The History of Management Breakthroughs
Where do you draw the line between the major and minor management breakthroughs of innovative methodologies that can provide an organization with a competitive edge? I'm not sure, so my list likely describes a blend:
• Frederick Winslow Taylor's Scientific Management: Taylor, the luminary of industrial engineers, pioneered methods in the 1890s to systematically organize work. His techniques helped make Henry Ford wealthy when Ford's automobile company applied these methods to divide labor into specialized skill sets in a sequential production line and to set stopwatch-measured time standards as target goals to monitor employee production rates. Production at rates faster than the standard was good, while slower was bad. During the same period, Alexander Hamilton Church, an English accountant, designed a method of measuring cost accounting variances to measure the favorable and unfavorable cost impact of faster or slower production speeds compared to the expected standard cost.
• Alfred P. Sloan's Customer Segmentation ; Henry Ford's pursuit of a low unit cost per single type of automobile (i.e., the Model T) was countered with an idea championed by Alfred P. Sloan, who became president of General Motors in 1923. Sloan advocated expansion of product diversity in style, quality, and performance with increasingly more expensive features in car models as a staircase for higher-income consumers to climb – starting with the Chevrolet and ultimately peaking with the Cadillac. It revealed the power of branding to retain customer loyalty.
• Harvard Business School's Alfred D. Chandler Jr.'s Organizational Structure: In 1962, Professor Chandler's path-breaking book, Strategy and Structure, concluded that a factor explaining why some large companies fail or succeed involved how they learn about customers and how they understand the boundaries of their competencies to focus their strengths.
• Harvard Business School's Michael E. Porter's Theories Of Competitive Advantage: It is hard to believe that prior to Porter's 1970 book, Competitive Strategy: Techniques for Analyzing Industries and Competitors, very few organizations had a formal strategic planning department. Today, they are commonplace. Conglomerates composed of many diverse businesses were becoming numerous in the 1960s when Porter introduced his "four forces" approach for individual businesses to assess their strengths and opportunities. His message was that strategy is about making tough choices.
• Total Quality Management from Edward Deming, Joseph Juran, & Phil Crosby: The total quality management (TQM) and continuous quality improvement (CQI) programs of the 1970s were a response to Japanese manufacturers grabbing market share as they progressed from being viewed as making cheap products to making high-quality ones. During the same time period, Shigeo Shingo and Taiichi Ohno of Toyota Motors introduced "pull"-based just-in-time (JIT) production systems that were counter to traditional large batch-and-queue production management economic-lot-size thinking. JIT provides faster throughput with less inventory. In the 1990s, at Motorola, Mikel Harry introduced a TQM refinement called Six Sigma, which recently has merged with lean management techniques.
• Michael Hammer's Business Process Reengineering: In the early 1990s, Michael Hammer recognized the importance on focusing and satisfying customers. He observed that stovepiped and self-serving organizational departments were inefficient at serving customers and that the best way to improve service, particularly given the rapid adoption of computers, was not to just modestly improve business processes, but rather to radically reengineer processes with redesign as if you had a clean sheet of paper.
• Pepper and Rogers's Customer Relationship Management: In 1994, Martha Rogers and Don Peppers authored the book Customer Relationship Management – One-to-One Marketing, which announced the eventual death of mass selling and faith-based spray-and-pray marketing. It described that computers could track characteristics and preferences of individual customers.
• Peter Senghe and Organizational Learning: In about 1980, Professor Peter Senghe of MIT, recognizing that many industries were increasingly dependent on educated knowledge workers, published research that concluded that a differentiator going forward between successful and unsuccessful organizations is the rate of organizational learning – not the amount, but the rate.
• Kaplan & Norton's Strategy Maps & Balanced Scorecard: In 1996, Professors Robert S. Kaplan and David Norton published the first of four related books, The Balanced Scorecard. They recognized that executives were failing not due to poor strategy formulation but rather failure to successfully implement it. They advocated that executives communicate their strategy to employees using visual maps and shifting performance measures from month-end financial results to nonfinancial operational measures that align work and priorities with the strategy.
Will Business Analytics Be The Next Breakthrough?
Performance Management, by applying its broad definition as the integration of multiple managerial customer, operational, and financial methodologies, embraces all of the above advances. Performance Management integrates methodologies and their supporting systems to produce synergy not present when they are implemented in the absence of each other.
Professor Tom Davenport of Babson College and Accenture's Jeanne Harris have authored two books, Competing on Analytics and Analytics at Work. Their books propose that the next differentiator for competitive advantage will be business analytics. Their premises are that organizations need much deeper insights and that change at all levels has accelerated so much that reacting after-the-fact is too late and risky. They assert that organizations must anticipate change to be proactive, and that the primary way for this is through robust quantitative analysis. This is now feasible due to the combination of massive amounts of economically stored business intelligence and powerful statistical software that can provide previously undetected patterns and reliable forecasts.
For example, customers can be finely microsegmented in multiple combinations – such as age, income level, residence location, and purchase history – and patterns can be recognized that can predict which customers may defect to a competitor, providing time to attend to such customers with a deal, offer, or higher service level to increase retention levels. As an additional example, minute shifts in customer demands for products or services can be real-time-monitored and projected to speed or slow actions and spending to induce customer behavior.
Performance management is not just better management of performance but improving performance. Integrating systems and information is a prerequisite step, but applying business analytics, especially predictive analytics, may be the critical element to achieve the full vision of enterprise performance management.
Thanks to Gary Cokins / August 23rd, 2010
