AuthorPeter Chisambara

How Feasible Are Your Strategic Objectives?

Every organization sets out its goals and objectives, to accomplish its mission and vision. The two often seem like two interchangeable phrases but there is a distinction.

A goal is a desired result you want to achieve and is typically broad and vague. An objective, on the other hand, defines the specific, measurable actions each employee must take to achieve the overall goal.

It is every leader’s job to create a coherent set of feasible objectives or what Richard Rumelt calls proximate objectives. Objectives that define targets the organization is fairly expected to achieve, even overwhelm.

This is essential for ensuring energy and resources are focused on one, or a very few, critical objectives whose accomplishment will lead to a cascade of benign outcomes.

An effective strategy defines a critical challenge or opportunity and clearly articulates how the organization is going to play to win or perform customers’ Jobs to Be Done.

Thus, the objectives an effective strategy sets should stand a good chance of being accomplished, given existing resources and competence.

On the contrary, a bad strategy results in the setting of bad strategic objectives.

Long lists of “things to be done,” are often labeled wrongly as strategies or objectives. Or the desired outcome is simply rehashed with no explanation of how this will be accomplished.

It doesn’t matter how well-thought your strategy is in response to an identified challenge or opportunity. If the resultant strategic objectives are merely a list of things to do, or just as difficult to achieve as the identified key challenge, there has been little value added by the strategy.

In today’s highly competitive, uncertain, dynamic, and complex environment in which a leader’s ability to look further ahead is diminished, it is better to focus on a few pivotal items through taking strong positions, creating options, and building advantage.

First identify the key challenges or opportunities for the business. Look very closely at the changes happening within your business, where you might get an added advantage over competition, and create a list of the issues, including the actions your company should take.

Trim the original list to a noticeably short list of pivotal issues and proximate objectives by identifying one or two feasible objective(s), when achieved, would make the biggest difference. Remember, the identified objectives should be more like tasks and less like goals.

Focus on the the objectives by channeling skills and available resources to accomplish the overall goal. Once accomplished, new opportunities will open up resulting in the creation of more ambitious objectives.

Alignment is important for successful strategy execution

For many businesses and organizations, the challenge is not in formulating good strategies, rather, it is in executing their well-crafted strategies.

Of course, this does not imply that bad strategies do not exist. They do. Business literature is filled with many stories of organizations that went bust because they got so good at implementing bad strategies.

Although reasons for poor strategy execution are many, one of them is poor organization alignment.

Think of your organization as a chain link system with disparate parts functioning as links and working together to achieve the stated objectives.

These links are both internal and external to the organization.

If one link is broken or weak, then the strength of the entire chain link is compromised. In this case, it will not help you to ignore the weak link and focus resources and effort on some of the links.

After the enterprise strategy has been developed and value proposition defined, and approved by the board, aligning the company’s headquarters, business units, support units, external partners, and boards with the strategy is critical.

When the priorities and activities of your internal teams and external partners are aligned with enterprise strategy, it creates additional sources of value.

Unfortunately, aligning disparate business units to create value at the enterprise level often receives less attention than creating value at the business unit level.

There is more focus on business units, with their distinct products, services, customers, markets, technologies, and competencies.

And this lack of alignment results in poor strategy execution results.

In a rowing race, alignment stands between victory and defeat. Rowers in concert push against the water with oars in turn generating enough force to move the boat.

Oars aligned at the same angle, enter and exit the water at the same time, the same force being exerted with each oar stroke. If one of the oars goes in the water even a microsecond late or early, the boat will experience tilts, turns, and drag.

A rower is therefore taught to focus and ensure each stroke is in line with that of the rest of the team.

A small difference in alignment between the crew would mean that the team would not perform at its highest potential, and likely would lose the race. The longer the race, the more costly the compound effects of misalignment over time.

In business too, people, processes, technology, systems and culture ought to be aligned to drive strategic success. If disparate business units are managed somewhat separately, the organization can get stuck in a low-effectiveness state.

To unstuck yourself from misalignment, first identify the bottlenecks and address them directly. Don’t tip-toe around the issues. It takes leadership and willingness to absorb short-term losses in the quest for future gains.

Thus, leadership has a critical role to play in managing tensions between the need for decentralized autonomous action and the need for centralized direction and coordination.

When no one is responsible for overall organization alignment, the opportunity to create value through synergy can be overlooked.

Whenever plans are changed at the enterprise or business unit level, executives likely need to realign the organization with the new direction.

Ensuring organization alignment is not a once-off exercise. This must be managed as a continual process. Continually search for ways to make the whole more valuable than sum of its parts.

Plus, it’s not enough to talk the talk. The alignment strategy must be complemented with an alignment process.

The Finance Function of the Future

McKinsey has published an interesting piece that merits the attention of finance leaders and professionals.

Finance 2030: Four Imperatives for the Next Decade makes some good points:

  • Leading finance departments are guardians of enterprise value creation, demonstrating stewardship of their own spend by lowering absolute costs and shifting work towards more value-added activities.
  • Finance leaders further differentiate themselves by spending a greater portion of their time on value-added activities, such as financial planning and analysis (FP&A), strategic planning, treasury, operational-risk management, and policy setting.
  • Achieving the next frontier in finance efficiency and effectiveness will likely require finance executives to shift their thinking from the priorities of the past.
  • Finance staff’s time is valuable, and best devoted to analyses that drive actual business performance.
  • Equip staff in critical roles with the necessary level of experience, leadership mind-sets, and authority to influence the business.
  • Finance departments need a clearly defined master data-management strategy to guide the collection, storage, and interrogation of the rising volume of data needed to perform the types of analytics the business requires.
  • Owing to its central role, the finance function is uniquely positioned to help define the master data strategy for the enterprise.
  • Beyond providing analytical insights, the finance department is also responsible for framing discussions on company performance and the actions needed to improve it.
  • Reimagine the finance operating model with new capabilities. This requires not only a different way of organizing how work gets done, but also a different type of finance professional.
  • Embed digital skills across the finance organization. These capabilities may include programing bot algorithms, using analytics software, or learning how to translate business data into actionable insights
  • Develop a core of business-savvy finance leaders with the stature to engage company leaders as peers.

