A project introduces something new.  New requires change from what was to a promise of what will.   The project deliverable, or promise, undertaken without process is a leap in the dark.  No sane person will take a leap in the dark without some promise or rational premise of:

• what will be,
• what it will cost to get there, and
• how long it might take to get

Process reduces risk.  Project management process reduces project risk and reduced risk increases a project’s success rate.  The project goal enables the firm goal.  The project promise enables the firm promise.

A project launched to a promise to deliver on time, on budget, and within scope relies on a team of people to manage project process, but does not hold project process above the promise.

Process as hope

Project management is a reliable, repeatable process to deliver on time, on budget, and within scope.  We look at the process, or project life cycle, and try to guide sponsors and stakeholders along a charted path of prior project process standards:

• Initiate – processes performed to define a new project or a new phase of an existing project by obtaining authorization to start the project or phase;
• Plan - processes required to establish the scope of the project, refine the objectives, and define the course of action required to attain the objectives that the project was undertaken to achieve;
• Execute – processes performed to complete the work defined in the project management plan to satisfy the project specifications;
• Monitor and Control - processes required to track, review, and regulate the progress and performance of the project; identify any areas in which changes to the plan are required; and initiate the corresponding changes; and
• Close - processes performed to finalize all activities across all process groups to formally close the project of phase

A perfect project plan includes each of above and their related tools, templates, and procedures.

Variation as promise

A project life cycle rigid to process, process tools, and process templates [templates and formulas have no emotion] without account for variables and unknowns [emotions] is a project short of rationale.  Since people, not machines, run projects expect rational to always get trumped by emotional.

• Project management processes:  rational
• People:  emotional

Process provides skeptics a map.  Unfortunately, processes do not like variables.  Variables are risk and risk threatens projects.  People and time are the absolute variables risks that affect a project.

1. People layer their agenda, their bias, their culture, or their values above any team.  A team does not have a shared value stronger than an individual’s value.  Their individual and collective emotions effect each other.
2. Time obscures variables.  Variables increase as the time horizon increases.  The further the time horizon the higher the variables that assault the process and no process accounts for all variables.

Project management is not about the process, but delivering a promise.  Obedience to process without context of how people and time provide critical variance, is a sure way to miss project deliverables, if not derail project promise entirely.

People need to manage the project process fluidly to deliver the promise; not in spite of the promise, but because of the promise.  Process underpins the promise.  Between process and promise, it is more important that process is flexible and the promise remains set.

Keeping people emotionally involved means looking at what motivates and drives people.  The power of promise is that it creates an emotional connection that people commitment to.  Whether a project is delivered or fails, what is remembered was if the promise was delivered, not that the process was correct.

No process promises 100% success.  A perfect project plan is less important than a project plan perfect for the people involved.

*A Guide to the Project Management Body of Knowledge: (PMBOK Guide)

A business case usually relies on numbers.  Numbers to justify the investment, numbers to project the return on investment, and numbers to compare against other investment opportunities.  Numbers that matter, matter differently dependent on the view of the person you talk to.  Certainly social media, or social software, numbers rely on us to know our boss and know their need and understand what their need for numbers is to evaluate success.

Recently I went to Google for a social media metrics search and came across a good article to share for 2 reasons.  But, context really, my search was spurred from a discussion with someone who asked what metrics do I need to make a business case for social media success to my C-level?

I had not been asked to make a data-driven business case for social media for more than 2 years, so I just did a quick Google search to see if about the most recent case studies I could update my holster with.

I came to an article Tying Social Software to Business Metrics that Matter.  The 1st reason I like the article was the sober view the authors, John Hagel and John Seely Brown of Chief Executive.net [obviously the target for the article are executives] present about the environment of need we must respond to.  I paraphrase:

In this era of near-constant business disruption where non-routine issues are becoming the norm, your capacity to solve them swiftly, using the unique capabilities of social software makes its measured use important for profitability and growth.

and

Most senior executives are either deeply skeptical of social software because they don’t understand its potential impact on business performance or they have adopted a “check the box” approach — they feel they have to deploy it because other companies are adopting it, but they are not sure what it does or why it matters.

Hagel and Brown understand the world I live in and the expectations I have to deal with.  And that is fair for me, because if I want to impact an executive, I need to think about the executive’s need, not mine.

However a 2nd great point about this article, in truth is not a social media or software issue at, but a great reminder for metrics that matter to the audience:

… tying social software deployment to metrics that matter for your firm and triggering cascades of adoption and sustained usage based on clear and measurable operating impact. Social software can have a significant impact on the performance of the firm but its deployment needs to be guided by a methodology that targets the greatest opportunities for performance impact.

But here’s the problem. The metrics that matter differ at different levels of the organization. Given this, it is vital to focus on a performance funnel that specifically targets metrics that matter at each level of the organization.

Within the 6 pages of this article is a lot of great insight:

• What is the executive level interested in?
• Why is it different, and should be different, to the operational level?
• What is the link between financial, operational, and, what the author’s call, front-line metrics?

I’ll leave with the last article teaser:

Stepping back from all of this, it becomes clear why CEOs are natural and necessary leaders for these software deployment initiatives. Effectively targeting metrics that matter requires a broad overview of the economics of the business and an ability to drill down quickly into whatever part of the operating processes that might be most helpful in driving key financial metrics.

I say, “here, here, next round on me”!

Some other good nuggets leap out when I read this full article, but I do not want to steal the thunder of a timely and relevant read that is important to anyone who cares about staying at the executive table.

Without an understanding of their need for numbers to evaluate success we can get too easily drawn in to people’s personal bias or fear of change.  I am not keen on dealing with a personal agenda that trumps a business need for change.  I can build change management into organization development, but to convince someone in fear of change for their personal reasons, that is a far taller task, and one’s fear does not help the organization.

Chief Executive.net.  It’s a good read.

Enjoy the article and share your thoughts.

Some people, and some organizations, can confuse very elemental operational concepts.  The confusion is tough to trace to a culture issue or a perception issue between getting it done versus getting it accomplished.

Getting it done means you care more about finishing than about quality.

Very different terms.

Very different concepts.

An alternative way to think about the difference between getting it done versus getting accomplished is like working with someone who continues to advocate the intuitive versus someone who advocates the empirical; to stretch this further:  induction and deduction.

Very different theories.

Just as managing by lists is very different from managing by milestone.

When you manage by list, you only view the blades of grass.  However, when you manage by milestone you have the entire field in perspective.

When you manage by list you only concern yourself with what individuals accomplish.  When you manage by milestone you rely on what a group of stakeholders accomplish together through a series of things to get done that relied on a series of collaborations to happen, before something can get truly accomplished.

Managers, leaders, and organization that care more about getting things done or who manage by list also tend to confuse the tactical with the strategic.

The tactical relates to actions.  An action removed from a reason is never evaluated as a priority in value of the effort required.  If you can not prioritize efforts you can not decide on how to assign resources.  Without a compelling plan for your finite amount of resources.  And a person’s hour is as much a resource as a financial unit.  A person’s hour may be more valuable because you can always make a dollar, but you can never make time.

When you manage resources isolated from the bigger need, you have a very strong likelihood to waste resources.

A group of actions, or options, without strategic reason or alignment also tends to those who have given very little forethought for a return on resources.

Without an understanding of the resources needed to accomplish a strategy, no one can decide what should start, what should stop, and what should continue.

There are distinct times for us to manage strategically and for us to manage tactically.  Critical discussions before embarking on any endeavor should revolve around:

• is this a strategic need?
• does this map direct to a strategic goal?
• are we deconstructing strategy to understand our options?
• is this a tool or is this one of a number of options?
• what will this accomplish?
• who will this impact?

The difference between getting it done and getting it accomplished is the different between looking at your toes and looking at your team.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

Proposals for organization intervention, from business process reengineering to Lean initiatives, typically focus on problems to be solved.  Many of these organization interventions for change, however, soon look like organization inquisition.  As once a problem is identified, the problem is the focus to diagnos soon both the organization and the people involved pointed out as the problem.

2 issues with this appraoch:

1. An organization’s present is built upon their collected history.  This history is an essential core of their organization’s being.  The past set the present capabilities.  Rattling an organization’s history is rattling the foundation stones of an organization’s culture.
2. Highlighting what people do wrong attracts attention to … what people do wrong.  No one likes to be audited around and in front of others for working within, being part of, or managing broken processes.

Both an organization’s history and people are subjected to uncertainty about the way things need to be done in the future.  Many times, throughout an organization’s life, in absence of process process is created as a work-around.  Soon these processes are adopted as “the way things are done”.

Just as simply, an organization’s process to deliver 100 widgets may not take kindly the stress to deliver 100,000 widgets.  But the stress of delivering 100,000 widgets may then become “the way things are done” because the entire organization has become too busy making 100,000 widgets.

A typical diagnostic approach to problem-solving in an organization intervention is a deficit-based approach.  The issue framed as a problem to be solved and the kickoff centered on what is not working.

This inquisition presents the people in the organization as a series of problems and translates to each as an attack on members of the organization and on the organization itself. This deficit-based view causes an entrenchment environment and natural resistance to change.  No matter what the future promise, when highlighted in this light change, itself, has a problem shelf-life.

Conversely, Appreciative Inquiry (AI) is a process that engages people to build the kinds of organizations that make them proud to work in. AI is not another organization development intervention; but, instead an approach to use to undertake organization development interventions such as:

• strategic planning,
• business process redesign,
• team-building,
• organization restructuring,
• individual and project evaluation,
• coaching, and

Enterprise-wide interventions that AI would affect organization change include:

• mission development,
• culture change,
• new market development,
• diversity and inclusion initiatives,
• continuity of operations, and
• strategic transactions

AI as a perspective for an evaluation process basic belief that an  intervention into any human system is fateful and that systems will move in the direction of the first questions that are asked.

AI also recognizes that an organization is a network of stakeholders from the highest executive down through every employee, and that outside stakeholders are also involved in the organization’s health.

AI looks to the very moments of excellence that people take pride in as the very areas that provide and sustain motivation. Those moments become the roadmap to a positive and generative future.

The words each of us use create a vision in the other’s mind.  Words create the future, as they are used to describe the present.  Therefore, verbalizing and building upon positive experiences from the past engages the organization to develop a shared-vision of a positive future.

Through articulation, you leverage people’s desire to share their hopes and visions.  These then become the organization’s new foundation stones for the place where they want to work and how they want to actively participant within this.

Moving from a frame of what is not working to a frame of what is working is an opportunity to build a space where people are far more likely to opt-in.  The intervention, itself, is a call for change, so why bother to start an intervention any other way?

The essence of strategic change is not a new direction, but a series of directives on what to start, what to stop, and what to continue. After all, a strategic plan really acts as a roadmap or charter for change.  A plan not carried out is a project failure.

The difficulty of strategy implementation is a recognized challenge and a Booz Allen* study concluded that 73% of managers believe that the difficulty of implementing strategy far surpasses that of formulating it.

Business strategies that fail are really project management failures and the essence of managing a successful project is as much about managing behavioral change as operational change.  Planned change refers to a premeditated, agent-facilitated intervention intended to modify organizational functioning for a more favorable outcome (Lippit, Watson, and Westley 1958).

While an executive view of strategy may distill itself through changes to the operating model and cost structure only lasting change is achieved with a cultural, change initiative.  Research suggests that between 66% and 75% of organizational culture change efforts fail**.

One of the most challenging and unresolved problems in this area is the ‘apparently high’ percentage of organisational strategies that fail, with some authors estimating a rate of failure between 50 and 90 percent (e.g. Kiechel, 1982, 1984; Gray, 1986; Nutt, 1999; Kaplan and Norton, 2001; Sirkin et al., 2005). By failure we mean either a new strategy was formulated but not implemented, or it was implemented but with poor results.

I began the look at project management in a prior post on mergers and acquisition failures are project management failures.  I don’t think I need to lay a scientific study for business strategy failure as I this blog would devolve.  Your organization experience in business strategy failure provides the most sound case for concern.

For executive strategy to be adopted and to gain organization hold, a series of directives, directly rely on people starting new behaviors, stopping old habits, and continuing the best of what they have done.  An organization can succeed with strategic change only with success at cultural change.

Business strategy needs so much more understanding than the unfreezing-movement-refreezing framework that is conceptually sound, but empirically challenging.  An organization will not succeed implementing a new strategy without success implementing culture change and a culture change relies on understanding the scope, constraints, and risk with organization culture before launching the effort.

3 features of implementation succes, as defined by Miller (1997) include:

1. completion of everything intended to be implemented within the expected time period;
2. achievement of the performance intended; and
3. acceptability of the method of implementation and outcomes within the organization

Like any human undertaking, projects are performed and delivered under certain constraints.  Consistent with project management’s project constraints for success implementation success can overlay nicely:

1. time (completion)
2. budget (achievement)
3. scope (acceptability)

The issue for business strategy failure may be less about strategy and more about the people who develop the strategy.  Traditionally, only top executives make and develop strategy.  However, only those most in touch with organization culture understand the endeavor ahead to take goals, objectives, and actions and change behaviors, minds, and motivations.

Increase the likelihood to successfully implement a business strategy when you:

• Identify and map your organization culture’s competing values;
• Identify what needs to be retained and what needs to change for strategy to succeed
• Crowdsource your strategy
• Use a strategic planning value chain to cascade executive, operational, and technical change
• Identify project scope and project risk

Strategy affects how things will get done.  Culture, is quite simply, how things are done.  After all, it’s not business it’s personnel.

No doubt I got some things wrong, or left out some important ideas. Please let me know what you think and suggestions you have for me to add value.

* referenced in:   Excellence is Born out of Effective Strategic Deployment: The Impact of Hoshin Planning [.pdf]

**Alexander, 1985; Wernham, 1985; Ansoff and McDonnell, 1990

Organizations don’t simply run from a strategic plan prescription.  Projected cash flows don’t deliver themselves.  Business units don’t run in a vacuum.  All these efforts take the collaborative knowledge, ability, and skills of people and teams.

If you recruit people with evaluation efforts that focus on industry experience, work history, and academic education, evidence shows these human resource tools do not show positive correlation to predict someone’s success within a firm or that that a collection of technical wizards would impact a firm’s future success.

Technical skill has little to do mitigating operational risk within your organization.  Evaluations that include work product, reports, stories, and conversations are qualitative views with only limited insight into someone’s technical ability.  Further, these qualitative types of human capital assessments remain highly subjective and are neither quantifiable nor comparative.

