1. How the business is defined – the terms we use for various items and attributes
2. The measurement system to be used –

Business Terminology and Definitions

A business is defined in terms of functional systems – for example, Finance, Manufacturing Ops, Purchasing, Logistics, Marketing, Sales. Each of these systems is a series of processes. Some of these processes are contained within the functional area, and others connect with other functional areas.

Each process is defined by a series of Tasks or Activities. Each Task creates, consumes or destroys data.

Since the same item of data may be used by various functional systems, we must understand how making a change in that data impacts another system or task. We can only do so if the data is connected by definition in some way.

The easiest way to do this is to define or ‘name’ that data item the same for every part of the business. For instance ‘Income’ or ‘Revenue’. If both terms are used by different parts of the business, there is the risk that slightly different definitions are afforded to the terms. This can lead to miscommunication between business groups, and misleading assumptions read into reports.

In technology systems, if these data items are both used, the data management system must map them together in a mapping table to ensure that disparate systems know how each data set relates to another.

So you see, by having common business terminology and definitions across the whole business not only makes it easier for human communication, it also makes it easier for technical communication.

See Next Blog: The Measurement System

With data flowing openly across most international borders, consumers have become creators, and new innovation, risks and news cascade through the system immune to local politics. For organizations to prevent innovation turning from promise to peril, they need to implement new strategies, management models and processes to facilitate innovation staying within the corporate walls until as a collective group they are ready to share it. Unfortunately, many organizations are relying on outdated IT policies as the governing force.

When new promises are constrained by old policies and practices, the effectiveness of these constraints tend to break down as individuals self-organize into movements in an attempt to circumvent barriers to the progress of ‘new promise’. So what is holding corporates back from harnessing promise and preventing peril?

At the moment, many organizations are in what can only be described as data crisis. For years, data was only seen as a transactional historical record. With the introduction of business intelligence capability, data is now finally being recognised for its strategic and highly competitive value. However, outmoded IT policy constraints restricting access to that data is turning opportunities into points of frustration. In addition, social networks are being viewed as disruptive to corporate productivity, rather than a new pathway to universal interconnectedness at the physical, software, and social level.

Networks are core channels to global change. There existence is beyond the control of individual organizations. As such, organizations must change to support associated technology innovation, such as:

• Device innovations – such as iPhone, ebook readers and netbooks
• Open source and open standards – two growing powers
• Social networking – in all its forms
• Location awareness
• Online video

Each of these elements has the potential to create new kinds of businesses, and business networks must be configured to support these new business models. In my last blog I covered how innovation today is no longer seen in terms of products and innovation, but rather in innovation of business models, business processes and management models.

Underlying each of these innovations is a robust information technology platform that is more than just about standard corporate services such as computing and communications. IT policy-makers and stakeholders need to pay more attention to keeping their policies up to date with the technologies and business models they are designed to support. One way of doing this is through an integrated Change Network. Change networks help to link together all aspects of change within a business – technology, process, people, products & services, markets, policy etc. As a cross organizational collaborative function they serve to signal where policies are acting inappropriately, whilst at the same time serving to protect competitive IP from inappropriate circulation. If a business model releases the points of frustration, users become more open and collaborative, and trust that good ideas will not die due to poor policy. Everyone wins!

Innovation is no longer solely focused in traditional products and services, but in business processes, business models and management models. Innovation in these areas are far more sustainable and competitive that innovation in products and services. With product development cycles down to mere months, there is little left in ‘first mover advantage’. Innovation comes from both within and beyond the corporate walls, and in many cases is redefining how we get work done. We have to ask ourselves is the ‘enterprise’ as we know it a sustainable model. In most instances, in spite of companies hanging onto this outdated model, work is being done through networks of experts beyond the corporate walls. Yet sadly, too many IT policies prevent effective collaboration in a timely and open manner. Innovation networks can follow various models – but largely fall into two broad groups:

• Transactional Networks – where a solution brief is distributed to a wide group, often anonymously to garner support to solve a problem or bring an idea into reality
• Relationship Networks – that are based on more formal, trusted alliances between sometime competing businesses to create an outcome used by both parties to advantage.

The open world, fast communications and volatile market all serve to add significant complexity to business – so we need to find simple and effective models and processes to accommodate these within our operational frameworks.

