Monday, July 06, 2020

However Beautiful the Strategy, You Should Occasionally Look at the Results

However Beautiful the Strategy, You Should Occasionally Look at the Results
The title of this article is frequently credited to Winston Churchill (1874-1965), but he never said it. The saying first appears from about 1981, many years after Churchill’s lifetime.

The saying is used to stress that one needs to look at results and shouldn’t fall in love with one’s designed strategy if it doesn’t work.

The 2007 Financial Times obituary for UK Conservative politician Ian Gilmour (1926-2007) stated that he had used the line in a cabinet meeting in 1981.

In the end it doesn't matter who came up with the line, he or she was absolutely right! 

But how do we actually measure the results of our strategy? 

One very good answer to this question is the Balanced Scorecard. This article will show you what this is and how you can use it to drive strategy execution.

What is a Balanced Scorecard?

The Balanced Scorecard (BSC) is a business framework used for tracking and managing an organization’s strategy.

The BSC framework is based on the balance between leading and lagging indicators, which can respectively be thought of as the drivers and outcomes of your organization’s goals. When used in the BSC framework, these key results tell you whether or not you’re accomplishing your goals and whether you’re on the right track to accomplish future goals.

With a Balanced Scorecard, you have the capability to:

> Describe your strategy
> Measure your strategy
> Track the initiatives you're taking to improve upon your results

It was originally published by Dr Robert Kaplan and Dr David Norton as a paper in 1992. And then formally as a book in 1996. Both the paper and the book led to its widespread success. It is interesting to note that although Kaplan and Norton published the first paper, they were anomalously referenced in a work by Art Schneiderman who is believed to be the BSC creator.

BSC is more than just financial measures. The major difference that Kaplan and Norton introduced into this methodology is the ‘balance’ across all organisational functions. The problem back then, and still today, is that most companies focus on financial measures only. For example, revenue growth and profitability. 

By looking at an organisation across four ‘Perspectives’ a causal relationship between investment and financial outcome can be defined, measured and managed.

The BSC is not just a scorecard, it is a methodology. It starts by identifying a small number of financial and non-financial objectives related to strategic priorities. It then looks at measures, setting targets for the measures and finally strategic projects (often called initiatives). It is in this latter stage where the approach differs from other strategic methodologies. 

It forces your organisation to think about how objectives can be measured and only then identifies projects to drive the objectives. This avoids creating costly projects that have no impact on the strategy.

Objectives
Objectives are high-level organizational goals. When you create an objective, you should focus on what your organization is trying to accomplish strategically. A very general example would be: “Become an internationally-recognized brand.” The typical BSC has 10-15 strategic objectives.

Key Results
Key results help you understand if you’re accomplishing your objectives strategically. They force you to question things like, “How do I know that I’m becoming an internationally-recognized brand?”. Over time your key results might change, but your objectives will remain the same. You might have 1-2 key results per objective, so you are aiming to come up with 15-25 measures at the enterprise level of your strategy.

Initiatives
Initiatives are key action programs developed to achieve your objectives. You’ll see initiatives referred to as “projects,” “actions,” or “activities outside of the Balanced Scorecard.” Most organizations will have 0-2 initiatives underway for every objective (with a total of 5-15 strategic initiatives).

Balance
The ‘balance’ is brought about by a focus on financial and non-financial objectives that are attributed to four areas of an organisation. These are the Perspectives. They are: Financial, Customer, Internal Processes and Organisational Capacity

The four perspectives of a Balanced Scorecard

Questions often arise about the four perspectives described in the methodology. Why should we only look at Financial, Customer, Internal Processes and Organisational Capacity? Why not include Health and Safety? 

The answer is, of course, there is nothing stopping us. The four perspectives are simply a framework. However, over decades of use it has become clear that they work.

More importantly, there is a causal relationship between the perspectives. Working from the bottom to the top: Changes in Organisational Capacity will drive changes in Business Processes that will impact Customers and improve Financial results. The causal relationship may not be guaranteed if a new perspective is added. The result might be a useful scorecard, but it would not, by definition, be a balanced scorecard.

In brief, the four scorecard perspectives are:

Financial
The high-level financial objectives and financial measures of the organisation that help answer the question – How do we look to our shareholders? Financial objectives are usually the easiest to define and measure. However, creating a financial objective, for example, Improve Profit, rarely provides a clue as to how to achieve the objective. by linking objectives from the lower levels in the model, we begin to see exactly where to define projects and make investments.

Customer
Objectives and measures that are directly related to the organisation’s customers, focusing on customer satisfaction. To answer the question: How do our customers see us? It is always important to take a step outside and view your company or organisation from your customers view point. You need to understand what they want from you, not necessarily, what you can do for them.

Internal Processes
Objectives and measures that determine how well the business is running and whether the products or services conform to what is required by the customers, in other words, what should we be best at? Some of the biggest cost items can be reduced by streamlining internal processes. This is also the best area to focus on new and creative ideas.

Organisational Capacity
Objectives and measures concerning how well our people perform, their skills, training, company culture, leadership and knowledge base. This area also includes infrastructure and technology. Organisational Capacity tends to be the area where most investment takes place. It answers the question: How can we improve and create value?

The real value of the perspective approach is that it provides a framework to describe a business strategy. It focuses on objectives and key results that both inform us about progress and allow us to influence activities to achieve the strategy.

Over time, the concept of a strategy map was created. A BSC Strategy Map is a one-page visual depiction of an organization’s scorecard. It has the ability to show the connections between all four perspectives in a one-page picture.
The four perspectives are in a specific order and contain strategic objectives that contribute to a Vision and Mission. The objectives are linked in a causal way from the bottom to the top. The Strategy Map provides a very powerful tool allowing the user to talk about the causal impact of investment at the bottom to improved financial results at the top.

The benefits of a Balanced Scorecard 

A Balanced Scorecard is most often used in three ways:

> To bring an organization’s strategy to life. Those in the company can then use this strategy to make decisions company-wide.

> To communicate the strategy across the organization. This is where the strategy map is critical. Organizations print it and include it in interoffice communications, put it on their intranet, communicate it with business partners, publish it on their website, and more.

> To track strategic performance. That’s typically done through monthly, quarterly, and annual reports.

Closing thoughts

There must be a direct relationship between what an organisation is trying to achieve (the strategic objectives) and what is being measured to determine progress towards the objective. 

Clearly, there will be a lot of operational measures and some of these may contribute data to the key results, but operational measures (KPIs) should be considered as ‘housekeeping’ and ‘good practice’ and should not be confused with key results.

The approach gives us the framework to take a ‘balanced’ view across an organisation and define strategic objectives in the four perspective areas together with the associated KPIs.  We must be careful not to define too many strategic objectives.

Read more…

Monday, June 15, 2020

Your Risk Matrix Is a Lie

Your Risk Matrix Is A Lie
Risk management is at the core of good project management. 

