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What Executive Skill Should We Focus On?

Sunday, March 15th, 2009

Two weeks ago I had a simple question to a couple of executives I was interviewing for my panel discussion with the Villanova MBA class in April. Instead of sharing my opinions with the MBAs I decided to reach out to a dozen or so of my peers and ask what they would tell the class. I will share the results of those interviews after my talk with the class in April.

What came from the interviews though is a series of spectacular insights. One of which is that in these times executives should focus on different skills than just business expertise and personal development. My friends told me that the ability to execute and build relationships will surpass all IQ and business acumen.

I decided to put the theory to the test. I reached out to my LinkedIn network and conducted the following poll:

In these times what executive skills should we focus on?

The response was overwhelming to say the least. In a week I received 170 completed polls, 40 detailed comments and over 50 emails detailing and arguing various points.

Here is the bottom line:

Ability to Execute is the Most Important Skill.
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40% of those polled believed that Execution is the most critical while 31% put Relationship Building first.
Interestingly only 10% put Business Expertise on top.

Again, like the adage says: IT IS NOT WHAT YOU KNOW…

Interestingly the ranking was almost identical from both men and women:
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We will be dedicating a new site to publish the details of our polls and interviews soon. Stay tuned.

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Executive Success - it’s a simple equation…

Wednesday, March 4th, 2009

It’s not WHAT you know.
It is not WHO you know.
It is not HOW you deliver.
It is ALL of it.

In the new world of tough competition for positions, careers and recognition it is important to remind ourselves that it takes 3 to be successful and compete.

We can look at this as the following formula:

SUCCESS = IQ * EQ * XQ

IQ - Intelligence, Credibility

Most of us have been taught that through learning and personal development we will succeed. It is certainly part of the equation but the as John Maxwell’s classic reminds us - Talent is Never Enough.

EQ - Relationships, Intimacy

Relationship building may be the most misunderstood area of the equation. Many assume EQ is the area for salespeople and managers. Others believe that having 10,000 online “friends” or consumers does the trick. The most important for us is to create long term relationships of give and take that will help you advance your agenda. Whether it is sales, politics, social or otherwise. Keith Ferrazzi emerged as the most prominent advocate of this skill.

XQ - Execution, Consistency

The most under-appreciated factor in success is to actually deliver the goods, so to speak. Being smart and knowing the right people only matters if you produce results. We are always astonished how many people forget this. Leading advocates of this skill are Bossidy , Kaplan and David Allen .

In fact, our research shows that most executives overweigh their focus in one of these areas so much so that certain archetypes are emerging

The Expert Archetype: “IQ eq xq” - I am the expert in my field, I have the best insight. I already know the right solution.
Typical roles that overemphasize this skill: consultant, advisor, attorney, researcher, professor.

The Connector Archetype: “iq EQ xq” - I build connections with everyone. I can leverage it to advance their and my agenda.
Typical roles that overemphasize this skill: sales, marketer, politician, PR, fundraiser.

The Manager Archetype: “iq eq XQ” - I deliver results through teams. I meet objectives, deadlines and budgets.
Typical roles that overemphasize this skill: project manager, plant manager, supervisors, crisis managers.

Great, very insightful (IQ), but what can I do about this (XQ)?

ACTION STEPS:

1.) DEVELOP ALL 3 SKILLS: All successful leaders create a balance of these 3 skill areas and augment their own shortcomings by partnering with others that are strong in areas where they are weak. It is interesting to see what other executives think about relative importance of these skills in today’s economy. Check out our global executive poll:

2.) EXCEL IN ONE OR TWO - Our research shows that in order to be considered an effective leader - in a given corporate or social environment - it is critical to meet the ‘minimum’ expectations in ALL 3 areas and demonstrate excellence in at least 1 area. According to Marcus Buckingham the best approach is to ‘Build on your strengths’ and focus on the area where you are already good at.

3.) BALANCE THEM, DAILY - We believe it is important to strike a daily balance to make sure all of us work on tasks that strengthen all 3 areas and create a personal development program to improve each discipline. What-if our daily GTD lists have reminders to do that… (we will talk about that our next blog)

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Happiness and Markets

Monday, February 23rd, 2009

One of our favorite economic indicators is the Mood Index from the Gallup organization. Interestingly, many times economic downturn increases happiness for unknown reasons. Like this month with the S&P at a 12-year low we see the Mood Index ticking up 10%.