These are all good points. My thoughts:

  • Over the last decade, finance has progressed significantly in terms of delivering value-added activities. Much of this progress can be attributed to advancements in automation and analytical technologies which are reducing time spent on performing routine, transactional activities. There is still a lot of progress to be made to improve the time spent on FP&A and business partnering in laggard organizations.
  • Achieving the next frontier in finance efficiency is very important. However, when we talk of efficiency it’s imperative to clarify at what. Many organizations have succumbed to the seduction of efficiency resulting in efficiency becoming an end in itself. Efficiency, when it is understood correctly as the best possible use of scarce resources to achieve a valued end, is undoubtedly important.
  • I agree entirely with the need to make sure finance devotes more time to analyses that impacts actual business performance. More often, finance teams are wasting time and resources producing reports that serve little to no purpose at all. Decision makers want to understand the key drivers of business performance and how these can be influenced to achieve enterprise objectives, but, they are bombarded with more analyses on what happened, and less on what could happen, how, when and why. Reporting is about communicating. Rather than communicate what you want to say, tell decision makers what they need to know.
  • Data types, data sources and the speed at which data is generated are all continuously increasing at alarming levels, therefore a more effective and efficient enterprise data management strategy is critical. Build a central data repository (to make sure there is one version of the truth) where data is securely stored and can be updated, accessed or shared in real-time to perform the types of analytics the business requires. Erroneous data is practically useless and even possibly harmful to the business because if management teams are making critical decisions based on inaccurate data, the outcomes could be costly.
  • The idea of framing discussions on company performance and the actions needed to improve it is challenging for many finance professionals. Our training has taught us to solve problems using a logical approach or deductive thinking. The problem with this process is that there is just one possible solution or a limited set of correct solutions, and does not take full advantage of the creativity within us. We need to embrace both deductive and inductive reasoning, start asking questions on company performance that have never been asked before, challenge rigid rules and tired frameworks, and consider risks worth taking that we would otherwise not take when thinking deductively.
  • I agree entirely with the need to reimagine the finance operating model with new capabilities. To achieve this, finance leaders need to cultivate a culture of continuous improvement. A culture that is always questioning the status quo, and promotes testing of new processes, tools and operating models, including learning from mistakes. Further, traditional accounting and finance skill sets alone are no longer sufficient today to build an effective value-adding finance organization. Instead, cross pollination of individuals with varying backgrounds is necessary.
  • The ideas of embedding digital skills across the finance organization, and building business-savvy finance leaders are both positive ones. Nevertheless, development of other soft skills such as collaboration, communication, problem-solving, critical-thinking, adaptability, emotional intelligence and persuasion should not be neglected.

Are You Realizing Full Benefits From Your Technology Investments?

Although the COVID-19 pandemic has accelerated digital innovation and adoption by businesses of all types and sizes, pre-pandemic, many companies had already started their digital transformation initiatives – harnessing technology to drive operational efficiencies, business change and deliver lasting performance.

Unfortunately, not all technology investments have delivered or are delivering the desired benefits.

Rather than take an enterprise approach, companies are deploying technologies in pockets, or silos, of their organizations without effectively scaling them across the enterprise.

This is according to a recent publication by Accenture Future Systems research which has found out the gap between investment and value is widening.

Pivot to Value With Living Systems makes some interesting points. Here are some excerpts with my commentary.

  • As the pace of change has accelerated so has the need to quickly embrace new technology. The best way to respond to change is by transforming the finance organization’s culture to be more agile, flexible, risk tolerant, and experimental. A sole focus on identifying, selecting and implementing the right technology, for instance, customer predictive analytics, is not likely to lead to success. Instead the organization’s people, structure and processes are also essential ingredients prerequisite for success.
  • Companies that can release new technology capabilities faster than their competitors are at a distinct advantage. New technologies such as AI, Robotics, IoT, Smart Devices, Data Analytics, and Blockchain are transforming the competitive landscape, providing new ways of delivering value to customers and new service opportunities. The factors, tools and systems that made you successful in the past may no longer be correlated with your future success. Therefore, don’t wait for your business to be disrupted first before you can act.
  • Businesses have taken innovation into their own hands, such as directly experimenting with new technologies and cloud services in “pockets” instead of across the whole company. Investment decisions are not tightly integrated with business priorities, and most companies have no easy way to measure the return on investment. The challenge today for many organizations is contending with too many priorities, a plethora of disjointed systems across the business, unnecessary costs and more than one version of the truth . The result? Inefficient data availability leading to less informed and intelligent business insights.
  • Simply investing more in technology won’t necessarily deliver the business flexibility that organizations need. Put simply, technology is an enabler of business performance. Only when the essential components of a business – it’s culture, people, structure, systems, and processes – are closely aligned can the company achieve powerful results.
  • Organizations that want to unlock the full value of technology need a growth strategy that is unified across business and technology. The focus is on exploring how technology can make the business strategy a reality and identifying greenfield opportunities in products, services and competitive positions. Before investing in new technology start with ‘Why’ then identify and understand the opportunities and threats that new technologies pose for your organization. Does the investment enable the achievement of the organization’s stated objectives?
  • Instead of acquiring new technology for one-time projects, leaders fund persistent value streams measured by business outcomes. Focus on the value case of the investment. Digital transformation is only partly about technology; it is also, and more importantly, about using technology to improve the way finance creates and delivers value across the business.
  • Realign the organization to put technology at the heart of every business. Many new technology implementations fail due to poor or lack of collaboration between business and IT teams. Reinforce collaboration between business and technology teams. Business subject matter experts play the critical role of defining operational requirements, leading process design initiatives and monitoring performance, while technologists focus on ensuring effective data security and governance, systems integration as well as monitoring identity and access and control.
  • Adopt new practices for agility and experimentation. Hire and train people to be more risk tolerant, creative, and develop a big picture and growth mindset. Also, create a culture where individuals and teams are encouraged to play and experiment with new ideas and business models, including with other parties such as universities, entrepreneurs, industry players etc.
  • Empower people to innovate with technology. Investing in new technology is not a matter of Humans vs. Machines. Instead, it is about Humans and Machines working together to drive business performance. Therefore, provide employees with opportunities to develop skills for working in a new digital environment.
  • With a culture of innovation, an agile mindset, and continuous learning, employees are equipped to capitalize on new and changing opportunities as the business evolves. Mere adoption of the latest technology will not improve your finance organization’s and business prospects. You also need to apply the time or resources necessary to make the sort of organizational changes required to benefit from the possibilities the technologies offer. Empower people to see, think and do differently. For example, anticipating and understanding changing customer behaviours and being prepared to respond accordingly. Never stop asking, ‘How can we get even better?’