Or as Tim Lister says “Risk management is project management for adults”.  

The standard approach is to use a risk matrix to classify project risks based on their probability and impact, then give each one a ‘risk score’ by multiplying the two numbers. Then you rank the risks by score and address the top ones first. 

Risk matrices have been widely praised and adopted as simple but effective approaches to risk management. 
Your Risk Matrix Is A Lie
And as many risk matrix practitioners and advocates have pointed out, constructing, using, and socializing risk matrices within an organization requires no special expertise in quantitative risk assessment methods or data analysis.

So in terms of “understanding and managing risk”, it seems to work.

Unfortunately it doesn’t.

It is unfit for purpose. It actually may even be doing more harm than good.

Sh!t in, sh!t out

Things go wrong from the very start. Namely with the probability estimates you put into your risk matrix.

Human beings are not very good with non-linear risks. Our instincts evolved to help us deal with immediate physical dangers in our environment. So we can tell whether an oncoming car is likely to hit us, for example. 

But the more complex the risk, and the more factors are involved, the less helpful our gut instinct is. And project management risks are some of the most complex risks in the world.

It’s extremely difficult to say how likely it is that an information breach or ransomware incident will actually occur. So most people rely on gut instinct, on the grounds that it’s better than nothing.

But if you ask someone to gauge the likelihood of a project risk — even someone with very deep knowledge — they will be hard pressed to give you an accurate answer. For instance, what’s the likelihood of a key supplier or system integrator going bust? Is it low, medium or high? Why do you say that? How do you know?

It’s a similar story with impact. In theory, it’s easier to get a reasonably good idea of financial impact by thinking about management time, developer hours, lost sales and reputation damage. But people rarely bother, because the risk matrix is only asking for a simple assessment anyway.

Enter the matrix

So the information you put into your risk matrix is hopelessly inaccurate. But then the matrix itself makes things even worse.

Because these matrices have such a low resolution, they make very different risks look alike. For example, in a 3x3 matrix (low, medium, high on both axes), risks with 67% probability and 99% probability are both “high”. 

Clearly, you’d want to address the 99% risk first. But when you come to rank your risks, you have no way of knowing which one is worse based on the matrix.

What’s more, the matrix gives equal weight to probability and impact, so an incident with 1% probability and $500,000 impact has the same priority as one with 0.2% probability and $2,500,000 impact.

In fact, in some fairly common situations (mathematically speaking, when probability and impact are negatively correlated), you’d actually be better off choosing the matrix square at random. 

Yes, you read that right — pin your matrix to the wall, throw a dart for each risk and you’ve got a better chance of picking up the most important ones. 

The risk matrix can be, quite literally, worse than useless.

Dangerous illusion of control

The problem with the risk matrix is that it feels scientific. It promises a quick, simple solution to a wicked problem without taking up loads of time, or asking you to do too many hard computations.

Before, you had no idea about risks. But now, you’ve put them in neat little boxes and given them solid-sounding scores. You “understand and manage your risks”, or so it seems.

But all you’ve really done is creating a story that gives you a dangerous illusion of control.

Not only is there no proof that risk matrices work, there’s actually proof of the opposite. 

Using the matrix actively hampers firms’ efforts to deal with risk, absorbing time, money and effort for no benefit at all

In a nutshell: Don't rely on your risk matrix to understand and manage your risk.

Read more…

Sunday, June 07, 2020

Most Good Strategies Are Not Planned

Most Good Strategies Are Not Planned
Many people are discussing strategy and strategizing as if they were the sole outcome of a rational, predictable, analytical process.

But reality is often the opposite; emotional, unpredictable, and chaotic.  

How organizations create and implement strategy is an area of intense debate within the strategy field.

Famous researcher on management and strategy Henry Mintzberg has a very clear position in this debate. He distinguishes between intended, deliberate, realized, and emergent strategies.

These four different kinds of strategy are summarized in the figure below. 
Emergent Strategy
Intended strategy is strategy as conceived by the top management team. Even here, rationality is limited and the intended strategy is the result of a process of negotiation, bargaining, and compromise, involving many individuals and groups within the organization. 

Realized strategy—the actual strategy that is implemented—is only partly related to that which was intended. Mintzberg suggests only 10%–30% of intended strategy is realized. This part is named deliberate strategy.

The primary driver of realized strategy is what Mintzberg terms emergent strategy—the decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt to changing external circumstances. 

Emergent strategy is a set of actions, or behavior, consistent over time, “a realized pattern [that] was not expressly intended” in the original planning of strategy. The term “emergent strategy” implies that an organization is learning what works in practice.

Thus, the realized strategy is a consequence of deliberate and emerging factors. 

The battle between those who view strategy making and implementation as primarily a rational, analytical process of deliberate planning (the design school) and those that envisage strategy as emerging from a complex process of organizational decision making (the emergence or learning school) is still very much ongoing.

But instead of joining this battle on one of the sides, the question you should ask yourself is:

 “How can the two views complement one another to give us a better understanding of strategy making and implementation?” 

Because in reality, both design and emergence occur at all levels of the organization. 

The strategic planning systems of large companies involve top management passing directives and guidelines down the organization and the businesses passing their draft plans up to corporate. 

Similarly, emergence occurs throughout the organization—opportunism by CEOs is probably the single most important reason why realized strategies deviate from intended strategies. 

What I think we can say for sure is that the role of emergence relative to design increases as the world and business environments becomes increasingly volatile and unpredictable.

The world events of the last few months make this pretty obvious.

In a nutshell: Many strategies emerge instead of being planned.

Read more…

Saturday, May 30, 2020

Case Study 13: Vodafone's £59 Million Customer Relationship Disaster

Case Study 13: Vodafone's £59 Million Customer Relationship Disaster
In October 2016 the British multinational telecommunications company Vodafone achieved an unwelcome milestone - the single biggest fine for “serious and sustained” breaches of consumer protection rules in the UK. 

It was the result of a troubled CRM and billing consolidation project.

UK telecoms regulator Ofcom slapped a £4.6 million fine on Vodafone, payable within 20 working days. The fine was made up of two chunks - £3.7 million for taking pay-as-you-go customers money and not delivering a service in return, and £925,000 for failures relating to the way that the carrier handled complaints.

In a checklist of shame the regulator found that:

> 10,452 pay-as-you-go customers lost out when Vodafone failed to credit their accounts after they paid to ‘top-up’ their mobile phone credit. Those customers collectively lost £150,000 over a 17-month period.

> Vodafone failed to act quickly enough to identify or address these problems, only getting its act together after Ofcom intervened.

> Vodafone breached Ofcom’s billing rules, because the top-ups that consumers had bought in good faith were not reflected in their credit balances.

