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ITW – interesting things this week # 4

by alexander roan

Welcome to the fourth edition of ITW – ‘Interesting Things this Week’ ??

In this newsletter, I share content from across the web that I found interesting. It’s loosely focussed on business transformation, and I try to avoid duplication with mainstream media.

This weeks post is around 1,000 words and a 4 minute read.

1) Nissan refocuses on its core business

The Economist wrote an interesting piece on Nissan CEO Uchido Makato’s plans for the brand. The situation Nissan finds itself in is a common trap for large corporations. A long period of growth leads to a drop in standards, a dilution of focus, and poor performance. In the case of Nissan, it seems that poor sales tactics in key markets and mismanagement of the product line were contributing factors. In this situation Uchida-san feels like the right leader, his approach to scale down and re-focus Nissan on a revitalised line of core products is sensible. To me, this was reminiscent of working under AG Lafley’s organisation at P&G back in 2000 when the company faced a similar situation. This is an important scenario to take into account when making strategic plans. Always check that the correct focus is placed on core products. Make sure that in-market sales strategies don’t risk long-term performance, to make short-term sales.

2) McKinsey wrote about centralising business operations

Last week I wrote about cost reduction. One of the biggest opportunities for cost reduction is centralisation. By this, I mean co-locating functions such as finance, human resources, purchasing and legal. Essentially all functions that don’t need to be in the field (e.g. sales) or at a specific facility (e.g. production). Centralisation brings a long list of potential benefits:

  • Moving to a low-cost location can provide significant labour cost savings;
  • Moving to a different location can provide a better talent pool;
  • Co-location reduces the overall number of managers required;
  • Scale drives more efficient ways of working;
  • Scale increases skills and knowledge;
  • It’s easier to implement and manage controls;
  • It’s easier to manage consistency of service levels;
  • It’s easier to manage information technology.

Centralisation is closely connected to process and systems improvements. This brings up a key question, whether to improve things before or after centralizing. McKinsey wrote a good article on the merits of shift then fix versus fix then shift. I think they reach the right conclusion; the best approach depends on the situation.

However, the article does miss a few factors; perhaps for brevity. The cited two options can be further expanded to four:

  • Centralise work w/out any improvement;
  • Centralise work and then improve it after it’s centralised;
  • Improve the work first and then centralise;
  • Both centralise and improve the work at the same time (by a project team).

The first is often overlooked. It is possible to centralise with no or a minimal amount of change and still gain labour cost and management consolidation savings.

Shift, then fix is often not an option due to a lack of capacity and capability to do the fixing. Companies in this situation can take advantage of centralising with an outsourcer on a shift, then fix basis. If a deal is well structured, an outsourcer can do the fixing for the company. The contract can be structured in such a way to incentivise this and deliver savings back to the company. I like this approach as it hands over topics such as robotic process automation or lean process improvement to the outsourcer and lets the company focus on its core business. A good outsourcer should, in theory at least, be an expert in process and systems improvement.

3. Bain wrote about assessing Change Power

Over the last decade, I’ve been both impressed and depressed by change management. Impressed by how a few simple adjustments to strategy or a program can make a massive difference in success rate. Depressed by the number of job postings and professionals that claim to want or be change managers, but have little substance other than being good at communications.

This leads to an important question. What exactly is change management and how do we measure it. Bain has developed a model composed of 9 elements that can be used to measure change.

Source: Bain & Company

I would propose these 9 elements are a good starting point, but this can be further customised the individual situation of a company. Considering the 9:

  • The ability of leadership to set direction is clearly important, I would also add the ability to ‘communicate or deploy’ that direction;
  • The capacity and choreography under ‘teaming for change’ is often overlooked, during strategic planning companies often create a long wish-list of change, but rarely appropriately consider the resources required to execute;
  • Development is a noteworthy focus on the skills needed to be able to identify and execute the right change. A solid example is digital, many companies lack the knowledge and risk being misled into the wrong programs by software companies.

Having a model for change management at the strategic and individual program level is something I would recommend as a top priority. I’d suggest using this as a basis for capability development and running regular self-assessments.

4. Analytics teams within Finance

CFO.com wrote about analytics within Finance. As expected their survey shows that most analytics work is done centrally. They also cite a low rate of outsourcing.

The potential benefits of outsourcing are often overlooked for analytics. Outsourcing is still seen as most suitable for low-skill, commodity work. However, outsourcing can also be a way to access large teams of highly skilled people.

Building an internal analytics team will face a number of challenges; building a high degree of expertise in what may be a small team, attracting top talent for some industries. With scale, an outsourcer can overcome many of these challenges and have both variety and depth of expertise in analytics e.g. employing statisticians, mathematicians, functional experts (e.g. finance) as well as experts covering a range of software products and programming languages.

I would consider an 80% outsourced and 20% internal model for analytics, assuming an outsourcer with the right capability can be identified. The 20% internal act as business partners and focus on understanding the business context and questions that analytics should be investigating.

What I’ve been up to this week?

This week I took a break from writing. Last week I finished a fairly long article on the chart of accounts. This article does mention SAP in the title, but the majority of the article is systems agnostic; this should work as a guide to the CoA in any environment.

And finally, something fun…

Have you played Pokemon Go? Have you heard of the mega-popular board game ‘Settlers of Catan’? Well, Niantic; the Pokemon Go developer is currently developing an augmented reality game based on Catan. A/R has been slow to evolve, but the gigantic success of Pokemon Go makes me wonder if Catan will be successful and what else the future will bring.


This newsletter is also available via e-mail, you can subscribe here.

Categories
Articles Finance Transformation

A simple guide to cost reduction

1) Cost reduction and CSR

Whenever discussing cost reduction it’s important to consider corporate social responsibility as a starting point. Ideally, companies can find the right balance between reducing costs and thinking about employee and business partner (e.g. supplier) impacts. Employee layoffs can have a devastating effect on individuals. Business partner changes can put companies out of business. When planning and executing cost reduction these impacts should be considered. In real life, this might mean trying to offer employees other options (reduced hours / different contract terms / new profit-generating roles) or business partners a revised agreement.

2) A model for cost reduction

A good starting point for cost reduction is to consider the type of costs incurred within the business. Accounting provides a consistent way to look at this. Costs are either tied directly to production or not. For example; in a manufacturing environment there are factories with machines, operated by people to produce products. Cost accounting is used to calculate ‘cost of goods sold (COGS)’. This is the cost that can be directly tied to converting the input materials to the finished product. In this case by adding the raw material, labour and utility costs.

figure 1: cost structure

In addition to COGS there are operating expenses. They include the entire cost of departments such as accounting, human resources and IT. They also includes the costs of headquaters or sales offices. The majority of operating expenses are sales, general and administrative costs (SG&A). This is sometimes further broken down to sales costs (S&A) e.g. advertising campaigns and general and administrative costs (G&A) e.g. rent and utilities.

In service industries there are no COGS so SG&A is even more important.

This structure will be useful in planning cost reduction initiatives. Each cost area can be considered in turn. Typically SG&A is seen as one of the top priorities of cost reduction as it’s somewhat independent of production and sales volume.

Approach to cost reduction

A basic approach to cost reduction that many organisations follow is to set blanket cost-cutting targets across the entire enterprise. Why? – perhaps because identifying the best place to cut costs requires a lot of analysis, thought and difficult decisions. Setting blanket targets across seems to be an easy way out and hands the responsibility to individual budget owners.

Costs are normally managed as part of annual budgets. This annual budget setting process is complicated. It can take as long as 6 to 9 months to set budgets. Typically the executive set high-level targets on sales, margin and costs. These are then filtered down through management layers to individual budget owners. There is then a back and forth that can continue for several months to agree on the budgets. The targets are often moving during this process.

Budgeting is often based on previous year actuals. If the executive takes last years budgets and asks each team to cut costs by 5%, each budget owner will try to negotiate a lower % cut. This leads to an allocation of investment based on the individual budget owners ability to justify and negotiate. The company might make it’s 5% target, but at the cost of reducing investment in the wrong areas.

A better approach to cost reduction would be to start from strategy and think carefully about the right areas to reduce costs.

During this strategy review the executive can carefully consider the products / services and markets and the different cost categories present across the business. An approach would be to build a matrix by cost category and product / service and answer some questions:

  • How closely tied is the cost to sales and production;
  • Has cost been challenged or reviewed in that area previously;
  • Is that department a key dependency for high volume or highly profitable products / services or customers segments;
  • How easy is it to make changes to the area in question;
  • etc.

This kind of analysis would be useful for deliberating the right focus areas for cost reduction. These will differ based on industry / market etc. Another useful tool is to apply zero-based budgeting. This will move away from assuming previous year budgets are the right starting point.

