The following article is a modified extract from the final chapter of Phil Weinzimer’s book, The Strategic CIO: Changing the Dynamics of the Business Enterprise, published by Taylor and Francis-CRC Press.
Reducing Decision-Making Risks through an Enterprise-Wide Decision Support System
Managing in the 21st century requires new approaches than those used in the past. The dynamic and ever changing global business landscape requires companies to be agile and respond to changing market conditions with speed. As a result, management delegates decision-making throughout the company, even to the personnel interfacing with customers.
My book, The Strategic CIO-Changing the Dynamics of the Business Enterprise, focuses on how strategic CIOs and their IT teams are changing the business landscape. They accomplish this by collaborating with C-Suite executives and business teams to leverage information and technology for competitive advantage by developing new products, services, and processes to achieve significant business outcomes. Strategic CIOs transform their IT organization into a strategic enabler for the enterprise using the following (Figure 1) four-phase transformation model.
Strategic CIOs now sit on corporate executive committees and are part of the C-Suite where they actively participate in developing enterprise strategies that shape the future success of the company. There is, however, an important challenge the executive suite must still address.
All personnel involved in making business decisions need to be aware of potential issues and associated risks if their decisions could adversely affect the company. Otherwise, unforeseen events can quickly turn a profitable and competitively successful company into a potential disaster. Remember the 2012 JP Morgan London Whale trading scandal that resulted in 6.2 billion dollar trading loss and 920 million in penalties.1 True; JP Morgan has a set of products and services that provide significant revenues. However, flaws in supporting processes that enable these products and services did not provide early warning of a potential trading issue. Herein lies the gap and the challenge for the executive suite. This event led many executives in the C-Suite to begin conversations regarding the flaws in key processes throughout their companies that often go awry. The “London Whale” event is an extreme example. However, each and every day, executives, managers, and personnel throughout your company make decisions, approve decisions, or are aware of decisions made by others. These decisions would be made differently if they had an early warning system to advise them of the potential pitfalls and associated risks based upon different decision scenarios.
Today’s global business environment is more complex than ever before. This is due to the following three paradigm shifts in the competitive marketplace; each causing a governance chasm for the business enterprise.
- Expanding global marketplace requires constant vigilance to uncover competitive opportunities and threats.
- Consumerization of IT results in customers demanding new digital products and services that IT organizations need to develop quickly and cost effectively.
- Changing organization models composed of virtual teams making complex business decisions replace the traditional vertical and hierarchical structures.
Each of the three market changes listed above has resulted in a new wave of information gathering by companies to better understand the competitive environment, pulse the needs, wants, and desires of its customers, and develop a more seamless communication process across the entire enterprise. The result is a broader and deeper enterprise structure overloaded with data. True, companies today focus externally to capture and mine much of this data, using social media and sophisticated analytical tools to uncover customer behaviors and market trends. However, companies must also focus internally to mine process data to anticipate where process breaches could significantly affect a company’s revenues, costs, and potentially, its survival. In effect, mitigate the risk of a potential disaster before it happens.
Take a look at all the major companies that have a global reach. Procter & Gamble, Johnson and Johnson, IBM, JP Morgan, Walmart. GM, Xerox, FedEx, and UPS are all familiar names to us and are just some examples of companies that have thousands of employees around the world making critical business decisions each and every day. The command and control structure of the past no longer works. Market dynamics require companies to make decisions and take actions faster than ever. Customers demand it. As a result, organizational structures are more decentralized and decision-making authority is delegated throughout the entire process, even to personnel closest to the customer.
The dilemma facing executives is simple. Jack Welch described this during his talk at the GE 1988 Shareholders meeting:
“At the beginning of the decade…we saw two challenges ahead of us, one external, and one internal. Externally, we faced a world economy that would be characterized by slower growth, with stronger global competitors going after a smaller piece of the pie. Internally, our challenge was even bigger. We had to find a way to combine the power, resources, and reach of a large company with the hunger, agility, spirit, and fire of a small one.” 2
I underlined the last sentence of the quote because this summarizes the challenge that the executive suite faces today. Following is a personal example. When I joined ITM Software in 2003, a new startup, the founders, and a cadre of 30 employees with a high energy level and entrepreneurial spirit, worked hard and pushed the boundaries to grow the business. Everyone wore multiple hats and communication flowed freely and quickly. Everyone was aware of business decisions on product design, development, marketing, sales, customer service, etc. When a decision inadvertently resulted in a negative impact on the business, the team quickly banded together to correct the problem. At other times, when team members worked together to discuss a potential action and someone anticipated a potential problem, he or she spoke out, discussed the possible consequences, and the team agreed on an appropriate course of action. Such is the DNA of the small company. As companies grow, management instill processes and structure to maintain a core of discipline and consistency in the execution of activities. Decision-making is tightly controlled. However, information flows, which often traverse both vertically and horizontally, are often filtered as they traverse the management chain.
Here is a message to all CEOs, CIOs, and C-Suite executives: take heed of the challenge and figure out how to develop an information system for managing in the 21st century that replicates the speed, agility, and spirit of a small company. How would you answer the following questions?
As your business has grown, have your processes and policies slowed down the communication of information across the business?
Have you ever been surprised to find out after the fact, that an incorrect decision negatively impacted your company’s reputation, caused a loss of market share, negatively impacted revenue, and share price due to a process not followed properly or, even worse, personnel inadvertently making a poor decision, even though everyone was telling you that everything is OK?
Did you find out during a project postmortem analysis that “someone always knew” or there were warning signs that could have prevented the problem if they were properly captured as data or appropriately communicated to the management team?
Do you realize that the inability to monitor and govern appropriately could jeopardize the survival of your company?
If you answered yes to any of these previous questions, you need to figure out how to address the problem. This subject is explored by Lynda Applegate, the Sarofim-Rock Professor of Business Administration at Harvard, in one of her many papers on the subject. In her 1999 paper, “Time for the Big Small Company” 3 Applegate’s main thesis is that information systems in the 1960’s were not mature enough to handle the “volumes and complexity of information flows required” by complex organizational structures. However, advances in technology and information systems are now available to provide a digital governance layer across the entire business enterprise. 3
There are some examples of where this is happening in today’s business environment. Procter & Gamble addresses part of the challenge with its Decision Cockpit and Business Sphere applications that help managers and teams make well-informed business decisions Filippo Passerini and his IT / business teams digitized the company data and accomplished three major objectives. First, there is now one set of information, so there is no dispute about the accuracy of the data, which often plagues teams in accurately analyzing data. As Passerini describes it, “In the past, there was no one-stop shop for all information, but today, with Decision Cockpits, all the data that had been collected through emails, letters, phone calls and reports resides in this system. This has dramatically reduced the cost and complexity associated with creating reports and the duplication of data.” 4 This enables 8,000 employees to focus on data analysis versus data integrity when performing their job. Second, much of the non-value added time resulting from capturing, organizing, and conducting some preliminary analysis is eliminated. Most managers will tell you that they spend 50-80% of their time gathering, organizing, and interpreting data. Eliminating the data accuracy confusion provides managers the ability to spend a majority of their time on decision scenario analysis to make well-informed business decisions, which is a value-add activity. Third, data is analyzed extensively using business analytics and presented in various graphical formats for ease of interpretation. This strategic use of technology and information addresses the islands of information challenge that plagues many companies. The net result is managers and teams focus on reviewing analyzed data that result in personnel and teams making well-informed business decisions.