> Vodafone’s customer service agents were not given sufficiently clear guidance on what constituted a complaint, while its processes were insufficient to ensure that all complaints were appropriately escalated or dealt with in a fair, timely manner.

> Vodafone’s procedures failed to ensure that customers were told, in writing, of their right to take an unresolved complaint to a third-party resolution scheme after eight weeks.

For its part Vodafone has admitted to the breaches. It has also reimbursed all customers who faced financial loss, but for 30 it could not identify, and made a donation of £100,000 to charity. 

The events have led to a £54m crash in sales from April to June 2015, and Vodafone said that “continued operational challenges” with the mobile customers’ billing system that was introduced in 2015 had led to the 3.2% drop in sales to £1.55bn due to a customer exodus.

Adding the £4.6 million penalty on top of that, we are talking about a £59 million loss without taking the costs of the project itself into account.

Before we continue with this case study...

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Timeline of Events

2012

Vodafone first selected the Siebel CRM system back in October 2012, an implementation which was intended not just to service mobile customers, but also customers for fixed-line telecoms, data networking, TV subscriptions and other services.

Siebel CRM is a product originally created by Siebel CRM Systems. The company was founded by Thomas Siebel and Patricia House in 1993. At first known mainly for its sales force automation products, the company expanded into the broader CRM market. 

By the late 1990s, Siebel Systems was the dominant CRM vendor, peaking at 45% market share in 2002. On September 12, 2005, Oracle Corporation announced it had agreed to buy Siebel Systems for $5.8 billion. "Siebel" is now a brand name owned by Oracle Corporation.

Vodafone planned to integrate Siebel CRM with Oracle BRM (Billing), Prepaid, Provisioning, ERP, DWH, etc. in order to cover the mission-critical Sales, Service and Marketing operations.

It was a hugely ambitious migration and consolidation of billing and CRM systems involving moving more than 28.5 million customer accounts from seven billing platforms to the new system. It was the largest IT project that Vodafone had undertaken, 

The main business challenges addressed in the context of this project were:

> Create a single, centralised, 360 degree Customer View that can be accessed by the various front-end systems and channels.

> Achieve more efficient & effective Customer Service, minimising handling time, call transfers and logging incident tickets and service requests.

> Empower the Call Center Agent to become a Universal Agent, able to handle any Sales, Service or Marketing related issue.

> Use Siebel as the main front-end system at the Contact Center and drastically reduce the use of all other systems at the front-end.

> “Keep customers happy” while reducing time and cost to serve.

2013

The migration and consolidation program began in 2013. 

2015

In April 2015 the migrations to the new system were completed. But in addition to suffering from downtime, the system has also led to a flood of customer complaints about bills, including some who have continued to be billed even after contracts had been cancelled, others who have had their direct debits mysteriously cancelled, or have been shut out of online accounts.

Vodafone was the most complained about telecoms provider in the three months ending in December 2015, due network failures that meant many users could not make and receive calls or were billed incorrectly.

2016

Telecoms regulator Ofcom launched its own formal investigation into Vodafone in January following a spike in complaints during 2015 over the new system. 

Based on the results of this investigation the regulator slapped the £4.6 million fine on Vodafone in October.

What Went Wrong

In a statement, Vodafone said:

Despite multiple controls in place to reduce the risk of errors, at various points a small proportion of individual customer accounts were incorrectly migrated, leading to mistakes in the customer billing data and price plan records stored on the new system. Those errors led to a range of different problems for the customers affected which – in turn – led to a sharp increase in the volume of customer complaints.

The problems resulted in the the pay-as-you-go issues:

From late 2013 until early 2015, a failure in our billing systems – linked to the migration challenges explained above – meant that customers who had topped up a PAYG mobile which had been dormant for nine months or more received a confirmation message that the credit had been added to their account; however, the mobile in question continued to be flagged as disconnected on our systems.

Although this impacted 10,452 customers, the situation caught Vodafone unaware:

Unfortunately, as the circumstances of the IT failure in question were very unusual (at the time, less than 0.01% of all Vodafone UK PAYG customers’ phones were inactive for more than nine months before being reactivated), the teams responsible for the day-to-day operation of the relevant areas were not fast enough in identifying the issue and did not fully appreciate its significance once they did so.

The migration and consolidation program began in 2013 and was completed in 2015. 

The IT failure involved was resolved by April 2015 – approximately 11 weeks after senior managers were finally alerted to it – with a system-wide change implemented in October 2015 that – as Ofcom acknowledges – means this error cannot be repeated in future.

More broadly, we have conducted a full internal review of this failure and, as a result, have overhauled our management control and escalation procedures. A failure of this kind, while rare, should have been identified and flagged to senior management for urgent resolution much earlier.

Our new billing and customer management system is designed to give our customers the best experience possible. It puts the customers in control of every aspect of the Vodafone products and services upon which they rely. It also enables our customer service and retail employees to respond quickly and efficiently to changing customer needs and swiftly put things right if they go wrong.

All of our consumer customer accounts have now been migrated successfully to the new system with a number of positive effects as a consequence. For example, there has been more than 50% reduction in customer complaints since November 2015 and our Net Promoter Score – which measures the extent to which our customers would recommend Vodafone to others – has increased by 50 points.

Vodafone has suffered for its failings commercially in the process. In the three months to the end of June 2015, UK sales fell 11.4%. At the time, Vittorio Colao, Vodafone CEO, admitted that the IT program’s problems were having a wider impact:

The UK is more a mixed picture. On one hand, we have a very good performance of the network in London, where, actually, we have really 99.9% coverage and a very good performance on dropped calls and video speed. In the rest of the country we still have to do a little bit of work. There is still improvement but we have to do a little bit of work.

The real issue has been billing migration problems in the UK which has caused disruption to the customers and to our commercial operations. We still have reached 7 million 4G customers, we still have activated 20,000 new homes in fixed broadband, but, clearly, we have got more churn than what we wanted and less commercial push until we fix the problems.

The problems are being fixed. I would say 75% of them are out of the way. We have reduced the extra calls to the call centers by more or less 0.5 million but we still have a little bit to go. We believe we will have resolved everything by the summer and then we will resume full commercial strength in the second half of the year.

How Vodafone Could Have Done Things Differently

There are some good lessons to learn from Vodafone’s troubles.

Understanding Your Problem

Vodafone had a lousy reputation for customer service for some time, coming out as easily the most complained about UK mobile provider in Ofcom’s 2015 market survey.  It had more than three times the industry average of 10 complaints per 100,000 customers in the last three months of 2015.

So Vodafone clearly had lessons to learn about the way it deals with customers before starting their CRM implementation. And if you start such a project with the mindset that customers are a pain in the ass, then all the CRM software in the world won't make things better; it'll just make it easier to anger your customers.

Internal Controls

Vodafone should have better internal controls in place. Since these incidents Vodafone has conducted a full internal review and overhauled its management control and escalation procedures, noting that the problem should have been spotted and flagged much earlier than it was.

