e-book making strategy real

7/31/2019 E-Book Making Strategy Real

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2009 nGenera Corporation

July 2009

Making Strategy Realby Don Tapscott and Paul Barter

Please consider the environment beore printing this document

Sponsored by SAP

In todays competitive global business environmentvirtually all firms work diligently to analyze alterna-tives and to create a business strategy that enablescompetitive advantage. Once the strategy has been defined however,nine out of ten organizations fail to implement it effectively.1 Trends such as global-ization, increasingly empowered customers, and rapid and accelerating change makeclosing the gap between strategy and execution more critical than ever. The current

difficult economic environment only increases this imperative. We are no longer livingin the rising tide lifts all boats world of recent years and effective execution is frontand center in the corporation. Today, many boats are sinking.

What is the answer? How can management communicate the strategy effectivelyand assure that the entire organization has bought in to the strategy and is alignedbehind it? Business performance optimization systems are an important tool forsuccess. As corporations are blessed (and cursed) with ever increasing amounts ofrapidly changing data, decision-making limited to the executive suite or any onesilo in the firm is no longer a viable option. This can lead to strategy disconnectedfrom operations, decisions made without context and a lack of coordination acrossthe organization and throughout the business ecosystem. Utilizing business perfor-

mance optimization systems, empowered employees can confidently make timely,strategically aligned decisions based upon facts as opposed to intuition or corporatepolitics. These tools also enable transparency and act as a basis for enterprise riskmanagement.

These tools can fundamentally change our organizations. The role of managementis no longer that of ultimate decision-maker but that of translator and coach

who initiates the strategy and define the metrics which bring the efforts of eachstakeholder into alignment with the strategy as a whole. Good strategy effectivelyimplemented can provide the sustainable competitive advantage that all organiza-tions aspire to.


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TABLE OF CONTENTS1 Introduction2 Todays Performance Reality: Data Driven Decisions

3 New concepts and tools of data driven decisions3 It all starts with the data

3 Managing What We Measure

4 Enabling Strategic Agility5 Driving process efficiency5 Improved insight6 Flexible solutions that support all users6 The changing nature and demographics of the workforce7 Benefits of decentralization7 Ideal degree of decentralization7 Reaping the benefits of decentralization: the hard data

8 Risk and Transparency

9 Conclusions

10 Endnotes


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In the current economic environment, it is easy or managers tobe sceptical about the uture. The economic landscape is grim.This year, Americas GDP has shrunk 6.2 percent compared to thebaseline in 2008,2 and exports are down by 24 percent.3 Inter-national trading partners are aring even worse: Germany, Japan,and Mexicos GDPs regressed 14.4 percent, 15.2 percent, and21.5 percent, respectively. It is also important to remember thatrom a irms perspective, inancial perormance is a lag indicatorand that there may be continued challenging times ahead.4

In China, even state run newspapers are describing greatuncertainties on the road ahead.5 Throughout the world,economies are struggling, and the keystone or renewedprosperity, the banking system, lacks the basic currency oconsumer conidence. In short, as many pundits regularly pointout, the worldwide economic outlook has not been this grimsince the Great Depression.6

In this environment, it is easy to orget about the exceptionaleconomic, scientiic, and social successes we have seen inrecent years as individuals, irms, and nations have transormedthemselves. Only ten years ago, just 20 percent o humanityhad regular access to communications technology and hal thepeople on the planet had never made a phone call. Today, over60 percent o us can place a phone call (or send an SMS message)whenever we choose.7 For the irst time in history, the majorityo humanity is connected and can make its voice heard.8 Froma health perspective, worldwide average lie expectancy hasdoubled in the past 100 years, rom 36.2 in 19009 to 66.6 in 2009.10

These examples dont even begin to describe the breadth oeconomic breakthroughs we have seen in recent years. Fromrelentless advances in microprocessor and storage technologyto the explosive growth o the Internet, innovative new alternatives to carbon based energy sources and the sequencing othe human genome, innovation is alive and well. The outcomeo these trends has enabled breakthrough products such asthe Apple iPhone and Nintendo Wii, the Toyota Prius and theTata Nano, the Boeing Dreamliner and the Airbus A380. Firmsin all industries are accelerating new product introduction evenin this challenging economy.

Warren Buett once amously said, You only ind out whois swimming naked when the tide goes out. In the last yearthe inancial tide has clearly gone out urther than anyoneexpected.11 Although cost cutting is an important tool thatmanagement can use to respond to todays business reality

determining which costs to cut is o paramount importanceGenerally, aced with the mandate to cut costs quickly, organizations will revert to techniques such as cancelling projectsdeerring all discretionary purchases, and reducing headcount. While these may be necessary strategies, they can beoverused when leaders become too ocused on simply hittingcost reduction targets and ail to consider the impact thesemoves can have on the organization. Amputation is not a wiseweight loss strategy.

Similarly, irms should not cut costs or investments inareas that will enable long-term competitive advantageThe evidence suggests that i companies do not grow and

INTRODUCTION


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develop new products they will ail. O the 100 largest U.S.companies at the beginning o the 1900s, only 16 remain.During the 1980s, a total o 230 companies disappearedrom the U.S. Fortune 500. As recently as June 8, 2009,bankrupt automaker General Motors and inancial giantCitigroup were booted out o the Dow Jones IndustrialAverage in avor o Cisco Systems and Travelers Company

Inc.12 Neither size nor good reputation guarantees success.

