we found the just used lists of products  with performance variances totaled by category, segmented for each branch and channel of the business. 

Nothing fancy, no charts, no dashboards, no blurb, just simple columns of comparative product detail

Each row had items showing month and year to date values other with budget and latest forecast values.

It looks very detailed, but once you see the patterned style of reporting  larger % stand so it is easy to spot issues and get a sense of what as going  on.

Simple as Simon says, isn’t it? the COO said. “And we use it to pull some levers on hot spots, identify non-performers and fix poorly trending items to get them back on track.”

When we asked how their latest forecast update process worked, the COO said, “Managers re-assess product balancing weekly and do month

clip_image008and quarter updates to show how they will achieve their target. They do this by writing the new numbers on items on the page,  then their assistant keys that information into the system. and it takes less than a day a month” “Simple isn’t ,” he said with a smile, “

To make any suggestion otherwise seemed like it would be borrowing his watch to tell him the time.

He went on to say, “Things like optimizing competitive price and position are local issues that on-the-spot managers gauge well. They are very skilled at using the on the ground information to update the forecasts. Plus we have benchmarks and intelligence in our database they can also refer to .

Tactical planning, however, is driven highly by competitive positions which need up to date data. Hence getting the lists out earlier is our issue. In a pinch, we can make so with the walk around, but in the end, we need the data to remain on top if  it all. And then we can to plan well and take decisions to stop erosion before it starts.

Most in the retail banking world understand it is also as much about the social environment as it is about product and price.clip_image010 Once customers desert in significant numbers to fall below critical mass, the Empty Store Syndrome sets in and death is almost impossible to stop.

What we want is good data early enough to react to it – no more no less.

Before our COO meeting, we had been with the Finance team who prepare all the reports.  They told be us their process to deliver reports meant extracting data from the data warehouse, then cleaning it up by sorting out processing errors before updating organization information.

Once done they merge all this with offline comparative data including the budget and the previous year to date in summary by segment and product.

This was all done in aggregation spreadsheets that had them to prepare and send out profit statements and the compiled lists with of all the relevant comparative product performance information. This took until the third week of the month, and they told me a lot of the time was rework for organization changes that the system had not caught up with was needed. 

Earlier in the day, I had also met with two key Business Unit Execs who told me their frustrations with accessing the often incorrect transaction data in the data warehouse. Their concern too was waiting too long for information, that validated what they suspected but  arrived after the horse has bolted so they had created their own process.

Roughly the AS-IS process looked something like this:

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The solution to fix seemed clear. It needed an analytical tool to pull it  together fast in so everyone could look at it early in”

Te COO respose was sharp and succint based on streams of BI salesmen had obviously been in there over time trying to sell them BI projects that would fix all their ills. “We are not going to spend millions and take months on a BI project. We need this now and anyway, the issue is not the reports, but the processes compiling them”.

My response was equally succinct as I could see their confusion

“Any competent person with the basic script to query the data warehouses should have something running  in a couple of weeks to start managing improvement”.

So a full BI project is not always needed. What is first needed is the data pulled into an analytical cube and connected some form of analytical off the shelf reporting tools so everyone can see the results. Drill down to go to the details is important  and even the transaction sometimes. With such capability reports can then total and do variances along with and other comparatives all in alignment. That is what makes it all work so well, not the glitter and glitz.

It will not fix all the problems, but what is so powerful is they show up. Then everyone sees all the issues at once and will work to fix them to get fast results. And then all the rest will just follow.clip_image014

We knew from our Oil company that the when lights go the cockroaches run so you can get busy solving the real issues.

Once we started we knew if we live by the sword we could die by it too”,  but was fun to see the stuff that runs out from under the rocks as the soon very excited managers who could see their data before it got touched. Miraculously too , like the Oil company data, it magically started to bi-pass the bottlenecks and cleaned itself up.