“Despite multiple controls in place to reduce the risk of errors, at various points a small proportion of individual customer accounts were incorrectly migrated, leading to mistakes in the customer billing data and price plan records stored on the new system. Those errors led to a range of different problems for the customers affected which – in turn – led to a sharp increase in the volume of customer complaints.”

“Unfortunately, as the circumstances of the IT failure in question were very unusual (at the time, less than 0.01 percent of all Vodafone UK PAYG customers’ phones were inactive for more than nine months before being reactivated), the teams responsible for the day-to-day operation of the relevant areas were not fast enough in identifying the issue and did not fully appreciate its significance once they did so.”

Employee Training

The best CRM system in the world will have no value if your employees are not willing and empowered to help your customers. Improving customer services teams’ ability to respond to questions and problems is key to a great customer service.

“We fully appreciate the consequences for our customers of various failures in the migration process over the last three years,” it said. “We have sought to remedy these through an additional £30m investment this year in customer service and training, including hiring an additional 1,000 new UK-based call centre personnel and more than 190,000 hours of training to improve how we identify and resolve individual customer problems.”

Vodafone said that since doing this, it had seen a 50% reduction in complaint volumes and a significant improvement in its net promoter score.

Closing Thoughts

Ofcom Consumer Group director Lindsey Fussell said: 

“Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies. Phone services are a vital part of people’s lives, and we expect all customers to be treated fairly and in good faith.”

Vodafone replied with:

“Everyone who works for us is expected to do their utmost to meet our customers’ needs,” it said. “It is clear from Ofcom’s findings that we did not do that often enough or well enough on a number of occasions. We offer our profound apologies to anyone affected by these errors.”

It is sad state of affairs that we need a regulator to make companies realize this.

In a nutshell: The best CRM system in the world will have no value if your employees are not willing and empowered to help your customers.

Free Project Complexity Assessment

This assessment will guide you through the 3 dimensions (structural, sociopolitical, and emergent) of project complexity by asking you 38 questions.

At the end of the assessment you will get a score between 0 and 38. The higher your score, the better you have a grip on the complexity of your project. Most questions have detailed feedback with links to more insights on how to handle this part of project complexity.

Other Project Failure Case Studies

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References

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Tuesday, May 26, 2020

Is Your Strategy Bad? A Simple Checklist

Is Your Strategy Bad? A Simple Checklist
Recognizing good strategy is hard. 

You need to understand the organization, the market(s) it is operating in, its competitors, its strengths, and its challenges.

On the other hand, recognizing bad strategy is easy.

Richard Rumlet coined the term “bad strategy” in 2007 at a short Washington, D.C., seminar on national security strategy. He later explained the concept in detail in his must read book “Good Strategy Bad Strategy”. He is one of the world’s most influential thinkers on strategy and management and has always challenged dominant thinking.

Bad strategy is not the same thing as no strategy or strategy that fails rather than succeeds. It is an identifiable way of thinking and writing about strategy that is, unfortunately, still practised at many organizations. 

Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses buzzwords and phrases to hide these failings.

Once you develop the ability to detect bad strategy, you will dramatically improve your effectiveness at judging, influencing, and creating strategy. 

To detect a bad strategy, look for one or more of its four major signs:

1) Bullshit bingo

Rumlet calls it fluff, which is a nicer way of saying the same. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise to create the illusion of high-level thinking. 

Guy Kawasaki has written extensively about this in his excellent book on startups “The Art of the Start” and brings the illustrative example of Wendy’s.

“The mission of Wendy’s is to deliver superior quality products and services for our customers and communities through leadership, innovation, and partnerships.”

Don’t get me wrong. I love Wendy’s, but I’ve never thought I was participating in “leadership, innovation, and partnerships” when I ordered a hamburger there.

2) Failure to face the challenge

A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge. If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy. And, if you cannot assess that, you cannot reject a bad strategy or improve a good one.

For example when a leader characterizes the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the underperformance.

If you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have either a stretch goal, a budget, or a list of things you wish would happen.

3) Mistaking goals for strategy

Many so-called strategies are in fact goals. “We want to be the number one or number two in all the markets in which we operate” is one of those. 

It does not tell you what you are going to do; all it does is tell you what you hope the outcome will be. But you’ll still need a strategy to achieve it.

Many bad strategies are just statements of desire rather than plans for overcoming obstacles.

4) Bad strategic objectives

A strategic objective is set by a leader as a means to an end. Strategic objectives are “bad” when they fail to address critical issues or when they are impracticable.

A long list of “things to do,” often mislabeled as “strategies” or “objectives,” is not a strategy. It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders make suggestions as to things they would like to see done.

Rather than focus on a few important items, the group sweeps the whole day’s collection into the “strategic plan.” Then, in recognition that it is just a big pile of random objectives, the label “long-term” is added so that none of them need be done today.

Others may represent a couple of the firm’s priorities and choices, but they do not form a coherent strategy when considered in conjunction. For example, consider “We want to increase operational efficiency; we will target Europe, the Middle East, and Africa; and we will divest business X.” These may be excellent decisions and priorities, but together they do not form a strategy.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. 

Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

Why do we see so much bad strategy?

Bad strategy is everywhere around us. Rummelt offers three reasons for this.

Unwillingness or inability to choose

Any strategy that has universal buy-in signals the absence of choice. Because strategy focuses resources, energy, and attention on some objectives rather than others, a change in strategy will make some people worse off and there will be powerful forces opposed to almost any change in strategy. 

For example a department head who faces losing people, funding, support, etc., as a result of a change in strategy will most likely be opposed to the change. 

Therefore, strategy that has universal buy-in often indicates a leader who was unwilling to make a difficult choice as to the guiding policy and actions to take to overcome the obstacles.

Template-style “Strategic Planning” 

Many strategies are developed by following a template of what a “strategy” should look like. Since strategy is somewhat nebulous, leaders are quick to adopt a template they can fill in since they have no other frame of reference for what goes into a strategy.

These templates usually take this form:

> The Vision: Fill in your vision of what the school/business/nation will be like in the future. Currently popular visions are to be the best or the leading or the best known.

> The Mission: Fill in a high-sounding, politically correct statement of the purpose of the school/business/nation. Innovation, human progress, and sustainable solutions are popular elements of a mission statement.

> The Values: Fill in a statement that describes the company’s values. Make sure they are noncontroversial. Keywords include “integrity,” “respect,” and “excellence.”

> The Strategies: Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.”

This template-style planning has been enthusiastically adopted by corporations, school boards, university presidents, and government agencies. Scan through such documents and you will find pious statements of the obvious presented as if they were decisive insights. The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples.

New Thought

The New Thought movement is a movement that developed in the United States in the 19th century, considered by many to have been derived from the unpublished writings of Phineas Quimby. 