Only quantitative approaches provide comparative analysis.  Important predictive human capital tools are quantitative results include measures such as IQ.  But studies estimate IQ accounts for as little as 4% to 10% to someone’s professional success.

Research in over 200 organizations worldwide suggested the difference between top performers and average performers finds only 33% of the performance is attributable to cognitive (IQ) and technical ability and the remaining 66%* due to human capital competency**.  An IQ score does not accurately project job success or mitigate human capital risk so it is not the predictive tool we hope for.

There are measurable human capital, competency-based assessments that quantify how people manage themselves and others and how teams collaborate.  Getting a quantifiable handle on competencies that people use to manage themselves and teams are critical human capital performance indicators.  Globally, you can find that these competencies differentiate outstanding performers from average performers and include:

1. Cognitive competencies, such as systems thinking and pattern recognition
2. Emotional intelligence competencies, including self-awareness and self-management competencies, such as emotional self-awareness and emotional self-control; and
3. Social competencies, including social awareness and relationship management competencies, such as empathy and teamwork

A competency is defined as a capability or ability. It is a set of related, but different, sets of behavior, organized around an underlying construct called the “intent”.  The behaviors are alternate manifestations of the intent, as appropriate in various situations or times (Boyatzis, 1982, 2008; McClelland, 1973, 1985).

Alternatively, competencies can be described as the sum of practical, social, and analytical skills.  Behavioral competencies are those that are seen or can be witnessed.  Competencies, or a behavioral approach to cognitive, emotional, and social intelligence studies on complex jobs reveal a top performer [someone rating highly in emotional and social competency] is almost 127% more productive than an average performer.  127% more productivity is the difference between a product launch or product failure.

Competencies, as part of the evaluation, provide a great insight into fit and projected success.  Competency assessments when paired with cultural alignment tools, such as the Competing Values Framework, provide an opportunity to assess how someone manages them self, how they manage others, and the culture most likely to provide their success:  hierarchy, startup, etc…

For a deeper view try these posts on Emotional Intelligence and the Competing Values Framework and an article by Richard Boyatzis on Competencies in the 21st Century.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

*”Working with Emotional Intelligence”; Goleman, 1998; page. 19 and page 320

**Boyatzis, 1982, 2008; McClelland, 1973, 1985

A recap on my series of 4 blogs around project scope.  Includes links to slide deck and customizable templates:

1. Scope or:  How to manage projects for organization success, part 1

The ability to deliver a project is the ability to compete. Scope kills projects and projects that are not delivered kill organizations. Scope is one of the most important ways to manage project success. And when projects succeed, organizations succeed.

2. Scope or:  How to manage projects for organization success; impact analysis template

An impact analysis unearths the layers and levels that the change will effect. Just like tossing a pebble into a pond, projects cause ripples that are carried far beyond the initial splash.

Link to download Impact Analysis Template - fully editable Excel .xlxs file via SlideShare

3. Scope or:  How to manage projects for organization success, part 2

The key for organizations to grow and to thrive relies on how to manage projects and how to manage projects for organization success becomes an industry competitive advantage. But why do so many projects fail?

4. Scope or:  How to manage projects for organization success; stakeholder analysis template

The only way to manage projects for organization success is to identify and manage the stakeholders that the project impacts. A stakeholder is anyone [or any group] who can positively or negatively affect the outcome of the project.

Link to download Stakeholder Analysis Template - fully editable Excel .xlxs file via SlideShare

No doubt I got some things wrong, or left out some important ideas.   Please let me know what you think and suggestions you have for me to  add value.

Systems thinking strategies for mergers and acquisitions (M&A) provide better integration valuations and post-merger operations.  Organizations are composed of several components that interact with each other while simultaneously act as part of a whole.  Systems theory helps explain dynamic interrelationship of several parts, beyond information technology or back office functions.

No matter the motive for M&A the real work comes with integration.  A systems view for organizations presents organizations as dynamic entities that continually interact with their environment.  Post-merger integration is where the components disrupt or combine to create a new system.  There is a congruence between people, process, structures, values, cultures, and external environments.

Workforce efficiencies, scale efficiencies, combined technology, and market expansion commonly fall under the synergy tag.  Synergy seems like a hollow word, but synergy attempts to describe cost efficiencies that occur when companies consolidate into 1 company through a merger or acquisition.

Previously, in the 2 related blogs I outlined 7 positive system thinking strategies and 4 negative system thinking strategies from systems theory.  Unfortunately, the negatives have permeated farther and wider than the positives.  Here’s a chance to reverse that.  Just imagine a mission/strategy discussion with your newly-integrated company.  Is it easy to find common ground or common allegiance?  Without a shared sense of mission how can you expect synergy?

Improper application of systems theory in financial models, risk models, engineering hardware systems design control, and human organizational systems model-building exercises lies in the misappropriation of systems integration.

Your human resources department should be the business partners for these assessments.  Are they at the table throughout deal discussions?  Do you have much faith in your human resources department or with a human resources consulting firm to evaluate the deal?  Do they get it?

Looking at the graph on the left reveals a distinct disconnect between the value human resource professionals believe they provide and the value CFOs believe human resource professionals provide.

If you can not get on the same page as a CFO, no wonder a human resource professional’s strategy is so narrowly focused.  How many organizations or deal teams have a top-flight human resource business partner at the table during mergers and acquisitions transactions?  No on has made a compelling value to be at the table.

How can systems thinking help in valuation and integration?

• Culture resonance or disonance
• Future-state executive leadership competency
• As-is and required technical skill needs
• Shared services
• Centers of excellence
• Product portfolio
• Customer niche

So, while share of market, liability, and discounted cash flows get the headlines, the real key to an investment, whether a technology play, new market grab, or expanding core capabilities, ultimately the deal is a bet on a team to deliver results within a fixed amount of time.  Expectation of payoff and timeline is even more highlighted with the external pressures of a publicly-traded company.

What can you do?  Any mix of these:

• Culture assessment
• Impact assessment
• Skills gap analysis
• Competency assessment
• Competency models
• Build (training plan)
• Buy (recruiting plan)
• Retention strategies

Demand more from a systems approach than technology.  Shifting to a true environmental systems thinking approach gives far higher expectations for holistic integration planning.

A Towers Perrin study** found nearly 450 senior HR execs participated in a survey found substantial involvement of HR executives during the due diligence stage of an M&A for 72 percent of successful deals and only 39 percent of those that failed.   5 major roadblocks to M&A success, highlighted are HR responsibilities:

1. Inability to sustain financial performance (64 percent)
2. Loss of productivity (62 percent)
3. Incompatible cultures (56 percent)
4. Loss of key talent (53 percent)
5. Clash of management styles (53 percent)

In the same study 65 percent of survey respondents indicated that their ideal role in an M&A was to be a strategic partner with senior management, only 8 percent ranked their ideal M&A role as HR functional expert and implementor, where HR involvement is indeed heaviest.

Only half of the respondents believe their HR organizations possess the capabilities needed to play a strategic M&A role.  Why does systems theory or system thinking help?  Because change creates tension and a systems approach works towards an environment in concert.

No doubt I got some things wrong, or left out some important ideas.   Please let me know what you think and suggestions you have for me to  add value.

**Why HR Can Make or Break Your M&A [link to .pdf study]

Series:

• Change management stormtroopers and system theory
• Mergers and acquisitions systems thinking strategies, part 1
• Mergers and acquisitions systems thinking strategies, part 2
• Mergers and acquisitions systems thinking strategies, part 3

Many mergers and acquisitions fail to understand the full impact of what systems truly encompasses.  When evaluating merger integration risk the reality is true integration risk identification can only happen with an evaluation of systems integration.  However, systems strategy discussions frequently devolve into information technology systems strategies.

As much as the information technology needs an integration roadmap, without front-end, due diligence on human capital integration then too often the deal becomes a post-merger write-off.  The result:  wasted opportunity, multiples on paper only, and “synergies” left back on the deal table or with the executive hand-shake.  The opportunity lost in mergers and acquisitions strategies thinking is that rarely enough deals throw appropriate weight behind intangible, human asset system integration strategies.

System theory focuses on the relation and the arrangements of parts that, in turn, come to create a whole.  Systems, as a theory, was first proposed in the 1940′s by a biologist, not an engineer or computer science professional.

Here is a bit of a drill-down on systems thinking:

Systems exist at every scale of size and are often arranged in some kind of hierarchical fashion. Large systems are often composed of one or more smaller systems working within its various elements. Processes within these smaller systems can often be connected directly or indirectly to processes found in the larger system.

Most systems share the same common characteristics. These common characteristics include the following:

1. Systems have a structure that is defined by its parts and processes.
2. Systems are generalizations of reality.
3. Systems tend to function in the same way. This involves the inputs and outputs of material (energy and/or matter) that is then processed causing it to change in some way.
4. The various parts of a system have functional as well as structural relationships between each other.
5. The fact that functional relationships exist between the parts suggests the flow and transfer of some type of energy and/or matter.
6. Systems often exchange energy and/or matter beyond their defined boundary with the outside environment, and other systems, through various input and output processes.
7. Functional relationships can only occur because of the presence of a driving force.
8. The parts that make up a system show some degree of integration – in other words the parts work well together.*

Real systems interact with environments.  As systems emerge, systems integrate and can acquire new qualitative properties.   The result(s) of new system properties creates the environment for constant system evolution.  Merging 2 (or more) companies is the merger of environments.

Presenting the opportunities and challenges of systems thinking strategies within these blogs comes about from a paper called Consequences of and Prospects for Systems Thinking in Organizational Change published in the book Systems Theory for Organization Development, edited by Thomas G. Cummings [the book is out of print but you can find it on Amazon for ~$4].

Where the prior blog presented positive results from systems thinking strategies this blog presents the ‘fallout’ from systems thinking taken from the same paper.  I’ve added bold to some sections:

1. Systems thinking has been used primarily for systems of tangible, physical objects [author's emphasis].  The design of engineering hardware systems constitutes the paramount example of systems thinking.  Other areas, most notably human organizations, have been relatively neglected.
2. Even in the field of engineering hardware systems, the emphasis has been on design control and operation.  Systems thinking has been converted to systems analysis, sacrificing some of the holistic, synthesizing power of systems thinking.  Consequently many of the hardware systems often seem to take on a synergistic life of their own beyond the cognizance of the systems analyst.
3. Systems thinking has also been widely used for model building, as in the case for computerized simulation models.  A representational system, comprised of variables and relationships between variables, is set up to explore the overall properties of the model.  The danger has been that sometimes the assumptive structure of the model becomes forgotten and reification sets in.  The model gets confused with reality or as Korzbyski says, ‘the map is not the territory‘.  Reification constitutes a constant threat in the use of relational models.
4. Successes with systems thinking in the realm of hardware systems and rational model-building has lead to a false sense of certainty and control, and to a belief in some quarters that human organizational systems can be dealt with just as easily or in similar fashion.  The belief that human organizations are basically social engineering problems is likely to produce some costly large-scale disasters.

In the next blog I’ll present of mix of what can be done to improve systems integration as well as look at the responsible partner for systems integration; and it is not the IT department, but more in line with the CFO responsibility.

No doubt I got some things wrong, or left out some important ideas.   Please let me know what you think and suggestions you have for me to  add value.

*http://www.physicalgeography.net/

Series:

• Change management stormtroopers and system theory
• Mergers and acquisitions systems thinking strategies, part 1
• Mergers and acquisitions systems thinking strategies, part 2
• Mergers and acquisitions systems thinking strategies, part 3

A stakeholder is anyone [or any group] who can positively or negatively affect the outcome of the project.

Risk is anything that can positively or negatively affect the outcome of the project.  So, identifying and managing project stakeholders is an important step to identifying and managing project risk.

Each project has a unique set of stakeholders, influencers, and customers.  There’s a fine line between each, but all fall under the stakeholder umbrella.  Each stakeholder may have their view, their filter, their domain, their turf, and their livelihood they are concerned about and protect against change.  It is critical to know as many project stakeholders as possible, what they can contribute, or how they on the project.  The best case is that stakeholders improve the project roll out and adoption.

Stakeholder management is crucial to:

• Identify potential advocates and critics of the change;
• Eliminate resistance to change;
• Create a team atmosphere;
• Establish a level of trust;
• Create a sense of ownership for participants involved in the change; and
• Raise the level of communication effectiveness

Stakeholders include:  employees, customers, managers, business units, executives, suppliers, partners, vendors, and departments; groups as well as individuals.  Prior to a project’s go ahead we identify these groups and individuals who have a stake in the success, and failure, and make sure that we understand the key concerns and motivations of these audiences in order to mitigate risk of over looking or under appreciating their position.

The goal is not to win all stakeholders over, but to discover someone or something that may have previously been overlooked to help the project.  Whether that is a new voice of reason, caution, or even a new champion who was simply waiting to be invited in.  An impact assessment should reveal a host of stakeholders to engage and talk with.

Assessing stakeholders identifies a range of interests to consider when planning and managing projects.  Stakeholder awareness invites people into the change they will become a part of and is worth any amount of time to make sure there is an accurate pulse on who is affected by the project.

Stakeholder planning attempts to generate support through awareness, communication, feedback, and collaboration.  Stakeholder management ensures that the necessary support for change exists. Stakeholder Management will identify individuals or groups affected by and capable of influencing the change process.

For all stakeholder groups we need to clearly understand

• Impacts (should have a healthy start on this from the impact analysis step)
• Benefits
• Concerns/issues
• Potential reactions (to current/planned project activity)
• Accountability and actions

The steps involved in stakeholder planning and execution are:

1. Identify all key stakeholders and conduct interviews (as required)
2. Conduct analysis
3. Develop plan to manage stakeholders
4. Implement initial set of actions

This blog and link to the downloadable and customizable Stakeholder Analysis template coincides with slides 35 – 39 of the eBook.

Of special benefit within the file are the columns titled “Predisposition”.  In this case predisposition is someone who holds a particular attitude, or acts in a particular way.  Getting a sense on people’s predisposition to the project is a good way to understand perceptions and concerns.  This information is great to build communication plans.

Link to download Stakeholder Analysis Template - fully editable Excel .xlxs file via SlideShare presentation

Columns D, E, F, and G of the attached file allow you to identify each stakeholder’s predisposition to the project:

• low support/low influence;
• low support/high influence;
• high support/low influence; and
• high influence/high support

This is in no way a scientific study, but just a best-guess on how the stakeholder perceive the project and how you perceive their influence on the project’s success.  With these columns you can plot their current state on the second tab of the file:  Stakeholder Matrix.