I recommend business leaders to read the full report and hold a discussion with their teams on its key points and recommendations.

Challenging Conventional Growth Assumptions in an Era of Unprecedented Change

There is no doubt that 2020 will go down as a year to remember. COVID-19 has disrupted the pace of business and upended many of its traditional assumptions.

If the COVID-19 crisis has taught us anything, it is that disruption can happen at lighting speed and have profound impacts on strategic performance.

Thus, companies need to continuously rethink their assumptions about business growth and prepare for an uncertain and dynamic environment.

In order to drive growth, conventional wisdom says the company has to:

  • Introduce new products
  • Enter new markets
  • Acquire new customers
  • Add more brands
  • Acquire companies
  • Expand into adjacent businesses

The concern with blindly pursuing such strategies is that they open the door for complexity to permeate the operations of the company.

Quality is often confused with quantity, and the pursuit for growth often causes the organization to chase rabbits running in every direction.

The organization lurches from one strategic initiative to another, at times acquiring troubled businesses that aren’t in sync with its core business model.

And like a hamster on a wheel, the company is engaged in continuous spinning but lacks meaningful forward progress.

It’s ventures in markets around the world are spread-out and disconnected.

Achieving sustainable business growth is not about doing more. Rather, it’s about doing things better, focusing your efforts on that which matters most.

In other words, understanding what customers really want and how best to serve those wants. Instead of:

  • Acquiring more customers, have you considered firing non-profitable customers with steep costs-to-serve?
  • Launching more products, why not kill non-performing products, variants and brands and focus on the potential few?
  • Randomly entering new markets, how about you focus on the few markets where you can win and dominate?

Because of a lack of understanding of what customers really want, many businesses have bought into the myth of excellence – the false belief that a company must try to be good at everything it does.

Companies large and small are offering customers everything except what those customers really want.

Millions of dollars are spend on focus groups, surveys, customer panels, competitive analysis, and processing call-center reports, all to limited avail. Every business day, executives are inundated with data about their products.

They absolutely know the size of their market share, how products are selling in different markets, profit margin across hundreds of various items, etc.

Yet all this data is focused around customers and the product itself – not how well the product is delivering customers’ expectations.

In a world of increasingly ubiquitous product quality, increasingly similar market offerings, increasing price wars, and shrinking profit margins, understanding customers’ problems-to-be-solved is key to avoiding the frustration of hit-and-miss innovation and achieving sustainable growth.

What are some of the tell-tale signs that your company is addicted to doing more and trying to be the best at everything?

  • Your recent customized new products and services against target markets are increasingly less profitable than those in the past.
  • You are scraping the bottom of the barrel in acquiring new customers.
  • You are struggling in some of the geographic markets you have entered recently.
  • Your topline has been growing faster than your bottom line in recent quarters.
  • Your selling and administrative expenses are creeping up as a percentage of revenues.
  • Employees across the organization are confused about the top priorities.
  • Employee morale is on a downward spiral and attrition on the rise.

As a business, you don’t want to get yourself in a position where you are the best at something your customers don’t want or need.

By failing to understand what causes a customer to choose one product or service over another, you are leaving yourself vulnerable to disruption as better products and solutions come along and customers quickly jump ship.

Most of the time businesses are selling or pushing their products and services to the market instead of appropriately shaping and delivering offerings that customers are seeking to meet their needs and wants.

It is always difficult to abandon a business model that has been successful in the past. But times have changed.

And for those companies that move fast and early, an opportunity exists to create blue oceans of uncontested market space created by this shift.

What matters is note the bundle of product attributes you bundle together, but the experiences you enable to help your customers make the progress they want to make.

You to need to switch from a supply side perspective to a demand side perspective, and start asking a few basic questions about your customers and your business:

  • Under what circumstances are your customers purchasing and using your products and services versus other competitors?
  • What is the one thing you are not offering your customers today that they are secretly imploring you to provide them?
  • Are there segments with distinct customer expectations that you are inadequately serving with a one-size-fits-none solution?
  • What are the things that have made you who you are today? What are you good at?
  • What are the key five things about your business that you cannot, under any circumstances, afford to change?
  • Are you investing in attributes that your customers don’t truly value, and it’s not translating into profitability and business growth?
  • Which initiatives or processes need to be eliminated, curtailed or modified?
  • What is changing around you that gives rise to a shift in customer behaviours and expectations?
  • Who is not consuming your products today? How do their problems differ from those of your existing customers?
  • What’s getting in the way of these non-consumers using your products to solve their problems?