We do need to position our irms to take advantage oselected new opportunities by cutting unnecessary coststhat should probably have been addressed anyway. Onone hand, You never want a serious crisis to go to waste13and unproductive costs need to be rooted out. On theother hand, as William Gibson has pointed out, Theuture is already here its just not evenly distributed.14The disruptive transormational products o tomorrow arealready in our competitors new product pipelines. I wedont continue to invest or the uture, we are consignedto ailure.

Chie executives o corporations worldwide agree. In arecent survey, they identiied excellence in execution astheir top challenge or 2009. In addition, alignment betweenstrategy and execution, speed, lexibility, adaptability tochange, and risk management were all highly rated.15

All o these top ive priorities are addressed by modernbusiness perormance optimization systems consistingo business intelligence, inormation management, enter-prise perormance management, and governance, risk andcompliance capabilities.

TODAYS PERFORMANCE

REALITY: DATA DRIVEN

DECISIONS

The power o data driven decision-making has beenincreasingly well understood or many years now.

During and ater WWII, William Edwards Deming wroteabout the power o statistical control o quality and thepotential competitive advantages that could ensue. PeteDrucker built his impressive body o work on a number obasic insights, one o which was the prescient statement, Iyou cant measure it you cant manage it.16

As technology continued to advance, many irms beganto deploy what we would now call business intelligencesystems. Today, when we say business intelligence, weoten dont mean any speciic product but a broad range oapplications, technologies and methodologies that support

a users access to and analysis o inormation or makingdecisions and managing perormance.

In the modern era, business intelligence tools have beenenhanced by integrating inancial applications into themix and the resulting suites o applications are commonlycalled enterprise perormance management solutionsThese suites enhance traditional analytics and scorecardingapplications with inancial applications such as: budgetingplanning and orecasting capability; proitability modellinginancial consolidation; and inancial, statutory andmanagement reporting.

BELOW Figure 1: Top Five Concerns Among Executives Worldwide; Source: The Conerence Board

Excellence in execution

Consistent execution of strategyby top management

Relative rankings

Speed, flexibility, adaptabilityto change

Global economic performance

Financial risk, including liquidity,volatility, and credit risk

Cite challenge as being of 'greatest concern'ChallengesJuly/Aug. Oct.

1

3

7

16

11

1

2

3

4

5

Note: The global top 5 list is weighted by regional representation in global GDP as established by the InternationalMonetary Fund.

20.8%

17.2%

24.5%

41.9%

46.0%

43.8%

44.6%

46.6%

47.0%

55.4%

Oct.

July/Augto change


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Finally, modern strategists such as Kaplan and Nortonin The Balanced Scorecardand other books, have writtenabout the importance o using more than just inancialmeasures to manage a irm. The Kaplan model begins withmobilizing change through executive leadership, translatingthe strategy to operational terms, aligning the organizationto the strategy, motivating to make strategy everyones

job, and implementing governance that makes strategya continual process. Strategy management applicationsbegin with balanced scorecards and strategy maps, whichare then cascaded down to the scorecards, dashboards,analytical engines and visual interactive interaces omodern business perormance optimization systems. Whenthese tools are appropriately utilized and broadly deployedwithin irms and their extended business ecosystems, thehard data says that such irms outperorm their peers, andthat their peers are noticing. By 2013, the use o businessperormance optimization systems in medium and largeirms will increase by 32 percent.17

New concepts and tools o datadriven decisions

Most recently, Google, SAP and others have expandedthe deinition o data driven decision-making beyond thenumeric realm to the textual world, where products aresiting through the overwhelming quantities o writtenwordsboth within the irm and outside. These toolsaugment traditional business perormance optimizationsystems and their numeric decision support capabilities.They enable irms to derive insight and competitiveadvantage rom unstructured data. Leading irms are nowshipping systems that utilize text analysis to capture voiceo the customer (VOC) insight. The systems address thechallenge o aggregating insight rom the myriad unstruc-tured Web and enterprise applications, including onlineorums, RSS eeds, blogs, call center logs, CRM systems,email archives, and customer surveys. These text analysissystems normalize and incorporate text into an existingdata warehouse, where it can be correlated with data romexisting structured sources and making it available orexisting business intelligence tools to use in analysis anddisplay.

Dave Greiner, Data Czar at Siemens Healthcare explains

that what hes really excited about is bringing this data inrom other sources. Greiner explains: I speak to individualswithin the business but outside o IT about the newpossibilities to go beyond what was traditionally possiblewith decision support tools. It gives them new power toput together a sales campaign or execute a cost reductioninitiative in ar more eicient ways. Thats what gets meexcited, thats what I look orward to.18

Marissa Mayer o Google has amously spoken abouthow decision-making in many businesses has traditionallybeen inluenced by the political position o decision

-makers. When two or more alternative decisions are

being considered, invariably the one supported by themost senior member o the irm is chosen. Mayer explainsGoogles process o posting alternative solutions onlinein beta mode in dierent geographies or at dierenttimes and letting consumers real-time measurable choicesdrive the inal decision. In this way, Mayer says that data isapolitical.19

Peter Drucker once said that, the aim o marketing is toknow and understand the customer so well that the productor service its him and sells itsel. Ideally, marketing shouldresult in a customer that is ready to buy. All that should beneeded then is to make the product or service available.20

The new generation o text analysis solutions representsome o the most powerul tools created to date or understanding the customer.