Once plotted on the stakeholder matrix, you identify where your communication strategy is best served and build a plan to communicate and engage.  This is not only a baseline view of stakeholder impact, but a management, monitoring, and measurement tool along the project road.

The stakeholder matrix also is a great performance management tool for the project:  moving low support/high influence stakeholders to high support/high influence stakeholders.  This stakeholder matrix provides important details for your stakeholder management plan.

Link to Stakeholder Analysis matrix - fully editable Excel .xlxs file via SlideShare presentation

The Stakeholder Matrix is on the second tab of the Stakeholder Analysis Template Excel file and is fully customizable.
The only way to manage projects for organization success is to identify and manage the stakeholders that the project impacts.
For highly-influential individuals we need to clearly understand:

• What does this individual stand to gain and lose?
• What is the quality of our relationship with this individual?
• How does this individual process information? Make decisions?
• Relationship owners and action planning

To move stakeholders from awareness to commitment you need to identify stakeholders risk before project launch.

With a stakeholder analysis and a subsequent stakeholder plan you will identify and address various concerns, issues, beliefs, and expectations that stakeholders may express.

As I’ve mentioned before, participation is the difference between getting a project done and getting a project accomplished.  This is the beginning of risk management: managing scope is managing the risk.

No doubt I got some things wrong, or left out some important ideas.   Please let me know what you think and suggestions you have for me to  add value.

I transitioned into a human capital focus gradually over my career.  My collected experiences just overwhelmingly led me to realize without commitment, understanding, and ownership you have little hope of individual, team, or organization success.  What on earth brought about a mergers and acquisitions systems thinking approach?  Well where we are usually has a lot to do with where we’ve been AND not just where we’ve been, but if we noticed.

People and motivation began to have impact as early as my conducting studies at Berklee College of Music.  As a conductor you need to create a compelling vision that you rely on others to deliver to.  As a conductor I will never be as technically proficient as the first violinist [an interesting piece on the role of the first violinist] or the horn player or harpist.  However, as a conductor, I need to motivate them to give me their best, I need to understand their motivation for the piece, their technical ability, and their role within the piece.  I need to understand all that and they too need to understand that.

The symphony is a blend of sounds, timbres, volumes, and notes all at work or at rest – as need be, but blending together to produce a sound.  I, as the conductor, need to interpret the composition, convey the vision or sound I have in my head from the written sheet music, and motivate a seemless collaboration.

Now if that first violinist is in a rotten mood, for whatever reason, and that reason may be entirely outside of my influence, I need to tap into their talent and help them rise above that mood and deliver to the occasion.  I have options.  I can yell at them in front of the orchestra, I can pull them aside, I can listen to them, I can threaten them, I can cajole them, but each one of these approaches and how, when, or where I deliver each message has varying consequences I will have to live with and the group may have to make changes to accommodate.  And, importantly, not all are motivated through the same message.

I need to find each person’s motivation.  I need to motivate all of them.  This is my responsibility.  If it was just left up to their technical skill there would be no need for practice or a conductor.  As you know, technical ability is not a guarantee for success – just ask a professional sports team:  technical ability does not produce a winning game plan or guarantee a team’s success.

So, the role of the conductor started my journey to understand motivation, intrinsic and extrinsic.  I was intrigued and moved into marketing where I found motivation was equally challenging to tap into and to understand.  Luck would have it my MBA program was sponsored by the number 1 organization behavior school in the world and though I came out with a double major in marketing and finance the entire program placed managers and talent at the forefront of organization success.

I discovered systems theory working at Booz Allen Hamilton.  Though I was in the Organization Development Change Management team this team’s approach seemed to overwhelmingly rely on business process reengineering and a very mechanistic approach to change.  I started to look into systems theory as it had been co-opted by the engineering and hardware folks to deliver to their needs.

One of the most influential papers I’ve read is from the book Systems Theory for Organization Development, edited by Thomas G. Cummings [the book is out of print but you can usually get it from Amazon for ~$4].  The article was written by Roger Evered and titled “Consequences of and Prospects for Systems Thinking in Organizational Change“.

I’m taking a section of that paper as whole.  This is a good overview of systems thinking and as you read it think about the orchestra example above or any of the change, mergers, or buyouts you’ve lived through.  I’ve added bold to some sections:

1. Systems thinking has enabled us to think about organization at a higher level of abstraction than was previously possible.  Instead of thinking about particular organization, and similarities between particular organizations, systems thinking requires that we think more in terms of the general characteristics of the organization itself – such as cohesion, interdependence, stability, etc.  Systems thinking is a conceptualization of a higher order configuration than traditional science has previously considered.  Moreover, systems thinking transcends the various branches of science.
2. Systems thinking has provided us with a language for describing organizational phenomena.  Such notions as boundary, boundary spanning, interface, feedback, homeostasis, control system, organization goals, input, throughput and output, differentiation and integration were all catalyzed by systems thinking.  Most major advances in human thought are characterized by the introduction of new language (e.g. Freud’s psychoanalytic theory,  Lewin’s field theory)
3. Systems thinking has enabled us to think in relational terms rather than in terms of things.  To see organizational phenomena in terms of relationships between entities (whether persons or things) is potentially more enriching than merely aggregating the persons and things.  This has led to more process-oriented, and contextual view of organizations.
4. Systems thinking has stimulated our holistic appreciation.  It has enabled us to think in terms of the wholeness properties of an organization such as organizational personality, climate, cohesion, and integration.  There is now widespread conceptual recognition that the total relevant environment of an organization is a major determinant of corporate choices.
5. Systems thinking has necessitated that we modify science away from analytical, reductionistic, causal, future neglecting positivism and toward a science that is more synthesizing, transactive, contextual, emergent, future incorporating, phenomenal and participative.  To view the world, and indeed science itself, as cogenerative, transactively determined, and continuously in process is necessarily to reject (or at least radically modify) the present character of science.
6. Systems thinking has led us to a realization that there are two kinds of explanation and meaning.  The first type of meaning is the traditional deductive explanation derived from logical analysis.  And the second, which systems thinking has stimulated, is the meaning that derives from pattern recognition and from gestalt processes of the human mind.  Left-brain/right-brain as described by Ornestein and others.
7. Systems thinking has given us the potential for world-defining by the organizational participants themselves.  Boulding and Lewin have described ways in which an individual can locate him/herself in the total system in which he/she is embedded – in terms of the spatio-temporal gestalt, the field of personal relationshps, the world of technical properties, the domain of intrapsychic feelings and sentiments, the context of events, and the pervasive pool of linguo-cultural-phenomenal world (or image of the world), giving rise to the necessary variety and differentiation that enables organizations to function.  And when these individual ‘worlds’ become synthesized within an organization, we can think of the system’s image of the world that characterizes that particular system, or firm.  It is now believed that these system generated images – what are sometimes termed core metaphors – play an important role in energizing and guiding the system.

I’ll let these 7 points sit for a bit and return to them in a future post that will include Evered’s list of negative fallout from systems thinking.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

Series:

• Change management stormtroopers and system theory
• Mergers and acquisitions systems thinking strategies, part 1
• Mergers and acquisitions systems thinking strategies, part 2
• Mergers and acquisitions systems thinking strategies, part 3

Models attempt to identify the assets that have value.  How to manage those assets.  And how to strategically turn these assets into money.  This is a 2nd, follow-up, post comparing financial models to competency models to evaluate risk.

As I mentioned in that post, typical financial models and their build-outs inherently ignore important aspects of real-world behavior, models are truly as much an art as a science in their mathematical reasoning and interpretations. While financial models look to identify financial strengths and weaknesses of organizations, competency models try to identify critical knowledge, ability, and skills needed to lead and run organizations.

Typical due diligence and valuation involves tangible and intangible research.  Tangible assets are usually classified as physical assets like inventories, machinery, buildings, and land.

Intangible assets are usually classified as patents, licences, processes, and intellectual property, the knowledge of the firm.  Unfortunately most intangible asset reviews dismiss or don’t fully account for the vital role that talent and motivation have on taking knowledge from an idea to a good, a service, or a product.  Having an idea is a start, executing on that idea is the hard work and that takes people, collaboration, and motivation.

I propose to expand the intangible to include talent skills and competencies.  Some differences:

• Financial models try to predict financial risk.
• Competency models try to mitigate operational risk.
• Financial models try to identify return on investment.
• Competency models try to identify return on involvement.

Competency to Deliver Financially

Competency models look to identify the core competencies and behaviors relevant and necessary to succeed.  A competency model can identify the important knowledge, ability, and skills in a given job title, job family, job position, or business unit.

Competency models determine skills required not only for today’s needs, but the probable needs to succeed in tomorrow’s organization.  When we think about the time value of money, we can’t honestly assess risk without a look at the time value of competencies.

Further, competency models provide the information for an intentional change.  Without intentional effort you can not take a consistent under-performer and coach them up to become a reliable performer.  Without an intentional effort you are relying on luck, luck is not much of a strategy.

Ability and Behaviors

A competency model looks at the what is needed to succeed.  People are born with innate characteristics, such as empathy, but people can learn behaviors.  You can modify behaviors.  Where innate characteristics are set, you can teach behaviors. A competency model provides boundaries for successful performance and sustainable desired change.  Sustained, of course, because you should look to count on reliable returns on your investments, not consistent.

Competency models provide not only the current best, but the future-state goal for organization to recruit, train, and retain. What is important to understand is the difference between a person’s innate character and their behaviors.  Someone may not be an empathetic person, but they can learn empathetic behavioral qualities such as:

• using people’s names;
• treating others like they matter;
• senses others’ feelings and perspectives;
• picking up clues on how a team is performing; and
• asking sincere questions to understand another’s area of concern

On 1 side of the model are the knowledge, skills, and abilities and on the other side are the behaviors that have the most direct impact on successfully performing in the job.  Competency modes give you the details financial models can not:

• How would you know if you are investing in or acquiring a company that will reliably deliver your financial projections?
• How can you tell if you have the right leadership to grow, not maintain, your organizations revenues?
• How do you identify the important behaviors you need to recruit your next manager or place your next board member.

Competency models are strategic initiatives and some firms look at their competency models as intellectual property that are their strategic and operational competitive advantage.  Senior management competencies in the hands of competitors provides competition with knowledge of organization plans, the development of senior managers, and the strategy of operations; they are all linked as strategic initiatives.

Many different methods of developing competency models are available, but most follow David McClelland’s dictate to determine what leads to superior performance and to identify top performers and find out what they do.

McClelland’s dictate can be broken down into 2  important principles:

1. focus on highly successful people without making assumptions about their role
2. pay attention to what they actually do^3.

The outcome of all competency models remain the identification of behaviors that are required to successfully perform in a given role.  Whether buying competency models and making basic modifications or developing your models from scratch the behaviors within the competency model need to be relevant to people’s jobs and people need to see that relevance.

Competency models address specific business needs.  Your investments address specific business needs.  Though financial models are necessary to dig into the underlying capital risks, competency models are a vital component to dig into the human capital risks.

As an investor or leader you may look for the multiples of 2 to 5 times of the original investment, without knowing the people or talent involved you really are assuming an unnecessary amount of risk to your time and to your investment.

In the next part I’ll present a high-level view of build/buy/modify competency model options.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

Sources and resources:

1. Video from The Hay Group with Dr. David McClelland
2. Dr. David McClelland’s major works references and information
3. The Art and Science of Competency Models: Pinpointing Critical Success Factors in Organizations by Anntoinette D. Lucia and Richard Lepsinger

Project management offers a way to breathe new life into your organization’s competitive and operational advantage, but why is project management seemingly stuck in engineering or scientific theory?

Project management may look like an engineering, top-down control process, but project management is less process and more a discipline:  like accounting.  Anyone familiar with accounting knows asset classification and assignment within financial statements is in no way a science or process of absolutes, but an art and a style; hence the rising need of forensic accounting and Sarbanes Oxley-like compliance.

Is the disregard for project management the secret boondoggle that helps enterprise IT vendors and chop shops hit us with cost overruns and incredible failure rates?  If project management was brought to the forefront of management and organization capability, we’d see more clearly the likelihood of failure before vendor selection.  We could take the science and engineering away from project management and hand it to the managers across the organization, where it belongs.

Far away from a structured, mechanistic, top-down system ritual of designs, tools, methods, and procedures, project management should focus on the actors, their activities, and their process application within the environment.  For project management to become a prominent discipline we in project management and organization leadership need to move project management from a management science into a management competency.

To view this frame more clearly, let’s look at John Kotter’s 8 Step Process for change:

Step 1: Create Urgency
Step 2: Form a Powerful Coalition
Step 3: Create a Vision for Change
Step 4: Communicate the Vision
Step 5: Remove Obstacles
Step 6: Create Short-term Wins
Step 7: Build on the Change
Step 8: Anchor the Changes in Corporate Culture

I’ve never seen anyone mistake Kotter’s “process” as a prescription for change.  The 8 Step Process for change is a sociological and social sciences view to change.  Followed as a repeatable guidepost for change, both theoretical and methodological, but in no way a change elixir for all comers.

Organizations realize their strategies through projects; if an organization can not deliver on projects there is little hope to deliver on strategy.  With many organizations looking to refresh their strategy just to survive, you can imagine project management success is critical.  Why are organizations left without an elemental business competitive advantage?

The 5 project management Process Groups:

1. Initiating
2. Planning
3. Executing
4. Monitor/Controlling
5. Closing

Mapped to the 5 project management process groups are the 9 project management Knowledge Areas:

1. Project Integration Management
2. Project Scope Management
3. Project Time Management
4. Project Cost Management
5. Project Quality Management
6. Project Human Resource Management
7. Project Communications Management
8. Project Risk Management
9. Project Procurement Management

Project management is an integrative, complex field, reliant on systems theory’s true intent:  people and environment and their independent and interacting parts.  Imagine your current or future projects laid out with the above process areas and subsequent discipline built within the 9 knowledge areas?  You already have a head start on thoughtful project management.

Next, I will introduce a table I will return to over a series of blogs.  I edited this table from brilliant paper published in the Project Management Journal, Blowing Hot and Cold on Project Management.

The above project management schools advanced so well by Christophe N. Bredillet might give new alternatives on what to start, what to stop, and what to continue.  As Mr. Bredillet points out, The Oxford English Dictionary gives the following definition of the word “school”:  a group of people sharing common ideas or methods; a specified style, approach or method; the imitators, disciplines or followers of a philosopher, artist, etc.”