Asking questions like these help generate insights into changing circumstances that send your customers either to you or to your competition.

This enables you to define the business you are in, the size and shape of the market in which you compete, and who your competitors are.

It also helps see customers where there were none, ideas for solutions where there were only problems, and opportunities where you least expect them.

Of course answers to these questions arise from diverse sources:

  • Company internal systems.
  • Convergence of emerging trends.
  • Existing customer frustrations or pain points.
  • People who are not purchasing and using your products or services.
  • By observing how your customers use your products, especially when they do so in a way that is different from what you have envisioned.
  • Looking around at other industries. There could be something that works in another line of business that might translate neatly into yours.

The promise of new markets, more customer segments, more product categories, and more brands is almost alluring, but the payoff is hardly a definite thing.

So next time you find your company succumbing to the seduction of more, just remember achieving growth is less about producing something new and more about enabling something new and important for customers.

Growth can be found where none seemed possible before. The trick is to see what everybody sees, but think what nobody has thought – differently.

Big Data, Insights and Decision Making

Today, we are living through an explosion in the amount and quality of all kinds of available information. Society is facing a deluge of data and there isn’t even a slight indication that this information glut will soon be halted.

The below statistics on data creation evidently highlight the fact that no one is going to stop creating information.

As of 2013, experts believed that 90% of the world’s data was generated from 2011 to 2012.

In 2018, more than 2.5 quintillion bytes of data were created every day.

At the beginning of 2020, the digital universe was estimated to consist of 44 zettabytes of data.

By 2025, approximately 463 exabytes would be created every 24 hours worldwide.

As of June 2019, there were more than 4.5 billion people online.

80% of digital content is unavailable in nine out of every ten languages.

In 2019, Google processed 3.7 million queries, Facebook saw one million logins, and YouTube recorded 4.5 million videos viewed every 60 seconds.

Netflix’s content volume in 2019 outnumbered that of the US TV industry in 2005.

By 2025, there would be 75 billion Internet-of-Things (IoT) devices in the world.

By 2030, nine in every ten people aged six and above would be digitally active.

Source: SeedScientific

In the US, private companies now collect and sell as many as 75,000 individual data points about the average American consumer. And that number is miniscule compared with future expectations.

Why so much interest in customer data? Because the right data can tell business decision makers which customers to avoid and which they can exploit based on the company’s strategy and its stated objectives.

While it’s important to appreciate the benefits of data, we also need to acknowledge and respond to its drawbacks.

Just as people often confuse credit cards for currency, information alone is futile. The process of creating intelligence is not simply a question of access to information.

Rather, it is about asking the right questions, and collecting the right data.

You need a lot of pixels in a photo in order to be able to zoom in with clarity on one portion of it. Similarly, you need a lot of observations in a dataset in order to be able to zoom in with clarity on one small subset of that data.

Source: Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are by Seth Stephens-Davidowitz.

Your business performance will not improve through Big Data alone. You need Rich Data. Deep Data. Even if it comes in the form of Small Data.

The biggest reason investments in data analytics fail to payoff, though, is that most companies are choking on data. They have lots of terabytes but few critical insights.

Instead of being adequately informed, they are exceedingly informed because they are taking much of what they already have for granted.

We are exceptional at storing information but fall short when it comes to retrieving the same information. As a result, we get overloaded.

Some important questions to consider before investing in new data:

  • Is more information necessarily good?
  • Does it really improve the decision-making process?
  • Can you extract value from the information you already have?
  • Are you overwhelmed but underserved by today’s information sources?
  • How much of the data under your possession is useful, and how much of it gets in the way? That is, what is your data’s Signal-to-Noise ratio?

What are the ensuing problems of information overload?

  • Indecisiveness due to paralysis by analysis. The endless analysis is so overwhelming making it difficult to know how and when to decide.
  • Endless argumentation. In the era of limitless data, there is always an opportunity to crunch some numbers, spin them a bit and prove the opposite.
  • A total reliance on evidence-based decision making can undermine logical approaches to deliberation and problem solving. The solution is not always Big Data. The judgement of humans and small data is often necessary to help. We cannot just throw data at any question. Data, whether Big or small, and humans compliment each other.

The growth in the amount of data without the ability to process it is not useful in and of itself. Once data has been analyzed, it needs to be summarized in an easy-to-understand way and presented visually to enable decision makers apply their own expertise and make their own judgements.

Although Big Data offers us an opportunity to analyze new kinds of information and identify trends that have long existed but we hadn’t necessarily been aware of, there are a few things that it does not do well.

  • Data analysis is quite bad at narrative and emergent thinking.
  • It fails to analyze the social aspects of interaction or to recognize context. Human beings are undoubtedly good at telling stories that incorporate multiple causes.
  • Big Data also fails to identify which correlations are more or less likely to be false. The larger and more expansive the datasets, the more correlations there are, both false and true.

Correlation versus Causality is a huge issue in data analysis. The mere fact that two random variables are correlated does not automatically imply causation.

To test for causality, not merely correlations, randomized, controlled experiments (also called A/B Testing) are necessary.

  • People are divided into two groups.
  • The treatment group is shown and asked to do or take something.
  • For the control group, the status quo is maintained.
  • Each group is monitored how it responds.
  • The difference in the outcomes between the two groups is the causation.

Undertaking controlled experiments help us learn interventions that work and those that do not, and ultimately improve our decision making.

As you can see, the power of data lies in what business teams do with it. Clearly define enterprise data-use cases, aligning them with business strategy.

You don’t always need plenty data to create key insights that inform decision making. You need the right data blended with other insights and observations gathered offline.

Information is now plentiful and inexpensive to produce, manipulate, and disseminate. Almost anyone can add information. The big question is how to reduce it and base critical decisions on only a tiny sampling of all available data.