A word on benchmarking

Benchmarking is a common tool which helps to reduce costs. Ratios of different cost to revenue factors are often used to get a broad idea of whether a particular part of a company is efficient and shows value for money. The cost of the finance function as a percentage of revenue is an example of this.

But benchmarking can also be used in more granular ways. Two examples:

  • Checking salary rates against competitors – easier than ever with the advent of online comparison tools;
  • Internal benchmarking of departments / functions against one another, this can be done with sales offices, manufacturing sites etc. Where the benchmarked areas have slight differences complexity measures can be identified to adjust the benchmarks.

Ten ways to cut costs

Over the years I’ve seen or been involved in several cost-related programs. Here are ten areas where I’ve seen good results.

1. Focus on core products / services

My first employer; Procter & Gamble, is a good story of the importance of focussing on core products and services. Around 2000 P&G were struggling. They had become ‘fat’. Too many new products and services and a large unorganised support function (high SG&A costs). A.G. Lafley joined the company in 2000 and two key strategies helped with the recovery:

  • Focus on core brands/products;
  • Build an efficient back office (simplify, standardise, centralise).

This needs to be carefully planned and will result in a high degree of mid and long term benefits.

2. Cancel projects

The success and cost rates of projects is rarely a focal point of strategy. Every company should have a central PMO that monitors the benefits to cost ratio for all programmes. This is a low effort / light touch PMO. Projects can be expensive, the key is to carefully control project budgets and stop or re-direct them quickly.

3. Create a central procurement organisation

For large organisation scale can be leveraged by procuring centrally. This goes for everything from raw materials to pencils. Rather than individual facilities/locations/teams making their own purchases, all purchases can be handled by a central team. This is an opportunity to buy at scale and also build a procurement and negotiation centre of excellence.

4. Centralise operations – finance, IT, HR, legal, marketing etc.

If staff are decentralised across locations there will be an opportunity to improve rent and utilities costs as well as reduce overall management effort by centralising teams. This can be done for all staff not directly tied to production or field sales. Centralisation has a lot of additional benefits for culture, quality and controls. Centralising functions will also have a knock-on effect by simplifying requirements from IT, HR and property services.

5. Offshoring

Offshoring whether based on a captive or outsourced model can massively reduce labour cost. I’ve seen savings off over 50% on labour, this can be a huge proportion of SG&A, particularly in service industries. This does require detailed planning and very careful execution. However, it’s easy to calculate potential savings. First, calculate a blended fully loaded cost for the functions you are considering e.g. finance staff, and then calculate the equivalent for any target country of interest. The information to calculate this is easily available freely online.

Outsourcing has somewhat of a bad reputation. Based on my experience this is normally due to poor execution. Most of the time the companies squeeze the outsourcing supplier too far on price and hence receive poor service levels. Cost reduction should always be balanced with quality.

6. Review IT licensing

One of the patterns in IT over the last decades has been an ever-increasing number of technology products, services and suppliers. It’s worthwhile to consider rationalisation in this space. Is each application needed? Do we have the right number of licenses? Can terms be renegotiated?

7. Deep dive into sales costs

For companies with field sales there may be opportunities to reduce costs. The key factor is to figure out what costs drive success in sales. Travel, events, conferences etc. should be carefully analysed to understand how much they impact sales. Moving events online, or reducing budget for entertainment can result in significant savings.

8. Deep dive into employee costs

Layoffs are one option to save on employees, but there are also opportunities to reduce labour costs. Is the salary banding simple and efficient? Are the package related costs (benefits) good value? Is there an opportunity to change contract structures? Would employees consider a 4-day week?

9. Discounts

Discounting can easily be overlooked on cost reduction initiatives as it happens at the point of sale. Discounts can total up to have a large impact on margin. This is true especially in industries like Pharmaceuticals where complex pricing structures are used.

10. Process improvement

Methods such a Lean culture and tools such as automation (RPA) can be key drivers of effort reduction, however, these do not reduce costs on their own. There must be layoffs or re-assignment of people to revenue-generating roles.

What the experts say

I’ve taken a look at some of the leaders in strategy and management to see what they have recently published on cost reduction.

McKinsey

McKinsey recently wrote this article about cost reduction, noting that it’s a top priority for most corporations and observing that cost targets seem to be fairly unfocused. The following diagram is a useful illustration of how organisations normally set blanket targets:

Source: McKinsey

Bain

Bain currently have a webinar that looks at zero-based budgeting and five key themes of cost reduction. They also have an insight article that covers the less widely focussed on fixed product costs together with sustainability. It’s interesting to consider how a move to more sustainable packaging can cut costs. This is a good example of considering cost and CSR together:

Source: Bain

Bain also have an article focussing on where to cut costs. They recommend focussing strategically on the right areas of the business. The ‘where to play’ and ‘how to win’ diagrams are useful and are normally an effective way to structure the discussion about the products / services and market segments to focus on and invest in vs. the ones to consider downsizing or as they note below divesting.

Source: Bain

Strategy& (PwC)

One of the first insights posted on Strategy& includes a downloadable PDF where they share a fairly comprehensive plan and approach to tackling cost. At a glance, this includes a starting point of thinking clearly about strategy and the market and then moving onto execution. I like the categorisation of short term, midterm and long term actions.

Source: Strategy&

cover graphic by http://www.glazestock.com

Categories
Newsletter

ITW # 3 – a guide to cost reduction

by alexander roan

Welcome to the third edition of ITW – ‘Interesting Things this Week’ ??

This weeks newsletter is dedicated to cost reduction. In the news; the independent wrote about cost-cutting in UK retail, the BBC wrote about layoffs for aviation workers and UK job cuts in general. HSBC was also in the headlines as they decided to continue with their plan to lose 35,000 employees. The OECD reported that global economic activity is expected to fall by 6% in 2020 and OECD unemployment to climb to 9.2% from 5.4% in 2019. A theme of 2020 for many companies will be the need to cut costs as a way to mitigate reduced income.

With this as a backdrop I’d like to talk further about the approach to cost reduction.

1) Cost reduction and CSR

Whenever discussing cost reduction it’s important to consider corporate social responsibility as a starting point. Ideally, companies can find the right balance between reducing costs and thinking about employee and business partner (e.g. supplier) impacts. Employee layoffs can have a devastating effect on individuals. Business partner changes can put companies out of business. When planning and executing cost reduction these impacts should be considered. In real life, this might mean trying to offer employees other options (reduced hours / different contract terms / new profit-generating roles) or business partners a revised agreement.

2) A model for cost reduction

A good starting point for cost reduction is to consider the type of costs incurred within the business. Accounting provides a consistent way to look at this. Costs are either tied directly to production or not. For example; in a manufacturing environment there are factories with machines, operated by people to produce products. Cost accounting is used to calculate the ‘cost of goods sold (COGS)’. This is the cost that can be directly tied to converting the input materials to the finished product. In this case by adding the raw material, labour and utility costs.

figure 1: cost structure

In addition to COGS, there are operating expenses. They include the entire cost of departments such as accounting, human resources and IT. They also include the costs of headquarters or sales offices. The majority of operating expenses are sales, general and administrative costs (SG&A). This is sometimes further broken down to sales costs (S&A) e.g. advertising campaigns and general and administrative costs (G&A) e.g. rent and utilities.

In service industries there are no COGS so SG&A is even more important.

This structure will be useful in planning cost reduction initiatives. Each cost area can be considered in turn. Typically SG&A is seen as one of the top priorities of cost reduction as it’s somewhat independent of production and sales volume.

Approach to cost reduction

A basic approach to cost reduction that many organisations follow is to set blanket cost-cutting targets across the entire enterprise. Why? – perhaps because identifying the best place to cut costs requires a lot of analysis, thought and difficult decisions. Setting blanket targets across seems to be an easy way out and hands the responsibility to individual budget owners.

Costs are normally managed as part of annual budgets. This annual budget setting process is complicated. It can take as long as 6 to 9 months to set budgets. Typically the executive set high-level targets on sales, margin and costs. These are then filtered down through management layers to individual budget owners. There is then a back and forth that can continue for several months to agree the budgets. The targets are often moving during this process.

Budgeting is often based on previous year actuals. If the executive takes last years budgets and asks each team to cut costs by 5%, each budget owner will try to negotiate a lower % cut. This leads to an allocation of investment based on the individual budget owners ability to justify and negotiate. The company might make it’s 5% target, but at the cost of reducing investment in the wrong areas.

A better approach to cost reduction would be to start from strategy and think carefully about the right areas to reduce costs.

During this strategy review, the executive can carefully consider the products/services and markets and the different cost categories present across the business. An approach would be to build a matrix by cost category and product/service and answer some questions:

  • How closely tied is the cost to sales and production;
  • Has cost been challenged or reviewed in that area previously;
  • Is that department a key dependency for high volume or highly profitable products/services or customers segments;
  • How easy is it to make changes to the area in question;
  • etc.