It all starts with the dataBeore we can utilize business perormance optimization

systems to align execution with strategy we have to startwith trusted, accurate data or the proverbial single versiono the truth. In one recent example, a national police orcewanted a single view o the criminal and so created acentral data warehouse rom a variety o operational andlegacy systems. Ater completing the project, the orceended up with a database o 4.5 million names. This turnedout to be a problem since the population o the country isonly our million. So, either everybody in the country (andmore) is a criminal or the police department has a dataquality problem.21

Firms have recognized the importance o accurate dataand directed signiicant eort to address the issue. DaveGreiner explains: Our executives realized the importanceo having quality data. It became even more apparent as weacquired more companies, and we had to integrate moredierent systems, databases, and data structures with ouown. This enabled us to spend ar less time debating whichnumbers were correct and spend more time developingstrategies and initiatives to bring those key perormanceindicators in-line. As a result, its more actionable, and in ashorter period o time.22

MANAGING WHAT WEMEASURE

Even in the best o times, executives ace myriadchallenges: How can we orecast perormance? How doesour perormance compare to that o our peers? What canwe use to measure our perormance? What about risk? Howdo we link key metrics to strategic objectives?

The senior executives most important role is to deinestrategy clearly and identiy the key perormance indicatorsthat will align the organization and its strategy while


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execution with strategy permeate the entire organizationand the irms extended ecosystem. In their study o ailedstrategy, Kaplan and Norton ound that over two-thirdso ailures were not caused by poor strategy, but pooexecution.24 In act, some studies have indicated that up to94 percent o employees have no idea what the corporationsstrategy is!25 Similarly, Kaplan and Norton observed that o

businesses that established strategies calling or growthin excess o nine percent, ewer than ten percent o themachieved their goal. It was only organizations that had aculture that held strategy and execution in tandem that wereable to beat the odds and bring their strategies to ruition.

Bruce Rogow, principal o the IT Odyssey26, tells us that inhis discussion with a broad range o executives, the How isexecution aligned with strategy? question can vary between

Its working, to There is almost no linkage betweenstrategy and execution.27 What is the dierence? There isno single right answer but Bruce reminds us that organizations are composed o many individuals, each with their own

unique behavior. Cultural aptitude, a willingness to listenand a real eort to understand what the strategy means areequally important. Systems need to be used (and seen to beused by everyone-including senior executives) rolled out andsupported in an active and ongoing manner, and adjustedbased upon eedback rom users. A good test question is

Do individuals really understand the irms strategy, havethey internalized it and have they adjusted their personaactivities, decisions and priorities? I the answer is No,then strategic alignment has not occurred.28

ENABLING STRATEGICAGILITY

There have been very ew times in the modern age whenlexibility has been as important as it is today. Firms simply donot have hard data relative to supply or demand. The globaeconomic downturn has caused a myriad o both consumeand corporate expenditures to decline in a negative eedbackloop. Cost o capital is completely unpredictable and inputssuch as natural resources, are changing in price and availabilitymoment by moment.

In this volatile business climate, lexibility and strategic agilityare key. The concept o annual or multiple year planning is notcurrently realistic or most irms. Businesses must be eicientlexible, and driven by customer and economic realities. Webelieve that there are three basic components o strategicagility: process eiciency within and across businessesimproved insight and decision-making or better collaborationand lexibility to respond quickly to changing inputs andcreate new business processes that align with operations andstrategy.

minimizing risk. Without doing so, it is impossible to alignemployees actions with the organizations short- andlong-term goals.

As the business world grows in complexity, itbecomes increasingly critical that this alignment o

Case study:

Wherethe holes arent23

The Supermarine Spitire was a combat plane usedextensively during WWII. To improve pilot survival

rates, Royal Air Force (RAF) research teams kept careulrecords o all damage sustained to planes returningrom combat sorties. These records were combined andmapped onto a Spitire model to determine i speciicparts o the planes were being targeted.

The data showed several loci o damage; it appearedthat speciic locations on the planes were beingtargeted. Additional armor was added to theselocations, resulting in an increase o Spitire losses. Theresearchers were perplexed.

It was Jay Wright Forrester, the inventor o system

dynamics and random access magnetic memory,who identiied where the Spitire data had led RAFresearchers astray. While Forrester praised the accuracyo the data collection, he criticized the algorithm usedto bring the data to lie: it was not possible that speciicparts o aircrat were being targeted.

Instead, the act that so many planes were returningto base with holes in roughly the same places substan-tiated that the Spitires could all sustain damage inthose locations while staying in the air. It was injuriessustained in other locations that brought the planesdown, and those planes never returned to base tobe analyzed. It wasnt where the holes were that wasimportant, but where the holes werent.

