A diverse band of business gurus, industry leaders and management theorists is pushing a tough but increasingly strident message: Volatility is a fact of business life – learn to live with it.
In business, unpredictable disruptions are inevitable, but very few management teams handle them well. They panic, react inappropriately, or, indeed, do nothing at all – something that induces even greater problems.
In a climate of economic and geopolitical turbulence, all organisations need to develop strategies that will enable them to quickly exploit emerging opportunities and to limit damage when confronted with negative events – and they must do so quickly if they are to remain competitive.
“Companies that perform the best embrace change. They take advantage of change. They are masters of improvisation, because they know that you can’t write a script for change – it won’t cover enough contingencies,” says Harvard Business School
professor Rosabeth Moss Kanter.
Those that master change see tremendous rewards, agrees Carl Lehmann, an analyst with IT market research company, the Meta Group. “The organisation that reacts to change and uncertainty faster than its competition will improve market share, boost customer satisfaction and see overall improvements in financial performance indicators,” he says. Lehmann calls this organisation “the rapid sense-and-respond enterprise”.
Others use different terminology – the real-time enterprise, the adaptive enterprise, the agile business – but the goal is the same: to progressively remove delays to the revitalisation, the management and the execution of critical business processes, and to equip the company to make rapid decisions based on the most current information.
The concept is not new: scientists at IBM Research have been investigating the sense-and-respond business model for many years, and Stephan Haeckel, one of the system giant’s principal researchers, outlined some of the results of that work in his 1999 book, Adaptive Enterprise: Creating and Leading Sense-and-Respond Organisations.
What has changed is the widespread availability of technology that makes it easier to manage change and respond to events. “These are tough times, there is no doubt, but I believe that the problems organisations are facing provide an opportunity for technology to make a difference,” says Craig Conway, chief executive of enterprise applications vendor PeopleSoft.
In particular, companies are combining operational and analytic applications from enterprise application software companies (such as PeopleSoft, Oracle and SAP) and business intelligence tools vendors (such as Cognos, Business Objects and Crystal Decisions) to streamline their business processes and gain better understanding of the data that drives those processes.
Operational applications running on Internet architectures enable employees to access relevant enterprise applications from almost any location, while their sophisticated functionality enables the automation of entire business processes across divisions, subsidiaries and geographies.
Analytic applications, meanwhile, are used to monitor and analyse the transactions being processed by operational systems. Deviations from expected results or targets can be flagged up instantaneously – for example, a rise in inventory levels or a drop in customer orders – so that managers can take appropriate action.
The appeal of companies such as PeopleSoft, SAP and Oracle to many customers is that they provide both operational and embedded analytic applications that share a common, unified data model. This was an important factor in Danske Bank’s decision to invest in software from PeopleSoft, says Thomas Johanson, the bank’s chief technology officer.
Prior to implementing PeopleSoft, Danske Bank’s internally developed financial management systems were hindering its ability to tackle change and uncertainty, he says. The
systems were too slow and relied upon too many manual processes to support the speed of financial reporting and efficiency of business planning that the bank – Scandinavia’s second largest financial services institution – needed to stay ahead of its competition.
Danske Bank also faced the challenge of new banking ground-rules, specifically the Basel II standards, as well as the requirement to move to a more activity-based management model. There was also the challenge of digesting acquired companies.
To help it deal with this complex environment, Danske Bank has purchased a number of operational and analytic applications from PeopleSoft’s Enterprise Performance Management (EPM) suite: Enterprise Warehouse; Funds Transfer Pricing; Risk-Weighted Capital; Business Planning and Budgeting; and Balanced Scorecard.
The results have been impressive, aiding the bank in its transition to becoming a real-time enterprise. Prior to the implementation, the financial management team spent just 20% of their time analysing data – the rest of their time was spent on aggregating information and transaction processing tasks. Going forward, says Johanson, the team will be able to spend 60% of their time on value added analysis and decision-making.
The bank is also able to more accurately plan, execute and measure results; to bring new products to market quicker; and to roll-out activity based management in more of its operations, faster. Soon, it plans to measure the profitability of retail customers on a daily basis – at present, this measurement is carried out monthly and takes some 24 hours to run. “We are already a more flexible and responsive organisation – and more competitive as a result,” says Johanson.
A growing number of companies are seeing benefits from similar investments. “Our research has identified literally scores of cases in which a focus on radical time reduction has created significant business benefits,” say analysts at the Gartner Group. Among them are automotive giant Ford, which has reduced the development time for new car models from seven to four years, enabling it to meet constantly changing consumer demand for new styles and features; a major international bank’s real-time risk management system has allowed it to respond rapidly to changing economic conditions; and a major provider in the beleaguered telecommunications business reduced its provisioning process from between 30 and 60 days to 18 days, and increased its order volume by 60%.
But although many enterprises have embraced parts of the real-time enterprise agenda, points out Gartner analyst David Flint, most have applied it only partially and still have much work to do. “The scope for further improvement remains vast,” he says.
The initiatives required to enable companies to respond positively to change and uncertainty, he says, will challenge the skills and resolution of every business leader during the coming years. They will also, it seems likely, change the nature of business profoundly.