This kind of analysis would be useful for deliberating the right focus areas for cost reduction. These will differ based on industry/market etc. Another useful tool is to apply zero-based budgeting. This will move away from assuming previous year budgets are the right starting point.

A word on benchmarking

Benchmarking is a common tool which helps to reduce costs. Ratios of different cost to revenue factors are often used to get a broad idea of whether a particular part of a company is efficient and delivers value for money. The cost of the finance function as a percentage of revenue is an example of this.

But benchmarking can also be used in more granular ways. Two examples:

  • Checking salary rates against competitors – easier than ever with the advent of online comparison tools;
  • Internal benchmarking of departments/functions against one another, this can be done with sales offices, manufacturing sites etc. Where the benchmarked areas have slight differences complexity measures can be identified to adjust the benchmarks.

Ten ways to cut costs

Over the years I’ve seen or been involved in several cost-related programs. Here are ten areas where I’ve seen good results.

1. Focus on core products / services

My first employer; Procter & Gamble, is a good story of the importance of focussing on core products and services. Around 2000 P&G were struggling. They had become ‘fat’. Too many new products and services and a large unorganised support function (high SG&A costs). A.G. Lafley joined the company in 2000 and two key strategies helped with the recovery:

  • Focus on core brands/products;
  • Build an efficient back office (simplify, standardise, centralise).

This needs to be carefully planned and will result in a high degree of mid and long term benefits.

2. Cancel projects

The success and cost rates of projects is rarely a focal point of strategy. Every company should have a central PMO that monitors the benefits to cost ratio for all programmes. This is a low effort / light touch PMO. Projects can be expensive, the key is to carefully control project budgets and stop or re-direct them quickly.

3. Create a central procurement organisation

For large organisation scale can be leveraged by procuring centrally. This goes for everything from raw materials to pencils. Rather than individual facilities/locations/teams making their own purchases, all purchases can be handled by a central team. This is an opportunity to buy at scale and also build a procurement and negotiation centre of excellence.

4. Centralise operations – finance, IT, HR, legal, marketing etc.

If staff are decentralised across locations there will be an opportunity to improve rent and utilities costs as well as reduce overall management effort by centralising teams. This can be done for all staff not directly tied to production or field sales. Centralisation has a lot of additional benefits for culture, quality and controls. Centralising functions will also have a knock-on effect by simplifying requirements from IT, HR and property services.

5. Offshoring

Offshoring whether based on a captive or outsourced model can massively reduce labour cost. I’ve seen savings off over 50% on labour, this can be a huge proportion of SG&A, particularly in service industries. This does require detailed planning and very careful execution. However, it’s easy to calculate potential savings. First, calculate a blended fully loaded cost for the functions you are considering e.g. finance staff, and then calculate the equivalent for any target country of interest. The information to calculate this is easily available freely online.

Outsourcing has somewhat of a bad reputation. Based on my experience this is normally due poor execution. Most of the time the companies squeeze the outsourcing supplier to far on price and hence receive poor service levels. Cost reduction should always be balanced with quality.

6. Review IT licensing

One of the patterns in IT over the last decades has been an ever-increasing number of technology products, services and suppliers. It’s worthwhile to consider rationalisation in this space. Is each application needed? Do we have the right number of licenses? Can terms be renegotiated?

7. Deep dive into sales costs

For companies with field sales, there may be opportunities to reduce costs. The key factor is to figure out what costs drive success in sales. Travel, events, conferences etc. should be carefully analysed to understand how much they impact sales. Moving events online, or reducing the budget for entertainment can result in significant savings.

8. Deep dive into employee costs

Layoffs are one option to save on employees, but there are also opportunities to reduce labour costs. Is the salary banding simple and efficient? Are the package related costs (benefits) good value? Is there an opportunity to change contract structures? Would employees consider a 4-day week?

9. Discounts

Discounting can easily be overlooked on cost reduction initiatives as it happens at the point of sale. Discounts can total up to have a large impact on margin. This is true especially in industries like Pharmaceuticals where complex pricing structures are used.

10. Process improvement

Methods such a Lean culture and tools such as automation (RPA) can be key drivers of effort reduction, however, these do not reduce costs on their own. There must be layoffs or re-assignment of people to revenue-generating roles.

What the experts say

I’ve taken a look at some of the leaders in strategy and management to see what they have recently published on cost reduction.

McKinsey

McKinsey recently wrote this article about cost reduction, noting that it’s a top priority for most corporations and observing that cost targets seem to be fairly unfocused. The following diagram is a useful illustration of how organisations normally set blanket targets:

Source: McKinsey

Bain

Bain currently have a webinar that looks at zero-based budgeting and five key themes of cost reduction. They also have an insight article that covers the less widely focussed on fixed product costs together with sustainability. It’s interesting to consider how a move to more sustainable packaging can cut costs. This is a good example of considering cost and CSR together:

Bain also has an article focussing on where to cut costs. They recommend focussing strategically on the right areas of the business. The ‘where to play’ and ‘how to win’ diagrams are useful and are normally an effective way to structure the discussion about the products/services and market segments to focus on and invest in vs. the ones to consider downsizing or as they note below divesting.

Source: Bain

Strategy& (PwC)

One of the first insights posted on Strategy& includes a downloadable PDF where they share a fairly comprehensive plan and approach to tackling cost. At a glance, this includes a starting point of thinking clearly about strategy and the market and then moving onto execution. I like the categorisation of short term, midterm and long term actions.

And finally..

With this being the third edition of my newsletter I decided to try something a little different by focusing on a specific topic. Would you prefer future newsletters of this type or a more general format? What would be useful to include; theory, case studies, analysis / links to expert views?


I’ll also be sending this newsletter via e-mail in future, if you would like to receive it in your inbox please subscribe:

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Categories
Articles Project management

Improving project management by focussing on strategy and people

Many of the projects I’ve come into contact with over the years run into problems that stem from a lack of focus in two areas. A lack of ability to effectively deal with people. And a lack of depth of knowledge of strategy.

I’ve been around projects for almost 20 years. Working in roles such as systems analyst, business analyst, project manager, program manager, management consultant and change manager. During this time I’ve seen a wide variety of methods and tools applied, but regardless of those, there are consistent underlying problems.

The profile of the project manager is critical to a projects success. What experience do they have? what do they focus on? what tools do they use? how do they manage conflict? a good project manager needs a wide variety of skills.

If I were to estimate I would say around 1 in 5 projects that I come into contact with have good, multi-faceted project managers. The good news is we can all become better project managers and in this article I’d like to address one of the biggest opportunity areas for improvement.

I’ll start from where project managers are strong; methods and tools. Project management seems to attract people who are organised and enjoy structure and detail. They feel confident about studying approaches and tools and applying them to their projects. I often see a huge focus on topics such as:

  • Documenting the project e.g. writing scope statements;
  • Drafting plans including the very popular GANTT chart;
  • Preparing lists; issue lists, problem lists, change lists, stakeholder lists etc.

These are very important. However, having these in place doesn’t mean a project will be successful. In some cases, an over-reliance on these may cause problems.

The areas I don’t see enough focus on are strategy and people.

Strategy

Strategy can be challenging in many ways:

  • It’s difficult to access senior people responsible for strategy;
  • Strategy information is often not well deployed through an organisation;
  • To understand strategy requires a broad view of business, many project teams suffer from a silo focus on functions or technologies.

Ensuring you understand corporate documentation on strategy including annual reports or internal communication packs are a good start, but ideally you want to understand the nuances that senior management are focussed on.

People

Anthropology is a huge topic of it’s own. Why do people behave the way they do? This requires developing observational skills and experience of how to intervene in various situations.

As a starting point just being aware that people are a factor and taking this into consideration can make a difference.

Project management – where’s the people advice?

My path into project management will be somewhat familiar to many. I spent three years working as a systems / business analyst before being given the opportunity to manage my first project. I was both excited and scared about the prospect of becoming a project manager.

I had enough experience to know how projects worked. I had worked under good project managers and because of this I felt comfortable with the tools and methods. I had a solid understanding of how to:

  • Scope a piece of work;
  • Estimate effort and put together a team;
  • Create a work breakdown structure and draft a plan;
  • Plan and execute the stages of a systems development lifecycle;
  • etc.

Despite this, I was nervous about taking on my first project. The root cause of my nerves came down to the dependency on people. When we work as an analyst we can rely on technical skills and effort to deliver our work successfully. When we switch to project management it’s a completely new paradigm, we suddenly need to rely on a disparate team of individuals for success.