It is the belief that you only need to envision success to achieve it, and that thinking about failure will lead to failure. The problem with this belief is that strategy requires you to analyze the situation to understand the problem to be solved, as well as anticipating the actions/reactions of customers and competitors, which requires considering both positive and negative outcomes. 

Ignoring negative outcomes does not set you up for success or prepare you for the unthinkable to happen. It crowds out critical thinking.

In a nutshell: Bad strategy is not simply the absence of good strategy. 

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Saturday, May 16, 2020

The Difficult Act Of Balancing Your Project Portfolio

Opportunity cost should be one of the biggest factors in your project portfolio valuation
Balancing your project portfolio is like juggling one hundred balls... in a storm... on a boat. 

Project portfolio management is not necessarily complex. The goals are clear and simple. 


2) Seeking the right balance of projects 



Achieving these goals, on the other hand, is not such an easy task. 

Especially balancing your portfolio is more an art than a science. Key considerations for your portfolio should include managing risk. Risk should be balanced across the portfolio, and risk should be diversified so that all projects are exposed to different risks. 

Breadth of strategic objectives and benefit types is also important; if every project is a cost-cutting project, then that has an impact on business performance and revenue growth will be reduced. 

It is only by treating projects as a portfolio that these trade-offs can be managed effectively. This article shows you a number of dimensions and visualizations you should consider when balancing your portfolio.

Maximizing Value

Let's start with the first goal: maximizing the value of your portfolio. Assuming you have your list of projects for the portfolio sorted by their value, as well as guidance on your available funding, project selection based only on the first goal is easy. 

If the available funding will cover all of the proposed projects, you will be in the enviable position of moving forward without further portfolio adjustment. However, this is rarely the case. 

The cost vs. value chart as shown below helps in allocating the budget efficiently by ranking projects by their ROI, or return-to-cost ratio. In the example, the budget is sufficient to fund projects E, O, D and C, and no other combination would yield greater total value. 

The vertical lines indicate that management can choose to cut the budget to just fund those four projects without losing potential value, or choose to increase the budget to capture the value from funding Project G.

When you would not balance your portfolio your job would be done right now. But it is not.
Portfolio View - Cost vs Value

Risk to Realize Value

The risk vs. value portfolio bubble chart as shown below represents a portfolio view of all (or selection of) projects and puts projects into one of four quadrants based on value and risk; this is important for identifying projects that drive overall greater value to the organization compared to other projects as well as highlight projects that should likely be screened out.

There are four primary data elements needed to build the risk-value bubble chart: value scores for each project, risk scores for each project, categorical data, and the project cost or financial benefits of the project (commonly used for bubble size). 
risk-value portfolio bubble chart

Difficulty to Realize Value

Another view on your portfolio should be on the difficulty to realize value. Difficulty is as different as costs. It is an estimation based on scarcity of skills and knowhow. It ties directly into goal number 4: Doing the right number of projects.
Portfolio View - Difficulty to realize
Scarcity of technical resources, such as engineering and marketing hours, affects each project’s chances of technical success, its potential value, or both.

At the top of this view by difficulty are easy projects that require less effort: Bread and Butters offer small returns and Pearls offer large returns. At the bottom are difficult projects requiring a great deal of effort that may not pay off: White Elephants offer small returns for the extra risk and Oysters offer potentially high returns.

Pursuing White Elephant projects creates opportunity cost in the form of resources that could be used to drive growth through creating and cultivating Oysters. Examine each White Elephant project to determine if it can pivot to be a high-potential Oyster; if it can’t, cancel it and redirect those resources to other projects to increase the overall upside potential of the portfolio.

Time to Realize Value

The third view you should have on your portfolio is time to deliver vs. estimated value. Cash velocity — the rate at which cash invested in business operations generates revenues and billings that replenish that cash — is relevant for your project portfolio.
Portfolio View - Time vs Value
Some projects require a few months to turn R&D investment back into cash-generating products or services; others may take years. A small-return project that completes quickly frees up development resources for the next project: the quick turnaround boosts cumulative returns.

Conversely, a small-return project that ties up resources for years creates the opportunity cost of preventing you from conducting several small projects in the same span of time.

Slow projects are Snails (small returns) or Tortoises (large returns); fast projects are Rabbits (small returns) or Racehorses (large returns).

Resource Spread

Many organizations have realized that a good approach for research spread is aiming for a project portfolio of short and fat projects. Short and fat projects imply that the company runs a small number of short projects in parallel, armed with sufficient resources.

The alternative is running many long and thin projects concurrently, which means that the organization’s resources are spread insufficiently between many parallel projects that are having a hard time crossing the finishing line. Portfolios consisting of long and thin projects are what we find in most organizations.

The underlying concept is visualized in the diagram below. At a minimum you should make sure your portfolio does not look like at the left.
Why your projects should be short and fat (and how to get them that way)

Strategic Objectives

In a previous article I explained in detail how to make sure your individual projects are aligned with your strategy. But on a portfolio level you have to take a broader view. Since your strategy is highly likely consisting of multiple objectives you should make sure as much of as possible them are supported by your projects, else certain parts of your strategy will just not be realized.

A simple way to do so is the so called Strategic Bucket Model. It answers the questions: “If this is our strategy, then how should we be spending our funds?” It starts with the individual strategic goals and then moves to set aside funds or buckets of money destined for each of the strategic goals. The goal of the portfolio is to fill as many buckets as possible in order to create a strategically balanced portfolio.

Investment Types

You organization has to strike a balance between Run, Grow, and Transform the business. This RGB model developed in the early 2000s by Louis Boyle at Meta Group, and in increasing use by companies like Gartner and McKinsey, can help you with both seeing and showing what you value.

It offers a business-oriented way to categorize technology investments at a high level in three different "buckets". 
Run, Grow, & Transform Technology Investments
Run the business” investments are about enabling essential, non-differentiated services having the desired balance between cost and quality. Benefits are measured in reduced cost, price-to-performance ratios, and risk. 

"Grow the business" investments are about improvements in operations and performance related to the company’s existing markets and customer segments. 

"Transform the business" investments are about new markets, new products, new customers—in other words, new horizons for the company, and maybe for the entire industry.

In a nutshell: Balancing your project portfolio is difficult but essential for any success.

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Monday, May 11, 2020

People, Process, Technology (In Exactly That Order!)

People, Process, Technology (In Exactly That Order!)
As an IT or information security professional, you cannot read a blog, book or paper without crossing paths with these three words; people, process, technology. 

Popularized in the infosec world at the end of last century by Bruce Schneier, these three nouns have been at the heart of the ITIL set of practices since their birth in the 1980s, and has its origins linked to Harold Leavitt's Diamond Model theorized in 1965 (with the organization's tasks representing the fourth component). 

