The Changing Times – realising value creation
For the March edition of ’the changing times’, the bi-monthly newsletter from my consultancy network The Lamberhurst Corporation, click here.
The focus on this edition is ‘realising value creation’ with articles which include:-
- Mergers and Acquisitions – finding the right deal
- Outsourcing
- Case Studies
- Consultant Profiles
Efficiency & Effectiveness
“Efficiency is doing better what is already being done.
Effectiveness is deciding what to do better.”
Source: Peter F Drucker
I used this subject at a presentation to the 7.45 Breakfast Club this week. Given that the club has members from a very broad spectrum of businesses, including sole traders, I wanted a subject that would be equally relevant no matter how big your business.
I use the Efficiency and Effectiveness matrix as a discussion tool to help businesses identify where they may need to focus their efforts. It is a good way of prioritising ideas for change and focusing on the areas that will achieve the maximum benefit.
To explain the model I typically use the following examples:
Effective & Efficient = ‘Thrive’
Organisations that implement the right strategy, efficiently tend to thrive. Sometimes they are so effective and efficient that they rapidly outgrow strategies, by meeting their targets earlier than planned. The best will then go on to define and achieve more challenging strategic targets, thus increasing their ability to thrive.
Effective & Inefficient = ‘Survive’
A lot of organisations get by, ‘surviving’, forever showing potential, but never meeting their growth targets. Such organisations include public sector services, operating to a clear brief, that never quite achieve the levels of service to match the investment that is made in them. Private sector organisations with poor management or inefficient practices also fall into this category.
Ineffective & Inefficient = ‘Die Slowly’
These organisations do not have the right strategy to achieve what they are aiming for. They also suffer from poor management and / or badly managed process discipline. Many small family run businesses fall into this category and exist in an almost permanent state of decline.
Ineffective & Efficient = ‘Die Quickly’
Organisations that are highly efficient at doing the wrong things fail heroically; unless emergency action is taken to redefine their strategy. Although they may have invested heavily in modern and efficient processes and systems, they share a lack of management awareness that they are headed for danger. Basically the vision driving their strategy, does not match the realities of the marketplace.
So where do you services fit within the matrix?
Are you as efficient and effective in all the product or service areas you provide?
If not what are you going to do about it?
If you are still not sure, drop me a line and we can discuss further.
Is Vision, Passion and Action enough?
A while ago (click here), I stated that to be successful a business must have a vision of where it wants to go; it must be passionate about what it does and it must get on and do something about it – i.e. there must be action!
I was reminded of this last night as I reached the half way point of reading Steve Jobs, the biography by Walter Isaacson, which is an excellent read and is definitely to be recommended. When comparing Jobs early years at Apple and his time running NeXT you can can’t disagree that he was a visionary, he was certainly passionate about what he did (some would say too passionate) and there was a huge amount of action. Despite this it wasn’t enough to prevent both Apple and NeXT failing to deliver what they had set out to do.
This doesn’t mean that Vision, Passion and Action are not relevant, on the contrary; what is vital is that the passion and action must be directed towards achieving the Vision. This sounds fairly obvious, but how many leaders or their teams get sidetracked and spent time and energy on things that are not directly related to their vision for the business?
The answer lies in Leadership, but I don’t mean just a charismatic person at the top of the business. Leadership needs to be displayed at all levels in the organisation and in all directions – managing your boss, your colleagues and yourself through the use of personal power and not relying on the authority power given to you by your position in the company.
Going back to Steve Jobs, he certainly was able to use personal power to influence those around him. This power was so strong though it became manipulative and did not always bring out the best in people. He also failed to listen to feedback so did not get the benefit from the talented people around him.
Having said that he was hugely successful and really did change the world. Bear in mind I am only half way through the book so far and this is my opinion just on his early years in business, I am sure it will change over the next few chapters!
To summarise my new mantra for successful business, which I intend to use to help both my own business. Solitaire Consulting and the organisations I help is being extended to:
Vision, Passion, Leadership, Action
Using Technology to drive change
“The number one benefit of information technology is
that it empowers people to do what they want to do.
It lets people be creative. It lets people be
productive. It lets people learn things they didn’t
think they could learn before, and so in a sense it is
all about potential.” Source: Steve Ballmer, Microsoft Corp
Most businesses today invest heavily in Information & Communication Technology (ICT), but often this is only seen as a necessary cost of doing business. Business leaders need to be asking themselves:
What Value do we gain from investment in ICT?
From the perception of the ICT Department this is likely to focus on the nearly 100% uptime, speed and accuracy of transaction processing, or the ability to provide staff with instant access to email and office systems from anywhere they choose to work from.
Whilst this is very important the real value of ICT must go further than this if it is to help enable the business to develop and compete. In order for ICT to provide this next level of value companies need to focus on the use of technology to enable:
• Process optimisation and improvements in efficiency
• Innovation and improved decision-making
• Collaboration and interaction with customers, suppliers and partners
This is not just about the acquisition of new technology, which on its own is not enough to drive meaningful business change. It is about how that technology is deployed and used across all levels of the business.
