The economy is a system that is comprised of sub-systems such as government (supra-national, international, national and local), business (for profit and non-profit), and households. Dr. W. Edwards Deming said that 94% of the results generated by a system are systemic in nature. That means that those results have been produced in accordance with the system’s design, construction, implementation, maintenance and management. The remaining 6% is directly attributable to people and technology violating against the system’s design, construction, implementation, maintenance or management.
The results that a system produces are in and of themselves meaningless. They obtain their meaning from us; we give them meaning. We establish meaning through our vision for the business that we operate and subsequently the system’s purpose of fulfilling the mission (the products and services that we produce and deliver) on which we embarked.
We know when we are successful at fulfilling our mission by measuring the results against our:
- Critical Success Factors (Touchstones that describe a successful end-result or product/service; they determine the effectiveness of a business system)
- Prerequisites (Touchstones that describe a successful production and delivery process, which includes generating cash/funds. Prerequisites determine the efficiency of a business system)
The nature of a challenge to business performance is thus related to either:
- Effectiveness failure to meet obligations to clients/meet expectations
- Efficiency wasteful use of time/money/resources
- Effectiveness & Efficiency
Therefore, in order to improve effectiveness and efficiency, we use tools. However,
- No efficiency tool can fix any effectiveness challenge! Who cares about increasing gas mileage when travelling down the wrong road?
- Tools that produce excessive efficiency gains are committing predatory cultivation; they cut the differentiating properties that make people decide to buy from you!
- No effectiveness tool is an automatic guarantee for efficiency gains!
Furthermore, variance between actual- and forecasted results can only originate from one or more of the following four sources:
- Random variation; “Management has taken a major step forward when they stop asking you to explain random variation.” -Timothy Fuller
- Strategy (assuming this is derived from Vision)
- Operations (effectiveness and/or efficiency)
- Alignment of operations with strategy (Assuming decision-makers agree on a clear sense of purpose for the business system under their command & control)
Transformational change is a function of how you THINK, and not how you DO. Doing more of the same things with better execution does not amount to any real change! Doing different things or doing them with a different intention requires a different mindset; letting go of the true and tried. That’s the real challenge that we face!
The purpose of a business is to make money.
- Only the FED makes money.
- The reason for being in businesses is to create products and services.
- Generating cash/funds is a Prerequisite for success and as such a function of both efficiency AND effectiveness. A prerequisite is a means to an end; not the end in itself.
Operational Efficiency is the only tool/strategy to prevent a business from collapse.
- Buyers couldn’t care less about your efficiency as long as you deliver.
- Efficiency causes convergence among competing value propositions.
- Eroding one’s own differentiation leads to unsustainable price wars.
THE MISSING LINK IN THE VALUE CHAIN™:
The Value Chain comprises all business functions:
Any function performs processes.
Any process performs activities.
Any activity performs tasks.
A task is the smallest unit of work.
Tasks, activities, processes and functions need to be:
In other words, tasks, activities, processes and functions need to be organized and directed towards fulfilling the mission of the company in accordance with the company vision.
Organizing and directing tasks, activities, processes and functions is called Business Governance, which is the universally known methodology for Command & Control of a business system.
The ability to organize and direct knowledge after we acquire it is the missing link in all systems of education. Napoleon Hill recognized this omission in his famous book Think and Grow Rich that was first published in 1937! Yet, our business education still specializes only on the basis of learning more-and-more about less-and-less until we know everything about nothing.
However, the key to organizational change is knowledge that specializes on organizing and directing highly specialized knowledge. This unique form of knowledge is the preeminent determinant of CEO-Effectiveness™.
But, our obsession with efficiency tools has caused us to cut cost at all cost and thus erodes our effectiveness –we have lost our relevance to previously loyal buyers. In order to regain our relevance we need Chief Executives that understand Business Governance; people with insight into a business’ functioning as a singular, unique, integrated and open system.
When every sub-system of the economy brings its own house in order, the economy cannot fail to recover. After all, we are the economy! We experience a bad economy because we have a bad way of understanding how a business functions.
Where do CEOs learn how to organize and direct different forms of specialized knowledge? Does the Missing Link, as prompted by Napoleon Hill, imply that Chief Executives must learn Business Governance on the job? But, if no one at the executive level understands Business Governance because no system of business education teaches this form of specialized knowledge, then how should a CEO learn other than by trial & error?
I am writing the book “The Missing Link in the Value Chain™” and I would love to hear from any executive who resonates with the challenge that I just described. Your job is getting more complex every year and yet derivative action suits and dismissals due to underperformance are rising. I want to create your Master Mind, asking the questions to which only you know the answers!