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March 22, 2006

Battle of the Books

It's interesting how the popularity of books can swing like a pendulum. This is certainly true of business books pertaining to left-brain and right-brain thinking. But there also seems to be a correlation with the state of the economy.

I saw this pattern with the left-brain, downturn economy hit, Moneyball, which argued smart organizations (in this case, the Oakland A's), could accomplish more with less. Oakland crunched the numbers and analyzed the statistics to determine which players were undervalued, and therefore, who to draft and who to trade. The team even reexamined conventional baseball statistics and discovered how new metrics (on base percentage as opposed to batting average, for instance) could change the game altogether. Too bad, the word is out. Now, Billy Beane must content himself with the rubber chicken circuit as other teams capitalize on his insights. right

The other downturn favorite was Execution, arguing that greater success could be achieved through "rigor and discipline." Indeed, it was as if you could put your company back in the black by submitting to a little S&M. “Strategies most often fail because they aren’t executed well,” state authors Larry Bossidy and Ram Charam.

But then the economy started to pick up...and the publishers brought out their new line.

The up economy books argued that right-brain intuition -- make that "rapid cognition" -- is where it is at. Malcolm Gladwell's Blink is, of course, a great example of the turn in taste. It is about "the kind of thinking that happens in a blink of an eye. When you meet someone for the first time, or walk into a house you are thinking of buying, or read the first few sentences of a book, your mind takes about two seconds to jump to a series of conclusions," the author writes. left

Another example of this right-brain, up economy school of thought is Daniel Pink's A Whole New Mind.

Forget about Competing on Analytics. "The future belongs to a very different kind of person with a very different kind of mind," Pink contends. "The era of 'left brain' dominance, and the Information Age that it engendered, are giving way to a new world in which 'right brain' qualities -- inventiveness, empathy, meaning -- predominate. "

Where will it all lead? Or end? Left or right? Up or down? Chaos or discipline? right

The new line of books from HBS Press includes Hard Facts from Jeffery Pfeffer and Robert Sutton. In a recent article, they contend "evidence-based management" ultimately will triumph. As they see it, "The challenge is quite simply to ground decisions in the latest and best knowledge of what actually works. In some ways that is more difficult to do than in [other professions like] medicine. The evidence is weaker in business; almost anyone can (and many people do) claim to be a management expert; and a motley crew of sources ... are used to generate management advice. Still ... when managers act on better logic and strong evidence, their companies will beat the competition."

Well, that's pretty left brain, isn't it? Then again, take a look at the New York Times bestseller list. Topping the non-fiction list is a loveable little tale about a guy and his pet. Actually, it is described this way: "A newspaper columnist and his wife learn some life lessons from their neurotic dog." What about bestseller number two? Well that one argues that the world is neither left nor right. The world, argues the author, is flat.

March 21, 2006

Finance: Key Factors behind High Performance

The Economist Intelligence Unit and Accenture researched the key factors behind high performance in finance and accounting functions.

While the survey results make sense, what does not is Accenture's take on what the survey means.

Their findings:

Over half of the respondents felt that the high-performance finance function was defined by an ethos of service and strategy. Fifty-nine percent included the creation of a service-oriented culture; 55 percent included the development of a strong capacity for strategic analysis; and 53 percent expressed a belief that there should be a clear linkage between the work of the finance department and the overall company strategy.

Significantly, these attributes are primarily outward facing. Inward-looking attributes—to do with the composition of the finance function itself—were not seen as contributing explicitly to high performance. No fewer than 69 percent of respondents felt that enabling senior management to make the best business decisions was the most important role of the finance function. But the traditional, tactical role of finance comes through strongly as well—68 percent felt that managing cash flow efficiently was of high importance in the success of the business.

Perhaps the most notable characteristic is the gap between the ideal and performance:

- Only 14 percent rated finance’s contribution to the attainment of organizational strategy highly, with just under half (45 percent) giving a “good” rating.

- While 69 percent saw enabling better decision-making by senior management as a key finance goal, only 37 percent saw actual performance as good.

- Only 19 percent rate their finance function’s management of risk as good.

Cash flow management, while ranked as important by 68 percent, is rated as good by only 45 percent.

One reason for this lack of performance is the reliance on traditional measurements—if measurements are used at all. Measurements oriented towards strategic goals remain the exception—for example, only 22 percent conduct user surveys to measure internal satisfaction with the finance department.

Barriers to progress include cultural resistance to change and the lack of clearly defined metrics for directing improvement. While it is agreed that CFOs must take the lead in overcoming the barriers, there is no consensus on what their ideal skill set should be.

The conclusion?