It has also been referred to as the “golden triangle”, the 3 keys to successful project implementations and organisational change, and a back-to-basics approach to solving complex business problems.

The reason for this triangular focus comes down to one very important fact: 

To get sh!t done effectively in any organization requires an approach that optimises the relationships between people, process & technology.

By focusing on only one or two areas an imbalance is created. The result will be that you waste lots of money and time, and your best people will look for a job elsewhere. 

Take a new technology for example, many organizations believe that by implementing a new shiny tool, all of their problems will go away. 

But what they’re not seeing is that technology is only as good as the processes that are implemented around it, and processes are only as good as the people who execute them. 


People, Process, Technology (In Exactly That Order!)
But how do you get the balance right?

Always start with your people

> Identify your key players & understand what each of them want, and what they bring to the table.

> Confirm that you have senior management buy-in (right from the start), because without it you will fail.

> Ensure that your team consists of the right people with the right skills, experience and attitude to help you solve your problem. Practical experience is priceless, too many organizations have only theorists and consultants.

Once your people are committed, consider the process

> A process is defined as a series of actions or steps taken in order to achieve a particular end. So with that in mind, ask the question: What processes do we need in order to solve this business problem?

> A good place to start is by identifying the big, key steps. Once those are in place you can then focus on a more detailed level by looking at process variations, exceptions, interdependencies and supporting processes.

> Now review these processes with your stakeholders. Ensure that they’re aware of what’s expected from them and let them guide you with regards to possible gaps and issues.

And as last you select the technology

> With your people and processes in place, you can now look at technologies which will support them.

> It’s never a good idea to force a technology and then attempt to retrofit the people and processes around it. At the same time you should understand and accept that SaaS means “Software as a Service” and is not the same as custom software development.

> Technology should always be the final consideration once the problem is clearly understood and the solution requirements have been clearly defined.

This is all nothing new, but it seems to be forgotten time and again.

In a nutshell: To get sh!t done effectively in any organization requires optimising the relationships between people, process & technology. In exactly that order!

Read more…

Tuesday, May 05, 2020

Case Study 12: Lidl’s €500 Million SAP Debacle

Case Study 12: Lidl’s €500 Million SAP Debacle
It was to be a monumental and transformative project for grocery store chain Lidl. And success appeared certain. Lidl and German software giant SAP are leaders in their respective fields. 

About a thousand staff and hundreds of consultants implemented a new company-wide system for inventory control for the discount grocery chain, which has close to €80 billion in annual revenue.

The system, in planning since 2011, got the code name 'eLWIS' which in German is pronounced like Elvis. The name is short for electronic Lidl merchandise management and information system. 

In April 2017, SAP even awarded Lidl a prize for being one of their best customers.

But by July 2018 eLWIS was pronounced dead before arrival. Lidl would need to revert to its old inventory system. “We are practically starting from scratch,” a company insider told German newspaper Handelsblatt. 

All this after spending an estimated EUR 500 million on eLWIS.

Lidl is part of the Schwarz Group, the fifth-largest retailer in the world with sales of  EUR 104.3 billion (2018), and Lidl makes up 80 % of that result.

The first Lidl discount store was opened in 1973, copying the Aldi concept. By 2019 Lidl had over 10.800 stores in 29 countries.

Both Lidl and Aldi have a zero waste, no-frills, "pass-the-savings-to-the-consumer" approach of displaying most products in their original delivery cartons, allowing the customers to take the product directly from the carton. When the carton is empty, it is simply replaced with a full one. Staffing is minimal.

Lidl rigorously removes merchandise that does not sell from the shelves, and cuts costs by keeping the size of the retail outlets as small as possible. 

But in contrast to Aldi, there are generally more branded products offered. Lidl distributes many low-priced gourmet foods by producing each of them in a single European Union country for its whole worldwide chain, but it also sources many local products from the country where the store is located.

Before we continue with this case study...

For an overview of all case studies I have written please click here.

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Timeline of Events

2011

In 2011 Lidl made the decision to replace its homegrown legacy system “Wawi” with a new solution based on “SAP for Retail, powered by HANA”. The old merchandise management and information system was reaching the limits of its capacity. In fact, SAP claimed that Lidl’s system was “hampered by process breaks, redundant master data storage, integration gaps and functional restrictions. Moreover, a combination of myriad interfaces and modules and a decentral server structure was making the task of running and maintaining the system increasingly complex.”

The new solution should no longer implement just individual functions, but integrate process chains from the supplier to the customer. Key figure analyzes and forecasts should be available in real time. In addition, Lidl hoped for more efficient processes and easier handling of master data for the more than 10,000 stores and over 140 logistics centers.

2014

Lidl appointed Sven Seidel as the new CEO, a day after announcing it had removed Karl-Heinz Holland, citing “unbridgeable” differences over future strategy.

In an unusually blunt statement the secretive company said Holland was leaving after more than five years as chairman, 12 years on the board and a total of 23 years at Lidl.

2015

Lidl initially went live with the new electronic merchandise management and information system at its Austrian stores in May 2015. Also the stores and hubs in Ireland and the US went live with the new solution.

2016

In recent years, Lidl has also worked on harmonizing internal data transfers from the branch to the country systems to the new ERP system. Software AG's webMethods integration platform was implemented for this purpose. Apparently a number of systems have already been connected to the SAP system. In autumn 2016, René Sandführ, member of the management board, and head of ERP systems at Lidl, spoke of over 30 systems from the existing infrastructure that were integrated into eLWIS already.

"With the new platform, we are positioning ourselves for the future," Alexander Sonnenmoser, responsible for the entire Lidl IT, started the international rollout of eLWIS in spring 2016. 

2017

CEO Seidel stepped down from his position in February 2017 after Manager Magazin reported he had fallen out of favour with Klaus Gehrig, who has headed the Schwarz Group since 2004. Seidel was succeeded as CEO by Dane Jesper Højer, previously head of Lidl's international buying operation.

By May 2017, Lidl's head of IT, Alexander Sonnenmoser, also had left.

The project at that time must have been going well because in 2017, SAP awarded Lidl a prize for being one of its best customers.

2018

In July 2018 Holland's successor Jesper Hojer and board member Martin Golücke pulled the plug on the whole project. With eLWIS, "the originally defined strategic goals cannot be achieved with reasonable effort", says an internal memo. 

The message directed to Lidl employees states that they should all stay on board and now help to make the old, modular system (Wawi) future-proof - by bringing in the experience from the SAP project. This is to be done step by step, it is emphasized, and with the involvement of the Lidl national companies.

The company's official announcement states that the decision was "not a decision against SAP, but for its own system". "Lidl will continue to work closely with SAP in other areas."

What Went Wrong

The problems arose when Lidl discovered that the SAP system based it's inventory on retail prices, where Lidl was used to do that based on purchase prices. Lidl refused to change both her mindset and processes and decided to customise the software. That was the beginning of the end.