Held back from the business advantage that project management provides organizations, can project management’s competitive advantage be adopted with simply a marketing spin?  A refresh?  A Project Management Super Bowl add?  Or is project management forever banished as the tofu of food choices – only for the most health conscious?

Project management has only recently been added to schools of management and as a branch of management.  Take a look at your organization’s portfolio of current projects and potential projects being debated.  The above table introduces 9 frames, models, or operational modes that project management can take in your organization.  Cut your projects across the above table, are there ways to breath life into your choices, prune current choice, combine choices, or start more important projects with higher impact?

I look forward to revisit the above table in future posts and will expand on some of the thoughts Mr. Bredillet has presented.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

Source:

Many firms admit they rely on the quality of entrepreneur to determine their funding decision, but rarely is this “quality” represented in a measurable, comparable assessment, or at least as measurable as weighted average cost of capital, discounted cash flow, capital asset pricing model, risk-adjusted rate of return, and other abstract financial models.

Human capital is the only asset that is not tangibly owned, however human capital risk is very tangible:

• Compliance – Financial or reputational damage to the organization due to failures to meet legal or regulatory requirements;
• Productivity – Loss of productivity or output due to under-skilled or under-motivated employees; or an organizational culture that does not encourage discretionary effort (the extra contribution over and above what is required to keep the boss off your back) from employees; and
• Growth – Failing to maximize organizational capability or to identify and achieve internal or external opportunities for innovation or major growth or development of the business

Human capital risk is the most difficult risk your firm will manage.  You can’t simply throw money at human capital problems; though on the flip side, restricting money certainly impacts your human capital output.  The decision to invest comes down to a decision to invest in a team to deliver a project, on budget, and up to expectation:  this is a project.  Whether a venture capital investment, a merger, an acquisition, or any range of capital expenditure the risk is for the team to deliver and that is a human capital risk.

Real risk is human capital risk.  Without qualitative human capital inputs weighted average cost of capital, discounted cash flow, capital asset pricing models, risk-adjusted rate of return, and other “tangible” risk formulas are, at the least, incomplete or are a woefully inaccurate depiction of due diligence, risk, and expected rate of return.

But what is measurable?  Behavioral competencies and their frequency are measurable.  Cultural alignment is measurable.  Are either 100% accurate, no, but neither are any of the above financial models.  So if the “as if” financial pro forma lacks human capital risk, is this true due diligence?  If this is not complete or accurate how can a firm raise capital or seek, in good faith, investors based on glaring holes in their models?

The firm that has a human capital risk model identifies and builds mitigation strategies that offer higher market returns and higher investor rates of return.  Human capital risk models are a competitive and comparative advantage.  In my 15 years work in, multiple, post-merger environments that often turn into triage projects, human capital risk is the real risk to returns and is every bit as important at the valuation stage, front end, but rarely gets there in as serious a discussion as market, legal, and financial valuations.

People and firms can qualify and quantify human capital risk before investment and manage and mitigate human capital along the entire life cycle.  Those that do are market leaders and can better realize the return on human capital.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

We make models to get an idea, on a small-scale, of what might happen on a large-scale.  Models help identify risk and attempt to predict outcomes.  Many use models to then run scenarios or alternatives to identify what could or should be.  Models then become a map for many management discussions as models provide options and a business without options is on borrowed time.

No model is, or ever will be, 100% accurate or predictive.  Even with 100% of the information available, models can not predict the future, models can only guide business discussions and inform.  I like to advocate that models move our discussions from a personal (emotional) case to a business (rational) case.

One of the simplest reasons, other than the human condition called error, that models are not and will never be 100% accurate is time.  Time is the most fundamental aspect to understand risk.  And the further your time horizon, the greater amount of unknowns (variable, options, alternatives) added, the higher the risk.

Predicting what you might do in an hour may be narrowed to what you believe are a finite set options, but is your prediction for what you will do in an hour 100% accurate?  Always?  What about predicting what you will do 24 hours from now, 1 week, 1 month, 6 months, 1 year, 5 years — the further out the time horizon the larger the variables for model accuracy.  In models, time is also called horizon or period.  The longer the timeline, the larger the amount of unknowns and unknowns are risk.

An economic model attempts to abstract from complex human behavior in a way that sheds some insight into a particular facet of that behavior.  Models and their build-outs inherently ignore important aspects of real-world behavior, models are truly as much an art as a science in their mathematical reasoning and interpretations. And as we continue let’s keep in mind how subjective art really is to the beholder.

The following are a small list of models you may have heard, built, or need:

1. Business models:  try to identify whether an idea or innovation has economic value and draws on economics, finance, marketing, strategy, and operations
2. Economic models:  [let's not touch this one or we'll begin to go into a far too abstract world of settled equilibrium, rational actors, reflexivity theory, and representative agents]
3. Financial models:  try to identify how a business may react to alternative options or events and hopes to estimate the outcome of financial decisions before committing funds
4. Competency models:  identify the unique combination of knowledge, ability, and skills needed to effectively perform a role and are used for selection, training and development, appraisal, and succession planning

Models are a way to understand the key decisions you may need to face and hedge the bets you’re placing.  Ultimately investment risk is a risk for a team to deliver as much as it is a market or financial projection.  Of the 4 models listed above, only 1 is predictive, the other 3 are based on luck, faith, and guess-work – none of which is confused with much of a business strategy.

What is risk?  Risk is anything that can positively or negatively impact the plan; positive risk is opportunity.  In financial terms risk is also called beta – we will delve into beta more in the next blog, but until then, valuation beta is a numeric measure of market or systemic risk.  Risk is comprised of 3 areas:

1. known/knowns:  is there an instance or a comparable
2. unknown/knowns:  this may happened to the lending or financial markets
3. unknown/unknowns:  don’t know

Models identify risk and once risk is identified it is factored, or added, into the model’s evaluation.  The act of building a model from research, data, assumptions, and knowledge provides a chance to test theories, draw conclusions, make modifications –  before – undertaking a project or, let’s say, an acquisition.  Being wrong is a great opportunity, not a problem.  In an earlier blog about strategic planning I wrote:

We speculate from current-state pressure, demand, or pain and usually build hope.  Hope is not a strategy.

Statistically, forecasting, probability, and profits each depend on informed judgments.  All risk involves the objective facts and a subjective desire of what is to be gained, or lost.  Both are essential and neither is sufficient.  Compound the human challenge that we must wade through individual and collective wants, needs, values, bias, motivation, and other barriers of understanding, can we expect to plan anything with even a 50% likelihood of success?*

Financial models are the lynchpin for investor decisions.  However, it is shocking the amount of valuation models that are based on intangible factors as they are built and the intangible factors in their interpretations compared to supposedly tangible factors.  In reality, market projections and discounted cash flows are fuzzy, flawed, and biased.

The disproportionate weight of tangible to intangible in assessments

All valuation models are a greater leap of faith than competency models are for human capital valuation.

No risk assessment is accurate without a proper assessment of human capital.  Just as financial capital intends to reflect underlying or expected enterprise value, competency models reflect the knowledge, ability, skills, and behaviors that reflect underlying enterprise human capital potential:

• Valuation models:  mitigate present risk
• Competency models:  mitigate future risk

The value of models, whether accurate or not, is in the effort to think through their inputs, the variables that go into the model, and the options to take based upon the model.  Being right is nice, however, being wrong, may be more important.

A follow up blog will compare and contrast financial models to competency models and look at:

1. real risk identification,
2. risk management,
3. risk mitigation, and
4. the only way to mitigate the biggest risk variable to future results:  time

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

*Statistically, your strategy will fail

The bigger the risk, the bigger the reward. Elemental finance: you assume the amount of risk suitable for an expected payoff. You assume bigger risk and its bigger payoff with the full caveat that there is an equally big downside loss that could happen.

Invest in a money market and get slow, steady, decimal-point-% returns; you sleep well knowing your risk is low and what to expect.

Invest in emerging markets, a start up, or unproven technology with wildly fluctuating uncertainty and huge range of possible returns; you get potential sleepless nights worrying about losing your entire investment or planning a safe harbor for your potential windfall.

VC Quarterly Return Rates, 1981-2009, source Cambridge Associates

If venture capital (VC) is to assume its traditional place as the fuel for innovation than a 2% average quarterly return from 1981-2009, as well as a glut of investor money sitting around without a home, will have to change.

VCs believe they seek and back promising entrepreneurs. VCs believe they spark innovation. VCs believe they have an other-worldly sense for picking the right talent with the right product for the next market.

The reality has not caught on. This month’s Harvard Business Review has an article called The VC Shakeout that looks into this misalignment and possible contraction of the VC space in detail.  For example, investments in VC portfolio firms did not outperform investments in other NASDAQ stocks during the boom period of the 1990s.

In a post I wrote for nowEurope on the state of US venture capital, lengthening time to liquidity from 5 years to 7 – 9 years is almost a new expectation. However, the returns are not matching the risk and investors have far better options. “Venture capital hasn’t worked for a decade and must be radically restructured if it’s going to influence innovation – and make solid returns to investors” by Joseph Ghalbouni and Dominique Rouzies*

There are more investments in more opportunities, there are not enough sound opportunities, and the liquidity deals have, logically, dried up. This is a trend not a blip. This results: time-lines for potential liquidity is extending further, thereby leaving all the risk on the portfolio investor and the VC’s balance sheet.

Lengthen time = increase risk. “That means VCs are now in the unenviable position of offering investors high-risk, lower-yield investment opportunities.” Or as the story points alludes:

• Few Deals + No Exits + Long Waits = bloated balance sheets

“Every VC I know thinks there are too many VCs, too much dumb money, too many people bidding up valuations and reducing returns for the top guys. Too many–except, of course, themselves!”

Entrepreneurs are turning toward angel investors for their needs. The VCs have turned increasingly desperate in attracting entrepreneurs. Because at the element level the investment is an investment in a relationship. If either side is not getting their needs met, then it is not much of a relationship, it is more like a shotgun marriage.

“What’s more, VCs are losing their ability to attract the entrepreneurs that will generate better returns.  They’ve fallen short in marketing their relevance to entrepreneurs who don’t need capital as much as they need guidance.  Instead of marketing their operational expertise, their well-developed network of experts, and the personalized attention they can offer, many VC firms have resorted to peddling wildly attractive financing options.”*

The VC world needs to return roots that spawned many of the incredible innovations we’ve seen from biotechnology, silicon, software: “When we enter an investment, we don’t think about how to sell it…[w]e think about how to help th entrepreneur build a great company.” Bernard Liautaud, Balderton Capital

“…experts who see a ‘shrinking role for venture capitalists in seeking and backing promising young entrepreneurs,’ as alternatives including angel investors gain favor. Fresh research by Josh Lerner and William Kerr of Harvard Business School bolsters this argument with evidence that entrepreneurs who obtain angel investing are more likely to survive at least four years and show improved performance.”**

Great insights, but am I led to believe relationships are now retro? So, if entrepreneurs are looking for relationships, they now find better relationships with angel investors over VCs.  Sounds like a great start for VCs to gain relevance:  the relationship.

If VCs have a hard enough time evaluating the market for deals, then evaluating relationships presents a far bigger challenge.

So many of today’s internet companies don’t need much capital and if angel investors are covering the financing as well as the relationships – what’s a VC to offer?

No doubt I got some things wrong, or left out some important ideas. Please let me know what you think and suggestions you have for me to add value.

*The VC Shakeout – Harvard Business Review

**The Rise of the Fleet-Footed Start-Up – New York Times

The key for organizations to grow and to thrive relies on how to manage projects.  And how you and your organization manage projects for organization success is an industry competitive advantage.  But why do so many projects fail?

Is it lack of preparation?

Is it lack of communication?

Is it lack of commitment?

No, those are symptoms.

Projects fail for a variety of reasons, but projects get set for failure before being launched when the project scope, itself, is not clear.

Of course if the target is not clear, how can you know, clearly, if you hit the target.  Alternatively, if you constantly shift your focus [some might think about multi-tasking as an example of scope/focus] how can you do manage your resources effectively?

Once a project is underway there is a constant battle to manage scope and keep the original intent of the project pure; so to speak.  Managing scope is one of the most important keys to deliver project success.

Scope management includes the processes required to ensure the project includes all the work required, and only the work required, to complete the project successfully.  Managing the project scope is primarily concerned with defining and controlling what is and is not included in the project and can include:

• Collect Requirements:  The process of defining and documenting stakeholders’ needs to meet the project objectives
• Define Scope:  The process of developing an in-depth description of the project and product
• Create Work Breakdown Structure:  The process of sub-dividing project deliverables and project work in to smaller, more manageable components
• Verify Scope:  The process of formalizing acceptance of the completed project deliverables
• Control Scope:  The process of monitoring the status of the project and product scope and managing changes to the scope baseline.

These processes interact with each other.  In practice they overlap as well as interact.

Projects fail so often because they start their journey without an accurate map and head out on the road guaranteed for failure.  Many people plan their vacations with more thought that companies plan their projects.

Think about planning for a vacation:

• Where would we like to go – scope
• Where have we heard is a good time or have been before – lessons learned
• How much time do we have – scope (time/schedule)
• How much can we afford – scope through resources assignment
• What do we pack – risk
• What do we need to buy – resources
• What do we need to coordinate to get there – work breakdown structure
• What is our budget flexibility – management reserves

When scope is not defined then no one knows what to expect or how to identify success or how to know when trouble arises.

When scope, is modified, when scope continually changes than expectations change, budget changes, and resources change.  Each of these variables, expectations, budget, and resources, in motion are prime ingredients for project failure.

Within the below presentation you’ll find:

• How to identify common project roadblocks, hint: it’s people;
• A review of tools to identify the scope of impact a project has on people and process;
• A way to quantify how changes to scope affect projects; and
• A way to identify impact, the stakeholders, the risk, and many of the other factors to allow you to know the project and people involved and reduce the amount of surprises along the way

Managing scope means you don’t consider innovations and new product or project characteristics once the project is underway.  You have to save changes for the change control board to decide if it is time for a new project or a post-launch an add-on/version update.  See presentation pages 58 and 59 for formulas to calculate the cost of team changes, which usually happens when scope changes.

It is difficult to succeed in a ready, fire, aim environment when the target continually moves.  Scope management helps provide clarity to launch projects, manage projects, and deliver projects.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

On my previous post, Scope or:  how to manage projects for organization success that included the eBook Scope – Kills Bad Breath and Kills Projects [link below] I introduced the importance of scope before a project launches.  The numbers on project failure are sobering:  90% of all projects fail and this post follows up both the blog and eBook with the first template available for you to download and use:  The Impact Analysis.