For our Bank, their new process looked like this in a matter of weeks. And just take a look at those faces :

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Before buying a business intelligence system;  first check with your IT. The chances are you already have one and don’t know it. But even if you have to go out and buy one, go get one that can start for dummies first and grow with you as you learn how to handle analytical format so it is not a big deal.

In the end, you will need something that can also answer questions, or let you ask them, as part of you total performance management. All that good stuff will naturally follow without any fuss if you get it started with some early results.

 

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Gordon Wood is Managing Director at Sherwood Group Consulting  www.shernox.com

Incentive Compensation Designs

Recently, I was  involved in some conversations with business leaders about incentives and compensation schemes that companies offers in today’s tough economic situation This discussion was also mindful of the debates around  AIG’s bonuses to 73 executives where reasonable. And it asked the question is “What is the normal incentive scheme that most companies uses” and “ which one of them fits with my company?”

In this post I will discuss just some of the key areas on incentives we  considered.

The first common option we discussed is the bonus based compensation linked to absolute target. This incentive is triggered by meeting the committed target (measures)

e.g. the manager’s bonus is paid in additional 10% of base salary if his unit’s earning grows by at least 10%.  This option provides clear performance expectation and is eventually a straight forward performance evaluation. However, this option reflects a downward bias to forecasts to create easier target value with no incentive to provide accurate forecasts beyond the specific time period. More or less being negotiations game resulting a longer forecast cycles.

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The second option was incentive compensation linked to forecast accuracy, where bonus varies with accuracy of forecasts committed

e.g. the manager’s bonus declines by 5% for every percentage point of deviation between forecasted and actual unit’s earnings growth. This option highlights the importance of giving accurate forecasts, and shows that under forecasting can be as unfavorable as over forecasting. Also this option reflects a downward forecasts to create targets that are easier to hit with more accuracy, and nothing beyond that committed target. With no incentive to provide accurate forecasts beyond specific period as the first option.

In practice, how can we avoid forecasts bias? In South Western Airlines (1), they discovered that having incentive compensation linked to overall profits works.  Making bonuses a proportion of a profits earned e.g. a unit manager is given 0.002 percent of the total year profit. With this scheme, forecasts are done unbiased, the cycle take less time and the staff provides best efforts to achieve highest profit.

As an aside, when you look at the culture of this high Kudos and point to point airline that walks the talk on performance even today in the face of economic adversity. Their incentive motivation in their case also goes beyond the technical and embodies a dichotic culture that is based on Pee-wee’s Playhouse style fun and life style. This is well summarized in the Fortune reported quote from south west then CFO Gary Kelly

“Keeping a hawk’s eye on costs is just as much a part of the company’s culture as its silliness”.

However, a debate of which business unit or department should have what percentage depending on which “measure” is always a concern.

In some companies, measuring over head counts could be the solution. Total profit comes from every staff’s effort in generating revenue and reducing cost, so everyone should have an equal share. There could be possibility of “free-riders” problem if applied in large organizations

SNAG-0015

Allocation using percentage of annual revenue generated is also another practical scheme. By calculating the portion of revenue earn in each department over the total company revenue gives the percentage of incentive compensation for that department.

Allocation by number of computers is also another popular choice that measures the number of computer used in each department over total number of computers in the company.

And rarely, allocating by time sharing, given the estimated amount of time spent for each cost center/business over the total hours for the month for the department.

For all the options given, in a simple organization like the one shown above, things should be easy and straight forwards. But for complex and large organization, this is considered a tough task not to mention business dynamics and changes within the organization.

Therefore, the challenges would be;

1. Which incentive compensation is best for your organization?

The answer could be either a single option like the ones described above or a mixture of options depending on department properties

e.g. Business Units uses profit sharing and Service Units using resource allocation. This is reflected in employment benefit package given to staffs both currently on payroll and new recruits on either a quarterly or annual frequency.