Requirements Gap

Lidl based its inventory management system on purchase prices. The standard SAP for retail software uses retail prices, and fearing the group could lose a competitive edge by compromising, Lidl declined to change, so the software was instead adapted.

Customizing package software to fit your needs may be easy or it may be hard. The degree of difficulty depends on the so-called ‘requirements gap’ (i.e. the difference between what the existing package is capable of and what you want it to do). The smaller the gap the easier the project, the bigger the gap the more challenging the project becomes. 

A requirements gap can be addressed in a number of different ways;

1) You change your business processes to match what the software can do
2) You customize the software to match your business processes
3) You can meet in the middle (i.e. do a bit of both – change the software and change the business processes).

All have their challenges, but by deciding to keep their processes as is, Lidl took on the challenge of making a system do something it was not originally designed to do. 

Going live in 2015 with smaller countries made Lidl discover it wasn’t a ‘requirements gap’ they had in front of them, it was a ‘requirements chasm’. After all the adaptations and amendments that were required by Lidl along the way, it is reported the solution that SAP had produced was “not suitable for high-turnover countries”.

Project Duration

An ERP implementation just cannot last seven years. The pace of change has accelerated in many industries, retail and distribution is not immune. ERP systems have to cope with this pace of change. 

Customisations should be avoided as far as possible, leveraging built-in best practices that are now part of modern ERP systems.

Executive Turnover

Lidl experienced quite a bit of executive turnover throughout their transformation. It is difficult to maintain alignment and momentum against this backdrop. As executive priorities and personalities change (and both did in this case), it is highly likely that your ERP project will become misaligned with those new people. This is where projects often fail.

No one wins when a project is misaligned with executive priorities. Resources aren’t committed to the project the way they need to be. The project team lacks clear direction. Project and software decisions don’t tie into bigger-picture business decisions that need to be made. I could go on, but the point is that executive misalignment will derail projects like these.

Change Management

According to SAP, 80% of the retailers in the Forbes Global 2000 are SAP customers. This suggests that grocers like Lidl are successfully using the software. Even setting this statistic aside, there are thousands of organizations that are successfully operating on SAP S/4HANA and other legacy versions of the software. Simply put, the software works.

The more relevant question is: does or can SAP software work for your business? Are you willing to do the hard work required to reconcile the inevitable differences between your business and the software out of the box? This is where so many organizations fail. It sounds like Lidl was one of them.

Jean-Claude Flury, chairman of the worldwide SAP user group, stated in the German Handelsblatt "that it is the fault of Lidl itself and not of SAP." Lidl bought a solution that was implemented by SAP and her partners at several large retail companies. If the customer does not pay attention during the buying process or does not want to accept the principles of the software solution, the vendor is not to blame. 

At most you can ask yourself whether SAP and its implementation partner KPS have sufficient change management skills. And whether the correct 'change guidance' was offered to the Lidl management. After all, those people are retailers with little or no experience in such large change processes.

Expertise System Integrator

Gossips are scapegoating German IT consultancy KPS, which was supposed to guide the transformation. SAP only provided the software — KPS was supposed to manage the adaptation procedures for Lidl, they say. Critics inside Lidl say that KPS was too slow. But Matthias Nollenberger, a senior manager at KPS who was responsible for overseeing the eLWIS project, says his company was working too short deadlines compared to other similar projects, and that the pilot phases in Austria, the US and Northern Ireland were all achieved on time.

How Lidl Could Have Done Things Differently

As painful – and unbelievable – as it is to read about, there are some good lessons from SAP failure that we can take away from this story.

Evaluation

The principles of inventory management belong to the elementary characteristics of any software solution. These kinds of characteristics are published in every product brochure and on any product website. That is definitely not something to discover after a few years of implementation. So, didn't the Lidl staff pay attention during the product demonstrations and the Proof of Concept? And why did the Lidl management sign a contract for a solution in which such a distinguished function was lacking?

Even though SAP is one of the most well-known software houses in the enterprise segment worldwide, has a great image and the customer generally cannot “go wrong” when choosing SAP, it still does not offer the right solution for every project / company. 

The lack of flexibility in the field of adjustments, the excessive use of numerous external consultants and the complex implementation complicate the project’s success, especially for companies that do not want to completely change their previous processes, but rather “only” want to improve.

See "Be a Responsible Buyer of Technology" for more insights on this topic.

Stop Earlier

When Lidl refused to conform to the SAP standard, the fence was from the dam. Explosion arose in time and the costs kept running. Suppose the project was budgeted at EUR 180 million and 3 years. Then for sure there was a moment when the counter stood at EUR 200 million. At EUR 260 million. And even at EUR 380 million. Probably still without any prospect of a successful completion. Again, the question is - why did the management of Lidl not intervene?

See "Why Killing Projects Is so Hard (And How to Do It Anyway)" for more insights on this topic.

Less Customization / More Change

Customization is a risky way to reconcile your off-the-shelf ERP software with the realities of your business. Most organizations customize their ERP software to some degree. But, should they? That’s a different question.

Customization creates headaches by breaking other parts of the software, introducing risk to implementation, and making ongoing maintenance very difficult. It is important to have stingy project governance processes in place to validate and rationalize any requests to change the way the software was initially built.

And here’s an important takeaway: too much customization is often a symptom of not having a good enough organizational change management strategy and plan in place.

Executive Sponsorship

It is always interesting to wonder who is responsible for this type of projects at the top level. In many companies, this responsibility is considered as a 'group responsibility'. And it often goes wrong there. 

This is because nobody in the top has "all" as a first name. With the logical consequence that nobody feels personally responsible for the project. 

This is certainly true if a new CEO has been appointed ("oh, that project of my predecessor"). Every business software project must have a competent director who owns the project and who is responsible for both success and failure from the start till the end. 

Without real, in-depth and end-to-end management involvement, today's business software projects are doomed to whole and half failures. Anyone who does not understand this is probably wise to postpone that new project.

See "Successful Projects Need Executive Champions" for more insights on this topic.

Closing Thoughts

EUR 500 million is one heck of a lesson to learn, but good for Lidl’s management team for eventually recognizing that their plan was not going to achieve what they wanted to achieve. I know of many management teams that wouldn’t have the nerve to step up and admit that.

Of course, writing off EUR 500 million is a bitter pill. Although, with a yearly turnover of circa EUR 80 billion, Lidl can have a small bump. Much worse than this financial loss is probably the fact that the company has spent 7 years without any modernisation and further development of its business processes.

One would expect the Lidl organization to learn from this lesson. But nothing seems less true. According to the latest reports, the retailer has decided to continue to develop the old, self-developed 'Wawi' system. So that they can continue the way of stock valuing in the old, familiar way. And therefore do not have to change.