This is not the same as becoming a team leader. As a team leader we have levers such as career management, performance reviews etc. to build a relationship with our team. A project manager is in a unique position of relying on a team of people, while often having very little power over them.

Not all of the individuals on our project team will care about project success. Some may even be against it.

The question that none of the project methodologies would answer

As I started leading projects one challenge came up over and over again, and it appears very simple:

How can I get people that don’t work for me to do things?

I read the PMBOK from PMI, I read websites on Prince2, I studied my employer’s internal project management methods, I read our software vendors methods, I read various books, including the ‘project management for dummies‘; which I thought was very good.

(books / versions shown only for illustrative purposes)

In my opinion none could provide a satisfactory answer through the methods and tools listed. To illustrate the point; a google search for the PMBOK contents shows the 6th version of it as covering:

  • Section 1: Introduction
  • Section 2: The Environment in Which Projects Operate
  • Section 3: The Role of the Project Manager
  • Section 4: Project Integration Management
  • Section 5: Project Scope Management
  • Section 6: Project Schedule Management
  • Section 7: Project Cost Management
  • Section 8: Project Quality Management
  • Section 9: Project Resource Management
  • Section 10: Project Communications Management
  • Section 11: Project Risk Management
  • Section 12: Project Procurement Management
  • Section 13: Project Stakeholder Management

The titles alone show a lack of focus on strategy and people. I realise some aspects of strategy and people are considered in the sections above, but it’s not enough. I would propose chapter one should be about strategy and chapter two should be about people.

Scope, time, cost and quality relationship

An often cited relationship in project management is scope, time, cost and quality:

The idea being that the relationship between the the four are tied. For example if you have a delay (a problem with time), you may be able to reduce scope, to still hit your deadline. Or alternatively bring on extra resources (increase cost).

If you observe projects in practice I think this simply isn’t true. There are more factors that influence the relationship between these things. As a starting point I would re-draw it like this:

The way you work with people has a relationship with scope, time, cost and quality. If you use people well (with the same no. of resources and hence cost) you can deliver more work, faster and with higher quality.

If you have a clear understanding of the strategy your project supports; including the nuances of what the stakeholder wants, you can focus more accurately and provide better quality given the same scope, time and cost. It could be argued that ‘directing focus’ equates to managing scope, but I think this is too nuanced to be bundled in with scope management.

People problems – diving deeper

So far, I have spoken in conceptual terms. I’d like to go into some detail based on my own experience. In one of my first projects part of my team consisted of peers. From the first team meeting my peers decided to challenge me on various aspects of the project approach. Understandably the mindset of some team members at the start of a project might be, “why do we have to work for this person?”.

Dealing with resistance is a very common issue. If a project simply had to execute it’s planned deliverables the effort would be vastly less than what it often takes to complete a project. A huge amount of time and effort is spent on managing resistance, and justifying actions etc.

The starting point is to consider the source of resistence:

  • Team members don’t think project managers are experienced enough;
  • Team members don’t like project managers telling them what to do;
  • Team members simply don’t like their project manager;
  • Team members think they are better qualified to be the PM;
  • Team members think that the project is a distraction to their work;
  • Team members are too busy;
  • Team members believe the project puts their job or position at risk;
  • Team members have managers who don’t support the project;
  • (the list goes on…)

Often; if you make a list of resistance affecting your own project, you will find very few relate to a lack of capacity. Many are emotional. Some are related to fear; which can be founded or unfounded. Some are political.

Regardless of the reason for resistance the challenge remains the same:

How do we get people to do something they don’t want to do?

What the methods say

Popular project management methodologies tend to try to deal with getting things done through estimation, planning and monitoring:

  • Build a plan;
  • Regularly monitor progress on the plan;
  • Report status and escalate tasks that are behind schedule.

This can help organise work and ensure it’s clearly convey what is required. However it’s not always effective at making sure work is done on time and with quality. Examples:

Tracking task completion – assume there are tasks such as ‘map process’, ‘write development spec’, ‘build development’, ‘run integrated test’. Some project managers will regularly ask task owners for progress updates in the form of percentage complete. The percentages that are collected will often be inaccurate. There may be task owners who work diligently to provide accurate progress reports, but there will also be task owners that provide false percentages and leave work until the last minute. With larger projects, there isn’t time to micro-manage and check honesty. This can lead to finding delays only at the deadline which can have a critical path impact and cause a project delay. I recommend not to allow percentage completion tracking on tasks, consider them either done or not done. Keep pressure on for completion prior to deadlines.

Reporting status and escalating tasks which are behind schedule – another way to get tasks done is through escalation. There are a number of issues with this:

  • By the time escalation can happen there is already a delay;
  • On bigger programs sponsors and stakeholders can be demanding; in some circumstances project managers are expected to not escalate things to management;
  • In some cases the task owner that should be escalated may be connected to a stakeholder who is unsupportive of the project. Escalating can cause relationship levels at the executive level.

A people orientated approach

This is why I recommend a ‘people’ focussed approach. This is not rocket science. We all have skills in dealing with people, we learn these naturally as we grow and live. We just need to be conscious of people as a focal point and apply some consideration to them in our project management. A simple process might look like this:

1) Identify problem people

I suggest spending some time to think through the project organisation and identify people who may cause a problem. Make sure to consider the full time project team members as well as the extended team composing of stakeholders, operations representatives and third parties etc.

As you think through this categorise people into the type of problems they have or might cause. The list from “people problems – diving deeper” above could be a starting point.

In stakeholder analysis there are many approaches to consider stakeholders and categorise them as either “for” or “against” the program, these methods can be applied to the wider team.

2) Understand their perspective

The next step is to put yourself in their shoes. Often you may find that their ‘problem attitude’ is warranted. Putting yourself in other people’s shoes is one of the most useful business skills, this will help you tailor your presentations and discussions to gain buy-in and resolve conflict in many situations.

Questions to consider include:

  • What’s their reputation in the organisation?;
  • Are they difficult in general, but they deliver, or do they fail to deliver?;
  • Are they a peer, how do they feel about being ‘on your project’;
  • Career – are they happy in their role, are they trying to move out of it;
  • Are there any non-work items that might impact their contribution to the project (take care with respect to human resource sensitivities).

Plan an intervention

After you’ve identified people that need attention and understood what is motivating them you can start to think about how to intervent.

In the personal example I gave above I had peers who were uncomfortable working under my project leadership, my approach was to:

  • Subtly message that I don’t see it as a leader/subordinate relationship, I see them as an equal and I need/value their input;
  • Giving them space to do their own work (where I trusted their capability);
  • Showing my value by helping them resolve any problems they were having, or making minor adjustments to the plan to help them out.

There are different views on the role of project managers. I’m sometimes surprised by some project managers who seem to think they are the most important person and should be served by their team. I personally believe project managers are there to help the team succeed.

Another example. As a management consultant I was often hired by senior stakeholders, but working with people more junior staff. Many people have a bad impression of consultants or feel that consultants are there to steal their job. I’ve been in this position many times. On one project with a multinational financial services organisation, we were designing a new pan-European business unit and accompany technical architecture. We had one highly skilled technical architect from the client’s UK firm. His initial approach to joining the project was to disagree with and complain about everything. To leverage his skills and remove the conflict I asked him to take a lead role in facilitating the architecture for Europe. This allowed the project to get the benefit of his expertise while still providing our ideas and also allowed him to signal to his management that he was making a valued contribution.

In general I’ve found that with problem people the following actions can work:

  • Get them on-board with the conceptual objective of the project;
  • Build mutual respect;
  • Give them space;
  • Bring them more on-board, give them bigger responsibilities;
  • Help them with their challenges/issues in their own tasks;
  • In the worst-case scenario de-scope or limit the impact of the project on their areas, to make success possible even without their cooperation.

Monitor and adjust

As you work through the project continue to monitor resources that are coming on or going out of the project as well as your existing team members.

Focus on strategy alignment

Project managers may not be involved in strategy development. This means they may never see a study or business case that led to the project they are being asked to manage. This can lead to project managers having only a rudimentary understanding of the objective.

This doesn’t empower the project manager to make nuanced decisions on where to focus effort, what risks to accept and other similar topics.

Example – project managing an ERP and CRM system upgrade during a period of high organic growth

A business is upgrading their ERP and CRM systems. The existing systems are:

  • Technically slow;
  • Have a number of problems with effort-intensive workarounds in place;
  • Do not feature modern capabilities.

This is a must-do project to provide stability for operations and reduce effort spent on manual workarounds.

In parallel the company is experiencing strong organic growth. They are currently hiring in the sales and customer service areas, creating new teams and opening new sales offices. Management are also considering small acquisitions.

The program managers for the ERP and CRM systems may have written objectives summarised to:

  • Replace the existing system without out any negative impact to the business;
  • Resolve workarounds caused by existing systems;
  • Deliver new features to help modernise sales and customer service processes.