The extra armor was moved to areas that weretypically undamaged on returning Spitires, resulting ina dramatic reduction in losses.

Forrester recognized that high quality data is notenough: data needs to be understood in the correctcontext in order to be useul.

Oten, when the data driven execution is not

ollowing the strategy, it is because the systems areskewed to analyze where the business holes are, ratherthan to analyze where they arent. As with the Spitires,the data driven execution only reinorces the businessproblems.


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Driving process efciency

Organizations can improve eiciency by establishingend-to-end business processes with centrally managedintegration. These can lower total cost o ownership andact as a ramework or creating and enhancing applicationsthat meet business and user requirements aster and enable

enhanced business insight. Processes based upon neweservice oriented architectures are key enablers o businessand IT lexibility.

Once a irm has reliable enterprise data and eicientend-to-end business processes in place, the stage is set orperormance optimization systems to help decision-makers

gain insight into marketreality. Armed with thisintelligence, the companycan make rational, strategyaligned decisions in variousareas, including budgetingand resource allocation.

Improved insightBusiness perormance

optimization systemsincluding business inteligence, enterprise peror

mance management andgovernance, risk and compliance applications, arenot blanket solutions thatcan be applied in equameasure in all irms. Insteadapproaches to adoptionneed to vary based onthe technical and culturadisposition o the irm inquestion. In general termsto successully use decisionsupport tools to bridge the

BELOWTable 1: Achieving Superior Perormance

TechnicalAbility ofthe Firm

Low High

This quadrant represents companiesthat have invested in performanceoptimization systems but their usageis not ingrained in the corporateculture. These companies likely havesufficient software and datawarehouses, but they are not used asassets due to the lack of a unifiedstrategic vision. Fully 30 to 40 percentof organizations operate in thisquadrant.

This quadrant represents leadingcompanies that have performanceoptimization systems built into theircontinuous cycle of re-strategizingand executing. The superior insightand response time afforded by arobust system, as well as a culturethat values and uses analytics,enables these firms to weather mostany economic situation. Only ten to20 percent of organizations operatein this quadrant.

This quadrant represents companies

for whom accurate data and systemsdo not exist in any meaningful way.These firms have not invested in BItools at all, be it financially orculturally. Positively, any new BIinitiative will be operating on anentirely blank slate.


that are eager to adopt a continuousstrategy based on performanceoptimization systems, but lack thetechnical means to do so. Such firmsare typically set back by inconsistentdatasets and business processes andtherefore have no single version ofthe truth. Approximately 20 to 30percent of organizations are in thiscategory. These organizations seekgreater technical capabilities.

High

Low

Cultural Aptitude

TechnicalAbility ofthe Firm

Low High

This quadrant represents companies This quadrant represents leadingcompanies that have performanceoptimization systems built into theircontinuous cycle of re-strategizingand executing. The superior insightand response time afforded by arobust system, as well as a culturethat values and uses analytics,enables these firms to weather mostany economic situation. Only ten to20 percent of organizations operatein this quadrant.


for whom accurate data and systemsdo not exist in any meaningful way.These firms have not invested in BItools at all, be it financially orculturally. Positively, any new BIinitiative will be operating on anentirely blank slate.

High

Low

BELOW Figure 2: The Supermarine Spitire has in its history an important lesson about data analysis; Source: Wikipedia


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gap between strategy and execution, there must be bothadequate technical inrastructure, as well as a corporateculture operating at all levels that strives to integratereal-time analytics into decision-making processesContrasting low and high corporate technical abilities withlow and high cultural aptitudes or the use o BI tools yieldsthe 2x2 in Table 1 (previous). While there is no one true

way or the perect use o tools or gaining insight, thebest companies can strive to marry high technical abilitieswith a corporate culture that aggressively seeks out anduses analytic data. Against this standard, there are severaways that a company can ail to realize its potential when itcomes to BI systems usage.35

Flexible solutions that support allusers

In the early days o corporate decision support toolssolutions were called Executive Inormation Systems andtargeted speciically to the needs o senior executives

Although such systems were a best practice at the timethey were very complex and utilized teams o technicallysavvy support workers who were there to deliver reports inwhatever ormat senior executives required. Senior leaderscontinue to be important users o tools that drive businessperormance optimization, but they are no longer the onlyusers or even necessarily the most important ones.

Most o us have understood or some time that the typeso skills required o todays workers dier greatly rom thoserequired in past generations. We tell our children to stayin school and work to increase our personal skills throughongoing education and training. Indeed, job requirementshave changed over the last orty years with the rise oautomation and inormation technology and theres littledemand or routine and manual tasks. Access to inormationis undamentally changing the nature o our work.

The changing nature anddemographics o the workorce

In their 2003 academic study, Autor et al. examined howjob skill demand has been altered by computer technologyover the years.36 They concluded that IT capital was substtuting or activities involving repetitive tasks and comple

menting activities involving non-routine problem solvingand personal interaction. The implications or businessperormance optimization are signiicant: these tools needto address non-routine tasks and allow or new, creativeinsights and competitive advantage.