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Harvard studies point out that:

The expanding field of happiness research has shown that we tend to overestimate the long-term impact of negative events. Negative events do affect us, but generally not as much as we expect-or for as long. (Dan Gilbert, research psychologist, Harvard)

Families with higher income and fewer children tend to be happier according to Gallup data.

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Business Models Rule

Sunday, October 5th, 2008

Michael Rappa has a great article summarizing the various types of business models. It is a concise way of analyzing various possible models for a startup idea. The same service or product may be adopted to offline and online business models and have an impact on the overall success of the business.

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He categorizes all business models into the following groups: Brokerage, Advertising, Infomediary, Merchant, Manufacturer (Direct), Affiliate, Community, Subscription, Utility A similar study from MIT classifies it differently and also points out that the selection of the model fundamentally determines the success of the venture as much as the product or service:

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Alex Osterwalder is one of the consultants focused on business model creation vs product idea creation. For many great companies business model was much more important than product idea (Dell, Toyota). These companies realized that well executed business models are much harder to imitate than products.

Technorati Tags: business ideas, business models, Enterprise 2.0

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Weak Dollar Poorer Nation

Saturday, April 7th, 2007

Something unnatural happened in the Wealth of Nations. As an economist in school I learned that weak dollar helps exports, employment and growth. All in all if the dollar falls imported goods may be more expensive but everything else is supposed to be positive.

Some good old rules are getting broken…

  • Despite 12% drop in the dollar in the last 2 years and 46% drop in the last 5 against the Euro the US growth is behind that of Germany and even the EuroZone. They were supposed to be shrinking under the pressure of the cheap US exports… It turns out we are increasingly competing globally with companies that source products from the same place we do: China. And the Chinese currency is pegged to the dollar. The cheaper US exports get, the cheaper Chinese exports get…

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  • If we take two graduating buddies (Class of 2002) from the same midwest College split up and one lives in Germany the other one in Chicago the real cost of currency becomes real for them. If the two make the same money for the last 5 years what they made when they graduated… the German fellow would have over twice as much in dollars as his Chicago buddy by 2007 assuming they save at the same rate…
  • The Chicago house one of them bought that appreciated 50% in those 5 years would have been flat counted in Euros. The same house in Frankfurt appreciating 50% would have doubled in price if measured in dollars..

Maybe all in all it is a good thing considering someone has to buy up all the savings and assets we accumulate over the years as I wrote in my prior article… We expected Chinese investors but we may have to take some Euros as well…

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Time Magic Quadrant for GTD maniacs

Sunday, March 25th, 2007

I got an email to my last post with an interesting twist. A fellow GTD enthusiast started measuring the time he spent in the various segments of the Team Magic Quadrant and came up with an obvious insight:
If you want to be a leader you should spent time doing leader-like things.

I put his time assessment in the chart to make the point. Now he wants to structure his next action list so that the priority is determined by the Magic Quadrant. Way to go, Rick.

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Magic Quadrant for Teams

Thursday, March 22nd, 2007

Early in the year most companies go through performance evaluations and the necessary rating systems. They typically answer the question of who is an “A”, “B” and “C” player with the inherent assumption that every person can become an idealized “A” player and in fact organizations can be built with all-A teams. I’m not going to argue the statistical futility of this effort, rather point to what is really important in an organization:

Build a world class team with a mix of A/B/C players, that is a high diversity high performance team.

A client friend of mine asked a similar question during the performance season. He had some great thinkers and some outstanding doers in his team. Sometime both. He started plotting them on the magic quadrant, a matrix that compares ability to execute and the ability to formulate and articulate a vision or a plan.