With an impact analysis you hope to unearth the layers and levels that the change will effect.  Just like tossing a pebble into a pond, projects cause ripples that are carried far beyond the initial splash.

An impact analysis is an early-phase assessment to identify all stakeholders, their needs, their awareness, and their insight into the project – you want to invite people into the change.  Inviting people in develops deeper commitment, understanding, and ownership to the change they will work and live within.

Link to download Impact Analysis Template - fully editable Excel .xlxs file via SlideShare

Participation is the difference between getting a project done and getting a project accomplished.  This is the beginning of risk management:  managing the scope is managing the risk.

This blog and link to the downloadable and customizable Impact Analysis template coincides with slides 28 – 34 of the blog and eBook.

The goal of any impact analysis is to:

• Understand sponsor goals & expectations;
• Understand strategic context and intent;
• Assess internal context:  stakeholders, process, technology

With an impact assessment you look to:

1. Identify impact issues through focus groups, interviews and conversations with key personnel, drawing on past experiences and knowledge, and project team discussions
2. Categorize areas of impact;  the departments affected are identified (i.e., HR, Communications, etc.), employee positions affected are then ascertained, following classification of the impact issue by business area
3. Prioritize impact by:
   • Frequency (i.e. how often)
   • Criticality (extent to which the impact threatens project success)
   • Complexity
   • Time Involved
   • Number of Business Areas Impacted
   • Position Impacted
   • Difficulty of Implementation
4. Develop impact strategy:  After prioritizing the impacts, highest priorities are addressed first.  The focus is to address and minimize negative results of change and typically done during team meetings to ensure that the strategy will incorporate a diverse perspective.  Those issues with high degrees of impact are addressed first and given more time, energy and focus
5. Implement:  After impact strategy development, the strategy is reviewed with the project sponsor.  Findings should be factored into the project scope and project constraints

Impact Analysis Principles

• An organization is inter-related and change to one unit causes bigger ripple effect;
• The identification of who is impacted will guide how to manage stakeholders, scope, training, communication;
• To understand impact you need to include every conceivable point of contact: customer, audience, influencer, competitor; and
• Time invested on impact directly improves scope planning

Impact Analysis Objectives

• Identify risk
• Identify every touch point upstream and downstream of the project
• Invite expert insight
• Identify process inter-relationships affected
• Collaborate
• Ask for involvement
• Discover critical success factors
• Identify resistance
• Share accountability
• Who does it impact?
• What will it impact?
• When will it impact?

The template is fully customizable and provides not only a base line view of impact, but a management, monitoring, and measurement tool along the project road.  Select this link for an Excel sheet you can download from SlideShare.  Also view the Scope presentation below.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

You commonly hear an equity firm or VC partner claim, we invest in the people and when it comes to costs, human capital usually represents nearly 70% of all operating costs.  Human capital risk is the real risk, but most investment firms don’t focus investment decisions and deal valuation not on quantifying the people or human risk.  The overwhelming focus for investors is on quantifying risk by analyzing:

• market growth or potential,
• market size,
• the expected rate of return, and
• the expected financial risk

Their decision to invest becomes a decision to assume the correct amount of risk for the projected payoff. However, the overwhelming valuations of risk are deeply flawed.  The gamble, or risk is not on market or legal risk, but really a the risk of a team to deliver something within a certain time and within a certain budget.  In other words the investment is in a project.

The breakdown

Critically flawed ventures have at least 1 criterion concerning the personality or experience of the leader and the team.  There is no accurate risk assessment without an accurate assessment of human capital. Venture capitalists fail to achieve an accurate human capital valuation in 57% of the deals.*

In many evaluations there is a disproportionately low due diligence around human capital risk compared to financial, market, and legal due diligence. Too often the human capital due diligence focuses on industry experience, work history, and academic education, which has little positive correlation to successful ventures.

Investment deals that fail or under-perform are often attributed to:

1. misjudging the marketplace risk for the products or
2. problems with the management of the investee business

If management proved unable to cope with market place change, the 2 issues directly relate.  That is human capital.

What can you measure?

Valuation models have as much intangible as tangible, however just as financial projections intend to reflect underlying or expected enterprise value it is pretty common knowledge market projections and discounted cash flow are projections of future fuzziness.  There is a disproportionate comfort level in financial or market projects that are deeply flawed, if not a greater leap of faith, than any human capital assessment.

Where and how is human capital usually projected?  Observations or documents, reports, stories, and conversations.  None of these are quantifiable, none of these are relatable, and many of these are subjective, at best.  These are not human capital assessments and like the financial world loves to say, “past performance is not an indication of future returns”.

Technical ability does not mitigate risk

Only quantitative approaches provide comparative analysis.  IQ is not an indicator of success as various studies estimate IQ accounts as little as 4% to 10% to someone’s professional success.  Robust human capital quantitative results are not measures of IQ.  An IQ score can neither infer job success nor be a proxy for risk mitigation.

Research in over 200 organizations worldwide revealed the difference between top performers to average performers finds only 33% of the performance is attributable to cognitive (IQ) and technical ability and 66% to human capital competency.

Competencies are considered a behavioral approach to cognitive, emotional, and social intelligence[1].  Studies on complex jobs reveal a top performer, someone rating highly in emotional and social competency, is almost 127% more productive than an average performer. 127% more productivity is a difference to product launch or product failure.

How can you have an accurate measure of risk without an accurate measure of behavioral competency. Why would, or should, someone trust investing their money in any valuation that can not accurately assess competency or motivation as so much of the risk comes down to a bet on a leader and a team to deliver?

Most private equity firms spend 51% to 75% of their time actively managing their portfolio companies and 68% say they are spending even more time with them than they did the prior year.[2] The relationships between the investee and investment are human capital relationships.   Even with this partner investment to coach and cultivate their portfolio 50% to 95% of private equity portfolios do not meet investment expectation.  Again there is disproportionate risk left undefined even as millions upon millions of dollars continue to blindly be invested.

As this table shows, human capital risk is present across the investment life cycle.

Table built from “Validation of the Venture Evaluation Model in Korea” Rah, Joongdoug; Jung, Kyungjin; Lee Jinjoo

What’s the payoff?

A more accurate human capital assessment provides business advantages in:  higher returns, lower operating costs, and ability to redirect leadership, from the investment firm as well as the operational firm.  But imagine a partner spending more time evaluating new deals or raising new funds than on operational stewardship.

“Some sponsors have wasted valuable time trying to negotiate a financial fix versus focusing on the operations of their portfolio companies,” says Christopher Williams, a senior managing director with Madison Capital. “We have had a few sponsors toss us the keys and walk away from businesses because they didn’t have the operational expertise to deal with certain issues. As a lender, it makes you think twice about working with these types of firms.”

An accurate human capital risk assessment makes your firm more profitable and competitively attractive to both the investor and the potential portfolio companies.

Conversely if you are trying to attract investors isn’t it in your best interest to understand their human capital capability before taking their investment?  You should be vetting their capability to impart their wisdom, their network, and their resources.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

*Source: “Management Assessment Methods in Venture Capital: Towards a Theory of Human Capital Valuation” Geoffrey H. Smart, Claremont Graduate University

[2] “Navigating your portfolio through turbulent waters, Timely topics in private equity, Issue 1“, 2009, Grant Thornton

Organizations rely on projects to remain competitive.  Projects are the way organizations deliver and realize their executive strategies.  The ability to deliver a project is the ability to compete.  Scope kills projects and projects that are not delivered kill organizations.  Scope is one of the most important ways to manage project success.  And when projects succeed, organizations succeed.

Projects fail at an alarming rate:

• 74% of all projects fail, come in over budget or run past the original deadline;
• 90% of major IT project initiatives fail to be completed on time and on budget;
• A survey by KPMG, an international consulting firm, finds globally that 56% of IT projects fail is underestimating the scale of the problem;
• Certus, the UK IT director forum, believes that the failure rate of IT projects is closer to 90%

Why is scope so important?  When projects fail, people begin to lose confidence in their coworkers and their organization. The more that projects fail the more resistant people are to be associated with new projects or to work on projects:  no one wants to fail.

This is a first in a series of scope and project management blogs I will share to help put together a portfolio of projects, identify risk, and successfully deliver results.  I will provide these with a combination of process with organization development and tools to track and quantifiable methods to report.

The below survey is interesting because the majority of CIOs survey the top reasons for project failure, to the astute eye, reveal an organization development issue.

Top Reasons for Project Failure

How do projects fail?

Projects start with, what seem to be, the best intention, but what happens along the way to make it difficult to deliver that project on time, on budget, or as expected?  Scope is usually the culprit.

Scope is a fixed idea of what to deliver.  And scope can ruin projects in 2 ways:

1. When scope is ill-defined
2. When scope is modified (often called scope creep or gold plating)

In the zeal to start a projects people, take too little to interact with project sponsors, stakeholders, and customers to collect and analyze their expectations or the impact the project will introduce or require change to their world.  Starting the project without a detailed scope management plan is the difference to getting a project done or getting the project accomplished.

Projects fail when scope is not clearly defined.  Scope is not clearly defined when sponsors, stakeholders, and customers are not listened to or asked their needs.  Modifications to scope adds project risk down the entire project’s life.

Projects that fail increase the very real risk of an organization’s ability to compete.

What is scope?

Scope, in project terms, is simply, “what’s in…what’s out”.

When you change the scope of a project, an added feature, moving the delivery date, changing the quality criteria, you affect the clarity of what will get delivered, by whom, for whom, without understanding the impact each change has.  A project changing scope is just as negative as a trying to manage project success with a poorly defined scope.

Both poorly defined scope and constantly shifting scope will kill a project.

Poor scope definition hides the opportunity to accurately build a budget, understand the return on investment, staff the project, and manage progress against measurable objectives.

Constantly shifting scope does not allow the target to get clearly defined and no one knows what success looks like.

Scope is not a target you aim for.  Scope is the bull’s eye.  You either hit or you miss.

What’s scope got to do with it?

Scope management includes processes to ensure the project includes all the work required, and only the work required, to complete the project successfully.  Scope includes:

• Features
• Quality standards
• Schedule
• Budget
• Resources
• Risk

Without a clearly defined scope, projects fail to hit the bull’s eye, let alone identify the target.  When scope changes, budget changes, delivery dates slip, and resources might expire.  If scope is continually modified, how can anyone expect to deliver a project on time, on budget, and within anyone’s expectation?

Scope management includes the processes required to ensure the project includes all the work required, and only the work required, to complete the project successfully.  Managing the project scope is primarily concerned with defining and controlling what is and is not included in the project.

Without this work upfront the project or product scope continually changes as people step forward to challenge the project or ask for change.

Below is my first ebook, it was modified from a presentation I gave to the Project Management Institute Mass Bay Chatper on how to identify, manage, and control scope.  Included are tools, tips, and templates I’ve used for stakeholders management, impact analysis, communications planning, and risk management.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

Sources:  A Guide to the Project Management Book of Knowledge (below).  There are better books, but this sterile guide to the Project Management Book of Knowledge is a must-have and one of the best places to begin.

There are really only 3 swim lanes in business: sales, finance, and human resources. All jobs fall within only these 3 swim lanes, or functional areas. Unfortunately, only 2 of those 3 functions are considered business drivers: finance and sales. The 3rd, human resources, a support function, a compliance function, and a cost center.

You can’t have a business without sales and you can’t stay in business with financial acuity.

Just look at some job categories and the reality of where they align:

• marketing < sales
• accounting < finance
• operations < finance
• IT (internal processes) < finance
• IT (market data) < sales
• public relations < sales
• supply chain < finance

Sales gets the dollar and finance maximizes the profit margin of each dollar and until human resources ups their stake in the game human resources is largely relegated to support, compliance, and supply.

All the talent management, learning and development, organization behavior, human resource business partner, recruiter, chief human capital officer, chief diversity office, chief learning office, human resource generalist, and organization development cabal; we are in a war for limited attention, limited resources, and limited involvement until we make the clear case that we (you) do drive sales results or that you (we) do drive financial performance.

It’s your (my/our) job to make a valid case, each and every day, on how talent drives business results; strategic recruiting is a direct link to sales; and that motivation drives financial performance. If you (me/we) can’t make the case we (you/I) are not business partners. Worse, we don’t deserve a seat at the business table and will never be invited to the business discussion.

I don’t have a prescription, but I know the only way to be a business partner is to understand finance and understand that when human resources does not contribute to sales it’s just a cost center.

Time for human resources to know their (our) place: either driving sales or compliance and transaction. If it is compliance, that is a perfect map to be outsourced and outsourcing, of course, increases margins and that gets us right back to finance…

So, if you want to talk business then learn to talk sales and talk finance; know the industry drivers for each; and frame all your projects, programs, or efforts in maximizing sales and/or maximizing margin.

Human resource ROI is sexy to talk about, but without a sales and finance frame it’s only putting lipstick on a pig.

A venture’s viability really comes down to a bet on a team to deliver.  It is the interpersonal process where venture performance is most impacted.

Modern portfolio theory allows investors to maximize return and minimize risk.  The goal is to estimate both the expected risks and returns, as measured statistically, as an accumulation of investments.  Why use a portfolio?  To mitigate the risk of putting all your eggs in one
basket or all your money on only one venture.

With a portfolio, asset risk spread across the entire portfolio and the portfolio represents an accumulated risk of the individual assets.  The average of all the returns in the portfolio outperforms the downside risk of any one investment tanking.  You can sacrifice the potential upside of betting on that one great stud, but by investing in a portfolio, you sleep better at night because you prevent the wild swing of that stud’s downside (you might think of that as the person’s motivation).

If equity and financial models are built on diversification, spreading risk out, why is there such a continued haphazard approach to human capital or talent management?   Risk, anything that can positively or negatively affect the project, in a human capital portfolio is made up of the combined risk of all the assets.  Each person added to a team adds to or mitigates risk.  With a portfolio view you can build a diversification, not as compliance, but as a business competitive advantage.

When we recruit people we really have to look at a person’s fit on at least 4 levels:

1. person to job;
2. person to team;
3. person to manager; and
4. person to culture

Using simple math let’s see what we can deduce, if anything.