Rethinking Growth Through the Pandemic and Beyond

Whether you are looking at it from an individual, social or economic point of view, there is no doubt this calendar year 2020 is an aberration. As we partied and celebrated into the New Year with our loved ones, families, friends, work and business colleagues, the ambience was positive.

Fast forward a couple of months ahead, the outlook is grim. COVID-19 has changed the structure of just about every experience: how and what we buy, how and where we work, how we interact with other people.

Either because we suffer from micro and macro-economics myopia or we have a natural tendency to exhibit overconfidence bias even when its not necessary, many of us, including experts, failed to infer the implications and gravity of the proliferation of the novel coronavirus in China.

We assumed COVID-19 was transient thus we acted indifferently and continued with our old normal.

Then suddenly, the number of cases reported globally mushroomed. And to stymie the outbreak, governments in greater parts of the world enforced economic lockdowns except for essential businesses and service providers.

Economic activity came to a screeching halt and global supply chains got interrupted. Businesses, that over the years, have moved at a snail’s pace to digitally transform their operating models found it arduous to swiftly transition to online product and service delivery channels.

Many businesses went bankrupt, laying off millions of employees during the process. Overnight, livelihoods were turned upside-down.

Social gatherings have become a distant memory, and as social beings who are accustomed to physical interaction, we have progressively adapted in this new world and somehow learned how to lead a reclusive existence.

Are we there yet?

As of this writing, the vaccine for the novel coronavirus is yet to be discovered. The economic consequences of the pandemic thus far are significantly severe and provided a catalyst for the COVID-19 recession.

Although governments have started to relax lockdown restrictions, and are slowly reopening their economies so that they can start to grow again, what the recovery might look like is unclear.

Economic expert views on the nature of recovery are divergent. There is no consensus on whether COVID-19 economic downturn will ultimately play out to be a V, U, W or L-shaped recession.

Thus, the challenge for the business today is deciding how to effectively and efficiently commit the organization’s stretched resources to service existing and future customers, and also markets that will emerge in a distant and inherently unpredictable future.

Do you plan and prepare for a:

  • Sharp economic shock followed by a quick recovery in growth?
  • A longer period of slow trading before a rebound, which takes many months or even years for the economy to recover?
  • Double-dip recession, in which the economy begins to recover rapidly, but then falls into a second period of decline? or
  • An extended downturn, in which growth falls and does not recover for years, creating the long shape of the L?

That volatility, uncertainty, complexity and ambiguity is the norm today is an axiom. Therefore plan and prepare for a future that will be notably different from the one you may have imagined at the beginning of this year. A future that consists of different scenarios panning out.

Sketch scenarios and their outcomes, opportunities, and breakthroughs and consider what they would mean to your business. The exact scenario does not have to materialize for the process to pay off.

However, the process stimulates new thinking, expands imagination, and helps connect various insights and formulate action plans that should be taken today to protect the business’ future.

Don’t focus too narrowly on costs at the expense of innovation

In times of crisis, it’s often easier to focus on the short term future of the business and park long term strategic ambitions. The reason being that organizations find themselves defaulting into the survival mode.

Due to a decline in economic activity, working capital management and cost reduction become top priorities. Although these are necessary, you need to understand that dealing with this crisis is not an either/or question, but rather a case of managing the crisis and managing for the future.

The coronavirus pandemic has changed the experience of being a customer, an employee and a citizen. Hazy is how people’s behavior and underlying values will change for the long term, but what is crystal clear is that your business has to adapt and become agile.

Despite how successful they have made you, your old business model, past competencies and experiences won’t guarantee you success in this new world.

You have probably heard the old adage “Never waste a good crisis.” Use this pandemic as an opportunity to rethink the basics, explore and learn. In other words, revisit the company’s direction in light of external changes.

Look at your business from the outside in and discuss what is changing not only in the competition but also anywhere in the value chain, and in the global geopolitical climate.

The coronavirus pandemic has exposed the frailties of the traditional planning processes and necessitated a paradigm shift in how leaders should prepare and steer the organization to adapt in tune with sudden changes in the environment.

Leaders often miss signals that could be harbingers of change because they are immersed in the daily operating details of the business. Instead, think creatively, and see the bigger picture beyond the transactional details of day-to-day operations in the short term.

Change doesn’t wait for your annual planning cycle, hence it’s vital to regularly go through the process of trying to identify and comprehend various seeds and catalysts for change.

Create change not just learn to live with it

Rather than wait for the COVID-19 tide to turn, a number of companies have pivoted on their existing capabilities to make quick strategic changes.

For example, distilleries started producing hand sanitizer, automotive companies produced ventilators, and a shoe manufacturing company started making stylish face masks.

One key thing the above companies have in common is they were all able to conceive a new need, or redefine an existing need and business model.

Legacy companies often make the grave mistake of ignoring the risk of not embracing a new and dynamic business model and sticking too long with a business that is ripe for transformation.

The mere fact that the change does not fit your core concept of the business including your core capabilities doesn’t mean you should play ignorant.

Track companies that are using new technologies to transform their business, even if they are outside your industry and begin to imagine how some of them might decimate your industry and reshape your market place. For instance:

  • Has your business model changed and how are you adapting to that change?
  • How are your competitors adapting and re-purposing their businesses into new operating models?
  • How are you reorienting your business in a socially distanced operating environment?
  • How can you harness the power of technology to create value, at the same time achieve efficiencies that were unimaginable pre-pandemic?

You need to build new capabilities and structurally adjust your business operational model, not only to navigate this crisis effectively and efficiently, but also to reach the new future in a position of strength and more resilience.

Reassess the organization’s process and cultural anchors that are hindering progress to make smart growth bets. Any business transformation requires people to alter their methods of working in big ways and small.