The (simplified) result is below. What is interesting is what he did with all of that. He ended up with 4 categories of people:

Human Magic Quadrants-4

  • Leaders - who can define a vision / outcome and have the energy, commitment to follow-through till the results are there
  • Innovators - who come up with awesome ideas, plans, goals but never actually deliver the results
  • Performers - who will climb any mountain, break down any wall to reach an objective but have a hard time plotting strategy
  • Apprentice - who need a lot of direction in both planning and execution of the tasks

He had A/B/C players in all these categories but decided to team up his Innovators and Performers on projects so they have a great plan and they execute on them. He also made sure his well-rounded leaders were put in charge of mentoring the Followers.

The jury is still out on the experiment but the team loves the clarity around the roles much better than being given a “B” again. Now they can all be “A” players in their own game without having to become something they are not.

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Leaders Ask the Right Questions

Saturday, January 20th, 2007

I have worked with thousands of executives and managers over the years doing strategy work and in that journey I sometimes become the stand-by sounding board and coach for many.

One of the most puzzling and unsettling in those deeper conversations is the nature of corporate success. Many of my newfound friends were puzzled how their peers and (typically) bosses seem to move ahead with ease and grace while they were busy delivering on all their commitments and getting lost in the bigger picture.

Over time I came to a conclusion that is hardly scientific but statistically fairly accurate. The difference between super-achievers and the rest has a lot to do with the questions they ask and act upon and not just the skills they bring or the results they deliver.

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Let me explain.

I noticed that my most successful customers had a rich vocabulary of transformational questions: Why do we do what we do, why should we serve these customers, why shouldn’t we try something else, what would be a better direction, what else can we try, what succeeds elsewhere, etc. Then listening intently to the achievement-challenged populace the questions tend to take a different tack: How can we work on this, how can it be done, who should do it, when should we do it, who’s job is it, etc…

Over time I logged the questions leaders ask vs the questions followers ask and came to a set of simple but fairly universal conclusion based on my little “questions determine destiny” theory.

  • We all play both leading and following roles in different circumstances.
  • Leaders are those who spend the majority of their cycles thinking WHY and WHAT questions and then follow through their answers with action.
  • Followers spend the majority of their time asking HOW, WHO, WHEN questions and act on those tactical levels.
  • Anyone can change their direction by focusing on WHY, WHAT and delegating the HOW, WHO responsibilities.
  • Asking the right questions is not enough. Acting on the right questions makes people leaders.
  • And of course it is just common sense.

I now use the above chart to mark my contacts based on the interactions we have and sometimes share my statistics if the topic comes up.

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Strategic Creativity Killers

Wednesday, October 18th, 2006

It’s the season for strategic planning for most companies. Despite what I stated in my earlier post I still believe that business model changes are happening at an increasing rate. If you are like most companies, strategic planning takes place at some offsite in a reasonable climate with the leadership brainstorming away.

Dave Dafour’s list reminds us that this one time in a year we really, really need to think outside the box.

Here is his partial list of Creativity Killers: (please avoid them at all costs…)

  • Our place is different
  • We tried that before.
  • It costs too much.
  • That’s not my job.
  • They’re too busy to do that.
  • We don’t have the time.
  • Not enough help.
  • Not that again.

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Complexity as Growth Killer

Wednesday, October 18th, 2006

All of us technology professionals were supposed to make business simpler. Well, we failed. As I am working with companies with hundreds if not thousands of enterprise applications and multiple competing business models and processes in the same company it makes you wonder where this is all going.

The new buzzword in business improvement is complexity management. Most companies still do not understand the correlation between increased complexity (products, technologies, organizations) and the resulting growth or lack thereof.

Harvard Business Review had a great article on this topic titled Innovation vs Complexity:

As a company increases the pace of innovation, its profitability often begins to stagnate or even erode. The reason can be summed up in one word: complexity. The continual launch of new products and line extensions adds complexity throughout a company’s operations, and, as the costs of managing that complexity multiply, margins shrink.

They also point out that business wealth is created in the simplification of interactions between systems, processes and organizations.

That is where most studies are going. Internal complexity becomes the number one prohibitor of growth. It is not lack of customers, lack of talent, lack of products. in fact it is due to too many products, services, channels and talent. All major strategy shops are exploring this topic in recent articles from ATKearney, Bain, and Booz-Allen and McKinsey.

Complexity comes in many forms from product portfolio proliferation through diverging technologies to non-standard processes.