If we assign each criteria a number from -1 to 1.  With -1 being the lowest fit, +1 being a perfect fit, and 0 being a guess either way.  What might a candidate look like with the following scores:

• person to job:  0.8
• person to team:  -0.3
• person to manager:  0.2
• person to culture:  -0.1

Clearly the candidate matches the job’s technical requirements, great for the line of work that does not involve interaction, but clearly of little help to the rest of us working with each other and building teams.  How would this candidate’s scores average?

[(0.8) + (-0.3) + (0.2) + (-0.1)] / 4 = 0.15

Look at the impact fit to team, fit to manager, and fit to culture affects the candidate.  Here’s a practical question, would you accept less in a job fit for team, manager, and/or culture fit?

As a second step, how does adding this candidate’s score to your current portfolio of workers affect risk?  At the team level?  At the company level?  Is this score above the average or below the average?  How does this person’s score contribute to the overall portfolio?

It is a quantified view, yes, but merely a framework.  This framework is best for having business discussions on what really is important in recruiting and what factors can impact decisions.

What if we modify the above formula and create a weighted average to assign higher weight to certain criteria:

0.2 * (0.2k + 0.5s + 0.3a) + 0.8 * [(M+C) / 2]

Any guesses on this formula:

• k = ?
• s = ?
• a = ?
• M = ?
• C = ?

We’ll take a look at this alternative in an upcoming post.

The key I want to convey is that we are really not aware of risk without some method to identify human capital as quantifiably rigorous as we identify risk in a pool of financial options.  After all the firm is only able to produce results through human capital. The firm does not create results through the capital asset pricing model.

13 years offers a great opportunity to revisit most relationships.  At first blush, Boston and Budapest seem to have little to share or offer each in a study on innovation.  However, both share unique innovation environments that reveal themselves upon further review.

I am a Boston native and, after my undergraduate degree from Berklee College of Music, Boston is where I started my marketing career to build experience for an MBA program.  Top MBA programs want students with practical experience, so I invested in practical experience (outlined in my CSI Music Industry, Part 1: The Crime Scene blog) with this goal in mind. In 1997 I left for an opportunity to work Asia. After some time in China I felt, how can I go back to the U.S. for an MBA to study business with people who never left the U.S.? This changed my MBA goals and if I was to study internationally, I developed 3 criteria to evaluate international programs:

1. A 2 year program – I did not want to rush in and out of a program and many international MBA programs are as short as 12 months;
2. An American accredited degree – despite my discoveries, many American managers do not acknowledge IMD, INSEAD, or other great schools, and
3. As an American, I sought to be a minority nationality amongst my classmates:  I wanted to look at business not from an American perspective, but from a regional or cultural business driver

I found a Central European University in Budapest, Hungary that, at the time, was a business school sponsored as an eastern campus of Case Western Reserve’s Weatherhead School of Management.  To make a short story short, I found, in 1999 with my exposure to brilliant students from the Soviet Union (Former) a place of brilliant potential. I was exposed and challenged to think about business in a global and cultural impact and at level I came to realize is the lever for innovation:  diversity.  By the second semester I founded my first consulting company, The Arctic Group, to introduce the world to Hungary and Hungary to the world.

3 years later…

A month ago I was invited to join nowEurope, who report on innovation, investment, and technology transfer in Central Europe.  I will periodically blogs from nowEurope relevant to talent, diversity, and human capital, I think there is a great opportunity to share thoughts relevant to both Boston and Budapest to look forward as well as avoid pitfalls that a view both time and distance might view with greater opportunity.

[This post introduces our newest nowEurope contributor, Toby Elwin, writing from Boston - a regional US tech hub once on par with Silicon Valley, but recently finding themselves fighting for relevance. Toby also has deep career experience working in Hungary and China. He'll be looking at Central Europe from a comparative perspective - Steve Carlson]

My interest in Hungary and the region stems from an opportunity to study an advanced business degree in Budapest. After living in America and China, two countries that dominate both their region and much global news, Hungary, the size of Pennsylvania, was a distinct change of perspective.

In 1999 I arrived in Hungary, straight from China. The country and many of the seven countries that border Hungary were shaking off decades of planned-economy paralysis. The region was entering a renewed sense of opportunity and Hungary was stabilizing its voice in the region, in Europe, and in the world.

The opportunity, and the challenge that lay ahead, for Hungary and others in the region was to set the proper goal. The more I worked and studied at Central European University, the more I discovered a region, from the Czech Republic through Mongolia, full of immensely brilliant, able people to have an impact on a global scale. With a brilliant work force, many in government chose a low-wage competitive strategy. I felt then, as I do now, the race to the bottom is a short-term solution.

I discovered, in Hungary, a country that had:

• a century of education dedicated to math and engineering;
• geographic position at the border of the largest middle market in the world;
• an economic and policy opportunity to become harmonized with the greatest economic experiment in centuries: The European Union

Any review of Forbes, Fortune, Economist, Financial Times, and other glossy magazines were touting CEOs leaping into China and gave a sense if you were not heading to Asia you were missing the boat. While the journalists and followers were touting the Asian Tigers, I landed in the most fertile opportunity. In March 2000 I started The Arctic Group to work with the government on technology transfer and foreign direct investment. The future for Hungary and the region was not bright, but incandescent.

I now live in Boston and see regional investment and competitive advantage from a world view of options. Just as a private equity team manages a portfolio of risk, regional and competitive advantage plays a portfolio of risk made up of human capital, government policy, financial investment, and organization leverage: each with their own agenda that plays, too often, against each other.

I continue to look at Central and Eastern Europe as a unique opportunity. My return to Boston shines a perspective on how this city and this country competes and invests, this is the perspective I look to contribute to nowEurope. I hope the comparisons draw insight on what works, what is not working, and what might offer an alternative thought.

I continue to believe, as I did founding The Arctic Group, that “diversity in thinking, diversity in planning, and diversity in execution” is the key to innovation. There are two choices in business: either do it cheaper or better. Each strategy has merit, but either position requires commitment.

I welcome your comments and thoughts.

To identify where risk is a real part of the investment deal you will commonly hear an equity firm or VC partner claim, we invest in the people.  When it comes to costs, human capital usually represents nearly 70% of all operating costs, but most investment firms focus investment decisions and deal valuation not on quantifying the people or human risk, but on quantifying:

• market growth,
• market size,
• the expected rate of return, and,
• the expected risk

The decision to invest becomes a decision to assume the correct amount of risk for the projected payoff.  However, the overwhelming valuations of risk remain deeply flawed.

Investment deals that fail or under-perform are often attributed to 1) misjudging the marketplace risk for the products or 2) problems with the management of the investee business. If management proved they were unable to cope with market place change, the 2 issues directly relate.

Venture capitalists fail to achieve an accurate human capital valuation in 57% of the deals.*

There is no accurate risk assessment without an accurate assessment of human capital. Critically flawed ventures have at least 1 criterion concerning the personality or experience of the leader and the team.

Some firms do, ultimately, rely on the quality of entrepreneur to determine their funding decision, but rarely in a measurable, comparable assessment. Human capital is the only asset that is not tangibly owned, but the risk is tangible:

• Compliance – Financial or reputational damage to the organization due to failures to meet legal or regulatory requirements;
• Productivity – Loss of productivity or output due to under-skilled or under-motivated employees; or an organizational culture that does not encourage discretionary effort (the extra contribution over and above what is required to keep the boss off your back) from employees; and
• Growth – Failing to maximize organizational capability or to identify and achieve internal or external opportunities for innovation or major growth or development of the business**

In many evaluations there is a disproportionately low human capital risk assessment compared to financial, market, and legal due diligence. Too often the human capital due diligence focuses on industry experience, work history, and academic education, which has little positive correlation to successful ventures.

Relying on observation or documents, reports, stories, and conversations are not quantifiable, non-relatable, and subjective as a true human capital assessment. Technical skill does not mitigate risk.

Only quantitative approaches provide comparative analysis.  Human capital quantitative results are not an IQ measure. Various studies estimate IQ accounts as little as 4% to 10% to someone’s professional success. An IQ score does not infer job success or mitigate risk.

Research in over 200 organizations worldwide suggests the difference between top performers to average performers finds only 33% of the performance is attributable to cognitive (IQ) and technical ability and 66% to human capital competency.

How can you have an accurate measure of risk without an accurate measure of behavioral competency.  Why would or should someone trust their money is wisely invested when so much of the risk comes down to a bet on a leader and a team to deliver?

*Source:  ”Management Assessment Methods in Venture Capital: Towards a Theory of Human Capital Valuation” Geoffrey H. Smart, Claremont Graduate University
**Source: Managing Risk: The Human Resources Contribution

In my last post I presented a case to manage your projects as a business portfolio. The ability to deliver projects on time, on budget, and within scope directly impacts your organization’s ability to compete and stay alive and project failure is an organization-wide risk.

In this post I want to introduce Twitter to manage projects. Why Twitter? Twitter is a great communication and community collaboration tool and once a project starts, 90% of a project manager’s job is communication. Project communication and coordination is vital to project success and important:

• keeping the stakeholders informed;
• managing project scope;
• identifying risk;
• coordinating teams;
• ensuring milestone schedules;
• managing work stream progress; and
• coordinating resource needs

Imagine 90% of your role communicating? How’s your day look now? Any room in your calendar to increase your communicating even more? I can’t imagine the amount of email that hits your inbox that requires you to read, decide “what’s this got to do with me”, create acceptable options, and then craft and fire off an adequate email.

Think your project sponsors and stakeholders are looking for even more communication in their lives? I’m sure your sponsor or boss does not appreciate an email you forward without an explanation or concrete options you suggest to try. Lack of value added communication creates little confidence in your boss that you have things under control and, that you respect their time or that you are even worth the gobs of money you are paid to make decisions.

Think you’ll get a lot enthusiasm calling more meetings? Having more conference calls? more emails? or setting your project and users up with shared sites like Basecamp? Well, good luck to you.

We need to communicate to manage expectation and results. There is nothing more damaging to your reputation then a project delivered to a sponsor who says, “You should have added this” or “this is really not what I expect” [find more on this with my scope management eBook].

What’s a project manager to do? As a project manager your job is on the line, your organization’s resources are on the line, and your competition is only too happy when you can’t deliver on time, on budget, or with the features promised.

Here’s your answer, use Twitter and micro blogging to manage project communication and collaboration. What I love about Twitter and, microblogging is easily summed up: you have 140 characters to get your point across. With Twitter being succinct is a requirement and it is sure easier to read through a Tweet timeline than deciphering emails.

You have an obligation to communicate, but with Twitter you now have an opportunity to communicate more efficiently, more effectively. 4 reasons to use Twitter for project management:

1. Concise messages
2. Topics filtered by keyword (more on this below)
3. Link to documents or websites
4. Track communications by user and using a time stamp

There are a couple of services to set up a private group for sensitive information and to provide Twitter access that you, as the project manager, can administrate. Here are 3 steps to start managing projects with Twitter (hyperlinks provide more information on each):

1. Create a Twitter account for your private group and have your team create Twitter accounts or assign Twitter accounts with privacy features for your project team;
2. To add private message and group management functionality choose either of these current Twitter add ons:
   • Tweetworks,
   • GroupTweet,
   • TweetKnot, or
   • You can also get Twitter-like microblogging services if you, your sponsor, or your team insist on even more privacy with one of these services:
     • Yammer,
     • Twhirl,
     • indenti.ca
     • status.net, or
     • Twingr
3. Create a j.mp link shortening account to shorten file names and hyperlinks as well as track when your files are clicked on and how many people clicked on your file (ever wonder if your customer really said he did not get your attachment? If you use j.mp you’ll at least see if he opened it).

Here’s a quick tip list on how your can use Twitter to manage project communication (hyperlinks provide more information on each):

1. Use hashtags on your Tweets to code the Tweets within any number of areas for sorting and redirecting, try these hashtags examples: #risk, #change, #schedule, #scope. #resource. #budget
   For example: See if your team has any new risk items by doing a #risk search
2. Send a direct, and private, message to people using the “d username”. As an added bonus a direct message will also send an email to that person
   For example: to send a direct message to my Twitter account type “d telwin” then your message and I will get a private message that will not appear in the Twitter timeline
3. Use your j.mp account to shorten hyperlink addresses to files that use Google Docs, Windows Office Live, or Zoho or hyperlinks that are located on your company portal
4. Use the Twitter RSS feed to stream your group Twitter feed into your RSS feed into a project collaboration portal like 37signals’ Basecamp

I also wanted to recommend a couple of sources on the archive and search capability you can use with Twitter for your Tweets, project-related or otherwise:

1. 3 ways to Archive Your Tweets offers a way to backup your Tweets and 2 other tips;
2. Collecting, Sorting, and Archiving Your Tweets includes a great tip to download and archive to an Excel Spreadsheet; and
3. 10 Ways to Archive Your Tweets includes a tip to integrate your Tweet history with your Google calendar in their list of alternatives

How are you managing project communication?

Do you have any tips or other social media tools you use to manage project communication in the age of saturation? I welcome your thoughts.

Contact me if you would like to discover how to turn project management into your organization’s competitive advantage.

Other sources:

• Twitter, public vs protected (private) accounts;
• Get even more Twitter savvy with the excellent resources over at Social Media marketing mavens HubSpot; and their Twitter recommendations for marketing and sales; and
• Download their eBook “How to Use Twitter for Business, A Beginner’s Guide”

It starts with an executive need: a new market evaluation; improve operating margins; a game-changing technology; your competition is eating your lunch. Whatever the reason, a project is how an organization translates an executive strategy.

The ability to scope and deliver a project is a competitive advantage. The best organizations realize project management capability as a strategic differentiator, the lagging organizations only staff project management skills within Information Technology departments.

What is a project:

• a project has a definitive beginning and end;
• a project is a temporary effort, specifically to create a unique product, service, or result;
• a project is not part of business operations, but can develop capability and become part of operations

Note:
Do not confuse temporary with short duration and do not confuse temporary as something that does not, ultimately, becoming operational once the project is stabilized or delivered i.e. a new facility or new production technique or Google Wave

I have come to rely on using the term portfolio planning to describe the translation of strategy to a group of project options an organization can undertake. By using a portfolio view, projects are prioritized using the same risk and return criteria capital expenditures and other financial or strategic commitments are evaluated.

C-level business executives fully understand financial risk and when I link a portfolio of projects as organization risk then projects take their place as business drivers and begin to reveal that the capability to deliver projects is an organization risk.