As you navigate through this pandemic, always remember that each crisis reveals a future growth trajectory that your business could explore and exploit as long you widen the lens through which you see the world without being hamstrung by an existing core competency.

Identify the obstacles you need to overcome and the obstructions that are currently standing in your way, develop a growth mindset and get offensive.

Reimagining Forecasting in Uncertain Times

One of the key purposes of forecasting is to help organizations continuously anticipate the future, assess its likelihood, consider the implications and use all the available information and practical techniques to make confident decisions that maximize the potential of the business and improve enterprise performance.

Of course, this is not an attempt to simply predict and control the future as no one is capable of predicting the future with certainty. Instead, it is about building an effective and efficient process that enables decision makers to evaluate alternative courses of action available to them to respond quickly to known knowns, known unknowns or unknown unknowns when they happen.

The novel coronavirus pandemic which started in Wuhan, China and rapidly spread across the globe has killed thousands of people, caused world’s markets to plummet, disrupted global supply chains, and forced non-essential businesses to temporarily or permanently shut down.

Operational and financial forecasts that a few months ago painted a rosy picture of the future have had to be thrown out of the window because of the Covid-19 crisis. Companies have come out in droves and announced revised earnings and profit estimates.

Several governments, academics, research bodies, businesses, and other organizations were caught unaware by this outbreak – demonstrating our inability to predict the future. Considering our inadequate forecasting capabilities, should we therefore abandon forecasting completely? Can we confidently say forecasting is a waste of time and resources? The answer to both questions is a resounding ‘No’.

In order to make confident, reliable and timely decisions, decision makers require information about the past and information about the future. Absent this information, or it is deficient or misleading, then decision-making on key organizational performance matters is no more than guesswork.

Unfortunately, in today’s increasingly unpredictable, uncertain and rapidly evolving world where things can happen at lightning speed, anchoring important future business decisions on historic information alone can misinform decision-making resulting in lost opportunities and catastrophic business failure.

While it’s imperative to understand business trends, it’s also important for management and decision makers to appreciate that they cannot simply rely on the past to guide them in the future given their role is to make the future different to what it otherwise might be.

Forecasting is not supplementary to the annual budget

The traditional annual planning and budgeting process is certainly fraught with many shortcomings and for most organizations it is completely dead. Outdated and meaningless. Most businesses spend several months each year agreeing the budget and then monitoring actual performance against it.

They plan for a desired future in order to make it come about. Any deviation from budget or the initial plan is regarded as a variance and is therefore wrong. But many times, changes in the business environment invalidate the assumptions on which they based their original plan and quickly render the budget obsolete.

The budget is next updated with a forecast with a horizon that declines as the reporting calendar moves towards the fiscal year end. As a result, decision makers have limited visibility about the company’s future considering they are ill-equipped to look beyond the twelve-month planning horizon.

In one of his CIMA FM Magazine articles If the Coronavirus Outbreak Disrupts Your Budget, Bjarte Bogsnes reminds us:

In the world of business today, there is more on a long list of things that we can’t control. The only thing we know about our budget assumptions for next year is that most of them will be wrong.

In such an unpredictable world, we shouldn’t expect budgeting to produce predictable results. It assumes that we can sit down in the autumn and decide everything for next year — what to earn and what to spend and invest, all laid out at the lowest detail level. We believe this gives us control. It gives us nothing but an illusion of control.

CIMA FM Magazine, March 2020

So unlike in budgeting where we consider a single desired future outcome, in forecasting we know the future might not come about because the assumptions might be wrong or have been changed. Thus, instead of continuing on the same path based on existing assumptions it’s imperative that we quickly change course if we are to avoid a catastrophic iceberg crash.

Remember, the purpose of forecasting is not to predict the future with certainty but rather support decision-making. A good forecast highlights a projection of the future with some ranges around it, an informed and reliable explanation of what is driving uncertainty and a cogent plan for the business to mitigate emerging risks or exploit the opportunities.

Talk about possibilities and probabilities, not certainties

In Super Forecasting: The Art and Science of Prediction, Philip E. Tetlock and Dan Gardner shed light on the dangers of organizing our thinking around Big Ideas, whether true or false, when making forecasts. In this scenario, we tend to force complex business problems into preferred cause-and-effect templates and treat those that fail to fit as irrelevant distractions.

As a result, we get awfully confident and less reluctant to change course even if changes in the external environment are clearly nudging us to do so and have invalidated our initial assumptions and projections.

Since we never pause to evaluate whether the evidence at hand is flawed or inadequate, or if there is better evidence elsewhere we suffer from an illusion of knowledge or what Daniel Kahneman termed WYSIATI – What You See Is All There Is.

The problem with zoning on one Big Idea is that it distorts and doesn’t improve our foresight. Instead of viewing and processing new information with a fresh pair of lens, the additional information received is treated as unhelpful because it’s all seen through the same old pair of tinted glasses.

In forecasting, there are no certainties but rather possibilities and probabilities. To be able to produce accurate enough forecasts, it’s critical that we deploy not one analytical idea but many and seek out information not from one source but many. Then consider and aggregate alternative views.

Generating different perspectives (that is coming up with an outside view and inside view) of the business and integrating the two isn’t the end but a good beginning. It helps us understand what other forecasters think, and also what outside and inside views they have come up with.

Nonetheless, since teams constitute of individual members with different educations, training, experiences, and personalities – a smart leader should not expect consensus of opinion at all times but must treat its appearance as a warning flag that group-think has taken hold.

On the contrary, a display of differing judgments should be welcomed as evidence that the people around the table are actually thinking for themselves and offering their unique perspectives.

Forecast, measure, revise. Repeat

How predictable something is depends on what we are trying to predict, how far into the future, and under what circumstances. The further we try to look into the future, the harder it is to see.

In business, finance organizations rely on robust models to churn out short, medium and long-term financial estimates on company performance. And most of the time after forecasts are produced we hardly measure our forecasting performance and improve the quality of our forecasting process accordingly.