If you can afford the top strategy firms they could send you back to the drawing board and ask you to design your business from scratch as if your were selling one product to one customer. Then keep adding product lines and channels without adding unnecessary organizations or processes. It is amazing how an exercise like that paints a real best-in-class view of your business.

In my research complexity and uncertainty feed on each other. When businesses face uncertainty (and who doesn’t) they tend to create what I call safety buffers by adding people, procedures and technologies. Depending on the business it may be

  • excess inventory or capacity because the management does not trust the planning process or technology
  • excess people because the human glue is needed to ensure information flow in divergent processes
  • excess process and technology solutions because divergent organizations need more procedures and technology
  • excess innovation to meet unspecified customer needs

Complexity management may one day give us some guidelines on how to simplify and standardize businesses and show us companies that did go back to the proverbial drawing board. Until then new technologies will need to focus on simplicity, standardization and thereby making a small contribution to that elusive concept: sustainable growth.

As the Booz-Allen study so aptly stated when describing the role of technology providers:

Process complexity is one of the silent killers of profitability. Any time a new product is added or changed or a service level is increased without addressing complexity the result is a process that is a little more cumbersome and a little more costly. Over the long haul, many good strategies go wrong simply because of the drag created by all those incrementally increasing costs.

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Origin of Wealth - Pilot, Standardize, Scale

Tuesday, October 17th, 2006

A recent re-read of Eric Beinhocker’s tome Origin of Wealth reminded me of the essential lesson in innovation based business strategy, or in his view any business survival.

Beinhocker (who heads the economics think tank at McKinsey’s Global Institute) takes you through a wonderful historical journey to prove that businesses just like any organisms go through predictable evolutionary cycles:

  • Differentiate (by trying more effective ways)
  • Select (traits that work best)
  • Amplify (selected traits)

That is the gist of 540 pages of intense research and like anything profound - it is quite simple.

Most businesses (including our own) grows by trial and error innovating products or business models depending on our conviction of competitive advantage. Then we standardize on what seems to work best and scale it by adding resources (people, money) behind it.

The model of Pilot / Standardize / Scale has been an extremely rewarding strategy for us for many years to innovate new products, services and business models or sometimes all three. It is good to see that great minds confirm our efforts to, well, Differentiate.

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The Strategic Plan That Isn’t

Friday, October 6th, 2006

It is the season of corporate planning in most companies with various senior leadership teams moving to offsite locations reflecting on their strategic vision. Nowadays not only the CEO’s leadership team develops strategic plans but almost any function.

In fact I was asked to comment on a “Strat Plan” of an IT department at a client and I had to point out that their most important project “retiring AS400 servers” really had no strategic value.

Strategy is the most overused business term and most people forget that in business it means competitive advantage or as Michael Porter defined it:

It means deliberately choosing a different set of activities to deliver a unique mix of value.

I have to agree with Tom Peters when he argues that most strategic planning efforts really aren’t strategic at all and he quotes various strategy gurus to prove the point. Henry Mintzberg (former chairman of Strategic Planning Society) in his classic book warned about the decline of strategic planning 12 years ago and it came to roost.

You know you are working on something strategic if the knowledge of your strategic plan would have directors breaking out in sweat in boardrooms at your competition.

Let’s just call most of the annual planning efforts operating plans. I do not think it is a derogatory word and while it may take away some of the sense of significance of the drafters of such plan it does remind us that gaining competitive ground needs something extra to happen.

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The notion that operating plans are strategic plans build on various favorite myths (and probably many more):

Senior management role makes you strategic. You need to think about it. Unless you are brought on board from a strategy firm or your company’s corporate development or M&A team you have not spent any time thinking about strategy. This is not a skill you grow on the day of your promotion. Many organizations (typically sales and product development) naturally have competitive streaks but they hardly dominate.

Long term plans are strategic. No. Plans that edge out competition are strategic. Everything else is tactical. Well, long term plans are long term with broader margins of error and lower accuracy. Unless they focus on what gives you practical advantage in the market they have no strategic relevance.