A common error when attempting to deal with complexity is trying to measure everything. Most managers are presented with too much information on a daily basis. In some instances, managers themselves create this overload by insisting on having a view of performance across every aspect of their business unit. In doing so, they not only create additional work for themselves, but also additional work and complexity for the people who must provide this information. Managers today need to accept a balance of trust and risk. Trust in their business data and their reports to do the work they require, and risk in letting them get on with it without micromanagement. When business teams have a clear view of how the work they do links directly to corporate objectives, workflow becomes much more aligned, and measures simplified down to 3-4 key goals and metrics. Using a hierarchy or metrics from strategic to operational means that each person in the chain can focus on become more efficient in the performance in just a few key result areas. Once trust builds, collaboration becomes more intrinsic, innovation occurs more organically, performance becomes more possible and measurement and management become simpler. Everyone wins!

Today, 75% of IT budgets are spent on keeping the lights on. This is severely restricting allocation for business building technologies such as business intelligence. However, cloud computing will change that. The strategies and concepts around cloud computing and BI are challenging IT managers to rethink and restructure the role of IT in business. To many, the fear of being made redundant to outsource providers keeps many IT managers awake at night. However, the reality is more that the role of IT will change, rather than reduce. A change that will see IT become more engaged with the business outcomes of IT, rather than the technology itself.

Just as markets have evolved, communication formats have evolved, and IT hardware has evolved – IT infrastructure has evolved in its entirety. Just as the provision of electricity moved from individual generators to centralized mainstream services, so too are IT services.

It will be the role of IT to keep abreast of new technologies and work with the business to understand how this might help the business become more productive and more profitable. Combined, BI and Cloud computing have already bubbled to the surface of the business – from being part of backend, ‘under the covers’ infrastructure to being the center of strategic strength of the business. Those CFO’s and CEO’s who understand this will be the industry leaders of the future.

With the launch by VMWare of its innovative cloud operating system vSphere 4, virtualization has almost been demoted from being the latest word on everyones lips, to being a small part of something much bigger – and something much more exciting.

Cloud networks keep the lights on – and let IT managers sleep at night. Not only are cloud infrastructures intelligent in recognizing that a network is failing to meet a client SLA, they are self healing, adding additional resource or capacity on demand. No IT intervention required. This is exciting news for many businesses who are struggling with their BI programs through underperforming infrastructures, and prior to vSphere the nightmare of ungrading to meet the processing demands on BI.

Rather than being afraid of upcoming technology, IT managers should be rubbing their hands together in delight at the prospect of no longer having to go to the business begging for more budget, just to keep the basics alive.

More about VMWare vSphere 4

When I am investing in real estate, one of the demographic markers I use for the area is gained by visiting the local supermarket and checking out what wines they stock, and the balance between different price points. So I was intrigued as to what wine intelligence was all about.

Clicking through to the site www.wineintelligence.com I found an array of interesting market data extracted from Vinitrac Global consumer survey, due for launch in March 2009. Insights such as:

“lot of turbulence in the middle of the Wine Wall ($4-$10)”.

“Buyers really are trading down from $7.99 to $5.99″

Following 9/11, it was proposed that wine sales were “recession proof”. The New York Times recently reported that consumers are trading down, but buying more. The argument given was that there was “even more of a reason to drink,” ….I’m with you on that one buddy! Whilst the price dropped 17%, the volume increased 15%. But what about the impact on the producer side. Since the cost of distributing a $5.99 wine is not $2 less than a $7.99 wine, trading down has a big effect on producer and retailer profits…..so one can expect revenues and profits to take a hammering. In markets such as China, where wine is still considered a luxury item, it is more easily deleted off the shopping list without substitution.

All this data is harvested from grocery store loyalty card programs…there is a reason they are willing to give you all those airpoints and free homewares. The article represents a great example of how important it is to understanding the desires and thought processes behind consumer behaviour. In any market condition!! It also illustrates how modelling a current scenario, aligning to common elements in past scenarios can help companies predict with reasonable certainty how the market will react to certain products and services.

Read the full article http://www.wineintelligence.com/

When fear enters the picture, in the absence of the truth, the individual makes up something that is so much worse. We seem to be genetically programmed to look at the negative side of things, a natural protection mechanism.

So what message should you give. That depends entirely on the customer group – and knowing about your customer to that level of detail requires business intelligence capability. For customers in lower economic levels – they will be looking at ways to spread payments or lower cost options. For those in the mid-level, with perhaps more job security and lower debt levels, they will be looking to cash in on the good deals and are more willing to get a good discount for cash payments now, rather than extended payment terms. For those at the top, they are more concerned with ensuring that support will be there when they want it – they don’t have time to read manuals and prefer to get on the phone and have someone walk them through installations or have a service agent do the installation for them.

You need to affirm to your current customers that your business is solid. Be honest. Tell them you are taking prudent actions to cut costs to ensure your debt levels remain within good business practice, and that to ensure your current products remain supported that you are working closely with suppliers to ensure that both product delivery and after sales service remain at the levels you know they value.