All forecasts contain some level of variation or unsystematic error, but a reliable process maintains this variation at acceptable levels for the purposes of the decision business leaders need to make. Without measurement, there is no revision. And without revision, there can be no improvement.

Certainly, this does not imply setting arbitrary targets such as plus or minus 5%. This approach of measuring the difference between actual and forecast outcomes and expressing that as a percentage is flawed. One of the reasons being that errors are assumed to be evidence of poor forecasting, and success in meeting the numbers is viewed as good forecasting.

Forecasts must have clearly defined terms and timelines. People attach very different meanings to vague verbiage like “significant market share,” “certain,” “seriously possible,” “a fair chance,” and “likely.” Such ambiguous language renders forecasts untestable. The same holds true for forecasts (economic) that claim undoubtedly that something will or won’t transpire in future but fail to explicitly define the time frame.

In their work Future Ready: How To Master Business Forecasting, Steve Morlidge and Steve Player further highlight the importance of comparing ‘like with like’ when measuring forecasting performance. That is, we should not attempt to compare the results from forecasts produced using different time buckets.

For example, comparing the actual for Quarter 1 with forecasts made at the end of December, January and February. Neither can we compare a forecast for Quarter 4 made in January with a forecast for Quarter 4 made in June. Although the time buckets are consistent, the forecast lead times are not the same.

We therefore should measure forecast error within forecast lead times using consistent buckets and consistent forecast lead times.

New Report on Finance Transformation From AICPA & CIMA and KPMG

In the past years, finance has been undergoing significant changes in order to streamline its operations and free up more time to partner with the business and support key decision-making processes that drive enterprise performance.

Sadly, not all finance transformation initiatives are achieving the expected outcomes or return on investment outlined in their business cases.

A number of theories are usually cited for these failures, and they include – talent struggles, thinking transformation is a one-time project, concentrating too much on cost cutting, focusing too much on customer satisfaction, lack of strategic alignment, inability to leverage technology in the right way, and insufficient leadership sponsorship.

But how many of these causes are real? We must be careful and not run the risk of focusing more on symptoms, critical though they may be, without getting to the underlying causes of breakdowns in transformation initiatives.

Catastrophic finance transformation initiatives can be prevented, but only if we start thinking about transformation in strikingly new ways.

For starters, this means putting aside the widely-held notion that finance transformation is all about new technologies and systems improvement, and start looking closely at the real causes of failure – the people who lead and implement the change.

People play a pivotal role in the success or failure of any business or organizational transformation initiative. But in an increasingly digital world, are organizations neglecting the people perspective as they work to transform their businesses?

Finance Transformation: The Human Perspective, a new publication from AICPA & CIMA and KPMG seeks to provide an answer to this important question and has some interesting content on why it’s time for finance to invest in its people. Here are some useful excerpts with my comments:

  • Under-investment in people can spell disaster for transformation programmes and the wider organization. As much as employees are responsible for preparing themselves for a new world of learning and work in which people will interact ever more closely with machines, employers should not take the back seat and relax. In fact, finance leaders should take charge and start now to envision what the future finance function looks like, the talent and capabilities that would be required to succeed in this brave new world, and come up with a robust action plan to close any gaps, and be future-ready. Unfortunately, most employers are involved in more talk and less action about the organization’s future talent needs, and it’s time to flip the scale upside down.
  • The key to success is developing the digital, technical and people skills that will bring out the best in the technology, maximizing insight, influence and impact. Machines cannot do everything. In order to achieve improved productivity, a range of human skills in the workplace, from technological expertise to important social, out-of-the box thinking, problem solving and emotional capabilities are also required. Therefore, train your teams to think of new digital tools as team members rather than as competitive threats.
  • Finance professionals must commit to lifelong learning and upskilling, so they can keep pace in this ever-changing business ecosystem. The authors are spot-on. Placing continued trust in the skills, capabilities, habits and behaviors we developed during our professional training to cushion us from this ongoing change is ill-advisable and quickly makes us irrelevant.
  • It’s people not robots, who are the key to better insights and analysis. Simply buying new technology doesn’t help you to truly transform. Technology is an enabler of change, and can be used both for good and bad. The type and quality of data that goes through machine analysis ultimately determines the quality of insights, recommendations and impact generated. Garbage In, Garbage Out. Hence the need to train people in business, data governance and translation skills so that they can monitor and understand where and how these technologies are deployed across the organization. Also, if your team is not equipped to use the new tools to perform their jobs better, then it doesn’t matter how shiny the new tool is because an opportunity to create value is immediately lost.
  • While advances like AI promise to change the way we work, it is easy to forget that new technologies are driven by human responses to a changing environment. Although certain old roles are being eliminated and new ones created because of AI, the goal should be to augment human and technology capabilities, rather than reduce the size of your workforce. Identify and differentiate which tasks humans and machines are best suited for. For example, in the context of prediction, humans and machines both have identifiable strengths and weaknesses, and it’s important to understand the extent of these otherwise your organization’s analytics and AI investments will fail to deliver the desired outcomes.
  • The ability to learn, evolve, think differently and understand quickly is just as important for individuals as it is for business. In today’s ever-changing environment the ability to learn, unlearn and relearn is going to be a key currency for finance professionals to hold. Allowing inertia to creep in and deciding to stick with the tried and tested approaches definitely hampers innovation and change.
  • As old systems and processes are superseded by new ways of working, we must learn to leave our legacy mindsets in the past. Finance transformation is not a series of projects, it is a change in the mindset of the organization. Thriving in today’s new world of learning and work requires organizations to adapt its workforce skills and ways of working. This means embracing a growth mindset rather than a fixed mindset. That which made the company successful in the past is no longer valued in the same way today. Understand that the rules of the game are continuously changing and thus you need to be adaptive.
  • Leaders have many roles to play; introducing and communicating the need for change, acting as a change champion and enrolling employees in idea generation. Efficient and effective change management is a result of leaders taking action rather than doing more lip service. Most leaders create playbooks to guide their managerial action, and sometimes as much as the world changes they firmly hold on to those playbooks. Rather than respond to their challenges and mistakes, or earnestly learn from the problems of their competitors, they continue unhampered in their quest for certainty, stability, and conformity. As a leader today, are you relying entirely on preconceived fixed notions about your organization’s talent needs while ignoring or rejecting any contrary signs?
  • The future is unpredictable; ensuring that finance teams have the right mix of digital, technical, business and people skills to deliver insight, influence and impact will be essential if organizations are to successfully navigate the uncharted waters. Since the level of uncertainty and complexity is intensifying and the rate of change also increasing, it’s critical for organizations to ensure that their workforce are equipped with the right skills and capabilities to perform their jobs better. Employers themselves stand to reap the greatest benefits (improved productivity, increased morale, innovative ideas etc.) if they can successfully transform their workforce. On the contrary, not acting right now or delaying action shuts down opportunities to adapt and change in accordance with the new demands.