SNAG-0016

2. How to achieve it?

With the provided resource and capability you have.(Avoiding mistakes yet still able to deliver on time). How do we do it today? Most companies rely on the good old spreadsheet like Excel. [See my Dec 2008 post Merit & Bonus] But does that answer all the bells and whistles problems you face every month end? How can you control and manage it while consolidation is done by a junior staff?

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In summary the conversation concluded by saying whatever incentive compensation options are used they should be flexible enough allowing changes, yet still allowing control over results to meet business requirements. Although the conclusion may sound easy, in reality, it is very hard to achieve without proper infrastructures.

Everyone was also in unison that a sensible game plan for the business was needed with acceptable performance levels able to be measured. Then this can be linked in such a way so the rewards can be equitably balanced and shared as incentives.

Is a CEO job now just a doddle?

For CEO’s  and all C levels now, if you like a challenge, the ability to focus a business has never been so easy. Let me put it another way.  CEO’s I meet now are saying, with the so called good times gone, people are actually cutting the crap and just focusing on the business and quality to get results. So it is much simpler now. The great news for me is, as  I  lead in our advisor and service provider firm, our clients are finding this  too.

What I am seeing is happening at the human end is discussions around semantics quickly fail in most environments now if they don’t add value. And job protection rackets like bureaucracy screens are being exposed without much effort as the business end of integrated supply chain links customer systems to delivey with a deadly punch to the sloppy.

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For me the fun is now seeing a new breed of manager thinking join up the direct value and results of cause and effect effort. With the easy money for smoke and mirrors gone, we have not seen this for a very long time. With distractions and choices narrowed, it is also much simpler for customers too. So it is not surprising it is also becoming easier to talk to them sensibly too without fluff as an issue, when they want some real help.

But now more-so than ever market responsiveness by default means decisions are being made real-time or much faster but also on sound principles too. Which means planning, preparation and readiness are even more vital.  People are paying real attention these best practices as being so important now with lip service solutions that” do it for me” no longer an option to be considered.

Since my early days as a young accountant and business fledgling, I learned the things that are important are  getting the numbers fast to make decisions, shortening planning and budget cycles that get commitment and making sure sound information technology and processes are  in place to process transactions, so it all hangs together.  But most important overarching of all that I learned as a midle manager and later as business executive on the sharp end, was I needed  fast easy access to transparent decision based reports that linked operations and strategies well. 

These are all accepted best practices that every business person  knows they  must  have. And it is not even a question of need. If it is questioned at all  now it is mostly to move people and systems on that cannot delver to these expectations  And with market chnages of late, we are finding organizations who are not  up to par are now  running to get there to survive as they know seat of the pants thinking will no longer work.

The clever guys too are now using the simple fact based analytical tools that come with these tools sets to look for the money. And they are finding it too in spite of what you might read in the papers about gloom and doom. They are using them to move their ships as needed  from strategic to tactical mode to be more reactive to markets, from export to domestic markets to focus where demand has not evaporated, and to add pragmatics  to processes for more flexible styles to handle demand driven business changes. Many too are upgrading their capability for faster results so they can see what is happening quicker or to make sure they don’t lose what they have.

Most of the cowboys are gone too,  as conditioning for supply driven simplicity and integrity for growth has seen client based KPI measures striking that  sudden death I meantioned to delinquents.

Changing market conditions are saying there is a demanding different management skill. So I have to ask,  are fact based decisions styles of management at risk as a soon to-be forgotten habit, as we have moved qicukly to transition modes?. Of course not. The investments in this management genre has stuck well with the new breed of manager now emerging.  They have learned well how to use  fact based information as they have come through the ranks. And of course seasoned business leaders know it is way of doing things that works, no matter what business approach you use to  handle changed markets.

So for now the new world reminds me of the old world before the last 25 years of continuous change to simplify the complex and consolidate to grow  Then, like now, simple things worked and opportunities continued. What a breeze of a job I have. Now as I can just concentrate on my customers.