If the program manager only considers their own work and has limited interaction with the executive team, they may take a very rigurous and comprehensive approach. They may plan to push the organisation to do everything in it’s power to maximise the benefit of the new ERP and CRM system.

But is this the right approach?

While this is excellent in terms of getting the highest value out of the new systems, this approach could require significant effort requirements from operations and be significantly disruptive.

The result of this could be an impact on how well operations are maximising the value from the growth period they are in. The project may distract them from driving sales, on-boarding new hires and setting up the new teams.

The value gained from the ERP and CRM initiative may never pay for the potential value lost in focussing on business as usual in a growth phase.

Further, in this scenario where we have multiple things happening at once – there is a risk of over-loading people, which can lead to key employees burning out or leaving.

Note that it’s typically a major problem in strategy projects that executive committees will take on too many change initiatives. Therefore I believe it’s critical for project managers to know where their project sit’s on the list of priorities so they can resolve conflicts with other initiatives in the best interest of the complete organisation.

If the program manager for ERP and CRM has a good relationship with the executive and a good understanding of the strategic priorities they can steer their program to best help the organisation. Things to consider:

  • What’s the priority between the different elements of driving growth, vs the various projects underway;
  • What’s nice to have vs. must have;
  • For the resolution of workarounds – what is the value of solving each problem?
  • For the enhancements – what is the value of each enhancement?

With a good understanding of all of the work underway in an organisation and how it connects to strategy, a project manager can minutely adjust their scoping, phasing and solution to better support the overall priorities of the business.

This could be as simple as not fully training teams on enhancements during a busy period and activating them later on a schedule over a number of months.

Example – building an offshore shared service centre

Consider a company is setting out to open an offshore shared service centre. A high level business case was created. It defined an offshore location. It also defined a rough order and timeline for the transition of different teams. The program managers start the work based on this plan.

The program manager creates a detailed plan to execute. Whilst moving into the detail a number of issues can arise which make certain parts of the original plan difficult to execute. The project manager can move ahead with brute force and try to execute in line with the business case.

However, if the project manager makes the effort to understand the principles behind the business case and the perspective of the executive committee they may find factors that open up more options, such as:

  • In years 1 – 3 cash flow or cost is not a concern for the organisation, but they envisage a downturn on year 4 and onwards;
  • Quality is critical for the organisation, any loss in service levels is unacceptable;
  • The shared services have to be scalable to support long term growth;
  • Because the business is currently doing well, they should avoid any major disruption in the current period.

With this perspective it starts to become clear that the order of transition of teams is not as important in year 1 and 2. The quality of the platform and the stability of the transitions is important for the long term. With this strategic background the project manager can better plan alternate transition scenarios to avoid issues and present options to the stakeholders.

Common mistakes in project management

To make this article useful I’d like to cover a few of the most common mistakes I’ve seen in recent years and some tips. In keeping with the theme, these are mostly connected to what project managers focus on and how they deal with people.

Death by project admin

A good PMO should be somewhat invisible. All project quality measures should improve with a reduction in management effort. One of the most common mistakes I see being made in project management is using what I call a ‘heavy’ PMO. By this I mean:

  • Using complex and long-winded formats of project templates and tools;
  • Taking a highly theoretical approach and following e.g. PMI by the book;
  • Long meetings with a large number of attendees;
  • Focussing more on the project management method that the project work;
  • Complex review and approval;
  • Overstaffing – there are studies that show as teams get bigger they can do less.

I’ve seen teams where for every 1 person doing an actual project task there are 5 people doing ‘project methodology’ work – writing updates, hosting meetings etc.

I believe that certain aspect of agile and scrum are useful in minimising project admin and re-focussing on project tasks.

Using project tools as communication tools

Long-winded project initiation documents, GANTT charts and detailed issue logs are not communication tools. They shouldn’t be shared widely. They are planning tools for project managers and PMO.

For communication use simple, clear and targetted messages. If you want to present a project plan to stakeholders you can share a summary of the critical path elements. To illustrate effort and complexity you can reports statistics on the total no. of tasks planned, in progress, completed etc. they don’t need to see the actual list.

Using project management tools as communication formats can create an environment of ‘complexity’ and ‘stress’ by pushing too much content to people.

Inserting PMO between leadership and teams

In the past I set up a PMO to help the leadership of an organisation manage 7 different programs.

One of the mistakes the PMO lead made was with the handling of the weekly review with leadership. The approach they took was to gather the status information from 7 programs and then present that to the leadership. This was a disaster for several reasons:

  • The PMO trying to understand and repeat details of 7 programs each week is wasted effort (remembering the are not domain experts this is very hard);
  • The PMO couldn’t answer questions, or commit to actions from the leadership;
  • The individual programs do not get direct access to ask the leadership questions or to get direct instructions/context from the leadership.

In this case, the PMO should have been the chair of the process and the meeting. The should ensure each program brings an appropriate update and presents it and they should make sure questions and follow up actions are managed.

I recommend trying to create a flat project structure where even the most junior resources can access messages from senior stakeholdres. Of course this has to be expertly facilitated.

Under-communication

Project teams often communicate either incorrectly or not enough.

It’s important to keep everyone involved or impacted by a project appropriately briefed. A few suggestions:

  • For stakeholders or extended stakeholders an initial briefing consisting of 1-2 slides clarifying the objective, the key dates and the impact to them;
  • For the full team a weekly summary of tasks due that week;
  • For intensive projects or phases within a project a daily standing scrum can be an effective way to keep communication flowing in an efficient amount of time.

Frequent meetings can be important for certain projects, but they shouldn’t take a lot of time.

I recommend avoiding situations where large groups of people are sitting working through Gantt charts or excel lists together, this can be time-consuming and de-energizing etc. Try to limit attendance to meetings to those that need to be there.

Document and confirm all actions and agreements

At some point in your career as a project manager, things are going to go wrong. If you are unlucky it will be something serious. Not everyone plays nicely in business and you should be ready to prove your approach was diligent and your actions correct.

  • Document all actions and agreements (concisely);
  • If verbal agreements occur follow up with a brief e-mail to confirm;
  • Carefully archive all key agenda, minutes, e-mails etc. so you can access when needed;
  • Think like an auditor. Make sure to ask your stakeholders or peers or whoever is best for feedback on plans, risk lists etc. make sure people had an opportunity to input. This removes the opportunity to blame.

I don’t advise playing in ‘politics’ but I do advise protecting yourself from ‘politics’.

Too many resources

When projects run into trouble extra resources are often onboarded. It’s important to remember that there is an optimum effective team size. It’s also important to recognise that resources w/out the correct expertise and experience may slow projects down. Project progress is normally limited to a certain number of people that are “bottlenecks”. Make sure to identify those areas early. They are normally either in the most complex technical part of a new product or the busiest function/team.

Change management – avoiding one danger of using change managers

As a final topic I’d like to address change management.

Change management is often connected to strategy, people and communications. I believe that one of the reasons change management has become popular is due to the gap in skills displayed by project managers.

Change managers can be excellent and can have a very important role in a project, but when mis-used they can cause a lot of problems for a project.

The situation I would urge organisations to avoid is adding an extra level of change management between project managers and stakeholders this can result in a lot of extra effort for project teams and also a reduction in the amount of information they receive from stakeholders.

On more than one occassion I’ve seen the following happen:

  • A change manager joins a project team and immediately requires a lot of time from the project manager and other team members to educate them;
  • The change managers work directly with senior stakeholders, sponsors, and business leads and add an extra layer between those people and the project team reducing communication and clarity in a critical area;
  • Sometimes the approach taken by change management can help make people feel good but have no solid benefit in terms of what the project delivers.

Change managers should not replace what the project manager should be doing. It’s critical that project managers lead stakeholder involvement and communication, change managers can assist and consult, but should not be another level in the organisation chart hierarchy.

Learning resources to improve people management skills for project managers

Prosci ADKAR

I’d recommend applying tools like ADKAR to your project

ADKAR is often used with management teams, stakeholders or customers to check if they understand and can contribute positively to change. The diagram shows the ideal timing to apply ADKAR steps, but you can start with them at any time.

I highly recommend using Awareness and Desire. You can use these to run interviews, surveys, brainstorming sessions with your team. I recommend using them with all team members, not just management.

In awareness, you can investigate how much your team really understands what you are trying to do. This can be excellent in helping refine the focus of your team members to what is really important.

With desire, you can easily help team members find out what is in it for them. You can also find out why they might not be behind the project.

Others

I’d recommend picking up some books on leading change, influence, persuasion. There are lots of great titles amongst the lists of top business books.