Organizational planning impacts the projects by means of project prioritization based on risk, funding, and the organization’s strategic plan. Organizational planning can direct funding and support…on the basis of risk categories, specific lines of business, or general types of project *

The ability to scope, plan, and deliver a project on time, on budget, and up to expectation is the business differentiator today. Yet, project management as a profession and as a business enabler has little traction outside IT and within IT has little success — the 2 mutually reinforce misunderstanding and misguided notions of the competitive advantage project management is.

While I worked at Deloitte Consulting and Booz Allen Hamilton they both had a competitive objective to get as many consultants project management certified. This was their strategic go-to-market differentiator. Deloitte and Booz Allen did not want every consultant to act as a project manager, but for every consultant to understand that when the client asks for project changes, while underway, a project management-savvy consultant can model the impact of change to budget, scope, resource, or quality against the project baseline. Every change has effect.

By using a project management portfolio view I can further quantify the impact of change to executive strategic goals. My role then shifts to business partner, not for me to say, no, but for me to provide business case detail that my client can use to meet their sponsor’s expectation; every client has a sponsor, everyone has a sponsor.

Although I, as a consultant, have to deliver to the client, I also know the trying to please the client with every change they request will impact expected results. The more detail I gave about that to the client, the more information they have to deliver projects on time, on budget, and within scope. Those new changes can become a second-phase option, abandoned, a new project, or added with a full understanding of impact.

The more the client delivers results, the more I become a trusted advisor and a business partner to that client and I, in turn, separate my value proposition from the self-interested contractor or a staff-augmentation house.

The end is reached when the project’s objectives have been achieved or when the project is terminated because its objectives will not or cannot be met, or when the need for the project no longer exits. *

The majority of projects end when objectives will not or cannot be met or the project saps the life and resources out of the organization and the need for the project no longer exits; also known as bankruptcy.

No doubt I got some things wrong, or left out some important ideas.  Please let me know what you think and suggestions you have for me to add value.

*Source: A Guide to the Project Management Book of Knowledge, Fourth Edition

Technology enables information, but why are so many information technology projects failing?

• 74% of all projects fail, come in over budget, or run past the original deadline*
• 90% of major Information Technology (IT) project initiatives fail to be completed on time and on budget*
• A survey by the international consulting firm KPMG finds that 56% of IT projects globally fail, but believe that 56% is an underestimation of the scale of the problem
• UK IT Director Forum Certus believes that failure rate of IT projects is closer to 90%

Why is the information part of information technology failing to deliver projects? Why do we continue to spend so much of operations strategy on the technology portion of the common people, process, and technology framework when clearly it is the people that define the process and the people that launch technology, but it those same people don’t turn information into decisions. Is it the technology at fault or is it the people behind the technology?

Realistically, information technology projects provide plenty of information: scope, risk, stakeholder need, end-user requirements, communications, governance to name a few. And IT projects rely on subject matter experts to design components, identify need, define user requirements, and test functionality, but what is the break down? Why do IT projects continue to fail? Who are the sponsors for all these failures and who keeps funding these projects and expects different outcomes. Once underway, who changes the game?

I propose we lessen the reliance on information and increase the reliance on decisions. Information technology is intended to enable decision making, clearly it is not.

• Information on scope creep does not help, decisions to stop scope creep does help.
• Information on risk does not help, decisions to mitigate risk does help.
• End-user functionality information does not help, end-user decision feedback does help.

Let’s change the term Information Systems to Decision Systems.

Let’s change Information Technology to Decision Technology.

If we can’t rely on information for decisions, let’s stop trying. Clearly, in times like these, we would do well with less information and more decisions.

I would love to hear your thoughts, your successes, and your stories on IT projects you have managed and how you have successfully managed scope, expectation, budget, time, and quality.

* Project Management Institute

First in a series of investigations into the death of the music industry record business.

Background: I went to Berklee College of Music as a conducting and arranging major. I switched my major to music business mid-way when I discovered how lawyers and accountants make the major decisions about the music I heard. I wanted to change that from a performer perspective.

I worked 3 years in the record business and became convinced something was wrong with the record business model (1989-92). When I thought about a career in the record industry in my ability to advance being tied to a degree in law, not business, I became a bit more skeptical and projected what I might be able to do after 20 years in record industry promotions and felt the skills of record industry promotions do not translate into other industries. I then decided I wanted to develop a traditional business career and set out to accomplish a series of goals:

1. Learn the technical skills of marketing from other industries;
2. Get an MBA to further build foundational business skills of: accounting, finance, marketing, and management;
3. Seek professional experience in the widest range of industries and business challenges I could expose myself to; and
4. Return to the music business with a business perspective

Now in my second decade outside the record industry, I look into the world of music and find a business in atrophy that stumbles around like a spoiled child who had his trust fund shut off and looking to pick a fight with anyone perceived a threat to their party.

Frankly, I am happy the record industry is in this current state. We are about to wrest control away from 3 decades of corporate record thugs. We are now unencumbered to discover more new artists, and discover more ways to connect and share artists and music than ever before. Today there are more business models for an artist to reach an audience than ever before and the opportunity to make a living as a performer is emerging. The record business is dead, but the record business still tries to lurch forward with their 30-year old business model.

How many articles do we need to read about the record industry chance of survival? Here is the first in a series of reviews of the record business that will look at the industry through strategic frameworks that many businesses and executives rely on to frame market opportunity, identify competition, and manage business risk. Let’s look at this corpse and I hope we can all discover this business was dead in the mid 70s and has been on life support, it never had a healthy outlook, and we have put up with a façade for too long.

New posts will evaluate the record business using industry and business frameworks like: Michael Porter’s Five Forces Analysis, the ever-present SWOT (strengths, weaknesses, opportunities, threats) analysis, and Boston Consulting Group Matrix. I’m game for other frameworks to enter the discussion and happy to see how others might analyze this crime and against the music fan, the music artist, and the art of music.

So part 1, the crime scene: did the record business just happen to be at the wrong place, at the wrong time or did they have this death coming to them? Was this a murder, was this a suicide, was it negligence, or was it old age that led to this death?

Let’s take an initial peek into the record business series of unfortunate assumptions:

• A business model that tried to turn a service into a product
• A product that is a commodity
• A product with a fixed price
• A business competitive advantage that relied on control
• A business that fears technology
• A business where technology destroys supply chain control
• A business where technology destroys marketing channels
• A business where technology destroys marketing vehicles
• A business where marketing does not start with the word “market”, but starts with “pay” and ends in “ola”
• Marketing campaigns rely on a retainer with organized crime;
• External firms control of distribution channels;
• Market access is controlled by external firms;
• Industry executives are predominantly litigators, auditors, and lobbyists (otherwise known as lawyers, accountants, and the Mafia);
• No technology investment;
• No research and development investment
• A core business strategy is to sue new technology manufacturers;
• A core business strategy is to sue technology platforms;
• A core business strategy is to sue your target market;
• A core business strategy is to own back catalog;
• The majority of your revenues come from old inventory;
• A core business strategy is to repackage and resell old product;
• A core business strategy is price inflation; and
• A core business strategy is price fixing

I hope you now have a sense for the dark underworld in which we will need to travel to solve this crime. In the next blog post we will look at some initial “toxicology” reports from the scene of the crime and a background check of financial measures that in most business is the accurate way you to assess health.

Throughout these blogs I will also offer some online and offline resources to help further our investigation.

This blog post I recommend the following 3 books:

The valuation of a company usually involves 4 areas:

1. physical capital,
2. financial capital,
3. intellectual capital, and
4. human capital

Valuation is a combination of science, art, and straight voodoo (Enron anyone???). Voodoo aside, when I recast these valuations from a new angle, I see each relies, in their entirety, on people:

1. physical capital – people are trained to use, maximize, and maintain machines
2. financial capital – people manage, buy, sell, and negotiate
3. intellectual capital – people research (question/challenge) and invent
4. human capital – people and their knowledge, skill, and abilities contribute individually and collectively as part of a company’s social network

If people are the lever for a company’s value, no amount of their knowledge, skills, and abilities will matter without their motivation. When 70% – 80% of all projects fail, too much is at stake to ignore human capital. You lose people’s motivation, you fail, your company fails, and your stakeholders fail.

When you cast all projects as human capital projects you can coach involvement, motivation, and performance.

Cast as human capital projects you can continually uncover your greatest asset – people.

P.S. Is it really an Information Technology/Enterprise Application issue???

An organization builds a culture of success when it can take a strategy, identify and prioritize the most important projects within the strategy, and consistently deliver projects on time, on budget, and within identified quality standards.

Charting success is not easy. 80% of all projects fail for three main reasons.

1. 80% of projects fail because of change.

Change renders strategies and plans irrelevant:

• technology advances,
• new regulations,
• stress on process and performance from growth,
• nimble and hungry competition eroding your market share,
• quality-control issues,
• the flight of key talent,
• the competition for new talent, and
• your organization arrogance

These are just a few shifting conditions change presents to knock your plan into irrelevance before the ink is dry. All you need is one change to knock you off course.

2. 80% of all projects fail because they lack participation.

The over whelming habit of many executives and managers is to huddle with select insiders to debate the future of their organization from their view. Once these select agree, they descend Mount Sinai with a plan and expect complete buy in. The plan delivered, they soon move on to operational needs and are only awakened after goals or targets are again missed.

Project success starts with participation of the executive (the leadership), the operational (the managers), and the functional level (the doers). We are decades into the knowledge worker and the knowledge economy, but still continue with pre-World War II methods of planning by leaders who discount employee participation and motivation as too much effort. Leadership, the verb, not the adjective or adverb, is the ability to get things accomplished through others. Plans that don’t account for participation rely on hope to deliver results.

3. 80% of all projects fail because of risk.

Risk is not only a financial tool. Risk is anything that can positively (known as opportunity) or negatively affect a project; this sounds strangely close to change. Risk is crucial to understand for executives, managers, and functional talent. To avoid plans that are dead on arrival you need everyone’s participation to identify risk and that takes flexibility, proper resource alignment, and motivated talent to participate.

It takes knowledge and ability to create and deliver a plan, but only your talent’s participation and motivation can identify change and risk and then provide a rational business case to alter or modify a plan.

Risk management is a continuous process throughout the entire life cycle of every plan and involves an effort to:

1. identify industry and market risk;
2. facilitate an organization strategy – what should be;
3. assess your company’s current capability to deliver your plan – to include human capital/talent management;
4. diagnose your company’s capability need – to include human capital/talent management;
5. assess your organization’s culture to identify gaps to achieve the strategy;
6. diagnose organization capability to achieve goals;
7. diagnose talent, money, and time resources needed to achieve goals;
8. prioritize strategic options from new information;
9. adjust plans with well-articulated business case – as necessary;
10. design a plan to close resource gap;
11. design a marketing plan to inspire stakeholders and align resources;
12. identify risks to achieve goals;
13. implement a marketing communications plan for customers and employees with milestones and performance targets;
14. track progress to performance targets; and
15. assess new risk

In financial management the greater the risk, the greater the expected reward or potential payoff. As we hit project and plan failures of 80% it looks like we have grown to expect project failure as acceptable risk. People don’t want to be involved with failure, perhaps that is why you have little participation. People don’t want to be involved with unnecessary risk, it is a losing game, perhaps this is why change is resisted.

How can you increase your likelihood of success:  manage change with more people involved in risk.

Strategies fail because too many times we do not account for more in the planning stages: more participation, more dialogue, and more reality.

If you have any examples of integrated plans or other comments, I look forward to your thoughts and comments.

I read Stephen Shapiro’s excellent blog on innovation and wanted to pull over one of his blogs and my comments with a chance to expand them here.

This post brings together 2 topics that are powerful when coupled, but too often stand apart and at odds:  numbers and stories.

Innumeracy, numerical illiteracy, stands in the way of too much innovation. A secondary, deeper, challenge to decisions comes when we forget the, “lies, damned lies, and statistics” statement.

Here is Stephen Shapiro’s outstanding blog reposted with my expanded comment below:

What Businesses Can Learn About Innovation from Cultural Anthropology

August 25, 2009 by Stephen Shapiro, Vice President of Strategic Consulting, InnoCentive

My good friend, Jeff Salz, is a fantastic speaker and a Doctor of Cultural Anthropology. Lately we have had some fascinating conversations about what businesses can learn about innovation through the study of cultural anthropology.

To get things rolling, I suggested that there were two areas where the innovation world would benefit from his expertise:

1. Studying customers through anthropological means.
2. Learning about organization culture through the study of the history of civilizations.

In this blog entry, I discuss the first point. A future blog entry will address the topic of culture and civilizations.

Anthropological Studies of Your Customers

The traditional way to get customer insight is to do one of the following:

• Focus groups
• Surveys
• Customer analytics

Although these techniques are useful, they have quite a few shortcomings.

In my article on “Why Statistics Kill Innovation,” (.pdf) I suggest that if you are crunching numbers, you are probably gathering information from existing customers. This will give you insight into their buying habits, usability behaviors, and other patterns. But most likely you are only gathering data about YOUR customers. As a result you are missing the input of former customers or people who never were customers.

Another reason that these techniques – especially focus groups and surveys – don’t work, is that they tend to test the conscious mind rather than the unconscious mind. For more on this, don’t miss my article on ‘Are Your Conscious and Unconscious Minds Aligned.’ In it I discuss a testing approach called “Implicit Association Testing” that can help test the unconscious mind. However, you can’t always get access to your customers in a way that they can take such a test.

What can you do?

Become Indiana Jones

You can don your Indiana Jones hat and do some anthropological studies. Where possible, you can observe your customers. By doing this you can find unarticulated needs and wants.

One client of mine decided to do this. They publish text books for students and instruction manuals for teachers and professors. It wasn’t until they started to watch the teachers in the classroom that they developed some interesting product enhancements. For example, during one anthropological study, the publisher found that teachers lugged several extremely heavy books from class to class. This led the publisher to create a version of the instruction manuals that could be segmented. This enabled teachers to carry only the section of the book they needed that week, and not an entire semester’s worth of paper. Teachers never made this suggestion during surveys and focus groups.

Jeff has another interesting suggestion. He believes that the best way to understand a culture  - and the unconscious beliefs – is through the stories people tell. By engaging in storytelling and listening to stories, you can uncover the true culture. These aren’t the typical business-like conversations you have in boardrooms. Rather they are more akin to the stories that you would tell while sitting around a campfire. Jeff said to me…

Whether Neanderthal, Neolithic or New Yorker, our most important decisions are made on an ‘affective/emotional’ rather than ‘cognitive/objective’ basis. To accurately apprehend the subjective elements that drive and inform a culture – and its decision – making %u2013 there is no substitution for personal immersion. The only way to understand people is to learn their language – spoken and unspoken. Break bread, swap tales, share coffee, wine, laughter and sorrow. In the process you will discover the ways you and they are the same. From this ‘sameness’ may come not only the understanding you seek but – if your mind is fresh %u2013 a new awareness of yourself and your society as well.