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Foot notes:

The picture in this off this U-Tube video about the Ford Motor company’s most advance assembly plant in the world.  It is  in Brazil and has robotics and world leader automated production line flexibility. The real story behind this revolutionary site with its own shipping vessels and  port is the close integration of the suppliers within the assembly plant. if you have seen it before it may be worth another look to get some ideas

 

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Gordon1998About The Post Author

Gordon Wood is Executive Director and Managing Partner at Sherwood Group Consulting, who are  performance management  advisors based in the Singapore Thailand and Australia.

 

 

 

Maturity Model Risk Assessment

This week, I saw a pragmatic, yet simple engineering practice that made a business operation a performance leader. My brief was advising on Globally Harmonized Systems of classification and Labeling of chemicals and how it should be applied to package labeling. My scope was to give advice on best practices to design for an enterprise rack infrastructure. To give this advice my analysis required I consider the capability of the organization for change and the approach it took to manage it.

My client is multinational manufacturing company, with factories world-wide and Thailand where I had this assignment was one of the two best performing plants in Asia.

As I dug more about how they do things their Chief Executive told me their secret to this success,

“Our practice on expansion projects is to focus on issues that can be completed in a short period of time. “ The after making small investment to get results we build from there. Large projects for the time being anyway are frozen.”

With this knowledge I was able to assess the maturity change management which in this case was mastery level to plan incremental updates of the infrastructure.  

Recently, I had a workshop with a group of F&A department listed company in Thai Stock MarketCutting expenses and change habits could be viewed as first practice for personal finance, but as a CFO, where can you focus and control your budget?  The fact that month end trial balances could only be reported by mid of the following month is too slow for decision making. Go ahead and dig up your FA01 class material and review how to create break even analysis, by the time you figure which department is causing trouble to the company; you might end up losing your job. Time is the key here. Being able to know your figures and analyzing them before you go down the drain is how to survive.

 Managing short and sharp projects is also a key noted. Having large, big bang projects lead to nowhere. Another listed company we talked with experienced this as they were planning to revamp their entire accounting system just because the IT director wanted a big tick on his KPI, in the end the project failed – change of scope, lost of internal sponsorship and implementation took too long to notice success.

 So if you’re planning to do that big bang long run project you planned last year, may I wish you good luck, who knows, lighting strikes! How much can you make per second anyway?

Making Decisions in Risky Situations

We make decisions all day every day. At times we do this on automatic pilot. At other times the process is much more deliberate. We are mentally more engaged and weigh up the pros and cons.

No doubt we also take risks every day. Some would say the simple act of getting out of bed in the morning involves risk, although it is equally true that staying in bed incurs risk as well.  You might just miss the bus and the opportunity just passes you by.

Perhaps we simply do not think about the risks involved in our day to day activities and it is only scenarios that involve making decisions whilst at the same time as taking risks that really get us to sit up and pay attention.  Just thinking about taking a risk has implications of hazards or chance of bad consequences.

Some risk taking might better thought of as rash or reckless beahviour.   Young people are believed to be more likely to take risks perhaps through experimentation, excess alcohol, drug use and partying too hard.   Although we all know of young people who come through unscathed so  perhaps the stereotype of youth as reckless is not entirely justified.  We may need to consider if assessing risk is a skill that can be acquired. Perhaps some are more likley to pay attention to warning signals?

Do we ever consider the term risk as something that might have some reasonable outcomes rather than carrying with it the notion of excess and loss?   Is there such a thing as a reasonable risk? This notion certainly lives in the business world.  To be  empowered to take reasonable risk is suggested as a pathway to profit.   If there is reasonable risk how do we determine what this is?  And given there is unreasonable risk what are unacceptable levels of loss or harm?

There are many questions raised when considering decision making in the face of risk. We might want to think about  how much of a role our emotions play in decision making?  Do you listen to you gut feeling or try to overide this with a logical analysis? Alternatively we might want to develop some creative ways of thinking about risk.

Perhaps the  decision making models that researchers use  can help witb some understanding of the processes you encounter with the practical day to day circumstances you find yourself in?