Customers just want to feel that you are on the ball – that you care that they may be feeling restless and want some form of assertion that all will be well. Contacting your customers and keeping them close to you will do more for maintaining sales volumes than almost any other strategy.

So you see, The Logical Organization and business intelligence is not all about raw data. It’s about having the right information you can rely on to create a transparent relationship with your suppliers and customers. Right brain emotion is still a valued partner of left-brain logic.

Top 8 Sleep-Killers

The top eight issues keeping business leaders awake at night include:

1. “the constant pressure to meet and beat my quarterly targets” – since the outputs are very data driven, make more use of data to drive the inputs to meet these targets.
2. “how to balance my work pressures with the needs of my family and my health?” – reduce the time spent managing and performing repetitive tasks that can be taken over by intelligence driven processes
   “how can I recruit smarter, more productive people?” – even as a strong supporter of BI software I was unaware of how effective BI was in the area of recruitment until I spent some time investigating this further for my book. Even understanding how BI will transform businesses and how important change is as an everyday part of work recruiters can evaluate candidates for their willingness to collaborate, share ideas and let go of old concepts and assumptions and adopt more modern methods of logic driven decision making. As we go through this period of transition between Socratic right/wrong mentality to one of fluid thinking and multiple options of exploration, we find that not all people are willing or have personalities that are comfortable with releasing old styles of thinking, decision making and management and not adaptable to constant change.
3. “I’m losing good people. How can I keep them from leaving?” – The power of BSC type strategic methodologies and personal productivity dashboards cannot be underestimated in the value of helping each individual understand the value they contribute to the overall organizational goals and in self managing their performance and decisions on a day to day basis.
4. “I need to develop a lot more leaders in our enterprise” – Leaders today need to be more coaches than managers, but the overwhelming amount of information needed to complete every task prevents many from implementing productivity and development programs. By releasing much of this load to BI tools and combining insight driven decision making into more innovative channels, teams feel more empowered and naturally more motivated.
5. “to better manage a much more competitive culture” – it is predicted that the capability of artificial intelligence will surpass that of human intelligence within the next 20 to 30 years. Those companies which do not start the transition to leverage this capability through the adopting of BI tools will not only struggle to keep pace with competitors who do, but fail to deliver insightful products and services to retain their existing customers.
6. “we need to find a more effective communications strategy” – communication is wasted if it does not effectively transfer valuable information. The degree to which the information is valuable is determined by its relevance, accuracy and timeliness. BI tools are effective in all these three domains and the collaboration tools inherent in BI solutions ensure that information is not silo’ed or hoarded.
7. “our metrics are not up to scratch. How to better analyse sales and KPIs” – strategy is too often poorly implemented and/or devolved throughout the organization. By integrating Balanced Scorecard and BI KPI’s are easier to detect and more appropriate to measuring the businesses performance in reaching its goals. I often find that businesses have implemented sound KPI measuring mechanisms but they are either measuring the wrong things or too many things. BSC + BI help businesses avoid both of these mistakes
   “I worry about whether our security is OK” – most large corporates have sound security policies. For those small businesses, the benefits of SaaS BI, CRM and other business software ensures that data is more secure than most previously experienced.
8. “how to ensure the survival and succession of my business” – when we look back at why only 18 of the Fortune 500 companies in 1974 still survive today, the underlying reason has been failure to change the way the business operates to keep up with changes in the business and consumer environments. The lack of flexibility through rigid ego-driven hierarchies, lack of information and poor collaboration has been the demise of many previous great companies. When BI is fully integrated into the operating environment, the infrastructure almost self evolves as new data-driven insight highlights new opportunities – new decisions to be made – new processes to implement and new relationships to form.

Consulting group McKinsey has released the results of its recent global survey [November 2008] of over 2000 corporate executives on their decision making processes and outcomes. This included questions pertaining to:

1. Decision makers involved
2. Drivers of the decisions
3. Depth of analysis
4. Openness of the discussions
5. Impact of Politics on process and outcomes
6. The financial and operational outcomes
7. Hard business benefits

The results of the survey highlighted the benefits of decision making disciplines, ensuring the right people are included and adopting organizational-wide approaches to risk and outcome analysis. It also highlighted flaws in strategic decision making, especially around the impact of irrational thinking on corporate planning

Good Decision Process

Process steps strongly associated with good outcomes included:

• Including people with the right skills and experience in decision making
• Clearly defining decision criteria
• Making decision on facts, not personal assumptions
• Managing contributing politics, such as some consensus and alliance building

