By Gary Cokins, Founder of Analytics-Based Performance Management LLC
One of the frustrations I experience is when managers or analysts share with me that their organizations tried to implement progressive management methods, and they either failed or abandoned them. A prominent example is an unsuccessful attempt to implement activity-based costing to measure and manage costs and profit levels of products, services, channels and customers. Other examples include risk management, customer analytics, enterprise resource planning (ERP) systems, and the balanced scorecard.
What causes these failures or the quick loss of an organization’s interest in them?
Experiencing failure is a foundation for success
What we are discussing here is a topic few wish to discuss – failure. I advocate having a positive view of failure and leveraging disappointing or botched implementations of an advanced managerial method or system as a learning experience. Failure can be a great teacher. Perseverance and determination is important for success. Don’t believe that one needs to avoid failure. You have to accept risk when taking on improvement projects.
There are some inspirational lessons about early career failures by individuals who ultimately succeeded. Consider these:
- Winston Churchill failed sixth grade, and he was subsequently defeated in every election for public office until he became prime minister at the age of 62.
- Charles Schultz, the creator of Peanuts, had every cartoon he submitted rejected by his high school yearbook staff.
- Twenty-seven publishers rejected Dr. Seuss’s first book, To Think That I Saw It on Mulberry Street.
- After film star Fred Astaire’s first screen test, the memo from the testing director of MGM, dated 1933, read, “Can’t act. Can’t sing. Slightly bald. Can dance a little.”
- Henry Ford went broke five times before he succeeded.
- Thomas Edison’s teachers said he was “too stupid to learn anything,” and he was fired from his first two jobs for being “non-productive.”
- Albert Einstein’s PhD thesis was rejected as being “irrelevant and fanciful.”
- In 1981 the USA’s NBA basketball star Michael Jordan was cut from his high school team.
- In 2000 Barack Obama ran for the US Congress and failed.
- Is this not enough evidence that failure is just another name for experience?
Failures with improving measurement and monitoring systems
In my introduction I mentioned the example of activity-based costing (ABC) as an example of a “tried-and-died” managerial method. I have a substantial amount of experience with implementing ABC. I was a pioneer implementing ABC systems in the 1980s during ABC’s takeoff when I was a consultant with Deloitte and KPMG and subsequently I wrote books about it. Since ABC is a proven and reliable method with value for most organizations, yet some fail implementing it. Let’s use it as an example from which to generalize.
A common problem with implementing ABC is excessively over-sizing and over-engineering the size of the ABC model. This is due to the accountants’ misplaced quest for precision, detail and accuracy. The result is their model is too complex to be understandable and becomes unmanageable to maintain. Yes, if accountants report wrong information for external regulatory reporting with financial accounting, they risk going to jail. But ABC is primarily intended as managerial accounting for internal decision making. So if the ABC information is approximately correct rather than precisely inaccurate, they don’t risk going to jail! Financial accounting is for valuation, like for inventories, whereas in contrast managerial accounting is for creating value – for both customers and shareholders.
But there are other obstacles. If the sponsors for ABC do not secure in advance organizational buy-in from managers and the planned purposes for using the information, there is a likelihood there will be less interest. Lack of proper training is another obstacle. I recall a user looking at the ABC information and saying, “I feel like I am a dog watching television. I do not know what I am looking at!” Finally, after the sponsors for ABC have achieved buy-in to pursue the implementation, they need to remain involved. In particular, they need to motivate their colleagues to use the ABC information to generate previously unasked questions and stimulate conversations as to what changes to make.
There are also misperceptions about the level of involvement by employees to provide input data. They fear they must complete daily time sheets and record counts on anything that moves. Although it is counterintuitive, the accuracy of the output costs, such as for products or customers, is much more determined by the design of ABC’s cost assignment network. With a good cost model design, the costs are good enough for gaining insights and making better decisions.
There is also the “one and done” syndrome. This occurs when there is a problem, like understanding which customers are more or less profitable; and an ABC model is constructed as a one-time study rather than as a repeatable and reliable production system. If the information is needed once, there should be interest in regularly refreshing the model to monitor progress with improvement initiatives.
Lessons learned: Valid methods don’t die but go dormant
To generalize from this single example, there are dozens of books available about project management that can provide useful information. However, when I step back and look at the big picture, the ultimate lesson is that implementers should not underestimate the importance of behavioral change management and overcoming people’s natural resistance to change. This includes employees who are afraid of others knowing the truth or they do not want to be held accountable or measured.
My advice is to consider how much emphasis to place on three factors that, when combined, overcome resistance to change: discomfort with the current situation; a vision of what a better state looks like; and first practical steps (e.g., a pilot project or a rapid prototyping exercise). Many project champions dwell on the second one, a vision, by explaining the benefits of their proposed project. The key is to focus on the first factor by creating discomfort in managers and co-workers. Constantly ask, “How long do we want to continue to make decisions with flawed, misleading or incomplete information?” That creates the interest in the vision – a solution with a software system that will provide it.
After a “tried-and-died” project fails, the need that triggered interest typically does not go away. Like a hibernating bear, the project simply goes dormant. Inevitably managers will repeat the same questions, like “Where do we make or lose money?” There will always be a second chance to successfully implement the project or system. The need for better information remains high.
As an example, I recall an ABC implementation at a bakery goods producer. The product manager for the Danish pastries killed the project. Why? Before ABC his products were the most profitable. With ABC all the sugar and jellies for his products caused extra work for cleaning pans and ovens. He realized that other product managers would now be the more profitable ones. He said to the leadership, “We should be doing six sigma quality management. This ABC is a waste of time.” The project was then terminated. Until a few months later when the management still did not have visibility to where they were making or losing money – and why. The Danish pastries product manager cared more about himself than his organization and its shareholders.
Learn from your failures. Do not underestimate the value of experience. Never lose hope.
About the Author: Gary Cokins, CPIM
Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.
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