I’d also recommend that where possible try to identify a role model. Someone who can lead work effectively with people. This doesn’t need to be an active coaching relationship. A lot can be learned just from considered observation.

Final thoughts

What do you focus on when you working as a project manager? What do you see as missing skills or issues that come up repeatedly on projects?

Categories
Newsletter

ITW – Interesting things this week # 1

by alexander roan

Welcome to the inaugural version of ITW – ‘Interesting Things this Week’ ??

In this newsletter I’ll be sharing some content from across the web that I found interesting. It’ll be loosely connected to business strategy and operations transformation, and I’ll try to avoid duplication with mainstream media.

This weeks post is around 900 words and a 3.5 minute read.

1) Opening an account

(by builtformars)

In this post ‘builtformars’ analyses the different experiences while opening a bank acccount across challenger and traditional banks. While the blog is focussed on UX, it’s also an interesting study on process. Whilst reading this I was thinking that a similar analysis could be carried out across various processes to easily compare customer experience across competitors. It’s a fairly cheap and low effort way to gain some insights, and isn’t often done so pro-actively.

2) Public attitudes on the fair use of data and algorithms in finance

(by the behavioural insights team and centre for data ethics and innovation)

Neural networks are the most common form of machine learning applied to decision making. These networks can; given an input, categorise it which is a kind of decision making. They do this based on ‘training data’. The classic examples relate to images. If you train a neural network with 1,000,000 images of cats from the internet the networks gain a degress of accuracy in being able to identify when a cat is present in an image on the internet. The accuracy is based on the range of cat images provided during the training stage.

Because of this training bias is big issue. Consider a neural network that reviews loan applications, it might be trained on previous loan applications and whether they were approved or rejected. Any bias in this training data will be designed into the neural network.

The report linked looks at the perceptions of the fairness of proxy information used in algorithms. If for example a neural network finds a pattern of certain postcodes having a high rejection rate, this may represent; just for illustration, an area where ethnic minorities live, in this case the postcode may be acting as a proxy for ethnicity.

The CDEI and BIT study looks at public perction on the use of algorithms. Unsurprisingly one of the conclusion is that the there is a negative perception of algorithms in loan-making.

Even though this technology is not well understood by the general public it’s promising to see that the public are cautious here. I expect that we wil see more focus on fairness and bias as these technologies find more and more commercial applications.

3) Morality in business

An example of good morals and an example of questionable morals

On Monday I read about Javier Rodriquez, CEO of DaVita; a chain of kidney treatment centres. His company automatically qualified for and received nearly $250 million from the US health care enhancement act (part of the pandemic relief package). The company and it’s directors decided to return the money as they felt they didn’t weren’t in need of it.

On the other hand, last night I read about Take-Two Interactive; the parent company of Rockstar, producer of the massively successful games Grand Theft Auto and Red Dead Redemption. Apparantly they cancelled a contract with a smaller developer; Star Theory Games, and then proceeded to poach over a 1/3 of the staff. It seems they started poaching even before the contract cancellation was finalised or communicated.

What’s the right line between profits and morality? A lot of companies incude a section on corporate social responsibility in their annual reports, but this tends to address topics like diversity, the environmen etc. I don’t see much on morality and ethics within commercials or supply chain.

4) Another failed use-case for blockchain

Recently I wrote a short article on how blockchain works. Once you understand how it works and how it compares to other technologies it becomes much easier to identify the use-cases that hold genuine value. On Tuesday I heard that Civil a blockchain journalim start up has closed down. I think this is a clear example of being excited about a technology and just looking for applications w/out really thinking about how appropriate it is and what the value proprosition is.

5) The Endangered Asian Century

I came across an interesting article from Lee Hsien Loong; no other than the prime minister of Singapore, addressing APAC and the sometimes difficult position the countries are palced in between America and China.

I remember since my University days; way back in 1996 – 2000, there was always talk of asia pacific becoming the economic super power of the world, with the west in decline. It’s interesting to see a slightly different perspective.


What I’ve been up to this week?

If you are interested in ERP or SAP I wrote about their HANA and S/4HANA products.

And finally, something fun…

When I’m working, or exercising or even taking a nap I sometimes like to play some music in the background. Recently I’ve been into lofi music. It’s super relaxing and it’s not at all intrusive so you can enjoy it while doing other things. You can look up some excellent artists like Jinfang, Tomppabeats or Nujabes or you can tune into one of the many streaming channels on youtube and let them do all the hard work of curating a playlist, I particularly like a channel called “ChilledCow”


I’ll also be sending this newsletter via e-mail in future, if you would like to receive it in you inbox please subscribe:

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Categories
Articles Technology

A No-Nonsense Guide to Digital and Technology Strategy in 2020

‘Digital’ – A Magnet for Nonsense!

‘Digital’ was and still is a popular term in the business world. In recent years a lot of papers, presentations and communities of interest have appeared on this topic. Unfortunately, the majority of them seem to create a lot of content, but little meaning. Put simply, a laymen could read a typical brochure on ‘AI’ or ‘Blockchain’ and still have no clue what the physical product or service is and how it differs from more traditional techology.

Back in 2000, I first started my career in information technology, not long after joining we were re-branded as ‘information & decision solutions’. I think the majority of people in information technology will be familiar with the constant re-branding of teams and functions.

This is the case with ‘digital’

Digital technology is a hodge podge of technologies which are new / popular / highly saleable. I tried to figure out what the common theme is with technologies that get accepted into the ‘digital’ podium, but there doesn’t appear to be one.

In this post, I’d like to have a plain english, no-nonsense discussion of digital (or more simply new & popular) technologies.

I’ll start by taking a look at what major companies are saying about digital, then I’ll look at structuring it into a simple taxonomy to promote a clearer understanding. I’ll then take a look at key areas of digital one by one. Finally I’d like to talk about the approach taken to develop a digital strategy.

Before getting into the detail I would like to give some advice to anyone thinking about investing in digital products or services:

  • Take a ‘doubtful’ stance, don’t get caught up in the hype;
  • If someone can’t explain a technology; how it works and why it’s useful, in a few sentances to a laymen, do not listen to them;
  • Be careful of conflicts of interests when dealing with suppliers and partners, I’ll talk a little more about this next.

The ‘Digital’ Cash Cow

There is no doubt that ‘digital’ was and is a cash cow for consultancies, systems integrators and other tech orientated firms.

It’s a perfect sales opportunity for these businesses:

  • It covers a broad range of products and services;
  • There is a level of mystic involved;
  • It’s fast moving, and hard to stay abreast off;
  • In some domains a high degree of technical competency is required;
  • There are stories of massive wealth / success (e.g. Bitcoin).

This creates a situation where companies want to invest in it, but they are not always well placed with knowledge and skills to plan or execute.

There is a positive role for consultancies, systems integrators, research companies and even independent contractors in helping define and implement digital strategy, but extra care needs to be taken:

  • Make sure you are not being sold nonsense!
    • Looks for clear and easy to understand descriptions;
    • Look for live examples that are delivering benefits;
  • Don’t use expensive partners for very simple technologies – Robotic Process Automation is a good example of this;
  • Don’t invest in overly complex solutions – I’ve seen a variety of ‘proof of concepts’ developed with Blockchain where a more traditional database would be much more suitable;
  • Be careful to ensure that people involved in digital strategy have the right experience and expertise. As digital and tech has become more popular it has attracted a lot of professionals who lack real experience and understanding of technology.

Let’s Look at Specific Technologies

The scope of digital is loosely defined. If I were to brainstorm a list of terms from the top of my head it might look something like this:

  • Internet of things / smart things etc.
  • Blockchain / distributed ledger
  • Artificial Intelligence
  • Natural language processing
  • Voice recognition
  • Facial recognition
  • Virtual reality / Augmented reality
  • Mobile devices – 5G etc.
  • Geolocation / maps / google earth etc.
  • Robotics
  • Next generation ERP
  • Cloud

But, as a more structured starting point let’s start by looking at what some experts say as of May 2020.

What the Experts Say

I’ve decided to look at two firms; Accenture – which can represent both a management consulting and systems integrator perspective and Gartner – which can represent a research perspective.

Accenture

Accenture UK’s technology home page leads with a 2020 trends report entitled, “We, The Post-Digital People – Can your enterprise survive the tech-clash?”.

Despite the vagueness of digital, I like the use of “post-digital” in their title, it suggests a broader way of thinking than simply referring to a bundle of new technologies as digital.

Accenture start by referring to tech-lash (pushback against tech), before highlighting data to infer people are generally still positive about tech, they then coin the phrase tech-clash as a way to describe the situation we find ourselves in where tech is theoretically good, but often isn’t designed or implemented well. I like this viewpoint and I think it summarizes the one of the major challanges we face designing and implementing technology.