Yet, such tools must also meet the end users terms, asDave Greiner points out: A lot o people that use our toolsmay not be requent users. Theyre not going to want to usea tool where they have to massage data to uncover a buriedmessage.37 This is especially true o employees o theNet Generation. Net Generation employeesthose bornbetween 1977 and 1997have grown up with immediate

Case study:

emergenCymediCal

assoCiates29

Emergency Medical Associates (EMA) strives to

provide the best quality medical care at the lowest costto its patients while maintaining an environment or itsphysicians to practice medicine and be proessionallysatisied. Jonathan Rothman, EMAs director o datamanagement, has developed and deployed a suite oanalytics tools to provide EMAs health care proes-sionals with inormation tailored speciically to theirdepartment and role. You log in, Rothman explains,and everything you need hits you over the head.30

Rothman recognizes that its not possible to satisyeveryone with a single solution. In addition to providinginteractive dashboards, EMAs analytics platorm

generates regular reports and emails them as PDFs tousers with lower levels o technical acility. Individualso every level o technical sophistication are able makedecisions inormed by accurate, up-to-date inor-mation.

Ater the events o September 11, 2001, there waswidespread concern about bioterrorism and viralattacks. Rothman explains: EMA responded by devel-oping the capacity to cluster patients into syndromicgroupings31or collections o patients who presentwith certain symptoms. With this capability outbreaksbecome much easier to track. The links betweensymptoms and diagnoses can then be used to lagsubsequent potential cases.

When it comes to data, Rothman says that more isbetter: I we were purely motivated based on inancialoutcomes and had purely developed a inancial BIsolution, then we would not be pulling the data thatwere now using today to survey or swine lu.32 EMAscentralized database becomes more eective andpowerul as more symptom-diagnoses links are added.Thanks to the existing inrastructure it is relatively easyto extend capabilities, evaluate additional data, and

capture new insights by applying new logic.33

Rothmans system provides health care proes-sionals with the inormation they need to makeinormed, critical decisions at crucial momentsallwithout getting bogged down by mountains o data orcumbersome interaces. In a space where signal versusnoise can make the dierence between lie and death,EMAs IT systems have been designed rom the groundup to deliver timely and accurate inormation. Theresnothing better, Rothman beams, than a smart, astute,connected physician.34


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access to rich data; they will expect the same at work. Asemployees o all ages grow accustomed to the near instant

results provided by Google and others, the prospect o asix month reporting cycle quickly becomes archaic. Moderntools will need to provide all employees with visual, custom-izable, and immediate access to useul inormation.

Benefts o decentralizationWhen decision-making is decentralized, responsibility

moves to a large number o individuals in the organization,but all decisions need to be coherent and aligned with theoverarching strategy. Thomas Malone, MIT Sloan acultyand author oThe Future of Work: How the New Order of

Business Will Shape Your Organization, Your ManagementStyle and Your Life, opines: We can aord to have vastlygreater numbers o people well enough inormed that theycan make a lot more decisions or themselves, decisionsthat, in the past, were only possible in central oices.38 Heargues that decentralization has three main beneits:39

1. It encourages motivation and creativity

2. It allows many minds to work simultaneously on thesame problem

3. It accommodates lexibility and individualization

But perhaps most importantly, decentralizing is about

aligning decisions with individuals with the skill andknowledge to make this decision. To make an inormeddecision, a decision-maker needs knowledge. But not allknowledge is created equal: some knowledge is general, orinexpensive to transmit. For example, general knowledgecan be a news story, an industry statistic, or inancial resultsor a particular business unit. In contrast, speciic knowledgeis costly to transmit.40 Think o the operational knowledgethat comes rom twenty years o experience in a manuac-turing environment, the knowledge to trade energy utureson an exchange, or the ability to run an IT department or alarge multinational.

Based on these deinitions, the best person to make aparticular decision is the individual with the best speciicknowledge o the question at hand. Consequently, irmsare let with two options: move specialized knowledgeto existing decision-makers (which by deinition is costly)or move decision rights to people with specializedknowledge.

Ideal degree o decentralizationWhile decentralization avoids the challenges o trans

erring speciic knowledge, it does introduce a new complication: the potential or newly empowered decision-makersto make sel-interested decisionsa risk that can only bereduced to a point with incentives and controls. Organizations must balance the beneits and costs o decentralizeddecision-making with those o a central strategy and acommon customer ocus.41

To achieve this balance, irms need to aggressively

communicate the overall strategy, align incentives with theplan, and let the employees do the rest. Eric Schmidt, CEOo Google, said o his approach:

Most companies use employee portals as an HRmechanism. Here are your beneits, here are yourvacations days, and so orth. That is the classic viewand that is the wrong view. The right view is to askHow can you spread inormation within the companythat causes employees to solve problems withoutany executives needing to deal with them, sort oa work minimization strategy or executives. Get theemployees to do the work. It is much more eicient.Theyre happier and Im happier.42

In order to determine the ideal degree o decentralizationorganizations need to lower the costs o making decisionsthis is achieved by improving inormation and control. In actit turns out that aligning execution with strategy is otenmost diicult or middle managers. It is relatively simple toidentiy scorecard metrics or CEOs and individual contributors. It is oten much more diicult to identiy metrics omiddle managers. Thereore, success in aligning a irmsexecution with its strategy is oten achieved here.