Now is the time to don your fedora and see the world – and your customers – with fresh eyes.

If you enjoyed this post, make sure you subscribe to Stephen Shapiro’s RSS feed!

My posted comments, within others:

Toby Elwin on September 3rd, 2009 2:17 pm

I continue to find a research challenge versus research bounce between how much data is enough and how much data is relevant. In “Against the Gods, The Remarkable Story of Risk“, I was reminded there are never enough resources to have 100% of the data or a large enough population for true statistical validity: the reason predictions are never 100% confident.

So, in statistics without an understanding of confidence intervals we generalize. When we paint statistics to others, too many develop innumeracy or rarely drill down for clarification poor data collection or sample size validity. Without simple questions about the data statistics are often still the criteria a decision is made; no longer a just portion of other qualitative or quantitative information, but an unequal weight in our decisions.

Innumeracy in the wrong hands drives political agenda and people begin to quote, misquote, and bend the statistics (most likely a set of statistics that were not gathered scientifically) to prove their point or discredit another’s point. [Example: This year our Massachusetts sales tax was raised 25% - while technically true the point of using the number 25% had an agenda] Numbers without a justification or a story behind them should be thrown in the bin.

The reason we remember Aesop’s fables, Hans Christian Andersen fairy tales, or even the Hewlett Packard garage is that stories, not numbers, are easy to carry and pass along. The act of story telling requires listening and a compelling plot. So much easier than processing facts and figures. Listening to a story that is supported with numbers (even statistics) will not intimidate those innumerics, and before written language, stories were the only way to pass on history, skills, and survival needs.

It is interesting this one post present both data gathering and story telling. To me the simple words “data gathering” conveys an image of a white lab coat; where story telling conveys a gripping scene entirely different from the lab coat.

The last twist with numbers, or statistics, related to the blog is that statistics does have an ability to fuel story-telling (link to a blog “Statistically, your strategy will fail”) and innovation: just frame the numbers as a start of the opportunity or an incomplete part of picture and your foundation is set. An interesting and powerful tool for generative change management is Introduction to Appreciative Inquiry (.pdf), the core of which relies on story telling.

What valuation models measure human capital ability to meet financial and strategic business goals?

What formulas are used to measure human capital contribution to profits?

What are the human capital risk factors you justify when you build your financial statements and projections?  Accounting’s assignment of assets and liabilities and financial management’s current or pro forma valuation both rely on art and interpretation more than any professional standard, science, or law.

Organization valuation usually involves 4 areas:

1. physical capital,
2. financial capital,
3. intellectual capital, and
4. human capital

Both accounting and financial management start with familiar industry formulas to measure physical, financial, and intellectual capital. The departure from formula comes with asset classification and subjectivity of inputs. You most often witness this in the beta, or the numerical representation of risk, used in the discounted cash flow formulas on glitzy, initial public offering, road shows. Even though there is high subjectivity, the mere fact that a formula was used seems to please, more than if the formula has the right input and result.

What valuation models quantify human capital contribution? What research tools or methods have you used to measure the soft assets of leadership or the talent management beta used to meet market capitalization expectations?

Without a human capital assessment there is no accurate financial picture or ability to factor expected payoff.  Only talent designs and delivers strategic plans; only talent leverage assets at the operational and functional talent; and it takes talent to design, implement, and follow processes — all conditional if and when talent is motivated.

So then, how does an organization understand if they have the human capital to deliver? In the venture capital, private equity, mergers and acquisition world, I have used human capital valuation models to help decide that. I have already written that all projects are human capital projects, so inclusion of human capital assessments are a closer indicator of future success than a gee-whiz, product, market share analysis or any balance sheet gymnastics are to meet a 5-year projection.

A talent management framework that includes the lifecycle of human capital is: recruit, train, and retain. Within recruit, train, and retain we have a framework for human capital analysis. Here are some formulas I advocate help to evaluate human capital impact. These formulas will help you baseline your organization’s culture and identify gaps or misalignment in company culture. They are proposed by job category and all fall within recruit, train, and retain:

Recruit:

• Candidate hire from external job post to start date (by day)
• Annual recruiting FTE (include announcement, interviews, and on-boarding)
• Candidate competing value primary and secondary score
• Total hours job open, by title, to replace a position
• Total hours job open, to recruit for a job requisition
• Current Organization Culture Assessment Instrument score
• Emotional Intelligence behavioral interview assessment

Train:

• Emotional and Social Competency Inventory score
• Percentage of hiring managers with job competency assessment method (JCA) training
• Percentage of human resource staff with JCA
• Management Skills Assessment Instrument score
• Competing value primary and secondary score of every employee
• Preferred Organization Culture Assessment Instrument score
• Return on training investment by employee: 1 month after training, 3 months after training, 1 year after training, measured against training goals

Retain:

• Turnover per year
• Tenure of talent departing, measured against current staff
• Time in position (grade) of talent departing, against current staff
• Average training hours of talent departing, measured against current staff
• Emotional and Social Competency Inventory score

The organization’s ability to recruit and grow talent that contribute and not detract is as much a risk to organization expectation as an over-leveraged, balance sheet is. Cultural disconnect can be mapped and should be added to organization valuation. Without a human capital assessment you only account for what was built, not who built it or if it will survive a pro forma evaluation.

Can you argue art or science against any of the above human capital formulas? Well, emotionally, maybe, but until you show enough data to establish a trend, you can not argue rationally.

Bring me a trend, with quantifiable measures, and your insight about the trend and then we can talk about your valuation models, discounted cash flow results, or pro forma calculations. Before I place my bet, I want to know more about an organization’s human capital recruit, train, and retain return on investment.

While with the FBI working in the Director’s Office of Strategic Planning I began to realize there are many approaches to build a strategic plan.  I wanted a plan that could go into operation and provide performance management measures.  I also wanted a repeatable process that was understood, committed to, and creates ownership.  Over time, and additional insight from organizations and people of great diversity, I have come to rely on the following to build and implement plans in any organization of any size.

To set the discussion:

• Time and money are both units of measure and of performance
• Tactics deliver short-term actions
• Goals, objectives, and actions need a clear link to mission and vision
• Linkage of every resource justifies the mission, vision, and executive strategy.

Time and money are limited.  If you don’t have strategic linkage to expend time or money it is likely you will waste both time and money?  Each unit of time spent on the wrong process or the wrong option can never be recovered.  The approach to quantify both time and money makes this strategic planning useful to every organization:  private, public, non-profit, or government.

I find people have a tendency to become too involved too quickly with tactics.  Tactics include what to buy, what to build, what to move.  Strategy is why build, why buy, why move. Much of your organization is involved in the detail of execution, it is natural they are not strategically aligned.  However, when your team discovers tactics do align to goals they are shown sense of purpose.  Purpose provides motivation.

The meat of the strategic planning process is the goals-objectives-actions value chain.  People may have other definitions for goals, objectives, and actions, and bristle at the rigidity of the definitions, however, a single use for each term will remove interpretation and confusion.

Each business unit, department, and project should submit a plan built from the following structure:

1. Goals are the desired result of the objectives and represent what we want to achieve, not what we want to avoid doing. The goals taken together, when achieved, should enable all the stakeholders and resources to achieve the mission or vision.
2. Objectives reflect what will be done, but not how, to meet the goal. Objectives are milestones along the way, and indicative of progress toward goals.  Important:  you can have many objectives per goal.
3. Actions reflect how the objective is to be met, actions are time-bound and measurable* given the availability of resources. If an action does not link to the objective clearly, it should not be specifically linked to the objective.  Important:  you can have many actions per objective.

Once complete, the goals-objectives-actions value chain will look like an organization chart, with a goal as the parent and each objective a child directly linked to that goal.  If an objective does not enable a goal, strike that objective or find another place for the objective.

Each action is a child directly linked to an objective.  If an action does not enable an objective, strike it or find another place for it.  Another further quality test for actions is if you can look at an action and see it enable the goal as well as the objective.

The plan is clear when each goal enables the strategic plan.  Managers should present their plan to the executive team.  The executive team should sign off on each plan or push back and ask for further clarity.

Once all of the organization’s strategic plans are rolled up, your organization not only has a strategic plan,  but plans that include time-bound and measurable results that provide management and team performance plans.  Time-bound and measurable actions allow your organization to review and measure progress towards accomplishment.

Keep the team and yourself open to the clarity into planning and operations that this process can provide.  The team’s insight into the planning process is as important as the strategic plan or any results of the plan.  Plans change based on unidentified risks or new opportunity; however, the ability to clarify and align your resources is more important for organizations to maximize their return on resources.

From this goals-objectives-action value chain you now have an aligned organization with direct linkage to resource commitment and investment:  that is accountability.

I can not claim this is my process, but a process I have come to rely on and have modified to deliver organization excellence to those who adopt the concept.

*organizations not used to time-bound, measurable criteria can move this criteria up to the objectives in place of or in addition to actions that are time-bound and measurable.

I recently ran across a statistics book and began to think about similarities to strategic planning.

Statistics:  a mathematical science pertaining to the collection, analysis, interpretation or explanation, and presentation of data.  It also provides tools for prediction and forecasting based on data.

Until this week, I had not thought statistics had as much in common to strategic planning.It became evident there is far more linkage then seemed.

In strategic planning we analyze probable outcomes with the uncertainty of the future – this is a constant challenge.  We make decisions with limited data.  Our reliance on past experiences and our hope for the future deeply colors our ability to predict and plan. As it remains hard to sample the future, we constantly sample the present and the past to guess about the future.

Some statistics terms:

• Decision theory:  the theory of deciding what to do when it is uncertain what will happen
• Statistical inference: inferring a global estimate from a sample of data
• Statistical analysis:  putting information into the service of decision-making and influencing the degrees of belief we hold about probabilities of future events
• Decision making:  deciding what to do when it is uncertain what will happen.  Making that decision is the first step to manage risk
• Forecasting: to predict the probable outcome
• Utility:  the strength of usefulness, desirability, or satisfaction
• Statistical inference:  developing a hypothesis from a limited set of facts

In statistics, mathematical odds are used to estimate the probability of outcomes.  Since outcomes are in the future they are unpredictable.  Collecting raw data is intended to help decide what to do.  Statistics attempts to use samples to help make decisions.  As it is beyond usual effort to collect 100% of the data available we sample from a population and that data is presented with a numerical value of confidence – called a confidence interval.

In strategic planning we sample the unknown.  We try to project from what we know.  However, who do we count on to know the unknown:  senior executives with deep industry knowledge; folks with vast life experience (grey hairs); our own past success; our fears?  Ultimately we project uncertainty.  We speculate from current-state pressure, demand, or pain and usually build hope.  Hope is not a strategy.

Statistically, forecasting, probability, and profits each depend on informed judgments.  All risk involves the objective facts and a subjective desire of what is to be gained, or lost.  Both are essential and neither is sufficient.  Compound the human challenge that we must wade through individual and collective wants, needs, values, bias, motivation, and other barriers of understanding, can we expect to plan anything with even a 50% likelihood of success?

With statistics stacked against us, human nature continues to drive us to develop plans.  We believe only others fail.  This explains gambling:  the casino pays the winners with the money collected from the losers.

The Project Management Institute defines risks as any outcome that has a positive or negative effect.  Positive risk is called opportunity.  Maybe we should begin to call strategic plans, risk management plans.

I found “Against the Gods, The Remarkable Story of Risk“, by Peter L. Bernstein, a great read and of immense practical interest for anyone in business.

March 15th I read an article in Boston’s Sunday Globe Ideas section on how goals have a dangerous side. The article called Why Setting Goals Can Backfire jumped-started my thoughts on goals. The past two weeks I have spent time thinking and scribbling notes all over this article. I thought I’d share some. [the .pdf file is here]

In both my personal life and professional life, setting goals seemed a piece of time-honored advice for success. Goals allow me to align my effort to a larger strategy; measure progress and accomplishment; and allow for course correction along the away. Setting goals was a great way for me and my clients to communicate a concrete picture of the future-state, inform stakeholders of a tangible effort, and align an organization towards achievement.

However, Drake Bennett, the article’s author reports that goals create unintended consequences to constrict thinking and blind organizations to their own best interest … scholars are now looking deeper into the effects of goals, and … companies like GM show ample ability to hurt themselves … [goals] can lead to crazy behaviors to get people to achieve them

This article is so rich, I would really take up too much time paraphrasing it. However I thought to share some nuggets:

• Goals … might actually be taking the place of independent thinking and personal initiative
• When people fall just short of their goals people lie to make up the difference
• Narrow corporate goals can keep people from asking questions
• Stretch goals are most likely to be pursued by desperate, embattled companies – the sort least equipped to deal with the costs of ambitious failures
• Most concentrate so hard on the goal they become blind to other information
• Goals with rewards … can short-circuit our intrinsic enthusiasm for a task – or even interrupt our learning process
• Simple numeric goals can lead to bursts of intense effort in the short term, they can also subvert longer-term interests of a person or a company
• Reducing complex activities to a bundle of numbers can end up rewarding the wrong behavior

While reading the article I began to deconstruct how I approach goals. Once a strategic goal is developed, the leadership needs to understand how each part of the organization enables the goal. Each team, department, or division enables or detracts from the effort of the larger goal? There should be complete strategic cascade and subsequent roll up of how every department, organization, team, and project will achieve their goal and, in turn, how their goal enables the larger, strategic goal. I want to link all goals with objectives and actions and make sure objectives are time-bound and measurable.

Change is constant. A blind obedience to goals will miss an opportunity to reevaluate their relevance in a constant climate of change. One way to mitigate following a goal towards trouble is to establish a timely (quarterly?) governance council that would meet and review the goals along with any of the following:

• the original conditions the goals were set in,
• what has changed since,
• measure progress against all the goals the organization is aligned to,
• communicate upwards risks, mitigated or discovered, and
• adjust goals – as needed

I advocate organizations communicate the goal, cascade the effort vertically and horizontally, link effort to enabled goals, and modify goals as needed. Goals are not the issue, but blind obedience to a goal; a lack of organization understanding of how goal relates to operations; and the rigid adherence to the goal’s success is the environment for failure.

The goal of a goal is a goal. Goals should not be an edict cast in cement.