They go on to talk a challenge existing in how companies plan and deploy technology according to business / customer requirements etc. It reads to me that their viewpoint is that the old way of managing tech is no longer appropriate.

I am not sure about this. I think that before we say that we have to check whether a business has a formalized and effective way of managing their tech portfolio (many don’t), after we assess that we can think about whether it works for new technologies. To my mind; theoretically, methods like ITIL and COBIT etc. should work with new and old technologies alike. In fact, when you think about it, technology by it’s nature has always been new & disruptive. Can you imagine the excitment on the project to set up the first mainframes!

I would definitely accept that many technology departments have become bogged down in with too many processes / levels / standards / products etc. but this should be fixed regardless of ‘digital’.

Following this brief intro Accenture call out 5 key trends.

If I read the text and try to pull out the technology products or services I get the following:

  1. The I in Experience
    • User experience
    • Data ownership / privacy
    • 5G
    • Augmented reality
  2. AI and me
    • Automation of simple tasks
    • Collaboration between human employees and machines
  3. The Dilemma of smart things
    • I’m not sure what this refers to but it sounds like systems for subscription style products e.g. Peloton or Zipcar
  4. Robots in the wild
    • ‘Physical’ robots outside of factory / industrial use
  5. Innovation and DNA
    • Distributed ledger / blockchain
    • Artificial intelligence
    • Extended reality
    • Quantum computing

Let me critique them one by one:

1. This is pretty clear. It’s a focus on major points of importance or interest for the end-user. However I wouldn’t call this a new trend. This has always been a key area of focus for technology. The topics covered are also quite wide and don’t centre around any specific technology, plus it omits some key end-user topics.

2. The is not clear to me. I assume AI refers to artifical intelligence. Looking at the specific examples cited, automation of simple tasks is not something that would require AI (there are problems with this term that I’ll come to later). Collaboration between human employees and machines could mean almost anything related to technology, but I accept if it get’s more specific there is some really interesting stuff coming in this space.

3. I’m not clear at all what this means. If I was to guess ‘smart things’ would refer to smart devices i.e. internet of things, but the description points more towards subscription style services. Smart devices and subscription combined do open up a lot of interesting scenarios.

4. Robots in the wild is fairly clear.

5. This one seems clear, but appears to be a catch-all for other areas of interest that don’t fit the four themes above.

Gartner

Navigating to the Gartner information technology home page a number of featured articles / insights are shown.

Looking through this page of trending topics the following technologies are mentioned:

  • Internet of Things
  • Cybersecurity
  • Autonomous things
  • Blockchain
  • Digital twins
  • Smart spaces
  • Artificial intelligence
  • Cloud

This is the kind of basic list that I might expect to see. And very typical of the issue of using generic terms w/out explaining what we are really talking about. The only one that stood out as less common was digital twin, “a replica of a living or non-living physical entity”. This immediately reminded me of the interesting article of how the model of Notre Dame in the computer game Assassins Creed could be useful in re-building Notre Dame following the fire damage in 2019. I’m also reminded of Elon Musk talking to Joe Rogan last week on the more sci fi aspect of digital copies of living beings.

It’s a little more challenging to critique Gartner as most of the detail is hidden behind report downloads.

For the purposes of the critique on Accenture and Gartner I am purposefulluy only looking at their high level descriptions. They should be able to clearly explain the ‘how’ and ‘why’ of their viewpoint on digital strategy to a layman on their landing page. It is arguable that if I dig into the detail I will get a much clearer view, but past experience of doing so is a hit or miss.

This particular critique aside, I’d note that Accenture and Gartner both have some excellent content and services.

Creating a Map for New Technologies

To build a better understanding of how this all fits together the first thing I suggest is to build a simple map of digital technologies that you may be interested in. I think it’s better to cast a wide net in the beginning and then eliminate those that may not be relevant to your business.

By map, the form can be a simple categorised list. There are different ways to approach this, one might be to categorise the technology by the way it impacts the user, another might be to categorise the technology by how it works or what it does.

The digital maps presented by companies are often confusing as they categorise things in various ways in one list. One minute they are looking at the end user impact, the next how the technology works.

I prefer to first categorise the technology according to how it works and then look at customer impact as part of a value assessment. One major advantage of this is that it fits well with traditional technology methods and aligns well with how systems architecture is managed.

For this discussion, I’ve 8 category buckets:

As with any taxonomy you can spend a long time debating the right categories. In my experience it’s best to draft a hypothesis quickly, debate with some colleagues and don’t be afraid to adjust as you go.

In this example I split user experience into three sub categories, I wanted to categorise virtual and augmented reality as primarily ‘visual’ ‘user expereince’ technologies.

After categorisation, we can start to note in specific technologies that we want to consider for our business. Let’s fill in the matrix with my list, Accenture’s list and Gartner’s list.

This is as far as I’ll take this taxonomy for this discussion, however for a real business I might turn it into a matrix in various ways allowing me to map e.g. benefits or business units to the technologies mentioned. I might then colour code by complexity or value etc. This should be a useful format to ensure a team / function have a similar understanding of what is being discussion.

Let’s look next at each of these categories in more detail.

User experience – touch / type

The way we interact with desktops, laptops, tablets, phones and smart watches etc. is continuoully evolving. At one extreme – smart use of touch on mobile, and at the other – more traditional technologies are investing heavily in user interface (e.g. the major ERP company SAP focussing on their customisable Fiori interface).

User experience – virtual

Augmented reality – An example I discussed with colleagues last year is a product based on glasses which can project context-relevant information. Imagine you are onboarding a new shift worker in a factory. The worker wears the glasses, then when looking at varius parts of the manufacturing equipement, the glasses overlay operating instructions or status info. This can accelerate on-boarding, reduce errors, reduce downtime etc.

Virtual reality – An easy example is training for certain dangerous or difficult jobs e.g. pilots. As virtual environments get better and VR wear becomes cheaper and more accessable I expect an explosion in this space.

Smart spaces – A smart space is simply a space which includes multiple smart devices that can connect together to give a space relevant experience or benefit. Examples include airports with facial recognition for passport control and barcode scanning for baggage handling. Or alternatively hospitals with trackers for patients and medical equipments / drugs etc.

Non-traditional databases

Databases are a broad and complex topic. Luckily most business people don’t need to a deep understanding of database technology. However as databases are being used in marketing and sales materials it’s worth investing a little time to understand the basics.

The last decade has seen something of a revolution in database design. Traditionally databases were designed to record and store primarily numerical records. Think of a list of shipments or a list of accounting entries. As IT hardware became cheaper and the internet arrived on the scene data volumes exploded and shifted from primarily numerical to a wide variety of formats; images, text documents, audio, video etc.

Databases rely on database management systems that control how information is writen and read. Advancements in the management systems as well as hardware has created a lot of new database products that have massively changed what is possible.

Big data, refers to the ability to handle massive amount of data across different hardware. This is a technical solution that can allow companies to handle these massive data volumes in an efficient way. There are excellent articles out there which outline examples such as the way Amazon set’s up it’s data centres. In a nutshell by using multiple devices cheaper technology can be used at scale rather than cutting edge expensive devices.

In-memory computing, refers to the increasingly cheap price of random access memory. This means more information can be stored and read without writing to disk. In general a huge part of the response times of computers relates to the time taking to read and write data. In-memory computing has allowed traditional systems such as ERP to become much faster. The major ERP company SAP have led with this using in-memory to develop a new database management system they call HANA. Up until recently systems landscapes have been designed with one ‘operational’ database for recording information and one for analysing information. This is because it’s difficult to optimise a traditional database to both read and write effectively. HANA is disruptive in that it can work effectively as an operational database and an analytics database.

NoSQL, refers to a wide range of new database operating systems that can handle non traditional data requirements. A popular example is MongoDB; a document orientated DB.

Distributed ledger / Blockchain, I choose to categorize Blockchain as a database as it’s a technology that essentially records information. The benefit of a public block chain network is that the information is ‘immutable’ i.e. cannot be changed. And also, it can be distributed amongst participants with no central ownership. These are great benefits and make blockchain very interesting. However these only apply to a truly public network. Many corproate applications of Blockchain are not public, for those that understand the tech they replace proof of work with proof of authority. This removes the benefit and in my opinion a traditional database would be a simpler, cheaper, and more appropriate solution.

Information Processing

I think this is the area that lacks clarity the most and is the area where we see terms such as AI or algorithms being used to make products and services seem more advanced than they are. Let’s take a look at some of the key terms:

AI / Artifical intelligence: This term should set alarm bells ringing in your head. I think it has become meaningless through application to almost any technology product. Some people will label any system with logic that replicates human behaviour e.g. IF the kettle is boiling, THEN pour the water in the cup, as AI. Other people will only consider something as AI if it can beat a human at Chess and has potential to wipe out humanity! You can’t take this as a meaningful term when considering technology.

