Recently, I met with the president of a successful financial services company. Our meeting followed up on a casual conversation he had with several board colleagues.
They were discussing a bestselling business book on "reengineering" and their own companies' involvement in same. One member of the group talked about using "benchmarking" to "transform" his company.
The questions this executive asked me were straightforward and without guile: "What exactly is reengineering? How is it different from what we are doing now'? Why should I try it?"
What Are They Getting At?
Other questions followed: "What is the value of benchmarking for financial services? What exactly does it mean to transform a company? What do management consultants and industrial managers mean by that phrase?"
These questions made me realize that these and other commonly used buzzwords are rarely defined. In the drive to restructure the financial industry, management consultants and business school professors have created a new vocabulary, a proprietary language of shorthand phrases to convey sometimes extremely complex processes.
Max DePree, in his excellent book of short essays "Leadership as Art," presents a list of reasons for businesspeople to weep.
One item is particularly relevant: "We probably ought to weep about...jargon, because it confuses rather than clarifies."
Clarification is my goal in a series of articles, beginning today. that will run over the next several weeks.
Common Frustration
My goal is to help the busy financial services executive cut through the morass of buzzwords to arrive at the core meaning of various concepts, and dispel the frustration and confusion about the underlying management theories.
I have no doubt that the same questions my client asked are shared by many well-read financial services executives.
Unfortunately, consultants, business magazines, and management theorists are not working very hard to clear the fog.
In the attempt to promote the answer that will get the American economy back on track, they are, in fact, guilty of making the buzzword haze even murkier.
|Ideas du Jour'
Over the last few years, they have been promoting "ideas du jour." For example, the emphasis has shifted from the need for "total quality" to the need to create "virtual" corporations. Most recently, the concept of "reengineering" current processes has hit the best-seller lists and the magazine headlines.
The articles in this series should provide a framework to determine which ideas have value for a particular company and, just as important, which can be ignored or given low priority.
As might be expected, in some cases, slickly packaged ideas have received broader acceptance than ones that have greater merit but are more difficult to understand or implement.
Approaches to Management
The management approaches being promoted by consultants today can be organized into three broad categories that will be discussed in the next three articles:
* Operations evaluation.
* Performance improvement.
* Management structure.
As might be expected, these areas are interdependent and cannot actually be separated in any business.
For example, introducing a quality management program can play a role in increasing a bank's profits.
The program's value will be minimal, however, if a bank cannot identify today's high-profit customers and does not have a well-based view concerning which of its current customers will be key in the future.
Therefore, a "canned" quality program without an understanding of the relevant customer economics may, in fact, be harmful to business.
Solid Theories
The fact is that most of the business theories being recommended have substantial merit. But certain analytic and management approaches will offer more value at different phases of a company's development or performance.
Not all companies need to "reengineer," nor do all need to be "transformed." For some, it is more important that they avoid the latest fad or management technique.
As Lou Gerstner, the chairman of IBM and a former management consultant, said, "The last thing we [at IBM] need right now is a vision statement."
Gauging Performance
The next article in the series will discuss such terms as benchmarking, best practices, deaveraged profitability, and shareholder value analysis. These reflect a focus on understanding how a company is, performing at the current moment.
The business performance evaluation measures included in this category lead, first, to detailed insights into competitor tactics and strategies (benchmarking and best practices).
Second, the measures present a numbers-based assessment of performance (deaveraged profitability). And third, they create a focus on the best interests of the owners of a company, through shareholder value analysis.
Implemented as part of a linked program, these evaluation tools can result in a firmer understanding of a company's internal economics.
Furthermore, they can raise awareness of competitor threats and encourage a willingness to learn from and exceed competitors.
How to Improve Profits
The third article will discuss profit improvement activities. Their successful exploitation clearly must be based on an analytical understanding of current performance.
Profit improvement includes a number of programs, largely, but not exclusively, focused o cost reduction: activity value analysis, total quality management, and, reengineering.
Performance improvement programs range from the "canned" to the customized. They can create fear and concern in a company, or can encourage a creative, "zero-based" approach to a process or business.
When implemented poorly, cost-reduction programs result in bad morale and lasting harm. Undertaken successfully, true reengineering can allow a company to exceed market expectations.
Strategy for the Long Haul
The fourth article will cover current theories on how to sustain a strong bottom line and maintain competitive position.
At the heart of this revolution in management theory is the belief that executives will need to consider managing their business differently in the future.
Among the concepts for consideration and discussion in this article will be: teaming, empowerment, corporate transformation, the learning organization, and virtual corporations.
This area of management theory is particularly fraught with buzzwords and oversimplified approaches to difficult problems. (Conversely, sometimes complex tools obstruct solving straightforward problems.)
Planning Is Paramount
Today's managers are under strong pressure from the business media to pursue empowerment, teaming, and explore how to become a virtual company.
The introduction of dramatic organizational or structural change, however, has to be planned carefully and will be effective only if related areas, such as compensation, are also reconsidered.
Finally, in the fifth article, we will turn to building a decision-making framework that financial services executives can use in determining which concepts and tools to introduce at their companies. That framework will be based, in part, on a bank's current performance, the leadership style in place, and the culture of the organization.
Together, this series of articles is intended to provide insights on current business terminology. More important, it aims to provide a methodology for choosing from the "shopping list" summarized above.
I hope to assist in making smarter shoppers, that is, buyers who are selective and buy only high quality items.