In a nutshell: Forcing a square peg into a round hole does not work for large ERP projects. 

Free Project Complexity Assessment

This assessment will guide you through the 3 dimensions (structural, sociopolitical, and emergent) of project complexity by asking you 38 questions.

At the end of the assessment you will get a score between 0 and 38. The higher your score, the better you have a grip on the complexity of your project. Most questions have detailed feedback with links to more insights on how to handle this part of project complexity.

Other Project Failure Case Studies

For an overview of all case studies I have written please click here.

To download 10 of my Project Failure Case Studies in a single eBook and be notified about new Project Failure Case Studies just subscribe to my weekly newsletter here or click on the image.

References

Read more…

Sunday, May 03, 2020

Show Me Your Budget and I’ll Tell You What You Value

Show Me Your Budget, and I’ll Tell You What You Value
Being in the middle of the yearly budgeting process I could not help but think about this quote from former US Vice President Joe Biden;

“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”

The RGB model developed in the early 2000s by Louis Boyle at Meta Group, and in increasing use by companies like Gartner and McKinsey, can help you with both seeing and showing what you value.

It offers a business-oriented way to categorize technology investments at a high level.

The model classifies investments as having one of three purposes: to Run, Grow, or Transform the business. Hence RGB model. Each classification implies different kinds of benefits.

“Run the business” investments

“Run the business” investments are about enabling essential, non-differentiated services having the desired balance between cost and quality. Benefits are measured in reduced cost, price-to-performance ratios, and risk.

Examples of “run the business” functions for most businesses include audit, payroll, and regulatory compliance. On the technology side, examples include most infrastructure investments, most IT security spending, and most IT operations spending.

“Run the business” investments do not produce revenue. They are essential to staying in business, but they don’t differentiate the business in most cases.

Exceptions include those cases wherein customers begin to perceive a "run the business" function as a differentiator, as appears to be happening now with “green” (environmental) initiatives and has happened recently with IT security in the financial and cloud services industries.

Many CIOs struggle to justify infrastructure investments, but in "run the business" terms the case is usually straightforward.

First, the function is essential and typically does not need justification per se (e.g., the organization is going to be compliant with Sarbanes-Oxley in one way or another), although the level of performance required may vary (how compliant must we be?).

Second, the proposed investment will deliver the best possible price for the required level of performance (e.g., it costs much less to upgrade systems over five years than to hire an army of expensive auditors annually). Price-to-performance benefits such as these are often easily and accurately calculated.

“Grow the business” investments

"Grow the business" investments are about improvements in operations and performance related to the company’s existing markets and customer segments.

The value of such investments may be measured in terms of operational performance improvements, such as cycle time or improved quality, or in financial terms, such as capital expense reduction, increased revenues and margins, increased customer lifetime value, or reduced general and administrative expenses.

Examples include opening a new online or social networking channel for sales and service of existing product lines, or eliminating 10 percent from costs of conducting a key business transaction.

When you’re talking about improved profits or service to customers, in most cases you’re talking about growing the business.

“Transform the business” investments

"Transform the business" investments are about new markets, new products, new customers—in other words, new horizons for the company, and maybe for the entire industry.

Such investments are measured in prospective market share and revenues in entirely new markets. These investments typically involve big rewards and high risk.

They can change the future of the company and even an industry when they succeed, or produce a large hole in the ground when they fail.

Apple changed its own course and that of the music industry with iTunes; Motorola lost billions of dollars and an untold amount of alternative opportunities when the Iridium project failed.

The word transform is often used in businesses to describe a lot of initiatives that would be classified as "grow the business" projects.

In this classification scheme, by definition transformative initiatives involve new markets, new customer segments, and new value propositions, and not merely improved margins or profits.

For example, a supply chain “transformation” that produces 40 percent increased throughput at a 30 percent reduction in costs with 20 percent improvement in quality is a "grow the business" initiative and not a transformation.
Run, Grow, & Transform Technology Investments

Focus on economic benefits of investments

Many projects and initiatives have objectives like “delighting the customer,” “improving time to market,” “happy employees,” or “operational efficiency.”

But hardly any organization will be blessed with unlimited resources to invest, and there’s just no getting around the fundamental challenge that all organizations face: sustaining themselves.

At some point the projects and initiatives you invest your limited resources in should help the organization to sustain itself and possibly even grow. So the question becomes “How do these benefits impact the economics of your organization?”.

The risk of placing too much focus on the economic benefits is relatively small and one can argue that lately it's largely been ignored by many organizations (just have a look at the number of Silicon Valley unicorns that are currently imploding). It is of no help having happy customers and no revenue.

The biggest risk of focusing on the economic benefits of projects is when organizations find opportunities to reduce costs that may ultimately have a negative impact on the customer experience. This is particularly problematic for service organizations, where a more efficient operation often translates to less happy customers.

To make estimating the benefits of a project easier and more realistic, I use a simple model to assess the economic benefits of a project.

It consists of five benefit types (or buckets).

1) Increased Revenue
2) Protected Revenue
3) Reduced Costs
4) Avoided Costs
5) Positive Impacts

Run, grow, and transform are not benefits; they simply point to the types of performance improvement that should be expected from an initiative and thus show you where to look for the benefits.

If you say, “This is a "grow the business" initiative,” it is still necessary to say exactly how the initiative will grow the business.

> Will it increase margins for a key line of business? If so, how—by reducing costs, or by increasing revenues faster than costs?

> Will it increase market share? If so, in which customer segments, in which markets, by how much?

> Will it affect soft measures of value, such as customer satisfaction, that ultimately may translate to customer retention and so to revenue? If so, how will the value be measured?

Or as Gartner states it: "Market leaders track IT spending against strategic planning pillars".

Technology budget conversations

Taking the above into consideration your IT budget conversations should have three dimensions:

1) Investments in IT needed to maintain products or services (Run). The benefits we can expect are reduced costs, avoided costs, protected revenue, as well as some other positive impacts;

2) Investments in IT capacity needed to support organic business growth (Grow). The benefits we can expect are increased revenue and reduced costs, as well as some other positive impacts;

3) Investments in IT needed to support new products or services (Transform). The benefits we can expect are increased revenue and reduced costs, as well as some other positive impacts;

Don’t forget that part of 2) are tools to make your IT organization itself more productive. In a company whose IT-related costs are 25 percent of the overall budget, improvements in IT productivity have a direct impact on IT costs per business transaction.

A classic problem this model brings often to the surface is the disproportionate focus on Run as many CIOs spend more time in running the legacy systems and tend to allocate upto 60% (if not more) of the annual budget to this category due to small business demands and other legacy reasons.

Grow and Transform are not given enough importance thus constraining the ability of the organisation to be ‘future-ready’ and competitive.

In a nutshell: Run, grow, and transform point to the types of performance improvement that should be expected from an initiative and thus show you where to look for the benefits.

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