Technology as an enabler for efficiency
In most businesses technology is embedded in almost every business process. It is at the core of a company’s cost centre, and in particular sectors is inextricably linked to productivity and a company’s core value proposition. But in how many of these companies is this technology being used to its full potential?
ICT implementation projects have a reputation for attempting to deliver too much too quickly, with the inevitable result being the project overruns in both time and cost. Projects are scaled back to deliver minimum functionality and commitments made to deliver the additional value in later phases. How often do these phases get postponed indefinitely? The result is a business which is operating sub-optimally, using short-term workarounds that become part of ‘business as usual’.
The most successful ICT projects aim to deliver 80% of the benefits for 20% of the cost. This can only be achieved with a very strong link between ICT and business people.
Technology to improve decision-making
Businesses generate and store a mass of data. Data needs to be transformed into knowledge to make it useful to decision makers. This value-adding process relies on technology to:
• Aggregate, manipulate and organise data;
• Carry out analysis and evaluation; and
• Report the information in proper context for human use.
A business’s ability to do this better than its competitors gives it a strategic advantage, particularly in the context of innovation and development of new products and services.
Technology to develop strategic relationships
In the global economy the ability of a business to take advantage of new ways of communicating and transacting business can drive value and lower the cost of interactions between a company and its suppliers, partners and clients. Technologies such as social media, open source, cloud etc can challenge the traditional ICT Department and require new ways of working.
Increasing the benefit from investments in technology
In many cases companies already have access to the technology, but there is a lack of co-ordination between the business and ICT, and a lack of innovative thinking to make the most of these opportunities. Left to their own devices staff will serve their needs first and a plethora of mini-systems will evolve across the business. The culture of the company and a disciplined ICT department will ensure systems serve the company and its customers first.
The key to making more use of the technology present within the business is to harness the creativity of the staff that use this technology. They know the frustrations of inefficient processes, they know what data is collected and they know how their own jobs can be improved.
Solitaire Consulting can help unlock this potential within your people and technology systems. Large gains in productivity and process efficiency can often be achieved without having to resort to high cost, high risk IT projects. The aim is to help you achieve 80% benefit from 20% of the investment.
The Change Equation
The change equation was first developed by Richard Beckhard and Reuben Harris, based on an idea by David Gleicher. It is a great tool for focussing a team when planning a major change and can always be relied upon to act as a catalyst for discussion.
I was first introduced to the Change Equation by Peter Duschinsky in his book of the same name. Since then I have had the pleasure to meet Peter on several occasions to share and debate our views on organisational change.
The key premise of Beckhard’s Change Equation is that meaningful change can only be achieved when people’s natural resistance to change can be overcome. This is represented by the following equation:
D x V x F > R
Where:
D is dissatisfaction with the present
V is the vision of how things could be
F is knowledge of the first practical steps i.e. a plan, and
R is the resistance to, or cost of, change,
In other words, people’s natural resistance to (imposed) change will only be overcome by the combined force of dissatisfaction, vision and knowledge of the first steps to achieve the change. By multiplying the three factors the model implies that if any one factor is zero or missing then change will not happen at all.
How many times have you worked in an organisation that has a really good vision for change, has developed pragmatic plans to achieve the change, but it still doesn’t happen? This is usually because there isn’t the sufficient will in the organisation or people aren’t dissatisfied enough with the status quo to change.
This ties in to one of my previous posts where I talked about complacency as being a barrier to change. Complacency and dissatisfaction are very similar in this context.
The strengths of the model are its simplicity and that it draws attention to the fact that a lot of change projects fail because they fail to overcome the internal ‘resistance’. Most people do not like to be moved from their comfort zone, unless of course they are initiating the change for themselves – or to put it another way “I love change except when it is happening to me!”
If you haven’t used The Change Equation just try it and see if it helps explain why your project isn’t achieving the traction you originally hoped for. And please let me know what you think.
Efficiency & Effectiveness
“Efficiency is doing better what is already being done. Effectiveness is deciding what to do better.” (Source: Peter F Drucker)
In times of economic uncertainty organisations generally become very cost-conscious. Lots of time and effort can be spent on ‘efficiency programmes’; extracting as much cost as possible from the production of products and services.
Whilst this internal focus on getting things right is an important element of running a successful business, just being efficient is not good enough. Whether your organisation is in the private, public or third sector you must also operate effectively if you are to succeed.
Effectiveness is “doing the right things”
Effectiveness is critical to the success of every organisation. The key is having a good strategy; one that is well thought out and well executed. An effective business has the ability to produce the right products or services and introduce them to the market at the right time.
In order to be effective the objective or end goal must be met, therefore effectiveness must take into account any variables or parameters that may change during the course of production or delivery.
Efficiency is “doing things right”
Technically, efficiency is defined as the ratio of outputs to inputs and focuses on achieving the maximum output with the minimum resources.
An efficient process is one that can be repeated time and again with little or no variation. This focus on repetition can lead to inflexibility and an inability to be able to react to change.