And of course does an optimism about finding your way through the maze get safely home?

Your thougths on these issues are welcomed. Certainly the dialogue we have will be interesting.  I look forward to some lively discussion.

Carbon Constrained World Reality

In my monthly reading review for February, I raised some issues about climate change. The key points of this I now restate in summary:

A conference, in Dec 2009 in Copenhagen of around 170  countries as parties of the United Nations Framework Convention on Climate Change ((UNFCCC), , will meet for the last time on government level, before a climate agreement is to be renewed. Early agreement is needed there so countries can get the treaty through their domestic legislation in time for 2013 start.

To resolve obstacles to understanding further what this conference is all about, I did some more research and sought opinion of people with expertise in this area. One such specialist, Stian Reklev at the Point Carbon subscriber service, gave PerformanceController some very useful information. It especially clarified not only the issues that will be dealt with at Copenhagen, but in fact what it is all about.

Mr. Reklev had a very clear understanding of the main discussion points for Copenhagen. He also said “these are proving terribly difficult to get consensus on”

The points are:

1. Emission caps.

 Under Kyoto, only countries defined as developed countries have actual targets. 30-something countries have emission obligations in the 2008-2012 period they must stick to: 26 of the EU countries, plus Japan, Canada (who’ll miss theirs and they don’t care), Australia, NZ, Norway, Switzerland, Russia and Ukraine. Plus Monaco and San Marino. Belarus is trying to get into this group.

When Kyoto was negotiated in 1997 it was agreed that it would be unfair to restrict the development of poor countries by slapping emission caps on them. However, some of them have developed a lot since then and are now huge emitters. China, India, South Korea, Mexico, Brazil and South Africa in particular. Developing countries now emit more than half the world’s greenhouse gases (although in historical context they are still not responsible for the climate change crisis itself, and counted per capita they are still small emitters compared to rich countries).

So for now, rich countries want poor countries to take on mandatory emission obligations. Not as strict as their own targets, but mandatory ones in some way. Obviously, China, India etc are still reluctant to risk their economic growth by doing so, and argue that they should not take on mandatory caps as long as rich countries struggle to comply with their Kyoto targets.

For the US and Australia, for example, it seems difficult to take on stringent targets while their biggest competitors (especially. China) can continued increasing their emissions unabated. (Australia has now ratified Kyoto, but they have an extremely easy target).

Meanwhile, knowing that the targets under Kyoto is not at all enough to stop climate change, poor countries say rich countries must take on much stronger targets. The US emits more than 20 tonnes CO2 equivalent per capita. The corresponding number for China is 5, for India 1.5. They keep pointing their fingers at the west, demanding more action.

2. Who picks up the bill?

 Everyone knows that if the world is to avoid climate change, developing countries must achieve sustainable growth. A huge amount of clean technology must be transferred from rich to poor countries. Many, but not all, agree that it is reasonable that rich countries pay for a significant amount of this (considering they made the mess in the first place, plus they can afford it).

What they’re trying to do now is find a technology transfer mechanism that everyone is pleased with. That is very difficult: everyone wants to pay as little as possible.

3. Adaptation.

While mitigation continues to be a hugely important issue, most scientists agree that some climate change will occur regardless. Africa and Asia are predicted to suffer the most of this (Vietnam will be absolutely devastated). You probably know about the sinking pacific islands.

So what developing countries are trying to do now is to raise more money for adaptation measures. Again, as soon as money is involved, things get very complicated.

So that is what the big discussions is to be about in Copenhagen this year.

And as I eluded to in my earlier post, The US President Obama will play a completely different role than Bush. That of course does not ensure a success. The issue of concern is they will manage to agree on something, but will it be anything really good.

In the meantime, developed countries will increasingly cap emissions at home. Most of them are prepared to pledge deeper emission cuts if a good international treaty is in place, but even without one they will go ahead and do something.

