I have long believed in the unification of transactional and analytical systems and have been working towards building systems that deliver on this promise for close to a decade. My co-authors and I used the term “Strategy-Driven Execution” in Driven to Perform: Risk-Aware Performance Management From Strategy Through Execution to describe this desired state. We have come to a point from a business perspective where companies will not survive if they do not unify their insights and action systems to speed-of-thought latencies and where the technology to do so has made this a real possibility.
In the last five pages of “Driven to Perform”, we discussed the end-game for enterprise applications that would enable strategy-driven execution.
Imagine a board meeting five years from now. It is easy to imagine a meeting, for example, to discuss a downward trend in profits. Instead of having to discuss what questions should be studied and brought back for later review, it should be possible to ask and answer questions right then, using a performance management system that allows drilldown into all the relevant areas. For example, the CFO should be able to look at the trends in all of the components of net income. Perhaps the CFO discovers the most obvious cause of the declining income is increased costs in a particular product line. The VP of Supply Chain looks up the product line and identifies increased costs in a category (such as feedstock or oil). Then the VP of Procurement looks up that category and identifies spend breakdown and determines to identify alternate sources of supply. It is not hard to imagine that alternate sources are presented on the dashboard. One could be chosen and submitted for a risk review. The Chief Risk Officer can pull up a dashboard and start to determine if there are unacceptable risks. The head of customer service can report on any quality problems that may have had an effect on the market. The VP of Sales can look for other contributing factors reported from the field that may have dampened sales. The VP of marketing can analyze how to reshuffle resources to prop up demand in the desired area. During all this, the CIO and CTO can both beam happily now that everyone is speaking the same language. At the next board meeting, it would be just as simple to see if the adjustment worked. The VP of Procurement could show the costs from the new supplier. The VP of Supply Chain’s dashboard shows that costs have gone down and so the product line margin is looking good again. The CFO agrees and indicates to the CEO that the revenue on the dashboard is trending back up.
It is possible to imagine an even more advanced integration of performance management, risk and compliance management, and business process management. In a world in which a company is run according to explicitly defined end-to-end processes, it will be possible to look at a goal that the company is trying to achieve in an integrated fashion. One side of the goal will be the business process used to achieve that goal, another side will be the performance management metrics that are used to track the progress of the execution of the process, and the third side would be the risk indicators and compliance processes that must be performed as part of that processes.
Strategy-Driven Execution - The Complete Fusion of Goals, Initiatives, Plans, Forecasts, Risks, Controls, Performance Monitoring, and Optimization with Transactional Processes
Any goal in business involves all three of these dimensions, but now they are treated more separately than they should be. Any attempt at optimization involves all three as well. The end result of this kind of strategy-driven execution is the ability to rapidly reconfigure your business with confidence that no important issues are being ignored.
Excerpted from Driven to Perform: Risk-Aware Performance Management From Strategy Through Execution (Nenshad Bardoliwalla, Stephanie Buscemi, and Denise Broady, New York, NY, Evolved Technologist Press, 2009). Copyright © 2009 by Evolved Media, LLC
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In a perfect world, such as you are imagining, a world-class risk management process would be in place. Why is this so important? If it is really world-class, the risk management process would be integrated with strategy and performance management. So, not only would any downturn in margins and increase in feedstock cost NOT be a surprise, but contingency plans would be in place. Leading risk indicators would have alerted management before the margin erosion became a real problem.
ReplyDeleteThe injection of risk in the fuel that is consumed by management brings added resiliency and predictable performance to the organization.
Thank you for your feedback, Norman. While we tried to incorporate risk-aware thinking throughout the book, examples like yours really make it clear how powerful risk and performance management can act in concert.
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