We are clear on our competitive advantage. You can ask various groups in the same company about their competitive advantage and you will get answers ranging from “we hire the best”, “we are lowest cost operation”, “we have the best channels”, “best products” and almost always “great service”. Almost never the same answer. Therefore it will not add up to a plan.

Strategy happens at the top. Well, no. Strategy happens in the trenches and while strategic thinking should happen on the top most often only the governance (metrics, targets) are established by the CxO team. Very often the line organizations are left to their own devices on figuring out how they are going to reach those targets and by doing so actually formulate strategy (which is about beating the competition).

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Strategic Advantage and Strategic Rewards

Thursday, October 5th, 2006

Even companies that understand what their strategic advantage is have the hardest time aligning reward structures to match the strategy.

In many cases a firm may break away from the pack in manufacturing with superior customer service but maintain higher rewards for engineers and backoffice functions due to industry conventions. Similarly a service company shifting to productize its offerings may still reward their professional services staff better than their newfound development or engineering staff.

Many of the same companies believe that they are paying market rates but that may not be enough. If they are pursuing a differentiation strategy than they will have to attract and reward the most differentiated (best) employees and suppliers in that category to maintain competitive advantage.

It means that in areas where you want to have competitive advantage you will have to pay top dollar and in other areas you will pay the “going market rate”.

Jack Welch in the book Winning pointed out time after time that companies have a hardest type assessing talent and retain the highest performers and get rid of the lowest performers. In this sense it is true of employees and suppliers.

I have yet to meet a company that does not believe that they hire only A-players... Who is hiring the B and C players? It is an unfortunate and inefficient myth. As a motivational speaker told us in our first partner meeting in my E&Y days: “Half the people in this room are below average”. It is true and not necessarily a bad thing. You will not be able to reward and motivate the A-players in non-strategic areas and similarly you have to create great opportunities and rewards for A-players in strategic areas.

Companies that under-reward players in strategic areas will eventually erode their competitive advantage which holds true for most companies with one size fits all compensation structures and procurement procedures.

To win, you have to reward the real A players in your areas of strategic advantage and happily hire and retain the B and C players everywhere else and keep those motivated with specific performance metrics.

The following table may serve as a strategy guide for building the right teams. My earlier post also describes characteristics of A-players in any successful environments.

Strategy Reward

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Hertz vs Thrifty’s Customer Interface

Wednesday, October 4th, 2006

Today Hertz was sold out and I had to rent from Thrifty at the airport. Our corporate provider is Hertz where I had Gold Service so I signed up on the web for the equivalent Thrifty Blue Chip service. I guess that is where similarities ended. It absolutely intrigues me that in the commodity business of auto rentals there can be such a difference in processes. To get your car is basically a 3-step process at Hertz but it takes Thrifty 9 steps.

This makes me warm and fuzzy how good enterprise applications could make a drastic difference in perceived customer value as it is the case of Hertz. Thrifty could introduce a nice web app where I could pick my car, print my rental agreement, provide credit card and check out. And that would not even be anything revolutionary but would sure make it convenient.

Here is my flow through the world of auto rentals and hopefully my last journey through Thrifty’s workflow…

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Update (10/10) I just returned my rental car and to be fair the return process is as smooth with Thrifty as it is with Hertz. So as long as the front end of the process is streamlined we may have competition again…

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How to get entrepreneurial employees

Wednesday, October 4th, 2006

You can have the best product, the greatest market if your employees do not have the juice then you will not win.
Ever since I joined the large enterprise world 3 years ago after over a decade of startup and partnership stints, I have been constantly puzzled why large corporations have a special breed of employees that just do not have the energy, juice, drive like the ones I worked with in my high growth business days.

MIT professor Joseph Hadzima had an interesting lecture that helped me reflect on what he calls Entrepreneurial Employees.
He described seven characteristics that make the people with the Right Stuff stand out from the cubicle-bound corporate mainstay:

  • Ability to deal with and thrive on risk
  • Be results oriented, accountable for results
  • Energy. Lots of it.
  • Growth potential. Having what it takes to get to the next level
  • Team player and less politics. Seriously.
  • Multitasking ability. Being able to perform more than one role
  • Self-improvement oriented.