This dichotomy between efficiency and effectiveness can be illustrated with an example based on an IT services company. The company decides it is taking too long to carry out routine maintenance tasks and engineers are getting backlogs of work orders. Following a review an additional testing by a co-worker was removed from the maintenance process. This change certainly makes the process more efficient; maintenance jobs are turned around quicker and the backlog disappears. However, the change results in more jobs going out with other faults that result in the customer having to log another support call. This creates more administration work and customers are dissatisfied because they would reasonably expect all issues to be resolved.
This illustrates how ‘doing the right thing’ can often be overshadowed by ‘doing things right’. Organisations need to find ways of becoming more efficient without compromising customer service, quality and innovation.
The Efficiency / Effectiveness Matrix
|
Effective |
Ineffective |
|
| Efficient |
The business thrives |
The business dies quickly |
| Inefficient |
The business survives |
The business dies slowly |
Most businesses do not operate at these extremes; those that do show brilliance in either their strategy or delivery often only do so temporarily. Very few organisations thrive for sustained periods, particularly in dynamic environments.
So where does your business sit within the efficiency / effectiveness matrix? Is your strategy as effective as it should be? Are you operating efficiently in all areas? If not then Solitaire Consulting can help.
The Changing Times
For the latest edition of ‘the changing times’ the newsletter of The Lamberhurst Corporation Consultancy Network please click here.
This month the newsletter includes a profile of yours truly as well as a couple of case studies and an article on Business Improvement that first appeared on this blog as ‘using technology to drive change’.
The Lamberhurst Network has now grown to over 50 consultants operating in the UK, Channel Islands and Europe. We all have our own successful consultancy companies and a pre-requisite to joining is a track record of working in senior positions in the public or private sectors. Using the power of the network we are able to tackle much larger projects than our individual businesses could cope with.
Please do contact me if you want further information on how Lamberhurst consultants can help your business.
Barriers to change #2 – Lack of Vision
In my last post I discussed how complacency can be a barrier to change in an organisation. I used the Jersey Trust Industry as an example. This time I would like to explore another vital ingredient to successful change – vision.
This may sound obvious, but if you are looking to change or improve your business then you need to define where you are heading. This needs to be more than just a vague statement of ‘we want to be better than our competitors’ or ‘we want to make more profit for our shareholders’. Whilst this type of statement may help to define the direction the company is heading it doesn’t describe the destination.
Spending time clarifying your vision is an essential step on your change journey. Ideally this will be agreed by the senior management team or main Board of the business. The vision should be clear and avoid ambiguity. It should also represent a ‘stretch’ from where the business currently is.
This is where I have a problem with some of the businesses I talk with, or more specifically the managers and staff within those businesses.
One of the challenges of living on an island with a relatively stable population and low workforce mobility is that people often stay in the same jobs for quite a long time. As well as leading to complacency as described last time, this also stifles vision. Or to put it another way people no longer have an awareness of ‘what good looks like’ and except mediocrity as their vision.
So if you want your business to succeed and be better than the competition then you must embrace new talent. A reasonable level of staff turnover helps to invigorate the business and bring in new ideas from other companies and sectors. If you don’t have the opportunity to bring in new staff directly look for other ways to widen your vision or experience. Consult with your customers or suppliers. They will usually be only too happy to help you and can identify areas of focus from their experience of dealing with other businesses themselves.
It may also help to bring in some external expertise such as a management consultant or business improvement practitioner. Many of my clients use the services of Solitaire Consulting because they need to make sense of the many sources of feedback and opinions they have internally. Someone from outside the business can apply an objective assessment of your situation and help you make the most appropriate decision about where your business needs to be.
Before you embark on a major change make sure you have adequately defined and communicated your vision of the future.
Complacency – one of the biggest barriers to change?
I’ve had several really useful conversations this week that have all pointed to the high levels of complacency that still exist in businesses today, particularly in the financial services sector. These are businesses that have survived the difficult trading conditions of the last few years but are seeing the increased levels of activity in the current market as reasons for not needing to change.
Although many have attempted to reduce costs to remain profitable there are still a lot of challenges ahead. Have a look at the graph below, courtesy of my friends at BankClarity Ltd, which shows how the costs per employee compare against profit per employee in the Jersey Trust Industry (Source: States of Jersey).
I’m sure this graph may also apply to other jurisdictions operating in similar regulated environments.
This tells us that making money in the 1990′s was pretty easy but for the last decade profitability has not increased at anything like the same level as staff costs. This clearly is not sustainable and something has got to change!
I believe the saying, “If you always do what you’ve always done, you’ll always get what you always got” is still believed in a lot of circles. Unfortunately this is only true when operating in a stable environment. So much is changing around us, for example: the general economy, increased client demands, regulations and technology to name but a few. Doing what you have always done will no longer produce the same results – it is a sure way to lose market share to your competitors who are changing.
So why isn’t there a huge demand for business improvement services to help improve profitability? Where has the innovation gone to take advantage of new technologies and new ways of doing business?
It seems to me that business leaders are far too complacent and very few are willing to embark on truly transformational changes to their businesses.
Fortunately I am lucky to be working (through my consulting business, Solitaire Consultng Ltd) with a few clients who aren’t complacent, are forward thinking with a strong desire to maximise efficiency and look for new ways to increase their profitability per employee.
How do we encourage others to do the same?