Reaping the benefts odecentralization: the hard data

Decentralizing decision-making has a number o positiveorganizational repercussions, as previously identiied. Butthe right inormation technology investments can helpmake the most o those decentralized structures.

Table 2 (over) illustrates the result o a productivity studyo 232 irms in relation to both decentralization level and ITinvestment. First, the table illustrates that on its own, decentralization o decision-making can result in a moderateproductivity improvement o 1.6 percent. Second, it shows

BELOW Figure 3: EMAs perormance optimization systemsempower health care proessionals to make data-inormeddecisions; Source: Emergency Medical Associates


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that IT investment on its own actually results in a produc-tivity decrease. That is, irms that invest heavily in IT withouta proper organizational structure to leverage these newcapabilities, will see returns on their investments that are 3.7percent lower than average. Finally, when both decentral-

ization and IT investment are high, companies can expectproductivity beneits o 4.6 percent, the most signiicantgains o all.

Finally, in these highly decentralized decision-makingmodels, irms must ensure the large number o decision

makers is properly supported by the IT tools to makebetter decisions. Simply put, the IT investment has a directbearing on the irms ability to deliver appropriate businessintelligence.

RISK AND TRANSPARENCY

Inormation is power, and i you have an inormationaadvantage, you can derive market advantage. This isespecially true when it comes to identiying new and dierenmarket opportunities and responding to them. It is also trueor identiying risk (in all o its various lavors) and avoiding itThe goal isnt to predict the uture; rather its to be able toenumerate the consequences o what the uture may hold inorder to aid decisions.

The Lehman Brothers story and others like it are now thestu o legend. These tales highlight the importance o riskmanagement or any layman to understand. As Robert Kaplanhas summarized, Now were seeing the consequences onot making risk management a strategic part o strategy.48

Less well known are numerous irms, such as Pimco, thatmake decisions based on dierent types o risk analysis

Paciic Investment Management Co. LLC, (Pimco) is one othe largest ixed income managers in the U.S. In 2005 and2006, many in the organization advocated entry into themortgage backed securities business but Bill Gross, the CEOwas sceptical. He thought that i the real estate market couldappreciate by ten percent in a year, it could also depreciateby the same amounteven though this had never happenedbeore and his sta reassured him that such a thing wasimpossible. (Mark Twain once said, It aint what you dontknow that gets you in trouble; its what you know or surethat just aint so.)49 Nevertheless, Gross asked his sta torun the numbers and identiy what would be the eect onPimco i housing prices were to decline by that much. The

BELOW Table 2: Productivity Beneits o IT Investmentand Decentralization47

Decentralization

Low

High + 1.6% + 4.6%

0 3.7%

Low High

IT Investment

Case study:

deriving insight Fromthe PhysiCal

WorldWith realitymining43

Sense Networks, a company that specializes in reality

mining (the process o gleaning analytic data rom thereal world) perormed an experiment with geo-data. Theirm bought access to GPS location data rom severaltaxicab dispatch companies. Greg Skibiski, chairmanand CEO o Sense Networks, explains: It was real-timedata o all the taxis moving around: where someone gotin, where they got out; anonymous trip data.44

Analysts at Sense Networks started to constructa story rom the data. They were able to iner theincome levels o cab customers by cross-reerencingcensus inormation with cab-trip origins. The analyststhen looked at the destinations o these trips, corre-

lating GPS coordinates to known business locations.Using this data, combined with the inancial recordso publicly traded companies, the analysts looked ora relationship between the requency that cabs visitedretail locations and the inancial perormance o thosebusinesses. There was no such correlation. There washowever another.

It turned out, Skibiski recalls, that one o the mostvaluable predictors was how ar people are willing totravel to get to the stores.45 Not only were analysts ableto see a correlation between distance traveled and salesreported, but or the chains o retailers that perormedwell, there was a corresponding drop-o in sales romcompeting companies.

Skibiski then started investing in accordance with thepredictions they obtained rom their taxi based model:We did eleven stock trades based on this a couple oyears ago. We nailed ten o them. That was a really greatproo-point or any inancial services business.46

While correlating GPS data to stock prices may beoutside the scope o what many irms are willing todo with their analytics dashboards, Sense Networks

demonstrates the possible uses or the rich amounts oreal-world data that will be available to the irms o theuture.

These irms will require creative insights to spot andcapitalize on the trends in data that will determine theircompetitive advantage.


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Making Strategy Rea


answer: inancial catastrophe. He passed on the opportunityand now looks like a hero.50

Andrew W. Lo, a proessor at MITs Sloan SchoolLaboratory o Financial Engineering, says, I corporateleaders, portolio managers and regulators want to makegood risk based decisions, they need to have the right

ramework to analyze the data.51 Business perormanceoptimization systems, with their vast repositories o dataabout customers, suppliers, products, inances and more,are at the heart o the risk and transparency debate. A solidtechnology platorm is a pre-condition to transparency.To share inormation with their stakeholders, companiesirst need to capture, organize and store all o the relevantdatayou cant share and explain what you dont have anddont understand. As David Ticoll and I noted in our 2003book, The Naked Corporation: I youre going to be naked,youd better be bu.52

The consequences o not having a single version o the

truth (or o sharing the wrong one) can be dramatic. OnJanuary 9, 2004, the Royal Dutch/Shell Group o Companies(Shell) announced it would need to re-categorize hydro-carbon reserves that had previously been disclosed. Theannouncement triggered a series o negative events orthe company. First, Shell was placed on Standard & PoorsCreditWatch, and its credit was downgraded on April 19,2004.53 Second, a number o senior executives resigned,including the groups chie inancial oicer, the chairman othe Committee o Managing Directors, and the upstreamdivisions chie executive oicer.