According to Accenture:
For CFOs, the message is clear: outsourcing finance is one route to high performance.

This is NOT what the survey said.

Rather, this is Accenture's view of how companies can become better at strategy- outsource the day-to-day work and focus on strategic finance.

But what if the next strategic advantage comes from analysing the day-to-day intelligence, looking for early trends, customer preferences, and spending patterns?

What if you had to "compete on analytics" ?

What Accenture should do next is hire the EIU and survey companies that have already outsourced their operational finance functions to see if there is a correlation between outsourcing and getting more strategic.

I'm willing to bet there won't be a significant positive correlation...

And what qualities do you want in your new CFO? You want them to think strategically and critically. You want them to question reports like this one.

Read the full "report" here>>

March 13, 2006

CFO as Liberator

One of the key drivers of this era of analytical competition will be the emergence of the CFO as a vital force in both strategy and execution. Senior executives that hope to make something happen and propel their own careers should start forming alliances with their CFOs right now.

The outlines of this transformative trend are sharply sketched out by Jeremy Hope in the most recent issue of Optimize Magazine. Hope is the research director for the Beyond Budgeting Roundtable, a group dedicated to elevating the modern CFO by liberating the role from stultifying, budgetary bureaucracy and placing emphasis on advice, analysis and agile leadership. As he explains:

Finance faces a host of problems. For one thing, transaction processing and month-end routines take up more than two-thirds of its time—there are simply too many journals, too many spreadsheets, too many errors, and too many disconnected systems. Budgeting takes too long, is too expensive, and adds too little value. In addition, there are too many irrelevant measures and reports, and information flow is way too slow. Clearly, forecasting and risk management aren't core competencies, and finance is seen as an accounting specialist, not a business partner. The results of all these failings are increasing levels of detail and complexity, and less time available for value-adding work.

If analytics are to be widely distributed and operationalized, the CFO must be liberated -- and liberate the rest of the enterprise -- to concentrate on the performance management and measurement issues that truly matter. As Hope points out, "few CFOs have realized the ultimate goal of transferring resources from transaction processing to decision support." right
He offers a powerful model to guide us as we consider the implications of this situation. Citing compelling examples such as American Express, which has an "investment-optimization process that lets senior managers prioritize new investments on a monthly basis," he points to links between performance management and measurement. As he explains the model:

It isn't about quick-fix solutions, but about applying a number of clear, simple principles that liberate the finance team and its management colleagues. It means simplifying everything and providing effective decision support and performance insights that really help managers improve their results.Instead of using crude targets to drive performance results, the CFO...believes that a better and more sustainable approach is to relentlessly focus managers on improving processes so the company can boost customer value and rival competitors in profitability. This approach encourages managers to eliminate costs that add no value, use measures to improve their work, and make sensible risk-adjusted decisions. Words such as clarity, simplicity, transparency, and accountability best describe this vision, through which finance becomes a valued and trusted business partner.

Ultimately, Jeremy Hope argues that CFOs must free themselves and the organization from the top-down, centralized controls now being proferred by executives, consultants and vendors that preach the gospel of "managing by the numbers." Hope offers hope, but it will take initiative. As he puts it: "It's up to the finance team to take the initiative and not only build more adaptive systems with fewer targets and performance contracts, but also to rescue managers from excessive detail, complexity, and micromanagement so they can focus on improving performance—and the business."



March 08, 2006

Forrester: The Rise of Marketing Analytics

In an email I received from Forrester, Chris Charron explains that "as many elements of marketing services and software become commoditized, agencies are looking for ways to differentiate, boost margins, and become indispensable to clients."

The answer, says Charron, is analytics. Tools that help marketers translate the database into consumer insights and help drive marketing strategy will differentiate leading marketing services and software vendors from contenders and risky bets.

Now, that's "competing on analyics"...

Charron predicts that "the ascendancy of analytics will change how marketers look for a marketing services and/or software provider." He asks -

"Does your prospective vendor:

- Require its analytics software to sit on top of a proprietary database? And if so, are you prepared to build a new database if necessary?

- Integrate analytics and segmentation capabilities with other necessary functions, including marketing resource management (MRM), campaign management, and marketing optimization?

- Help you to better understand your customer?"

Sounds like obvious stuff, but he's right about these predictions:

As consolidation continues and marketers demand more integrated technology and analytics, marketing services and software providers will:

- Play catch-up with the best-in-class analytics vendors like SAS, which got its start -- and made its name -- in data.

- Improve analytics while offering a more comprehensive enterprise marketing suite, including MRM, campaign management, and marketing optimization. Clients will value having all of these capabilities in one software suite.

