Organizational Effectiveness – Page 52

And mission makes four

I just knew it: “Scientists find link between people impressed by wise-sounding, ‘profound’ quotes and low intelligence,” Helena Horton, Daily Telegraph, 12/3/2015

Which perhaps explains your average mission statement.

For years … decades, I think … I’ve preached from this pulpit that corporations have only three bottom-line “goods” — to increase revenue, decrease cost, and manage risk better.

I’ve also preached another, complementary gospel — that mission statements are worthless, but the mission is preeminently important.

Then Scott Lee and I wrote The Cognitive Enterprise, which led us to re-think the fundamentals of business.

The result was the realization that there are really four bottom-line goods, the fourth of which is mission achievement.

Which led several of you to ask, in response to last week’s column where I pointed this out, “Huh?”

(It also led to one subscriber, irate because I suggested Donald Trump and Equifax might not be my favorite endorsers, to become an unsubscriber. As the offending statement constituted 2.6% of last week’s content one wonders how my former subscriber copes with this.)

Let’s get back to getting to the point: What’s this about mission achievement being a bottom-line good? Doesn’t this seem like too much of a touchy-feelie, warm fuzzy sort of position for KJR to take?

To understand how this works, Sherman, set the WABAC machine to 2007, when neither the economy as a whole nor General Motors in particular had melted down. To oversimplify the situation slightly, General Motors had a business model in which the purpose of selling automobiles was to sell financing contracts through its GMAC subsidiary.

Because it made little profit from selling the automobiles themselves, the desirability of your average GM car, let alone its engineering, was of little apparent interest to the folks running GM back then.

So little so that GM offered rebates … bribes, really … to consumers to persuade them to buy (and finance) its products.

Then the great recession happened and GM’s already fragile business fell apart completely.

Desirability and engineering weren’t part of GM’s pre-melt-down business model. They were critical underpinnings of its long-forgotten mission: to build cars people want to buy.

Mission, that is, not mission statement, about which the best that might be said is that they achieved grammatical and syntactical correctness. That they’re both lifeless and devoid of useful information? Keep that opinion to yourself.

Before I go on, a suggestion: Rip out the mission statement you have and replace it with something prosaic and clear, like, for example, “We provide information technology that’s optimally matched to the enterprise’s needs.” Or, if you’re more enlightened, “We collaborate with our business counterparts to achieve operational excellence and intentional business change, in part through the use of information technology.”

And … returning to the point again, it’s easy for some business executive to focus on the business’s mission, because it’s embedded in the business model. These are the better-mousetrap-style businesses, whose mission is to sell products people want to buy, and whose business model is to manufacture products people want to buy at a low enough cost to sell them at a price customers can afford while maintaining profitable margins.

But there are plenty of businesses whose business models are, in one respect or another, akin to the pre-meltdown GM, where the connection between mission and business model was sufficiently indirect that executives could ignore it for a decade or two.

While less common, especially among large enterprises, there are plenty of businesses that make the same mistake only backward: They’re so focused on their mission that they ignore their business model.

In the early days of eCommerce this was endemic, encouraged by cheap and easy-to-get investment capital. The world was awash in enthusiastic web entrepreneurs who were convinced that if they just got lots of page views they could figure out how to make money from it later.

The unfortunate word “monetize” was coined to capture this business philosophy and make it seem plausible.

Charitable non-profits are also prone to this problem. With all the best of intentions they spend every dime they have and more dimes they don’t doing everything they can to fulfill their mission.

Especially, their good-hearted employees are too-often unaware that “non-profit” does not mean “can operate in the red indefinitely.”

Well-run non-profits never lose sight of their business model — accomplishing their mission attracts members of the philanthropic community, grant-making organizations, or both, creating a sense of affinity that cause them to donate to the cause.

So the big three — revenue, cost, and risk — are still there. It’s the business model that makes them happen, and makes achieving the mission financially possible.

But achieving the mission is what allows the business model to continue to work.

Yet another market failure

By: Bob Lewis|In: Career Management|Last Updated: October 10, 2017

Well this is gratifying, other than getting no credit: According to a story in Bloomberg News, “White House, Equifax Agree: Social Security Numbers Must Go” (Nafeesa Syeed and Elizabeth Dexheimer, 10/4/2017).

While I’d rather my vindication came from a more credible pair of sources, I’ll take it where I can get it.

Speaking of revisiting a subject, as regular readers know, one of my hobbies is collecting sources of market failure. Another one has just popped up, and like the others it’s relevant to you: ATM fees are going up, and have been for 11 straight years, this according to a recent story in Bloomberg, “ATM Fees are Out of Control” (Susan Woolley, 10/2/2017).

I know you, as a regular KJR reader, are as astonished as if you’d read “Sun sets in west for 11 straight days” or “Helium balloons continue to rise.” Let me reassure you. The rise has been at roughly three times the overall rate of inflation. It’s real.

Still, inflation is an average — the price of different products rises at different rates. So it isn’t that ATM fees are increasing that’s interesting. It’s why: ATM fees are rising because demand has been steadily falling.

The interrelationships among supply, demand, and price are supposed to be governed by a universal and inviolable law.

But it’s only inviolable until we violate one of its underlying assumptions.

So just as the second law of thermodynamics (entropy, which states the net disorder in a system must always increase) only applies when the total amount of energy in the system remains constant (snowflakes can form when it doesn’t), so the law of supply and demand only works when the cost of supply is variable.

But as much of the cost of banks’ ATM networks is fixed, supply is, in the short and medium term, fixed as well. Demand, on the other hand, changes one consumer purchase at a time. Over the 11-year span in question, consumer purchases have steadily switched from cash to plastic, and, for that matter, from plastic to on-line.

A fixed number of ATM machines divided by fewer cash withdrawals means a higher amortized cost per withdrawal.

Viola! Market failure at its finest.

But it isn’t just that the cost of supply is fixed in this system (or semi-variable for those of you who insist on such matters). There’s another, hidden assumption this system violates: The law of supply and demand assumes whoever is selling a product is competing for customers’ business … not only against those who sell highly similar wares, but also against those who sell equivalent wares.

Which is to say, banks aren’t in the business of selling cash to consumers, so they have no particular reason to make cash a more attractive payment vehicle than credit and debit cards.

So I suppose it’s equally valid to say cash isn’t a product, so there’s no market here to fail.

What do these perspectives have to do with running an IT organization, or, for that matter, any cost center in a large business?

It has to do with how too many executives in large enterprises think about supply and demand: Just as banks, faced with a decreasing demand for cash money, will eventually shrink their ATM networks until the cost of supply is more in line with decreased demand, so large enterprises, when faced with decreasing demand for their products and services, tend to invest far more time and attention to decreasing supply than increasing demand.

That is, they lay people off, diminishing delivery capacity, with far more gusto than figuring out why they aren’t selling enough products and services, and what they can do to fix the problem.

This can and does enter the world of the absurd, where cost-cutting includes shrinking the sales force and reducing the advertising budget.

Not to mention the IT budget, much of which, in this day and age, is devoted to acquiring and retaining customers, and increasing their walletshare.

What can you as an IT leader do to prevent cost-cutting as a way to deal with declining revenues?

If you’re facing this situation, nothing. It’s too late. But if the business isn’t in crisis, here’s what you can and should do.

Businesses can invest in only four areas: Revenue enhancement, cost reduction, risk management, and mission. Your job: Recommend that all strategy discussions start with deciding how to allocate the company’s investment budget among these four bottom-line goods.

It’s a way to make sure the company’s management culture includes a revenue focus. Because it is, after all, always the culture.

Not that I’m going to say I told you so.

But I did.