In 2007, at Socit Gnrale, trading irregularities werenot reported to bank management by staers who noticedthem because, as a report by the Banks own investi-gators noted, This was not speciically a part o their jobdescription.54 The Bank later reported a $7.3 billion loss,which was allegedly due to unauthorized trades by oneemployee, Jrme Kerviel.55

The act that enterprise risk management (ERM) capabilityis no longer a nice to have but now a must havecapability is highlighted by the act that last May, Standard& Poors announced that it would start incorporating ERMinto discussions with companies that it rates and might

soon begin to score companies based upon ERM. Themove sent a strong message to enterprise business andtechnology leaders: Stop procrastinating and get your ERMact together ASAP.

How do you anticipate events that by deinition are hardto predict? Firms must start by creating an organizationalculture that encourages employees to take ownership orisks and weigh them against potential rewards. This meansproviding the appropriate tools to enable modeling risksand analyzing their business impact. While individual eventsmay be diicult to anticipate, its nevertheless helpulto have an understanding o their consequences. More

importantly, this means making the process integral both toenterprise risk management systems and every componento the business intelligence system deployment. Theorganizational culture must encourage employees to bringconcerns about risk orward early; particularly when modelsare being applied in new ways or in new service oeringsIt is important to model extreme events as part o the

technology development process. We have learned romthe Lehman Brothers example and others that extremeevents do happen. The appropriate culture can transormbattles about risk between optimists and naysayers intoa ocused dialogue about the nature o risk and how tomanage it. There are many ways to reduce and hedge risksIt is important to consider the alternatives at the outsetas opposed to when an unacceptable outcome becomesreality.

CONCLUSIONS

Making strategy real, through the eective deployment o

business perormance optimization systems, is no longer anice to have capability. At a basic level, these systems arenow a survival requirement. When executed exceptionallythey are also an enabler o innovation and long-termcompetitive advantagesupporting the process eiciencyimproved insight, and lexibility, that are the backbones ostrategic agility. Such capabilities also enable transparencyand the identiication (and avoidance) o risks that are anincreasingly important component o successul business inthe modern era. Smart irms are embracing business perormance optimization systems and are already beginning toenjoy the competitive inside track.


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10 | nGenera Insight


1 Robert S. Kaplan and David P. Norton, The Strategy-Focused Organization, Harvard Business School Press, 2000.

2 Economy in Worst Fall Since 82, Wall Street Journal, February 28, 2009, www.online.wsj.com.

3 3 Ibid.

4 Christina Torode, Balanced Scorecard ounder: In recession, think risk management, Search CIO, March 17, 2009,

www.searchcio.com.5 Catherine Cliord, Jobless claims: Its still tough out there, CNN Money, May 21, 2009, cnnmoney.com.

6 Alkman Granitsas, ECB Provopoulos: Financial Crisis Is Still Unolding, Dow Jones Newswires, May 27, 2009, www.nasdaq.com.

7 Worldwide mobile cellular subscribers to reach 4 billion mark late 2008, International Telecommunication Union,September 25, 2008.

8 Alex Pentland, The Nervous System o the Human Race has Come Alive, What Are You Optimistic About, HarperCollins, 2007.

9 Matt Rosenberg, Lie Expectancy, About.com Geography, August 17, 2007, www.geography.about.com .

10 U.S. Census Bureau, International Database, 2009 via www.inoplease.com.

11 The Swimming Naked Awards, The Economist, December 16, 2008, www.economist.com.

12 Daniel Carty, Dow Jones Boots GM, Citibank, CBS News Blogs, June 1, 2009, www.cbsnews.com/blogs.13 Rahm Emanuel, Rahm Emanuel on the opportunities o crisis, The Wall Street Journal Digital Network, November

19, 2008, www.WSJ.com/video.

14 The Science in Science Fiction, National Public Radio, November 30, 1999, www.npr.org.

15 Frank Tortorici and Linda Barrington, Weakening Global Economy and Growing Financial Pressures are IncreasingCEO Concerns, The Conference Board, December 2, 2008, www.conerence-board.org .

16 Thomas H. Davenport and John C. Beck, The Attention Economy, Harvard Business School Press, June 2001.

17 Worldwide Economic Crunch Forces Enterprise Inrastructure Sotware Growth to Slow, 2008-2013, GartnerDataquest, April 9, 2009.

18 Interview with, Dave Greiner, Data Czar or Siemens Healthcare in the US conducted by Paul Barter and JeDeChambeau, nGenera Insight, June, 2009.

19 Marissa Mayer, Data is Apolitical, Stanford Universitys Entrepreneurship Corner, May 17, 2006, ecorner.stanord.

edu.20 Peter F. Drucker, Management: Tasks, Responsibilities, Practices, Harper & Row, 1974.