Types of Decisions Made in Organizations

More than 75% of investment decisions were aimed at revenue growth rather than cost savings and just over half [57%] of decisions related to human resources were aimed to improve efficiency or productivity:

• Organization Change – Expansion [New products, services, markets] 34%
• Organization Change – Other 21%
• Growth – Existing products, services, markets 15%
• Growth – Infrastructure 12%
• Growth – M&A’s 11%
• Maintenance – Infrastructure 5%

Decision Outcomes

Most decisions were driven by the executive team, most of these outside the annual planning process.
Whilst the survey showed that overall, outcomes for decisions were good, it also supported other findings that execution is too often overlooked when making decisions, with operations executives only being consulted in less than one third of the most financially unsuccessful decisions. Decision outcomes were assessed in terms of met or exceeded executives’ expectations for revenue growth and cost savings, speed, implementation cost, and gains in market share or efficiency. The expected payback period of decisions was less than 2 years.

Successful decision outcomes result from:

1. Strong relationships linking financial success to goals set around benchmarks
2. Clarity about who is responsible for implementation
3. Involvement of implementers in the decision-making process
4. Appropriate level of analysis, discussion, and corporate politics for the decision type

Common Decision Making Mistakes

• Decisions initiated and approved by the same person – generate the worst financial results. This indicates the value of good discussion.
• Decisions made without any strategic planning process are twice to fail or deliver substandard results
• Lack of or insufficient risk and impact analysis

Good Decision Making Principles

Analysis

• Sensitivity analysis and financial-risk models
• Implementation speed of project completion, cost to implement, impact on whole organization not just area of implementation
• Outcomes – benchmarking expectations for both financial and productivity improvements

Implementation

A concise analysis and understanding of what constitutes:

• Financial success
• Completion of the project in less time than expected

Politics

• Encouragement of participation on the basis of individuals’ skills or experiences
• Reliance upon transparent approval criteria for the decision
• Having an understanding of how the decision will impact the whole organization allows for relationship and alliance building ahead of implementation, positively impacting the success of both the speed of implementation and the outcome.

One interesting paradox emerging from the results was that the most successful and the most unsuccessful projects were those where the CEO was highly involved. Certainly, the CEO has a major impact in managing the internal politics of a program and ensuring that impact and risk are assessed at organizational levels, not departmental. This ensures that departmental goals remain aligned with the overarching organizational goals.

For detail results of the survey.

The survey closely followed a previous McKinsey survey [October 2008] on strategic thinking and how companies make good decisions. This survey revealed the error in relying on decision makers using rational thinking even when highly strategic outcomes were at stake. Irrational thinking adversely impacts both individual economic decisions and corporate strategic planning.

Both surveys support the premise of The Logical Organization™, that in spite of the perception held by executives that they alone are capable of solid, rational decision making, it is merely a perception, not the reality. The time in which executives today are pressured to make decisions fails to provide sufficient time for human driven collaboration and analysis. The use of business intelligence tools is critical if this vital part of the decision making process is executed well. BI tools also help ensure that decisions are tied to high level strategic goals and how the decision may impact them.

1. Single Event – It starts with a single event,
2. Isolated Events – It then appears on the horizon as a series of seemingly unrelated events
3. Connected Events – It then becomes a trend, with more ‘isolated’ events starting to form connections located in remote regions
4. Local Market Force – It appears in your market – and boom, suddenly with the speed of Web 2.0 it becomes a recognisable market force
5. Mass Market – It reaches mass market – where it has not only the inertia to continue under its own energy, but also leaves behind a latent footprint impacting other market factors
6. Shadow Force – It becomes a shadow – it has moved from a driving market force into a market that lingers to the sidelines of a new change

If you are not watching over the horizon, and monitoring any new forces that transform from being isolated events into trends, then yes, the change will appear to happen rapidly. What has changed more than the so called ‘speed of change’ is the complexity of change. In many cases, it is the complexity that allows change to be hidden in plain sight.

The option to ‘stay the course’ is only valid if the environment in which you will be operating in the future is the same as the past. Twenty years ago, even only ten years ago that may have been reasonably valid. But not today. Today, the changes are so fast, and much more subtle. Small incremental, seemingly insignificant changes in market, supply and technology build into large significant changes very quickly.

It is essential that organizations have reliable information collection and analysis systems to identify and interpret changes and trends that may significantly impact their future. And once these changes are recognised, the company must start acting immediately to counter the new force.

Those who don’t manoeuvre to make the force work for them, will likely bear the consequences of the force moving against them.

The Logic Evangelist