The EU has an emissions trading scheme (ETS) in place, and keeps lowering caps for the 12,500 participants. Australia will get one next year, NZ has plans (that are under review by parliament now).

The US is expected to pass an ETS bill some time the next two years. In the meantime, ten northeastern states have already launched a regional ETS. Similar programs are being developed among western states and in the Midwest.

So the carbon-constrained world is coming, even though some countries may choose to slack up a little during the recession. The question is if there is enough guts out there to make regulations that are meaningful.

For us Aussies we need to consider if the Australian government’s target (5-15 per cent cut in emissions from 2000 levels by 2020) all a bit useless. It will cost a fair bit but is significantly below what scientists say is necessary to avoid climate change. So what’s the point in putting in place legislation that isn’t going to do the job?

To be continued…

Amazing Stitch in Time Innovation

Yes in this case the use of the word “stitch”  is very correct.  This refers to a photo stitch process that was used for this truly amazing photographic work by Julian Kalmar.  This shows the glory of the fully restored Piaristen Church in Vienna built circa 1715-22

My story here is about an innovative business photographer. He is not only a good at his craft, but he has also perfected a unique process to make this world first photo.

Aside from the process being used like this for valuable historical documentation, it seems has great potential many other areas such as selling. Learning, Industrial and Business processes.

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To see for yourself click in the picture to take you to Julian Kalmar’s web site. When, I contacted him, Mr. Kalmar told me he is presently using a shared hosted service which is sometimes closed when there is heavy traffic. If so he asks you to please just try again later.  And believe me it is worth it.

And when you do, be sure you pan around his 360 degree views too look around and up & down and zooming in and so one, you get a sense of actually being there looking at all the beautiful detail.

For the technically minded, the photo size is 51644 x 25822 pixels to make it a huge 1.3 gigapixel.  Most cameras amaze us with photos using around 10 megapixels. Put in proportion Gigapixel is 1000 times the size of one megapixel, so the technology to get to and exceed the gigapixel barrier is actually quite incredible.

You may have seen Google Maps with their street maps where they join house photos to make a seemingly continuous imagine of a street with rotational views. When you zoom, in on the close ups you can sometimes see where they are joined. Stich technology does a pretty good job lining up photos, but the job of blending the seams is not so easy,  especially for very fine work.

The Kulmar photo stiches over 250 photos to make just one picture. His clever technique not only has them all joined up seamlessly but he has also achieved an amazing overall consistency of focus. What is also so very useful is you can zoom right up close anywhere and still see very fine detail with great clarity without blemish.

Mr.. Kalmar very generously told me how he was able to achieve this. I will attempt to summarize this here:

“What makes this photo so unique is not the stitching of the several hundred of images, but the focus blending technique used in the single images. Focus blending is used very often in macro photography to increase the depth of field.

With 70mm, the depth of field is not enough to get near and far objects sharp in single images, no matter what aperture you are using. Stitch results will then have un-sharp areas. To avoid this, on any likely problem images,  Mr. Kalmar took several  shots with different focusing points and then combined these  into one  image, so he had only had sharp images for his stich process.

He noted that when the focus of a lens is changed, so is the focal length, This results in stitching errors. It is possible to eliminate errors manually but the edit process on the entire stitched panorama like this one would take many months.  To resolve this Mr. Kalmar said he had worked for nearly a year to perfect a process to handle this problem.

Julian Kalmar right now, is the only photographer in the world able  to make spherical indoor panoramas in Gigapixel resolution.  That is also the reason, why he now has the largest spherical indoor panorama in the world.

His business is making beautiful pictures His general site is  http://photoartkalmar.com/

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I would be sure there will be many industrial and commercial uses for this type of photographic application.  I am also sure Julian Kulmar would be more than willing to discuss with them with anyone interested. He can be  contacted directly on juliankalmar@photoartkalmar.com  In my contacts already with him I have  found him very approachable .

We also plan to follow his progress and we wish him every success with his innovative stitch in time approach.