21 Timo Elliott, Data Quality and Bandit Sheep? BI Questions Blog, February 29, 2009, www.timoelliott.com.

22 Interview with Dave Greiner, data czar or Siemens Healthcare in the U.S. conducted by Paul Barter and JeDeChambeau, nGenera Insight, June 2009.

23 Ibid. Interview with Bruce Rogow, principal o IT Odyssey, conducted by Paul Barter and Je DeChambeau, nGeneraInsight, April 24, 2009. Bruce heard this anecdote in 1969.

24 Robert S. Kaplan and David P. Norton, Strategy Maps. Harvard Business School Press, 2004.

25 Ibid.

26 Each year, Bruce J. Rogow visits 120 IT executives under his IT Odyssey to develop a real time and broad perspectiveon how organizations are getting the most rom their IT investments.

27 Interview with Bruce Rogow, principal o IT Odyssey, conducted by Paul Barter and Je DeChambeau, nGeneraInsight, April 24, 2009.

28 Ibid.

29 Interview with Jonathan Rothman, director o data management, Emergency Medical Associates, conducted by PaulBarter and Je DeChambeau, nGenera Insight, April 29, 2009.

30 Ibid.

31 Ibid.

32 Ibid.

33 Ibid.

34 Ibid.

ENDNOTES


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Making Strategy Real


35 Don Tapscott and Steve Elmore, Managing Enterprise Inormation: Architecting or Survival and Positioning orSuccess in Tough Times, nGenera Insight, March 2009.

36 David H. Autor, Frank Levy and Richard J. Murnane, The Skill Content o Recent Technological Change: An EmpiricalFoundation, The Quarterly Journal of Economics, November 2003.

37 Interview with Dave Greiner, Data Czar, Siemens Healthcare, conducted by Paul Barter and Je DeChambeau,nGenera Insight, May 29, 2009.

38 Thomas W. Malone, Ten questions: Faculty report rom the rontier o management, MIT Sloan, March 2005.

39 Ibid.40 Michael Jensen, Fundamentals of Organizational Strategy, Harvard University Press, 1998.

41 Louis V. Gerstner Jr., Who Says Elephants Cant Dance? Inside IBMs Historic Turnaround, HarperBusiness, 2002.

42 Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business,Free Press, 2003.

43 Interview with Greg Skibiski, Sense Networks, conducted by Alan Majer, nGenera insight, April 14, 2009.

44 Ibid.

45 Ibid.

46 Ibid.

47 Chiristina Torode, Firms urged to keep an eye on risk management in times o crisis, Enterprise Innovation, March27 2009, www.EnterpriseInnovaiton.net.

48 Erik Brynjolsson and Lorin M Hitt, Beyond the Productivity Paradox, Communications of the ACM, Vol. 41 No. 8,August 1998.

49 Mark Twain WikiQuote, retrieved May 28, 2009, www.en.wikiquote.org.

50 The Opportunities Brought to you by Distress, MIT Sloan Management Review, Spring 2009.

51 Ibid.

52 Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business,Free Press, 2003.

53 Standard & Poors Credit Rating, Shell Press Release, April 19, 2004.

54 Jonathan Rosenoer and William Scherlis, Risk Gone Wild, Harvard Business Review, May 2009.

55 Ibid.


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ABOUT THE AUTHOR

Don Tapscott is one o the

worlds leading authoritieson business strategy, withemphasis on how inorma-tion technology changesbusiness, government, andsociety. He is the author orco-author o 13 widely readbooks, including Wikinom-ics, which was the bestselling management bookin the United States in 2007and is now translated into22 languages. He is Chair-man o nGenera Insight, aglobal business innovationcompany, headquartered inAustin, Texas with ofces inthe U.S., Canada, and theU.K. Don directs several onGenera Insights researchand education programs,which serve a marquee listo Global 2000 customers.Tapscott is also an adjunctProessor at the Joseph L.

Rotman School oManagement at theUniversity o Toronto.


Paul Barter has been an

executive analyst withnGenera since 2005. Paulhas authored and co-authored several nGenerapapers including Rethink-ing Business Intelligence,Platorms or Innovationand Marketing 2.0: Be-yond Pops and Clicks. Paulhas over 25 yearso experi-ence in the IT product andservices sector with frmssuch as Compaq, GeneralElectric and T4G Limited. Inaddition to industry experi-ence in sales, marketing andstrategy development, Paulalso teaches E-CommerceMarketing and TechnologyStrategy in the MBA pro-gram at the York UniversitySchulich School o Business.Paul studied Engineeringand Economics at the un-dergraduate level and holds

an MBA rom the North-western University KelloggInternational Executive MBAprogram.

I am grateul to Paul Barter, Alan Majer, Bob Morison, Naumi Haque, Ian Da Silva andJe DeChambeau o the nGenera Insight Team or help in researching, reviewing,and editing this paper and I also thank SAP or their fnancial support o this project.However, the views expressed are my own, and I and nGenera take responsibility orthe opinions expressed herein.

Don Tapscott, Chairman, nGenera Insight

ABOUT THE AUTHORS


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