The authors go on to discuss the various catalysts for transformation, current digital skills gap, and barriers to skills development.

I recommend you to read the entire piece.

Risk Decision Making in an Interconnected World

Globalization and advancements in digital technologies have fundamentally eliminated barriers to doing business. Today, the world has become so interconnected that we are now able to carry out business with any organization across borders anytime of the day.

The opening of global markets which were once impenetrable for individuals, smaller enterprises and organizations is presenting significant growth opportunities to this group. At the same time, threats and complexities abound.

Given this current state of the world, it’s increasingly imperative for business leaders to understand the implications of an interconnected external environment on strategic and operational decision-making, and the achievement of enterprise objectives.

Companies are having to deal with business opportunities and threats that transcend borders. Global volatility is on the rise. From geopolitical tensions, Brexit, US/China trade conflict, rising economic nationalism and xenophobia to epidemic diseases, environmental disasters, and climate change, the world is experiencing significant uncertainty.

Surviving and thriving in this environment requires the organization, through its leaders, to manage for success by making better informed and intelligent risk decisions that drive business performance.

This means looking beyond risk management primarily as a loss prevention process, but rather a key process that supports effective decision-making. Since volatility, uncertainty, complexity and ambiguity have become the norm, it can be tempting for decision makers to entirely focus on the negatives, what might go wrong, and miss on emerging opportunities.

Faced with these uncertainties and not having clarity of their impact on the attainment of stated business objectives, many companies switch into the protective mode.

Although it’s important to be mindful of value preservation, a sole focus on this is not sustainable for the long term success of the business, especially in the current highly competitive environment where innovation is a key driver for rapid and profitable revenue growth.

Business leaders also need to be mindful of how the company will continuously innovate and create unmatched value for all stakeholders. And more often than not, this involves the business entering uncharted territories, and experimenting with new ideas which most of the time is counter to the traditional role of risk management in the business.

As the business ecosystem increasingly gets interconnected, new risks or uncertainties emerge. Thus, a holistic approach to risk and opportunity assessment is critical.

While a number of organizations do spend time analyzing emerging risks or threats to acquire some foresight about their impact on decision making and business performance, not enough is spent on understanding how current risks are intertwined.

Building an integrated view of the different risk factors or sources of uncertainty across the business is therefore critical since a change in one area has cascading effects that impact the entire ecosystem.

Many organizations still rely on the risk register to track and monitor critical risk factors capable of thwarting the successful achievement of enterprise objectives. For the greater part, these risk lists are a product of “top risks” research findings by consulting firms, academic, and other research institutions.

The mere fact that a risk factor has made top ten list of key risks to watch does not necessarily imply that you should attach the same value judgement for your company. Remember, the findings are from a representative sample whose business and operating model are most likely dissimilar to yours.

Should we therefore ignore these findings? Simple answer, no. Rather, we should use these resources as a guide to understand different sources of current and emerging threats and opportunities to the business, including the economy at large, and evaluate the recommendations in the context of the organization’s broader strategy and performance objectives.

For instance, let’s assume the main focus of your existing business strategy is to grow and expand internationally into the USA, Asia Pacific and European markets. Although important and connected, risk factors such as local regulatory changes, rising household debt levels or a slowing down economy will, in this case, likely be of minimal consideration.

What might be of heightened importance is rising nationalism and policies such as “America First,” in the USA, Brexit and the impending new trade policy with the EU, and future US/China trade relations and its impact on the entire Asia Pacific region.

On the reward side, taking Asia Pacific as an example, the region represents the largest e-commerce market and more than half of the world’s mobile subscribers are based here. By 2025 it is estimated there will be 3.9 billion smartphone connections and 11 billion IoT connections in Asia Pacific.

This alone is a huge opportunity for any type of business currently operating or planning to set shop in this region to tap into this large market and meet current and emerging customer needs through digital technologies or solutions.

Thus, relying primarily on outdated risk registers or lists, which in most cases are infrequently reviewed, to support critical business decisions in today’s fast-changing and uncertain environment is insufficient. Just as the internal and external environment continue to change, your business strategy also need to evolve in light of new and emerging opportunities and uncertainties.

Explore different future scenarios and evaluate how your organization is most likely to perform under each possible scenario. Even though it’s not possible to predict the future with certainty, or the timing and severity of any particular event, planning for unpredictable events can be an effective component to your company’s risk decision-making approach.

Effective risk decision-making in an increasingly volatile, uncertain, complex and interconnected world is about considering all scenarios that might play out in the future, good or bad, and proactively making better informed decisions that improve business performance and increase the odds of success.

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