- For database providers, provide analytics software for customers who don't use their proprietary database. Even analytics-savvy vendors stand to lose out if they restrict themselves to only clients using their proprietary database.

I must say I like the Forrester Waves more than the Gartner Magic Quadrants.

CFO Research: Forecasting still Blurry

Interesting stuff uncovered by the research folks at CFO magazine.

They sought to explore finance executives' views on their ability to report and analyze financial information. What do their companies do well? Which stakeholders are well- or ill-served with information and analysis tools? And what barriers do companies face when trying to improve their financial reporting and analysis capabilities?

CFO Research executed an electronic survey to readers of CFO magazine in November 2005. They gathered a total of 164 responses from senior finance executives — more than half from companies with $1 billion or more in annual revenue.

The respondents' titles breakdown:

- chief financial officer (30 percent),
- vice president or director of finance (33 percent)
- controller (16 percent)

Here are two snapshots of what they uncovered:

and

Looks like the intelligent economy still has a ways to go. A majority of survey respondents say their processes and systems to allow what-if scenario analysis and to give end users flexible desktop access to additional information needed improvement.

Read the report here >>

March 03, 2006

The Smart Burger

America may be getting fatter and so are the profits at CKE Restaurants. CKE, the company that owns and operates Hardee's, is hitting it big with the counter-intuitive release of its Monster Thickburger (1,420 calories, 107 grams of fat). Just when companies like McDonald's are getting defensive and expanding the healthier parts of their menus, why in the world would Hardee's start marketing something like this? Because that's what its BI-driven analysis showed that its customers wanted, explains Jeff Chasney, CIO and EVP of strategic planning at CKE. right

The company relied on a BI system to test market its monstrously large burger and the sales it produced. It studied menu mixes, production costs, average unit volumes, gross profits and total sales. Findings in hand, CKE rolled the product out nationwide in November 2004 with a $7 million ad campaign and high confidence in its success. The company has not been disappointed. Sales rose significantly -- up 5.8 percent for December -- and "the Monster Thickburger was directly responsible for a good deal of that increase," says Brad Haley, Hardee's executive vice president of marketing in CIO Magazine.

While the Hardee's anecdote is a good one, the most interesting point in the article is the intensity with which restaurant chains such as Hardee's, Wendy's, Ruby Tuesday, T.G.I. Friday's all are leveraging BI to compete. Whether the objective is to make strategic product decisions, determine how to more effectively manage procurement or identify inefficient processes, these types of organizations are on the leading edge of BI.

Critical to the success of restaurant chains with BI is the fact that the insights they produce are so readily applicable to their operations and profit margins. "If you're just presenting information that's neat and nice but doesn't evoke a decision or impart important knowledge, then it's noise," says CKE's Chasney. "You have to focus on what are the really important things going on in your business," he says.

Chasney goes further to explain that it is "context" or "insight" that matters most when designing and enhancing a BI system. Nobody needs to be flooded with useless data. He advises companies to begin by analyzing how decisions are made in the organizaton and then determine how the information can strengthen that decision-making process. What information needs to be collected, analyzed and presented and how can this be most effectively accomplished? What types of reports, for instance, are most useful?

Chasney began building CKE's system in 2000, responding to the requests for information he received from different corporate execs. The CEO asked for information on what was influencing sales; the operating executives wanted indicators of individual restaurant performance. Those conversations enabled Chasney to focus on capturing key indicators such as sales, cost of sales, outperformers/underperformers, historical trends and predictive patterns. Chasney also was able to show the factors influencing those trends and patterns through sophisticated modeling of various operating activities and business conditions. The CEO can even distinguish whether a sudden drop in sales was influenced by the weather in a certain region or whether a rise in another region was related to a coupon giveaway.

"If your business intelligence system is not going to improve your decision making and find problem areas to correct and new directions to take, nobody's going to bother to look at it," says Chasney.

March 02, 2006

Massive Data Quality Problems

"Most BI implementations fall below the midpoint on the scale of success," says Ted Friedman, an analyst with Gartner, in a recent piece in CIO Magazine. One of the key reasons for such lackluster outcomes, he argues, is poor data quality. "Data quality remains a very overlooked issue in business intelligence, but a massive one. I continue to see failures due to a lack of attention to data quality."

Where is Edwards Deming when you need him? It is apparent that the BI world will continue to be hobbled by this persistent problem. If data -- the fundamental building block of intelligence -- is untrustworthy, well, then everything based on it is questionable. That is why the issue of data quality will continue to grow in importance and companies will be forced to invest more actively in efforts to ensure their data stores and data warehouses are well maintained.