Machine Learning: This is getting closer to a specific technology. Machine learning describes the ability of a computer system to ‘train’ itself. Machine learning is very popular in the field of image recognition. An often cited example is giving a system 1,000,000 images of cats on the internet, the system will learn to recognise when a photo on the internet has a cat in it. Machine learning is a general term that describes this, but is still not specific in how the technology actually works.

Neural Networks: This is one type of machine learning. It’s based on an attempt to mimic the way the human brain works. It’s constructed of ‘nodes’ that mimic nuerons and each carry out one simple operation. Layers of nodes can then carry out more complex operations. Nueral networks are quite interesting and worth a read.

One important thing on machine learning and neural networks is that they have to be trained on existing samples and often a very high volume. If there is any bias in those samples the neural network will build in that bias. I believe there are already examples related to insurance quotes for minorities etc. I expect to see a growing need to audit these and potential litigation here in the future.

Algorithms: An algorithm is simply a mathematical formula. If I have a small program that converts degrees fahrenheit to degrees celsius I could brand it as an AI algorithm driven solution.

Analytics: Another term that is quite often misused and can represent anything from very simple to very complex. Essentially when talking about analytics we should be referring to applied statistics and mathematics. Sometimes analytics is broken into the following:

  • Descriptive: Explain what happened and why
  • Predictive: Forecast what will happen in the future
  • Prescriptive: Understand why what is forecasted will happen.

The bottom line in information processing is to make sure to understand what specifically is being talked about.

  • If buying or building an analytics solution I want to know what specific statistical and mathematical methods and models are included.
  • If I am buying or building a machine learning solution I need to understand the details e.g. is it a neural network, how much training is required, what is the accuracy, how is biased handled etc.

Cybersecurity

Cybersecurity is a complex topic that deserves it’s own detailed discussion. Advancements in computing power, analytics and the volume of data stored in a cloud environment make it easier than ever for actors to attack private networks. With this in mind any organization needs a solid cybersecurity plan and also needs to carefuly consider the security impact of any new digital technologies brought into their network / architecture.

The best way to get a feel for the importance of cyber security is to listen to some episodes of darknet diaries

Privacy

Traditionally systems are not advanced in how they manage data. A good example is GDPR which tightly controls what personal information can be held and for how long. Any systems that handles personal data has to have capability to manage this. Further to that specialized ‘data management’ systems exist that can help to manage that across an organizations technology landscape.

Internet

Internet infrastructure and standards themselves are an important enabler for new products and services covered in other areas. This can be particularly important when considering customers from different geographies and income groups where their method and quality of interent access will vary.

Internet is a key consideration for a wide range of technology initiatives such as Cloud / homeworking / offshoring etc.

It’s also particularly important when designing mobile applications. Does bandwidth support video calls, does the internet infrastructure support geo-location etc.

Devices

Different form factors create opportunities for how we use various componenets of technology with end users.

Mobile in particular has had and continues to have a hugely disruptive effect on traditional industries. Think of staffing, delivery and taxi’s. Mobile devices have allowed app based businesses to form and succeed which utilise the following capabilities in conjunction with a mobile device:

  • A customer user interface with booking / delivery requests etc.
  • A partner user interface to sort / display active requests and allow acceptance
  • In built e-contracts / legal documents where necessary e.g. staffing
  • Geo-location / map integration showing partners where to go e.g. in the case of delivery to the customers location or staffing to the work location.
  • Pay integration – ability to pay via card / paypal etc.

Automation.

In the technology map I’ve considered two forms of automation

Physical robots is it’s own space and I won’t consider it in detail here.

Process automation or ‘robotic process automation’ is a fairly traditional space. There has been a recent boom in this with firms such as UiPath becoming quite successful. This is often branded under ‘digital’ as exciting and disruptive, however the technology at play is very simple.

In a nutshell robotic process automation allows you to take a set of steps a user does with one or more systems and automate it.

For example, if an accountant looks up a record, then checks the client against another systems, then say checks a rate against another systems and then approves or declines, if fixed rules for all cases can be written this can be automated using RPA.

I recall around 15 years ago we used automation tools to mass test transactions in ERP systems which more or less did the same.

I have a couple of recommendations on RPA

  • RPA itself is very simple and does not require consulting or systems integrator assistance. Companies can learn to develop RPA scrips themselves, simple training is all that’s required.
  • However I do recommend RPA work should only be considered as part of a broader process improvement initiative, there are better options than RPA in many cases e.g. eliminating the process entirely or changing underlying systems that require high volume of manual effort.

RPA could be considered as a ‘band aid’ that sits on top of poorly designed systems. It can provide a large benefit in terms of freeing up a lot of human time, but all RPA scrips will need to be managed on an ongoing basis.

Next generation ERP

Traditional enterprise resource planning software providers such as SAP, Oracle, Microsof etc. are also developing their own disruptive changes. We already touched on the HANA database which has allowed them to vastly improve their business suite product; which is now called S/4 HANA.

There are too many new and changing products in the ERP space to cover here. However a noteworthy area of interest that I would like to highlight is subscription management.

Traditional customer relationhip management systems are not designed to handle subcritpion models, however this is becoming a more and more popular way to engage and contract with the customer.


Creating a digital strategy

To cut through the nonsense at the strategy level I recommend we should treat digital strategy as no different from any other part of strategy. Innovation should be a fundamental part of strategy and digital is simply an innovation slant on technology.

Different companies do strategy in different ways. Generally speaking there is a higher level corporate strategy that will define key targets (sales, margin etc.) as well as direction for each business unit (e.g. objectives for products and customer groups).

The strategy then will typically flow down to individual business units who will create a more detailed plan that aims to deliver the goals in the corporate strategy.

Information technology should be part of the plan for each business unit (specifically how tech will support that BU), and should also have it’s own comprehensive plan.

The plan for information technology itself should deal with topics such as overall architecture, systems development and systems support etc.

When you consider this process, they key for a successful strategy is to ensure that the IT experts are correctly involved at each stage.

  • The CIO with the support of senior architects works with the Executive Committee on technology elements of the corporate strategy. This will often focus on things such as budget for major projects, new technologies to support business objectives.
  • Domain specific architects and technology product experts will work with the individual business unit leads on the business plan for each business unit, ensuring that technology is embedded in each plan.
  • Finally, the information technology strategy will involve all key leaders in information technology and bring together everything they are doing.

At each stage thought should be given to how technology can be contribute to the business. Some smart questions to ask are:

  • What technologies are our competitors investing in?
  • Are there any ‘new digital businesses’ entering our market segments (if so, find out everything about them!)
  • What direction are our existing technology partners taking with their products / services
  • What are the experts saying about our industry / geography etc.

This is a somewhat simplified view of strategy development. I would highly recommend companies take a proactive approach to optimzing strategy. If your strategy does not result in good plans for digital it’s highly likely you are missing other opportunities in the market and not addressing all relevant business risk.

I’ve seen instances of talk of creating seperate digital strategies and forming seperate digital teams. I don’t like this approach for a number of reasons. This will end up in silo thinking and silo product development. It might have to be done on a tactical basis, but I would not recommend it.

If you silo digital thinking too much the following issues may occur:

  • Your digital investments may not align well to business objectives as it’s somewhat removed from the general strategy and planning process;
  • Setting up a new ‘digital’ team is likely to result in a group of people who are biased towards digital and are more likely to invest in products that are not yet ready or have a lack of value;
  • Even if your digital investments are successful they won’t bring the rest of the business along with them.

If the existing organization lacks capability and capacity to embed digital in the existing strategy process and existing business management systems then I simply suggest adding new employees or consultants into the existing teams to beef up capacity and capability.

Those people can also create a virtual CoE on digital to bring thinking together and present summarise on the topic, but the key thing is they are embedded with existing management in all units and levels.

Dealing with digital disruptors

If you are are in an established business facing competition from ‘digital’ disrupters e.g. new app based businesses. I would recommend splitting your digital aspects of your tech strategy into two:

  • Innovation of existing products and services. This will often involve things like automation and improved analytics.
  • Development of new products and services based on the ‘art of the possible’ with new technologies.

The reason I would split this out as it may be impossible to leverage new technologies on existing processes. Existing IT architecture may also make it impossible or very expensive or difficult to change some existing processes and systems.

This may sound like I am contradicting what I said earlier. This work should still be developed and done within your existing strategy process and management structure, but the products defined should be split on this axis.

This is really an accelerator for businesses facing current or future market share loss due to disrupters.


What’s your view of ‘digital’ technology?

What technologies did I miss that you think are interesting?

What would you be interested to read more of my thinking on connected to this topic?