I guess I just created a little checklist for myself. I have the Wharton MBA recruiting day ahead and I think I may have created the ultimate filter for bringing entrepreneurism back in the mix.

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Hey Brother, Can You Tell The Future?

Friday, September 29th, 2006

It is interesting that there is a perennial hope that someone (typically someone else) will have a better idea of what the future brings than us. Well that is the central theme behind the new wave of social networks of oracles.

It takes several forms, a recent favorite being the all-business, Bizpredict, where you can predict (not so distant) future business events like iPod generation 45 or whether mySpace is going to outshine Yahoo in traffic. At Bizpredict you are playing with, well, play-money.

If you want to put your money where your mouth is then you need to go to the new casino of fortunetellers, HedgeStreet. Here you can bet (I mean hedge) on various future predictions like where the housing prices are going next week or if oil is going to dip below $55 again. All in good fun. Especially while you are ahead.

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Is There a Microsoft-Free Zone?

Thursday, September 28th, 2006

Nowadays I’m a complete Mac user, but having run a Windows security software business before I am always fascinated by the various strategic moves Microsoft makes. An article from EDS Fellow Randy Mears poses an interesting question that is relevant for many technology businesses large and small: What trends do you jump on and which do you ignore?

Given their practically unlimited resources, Microsoft has the means of hedging their bets in a massive scale and keep a finger in most technology pies from video downloads (MS Video), music (Zune) to social networking (Wallop). Or as Zoli mentioned, the also run blogging tool, the Windows Live Writer. They also have as many enterprise focused business ventures as they have consumer-oriented ones. In fact there is hardly any facet of the technology business that Microsoft does not enter.

It is a very different business model from other technology majors like IBM, SAP, Oracle that tend to keep closer to their core business without the broad line extensions typical of Microsoft.

Is it possible that Microsoft gave up on pursuing an innovation-based core competency strategy in pursuit of a GE-esque number 1 or 2 in every segment model? Now, GE does that very profitably while Microsoft’s excursions outside their core OS/application businesses into internet, media, gaming or web properties have not yielded shareholder return.

While many startups and experts worry about Microsoft’s adventures into all things technology, I think the real question is where Redmond wants to be. While they are too big for pure play, clear direction certainly would help investors better evaluate the stock and the customer base can also figure out what this vendor is really great for.

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A Demand-side view of Enterprise 2.0

Tuesday, September 26th, 2006

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There are endless discussions of what would increase adoption of Web2.0 in the enterprise. And to this point we have not seen the kind of success (both customer adoption and financial exit) that MySpace and Facebook enjoys evolving enterprise space. But then again that is a supply-side view of the markets (meaning I built it why don’t they come?).

If we take a demand view the picture is more interesting and complicated. Two of the major elements of Enterprise 2.0 (depending on who you ask) is SOA and Social Networks/Collaboration. Neither of which is really new to the enterprise. Most companies we work with have an SOA roadmap with varying level of potential plans for the transformation of the user experience. But it is there. As far as collaboration goes - it is amazing what some IT shops do with Notes and some Web savvy…

Will an enterprise user be more pleasantly engaged with a mashed-up, Ajax-powered collaboration tool of late than a good old Lotus Notes hyperlinked environment juiced up with Websphere and Sametime? Probably. Will there be a massive jump in productivity, creativity and get-goingness? Doubtful.
And that is the rub in the green eyeshade-tinted world of Enterprise IT. The cubicle-bound technology innovator in a major company is faced with the following obstacles - that also severely limit the sales aspirations of the next Enterprise 2.0 startup:

