The Higher You Are, the Less You Know

September 23, 2012
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I recently participated in a provocative discussion thread of a website where the question was asked, “Why do executives fail to act on proposed ideas that could save a company substantial amounts of money?” I was expecting a debate between defenders of an executive team’s prudence and attackers of an executive team’s complacency and competence. To my surprise, all of the comments were of the latter type. Maybe every one of them took angry pills the day they posted their opinion.

I recently participated in a provocative discussion thread of a website where the question was asked, “Why do executives fail to act on proposed ideas that could save a company substantial amounts of money?” I was expecting a debate between defenders of an executive team’s prudence and attackers of an executive team’s complacency and competence. To my surprise, all of the comments were of the latter type. Maybe every one of them took angry pills the day they posted their opinion.

I am unsure of the correct answer. I do want to give executives the benefit of the doubt. I sense that an explanation for less risk taking by executives involves the emergence of business analytics and Big Data. It can be explained with a pyramid depicting how power and influence of individuals affects types of decisions.

 

A power and influence pyramid

The savvy executives are realizing they must now delegate and distribute decision rights deeper down into their organization to empowered managers and employees. This is because of the exponentially growing mountain of data, both structured (numbers) and unstructured (text) including social media, and a speed-up and volatile world. Executives can no longer hoard decisions at the C-suite level. In my pyramid the executives are at the top just like in an organization chart. Their decision types are strategic ones. As examples, what is our organization’s mission? What products and services should we offer to maximize value to our constituents? What altered strategic direction should we navigate our organization toward?

In contrast, at the lower levels of the pyramid are operational types of decisions that should be made by employees who ideally have had the strategy communicated to them by the executives (via a strategy map, scorecard, and dashboards).

With expanding Big Data, the base of this pyramid is widening, and executives are realizing it is futile for them to be able to explore, investigate, and comprehend this massive treasure trove of data. This is why the role of analysts (think “data scientist”) is emerging as being mission-critical. Executives cannot do it all. They must now delegate decision making, and provide analytical tools and capabilities for decisioning to their workforce.

 

Performance improvement levers

An impediment on improvement is an organization’s approvals process. Too many managers may be involved. Performance improvement actions are the consequence of thousands of daily decisions made by employees. There are two powerful levers for performance improvement and more specifically the execution of the executive team’s formulated strategy: (1) as mentioned, clarifying decision rights, and (2) designing effective information flows.

1. Clarifying decision rights – As organizations grow in size, the approval process gets complex and foggy. Employees become unsure where one person’s accountability begins and another’s ends. Workarounds then subvert formal hierarchical reporting relationships. Clarifying who has what decision-making authority and empowering decentralized decisions lower into the organization brings mission-critical agility – as long as trust is given by the executives and second-guessing by supervisors is minimized. But with more decision rights must come more accountability with consequences. This is the domain of performance indicators against targets and motivational methods.

2. Designing effective information flows – Decisions are based on information. Too often information flows are blocked by organizational silos. Collaboration is important and enabled by cross-functional information flows. To complicate matters, logical and judicious decisions are constrained by the type and quality of information available to employees. Some organizations simply have inconsistent and poor-quality data. Even with a new transactional business system, such as an enterprise resource planning (ERP) or customer relationship management (CRM) system, organizations drown in oceans of data but starve for information in a form that business analytics can mine and that can be quickly interpreted in the context of a problem or needed decision.

 

Business intelligence does equate to an intelligent business

Executives may be brilliant strategists. But strategists need foot soldiers to carry out tasks. The higher the executives are, the less they can know about what is happening. Yes, there can be summarized reporting and executive scorecards and dashboards. But monitoring the dials is not the same thing as moving the dials.

The era of widespread use of analytics is in its earliest stage. If competency by the work force with analytics is not now a top five priority with an organization, just wait a couple of years. It will be. It is a competitive edge.