  • 5% Innovation Budget - Many large IT shops spend 50-70% of their budgets on depreciation and operations (a.k.a keeping the lights on), 20-25% on application development, maintenance and the remaining sliver on potential R&D. And that covers everything from the Web front-end to the good old Cobol accounting system, the latest data harmonization or integration standard, mobile apps and (of course) journey into Web 2.0. Many times there is simply not enough IT bandwidth to get a real foothold beyond the tinkerers.
  • Breaking from the Pack - There are diminishing rewards for the adventuring technologist in an IT group for being a first mover. Careers are typically tied to core enterprise applications, traditional web properties, analytics and enterprise architecture work. The lone innovator needs the support of some powerful internal allies to launch an emerging solution project.
  • Push for Lean IT - Most large IT organizations still have not worked out the excesses of technology excuberance and the resulting proliferation of the technology and application portfolio. Many shops launched simplification, standardization, data harmonization initiatives to clean up the mess, get costs in line and free up money and people to tackle the next programs.
  • Investment justification - Most IT groups struggle with the justification of SOA and Collaboration investments and just classify them as strategic or infrastructure investments. This is a mistake. There are great studies of the value of collaboration and SOA from everyone from McKinsey to SAP and business arguments will pave a more predictable success for approval.

In a recent McKinsey study (subscription) the IT group of a Utility company spent over $4 Million a year in collaboration related personnel costs. Projecting this to all enterprise functions we are in the tens of millions in costs. The potential savings, more than any user experience improvement, will get enterprise adoption going.

The great news is that freed-up budgets will be looking for exactly the kind of value proposition Enterprise 2.0 offers. Better user experience, flexible applications, user-driven configuration, web-desktop integration. This can also be IT’s big comeback for better alignment with the business user.

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The Anatomy of Enterprise Overhead Bloating

Tuesday, September 26th, 2006

Having spent my fair share in both the entrepreneurial and large enterprise world it always made me wonder why in big companies overhead gets out of hand. Before you start rolling your eyes consider this - in most areas of the enterprise scale provides leaner processes and organizations - larger companies have better negotiating power (efficient sourcing), better supply chain (lower overall cost of supply chain), lower transportation costs, more cost-efficient distribution and so on. But not in real overhead - the way we define it.

Our definition of Real Overhead is the following:

Real Overhead: The percentage of your workforce that does not interact with either the product or the customer

This is always a fascinating conversation with customers. In my last startup we had 2.6% of the workforce in this category. 97.4% was interacting with the product or the customer. I just worked with a Fortune 500 client where this ratio is around 25-35% (they can’t quite figure it out). In their case thousands of people do something else but what makes the company create value.

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I think the term overhead just covers up the essence of the problem which is actually simple.
Buffering for lack of information

So the big aha is actually quite obvious: organizations buffer for lack of information and the resulting ambiguity. Depending on the company it will be the most accessible form of resource which is usually

- commitment levels - this is my perennial favorite and a massive enterprise disease. Almost every group in a large organization plays with commitment levels. It means keeping more inventory than necessary, sandbagging sales forecasts to leave room for error and so on.

- capacity (machine or human) - this one is also obvious. We cannot plan for 90 or 100% utilization of any resource with downtime (machine) and time off (people). So most organization plan for a lot less and execute at an ever lower level.

- people - This is the Real Overhead because the easiest ambiguity buffer is people. Almost everywhere where information flow is a problem you will see hordes of analysts, controllers and also proliferation of spreadsheets and meetings. This is the most accessible measure of Real Overhead as stated above.

In any organization if the Real Overhead is above 15% there is a structural information problem.

The prescription is better information, of course, but that can come from a variety of approaches ranging from

  • simplified processes
  • enterprise integration
  • better analytics
  • better workflow

More importantly it is not always a technology solution.

Part of the advantage of a startup is that it has fewer products/services, fewer channels and therefore fewer ambiguities. So companies that simplify their product portfolio or channels or customer/supplier base typically see a reduction of Real Overhead. Also companies that move from an operating company to a holding company many times reduce their real overhead.

Unfortunately many large companies we dealt with do not even know exactly how many people work for them, let alone what they do all day. Nonetheless measuring RO is a always revealing for those taking that tentative first step…

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Social Networking meet Ebay meet Second Life

Saturday, September 23rd, 2006

Weblo is the latest addition to the billion dollar bonanza of social networking companies but with a very interesting twist. It has stacked in all the winning models of late. It is an auction site / marketplace , it is a social networking site and it also took tips from the virtual world, Second Life, that has spawned many very real millionaires.
So here it is. You can preregister and tip the competence/confidence equation in your favor. I think someone at the M&A group of Yahoo/Microsoft/News Corp/etc just sat up and took notice.

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