Frank Buytendijk Blog

Transparency will give you deeper insight in your own organization, which will lead to better decisions. Transparency is a competitive weapon to differentiate from the competition in attracting capital, informing customers about the value proposition (not only price) and in cost efficiencies by driving down the transaction costs in the value chain. Empowering the knowledge workers leads to more organizational collaboration, everyone being on the same page (focus and alignment) and as a result more ambitious targets.

Doesn't this all sound great and wouldn't you want this all to happen in your organization too? Yes... and no. Transparency simply is a great idea and every person in the organization will understand the power of it.

But there's a flip side, let's think this through for a second... (sorry for the long post, but such an important topic really requires some thought).

Perfect transparency

What would perfect transparency look like? Let's sketch a hypothetical situation, in which everyone within your company has access to all relevant information. The management information provides a perfect representation of the value drivers of the business. Annual financial budgeting doesn't exist anymore; instead, your company follows a system of continuous planning through a collaborative process. Every manager knows exactly how his or her decisions affect other parts of the company. There is a good overview of how external changes have an impact on internal matters. And your organization is able to predict precisely how the market will respond to your activities. The systems you have implemented offer all this information at exactly the moment it is needed, "right-time." And let's make our hypothetical example even more perfect, by assuming the total cost of ownership of this all consists of just some minimal work to set it up and maintain it, a fraction of the cost of current information systems, processes and people. Perfect.

Or is it perfect? If your company would have the capability to create this perfect transparency, then it would be reasonable to assume that other companies could create the same system too. And if other companies can do so, it's logical to believe that ultimately everyone can. Money is not an issue and best practices become readily available, because it is perfect. This means the overall market for everything (ranging from banking to legal services to mobile telecoms to energy to bicycles) would be completely transparent, with complete insight into profitability of every player. And if all companies have that insight, again it is logical to assume consumers will have the same level of insight. In essence, that is a good thing, because it ensures that every transaction will have a fair and reasonable profitability. In microeconomic theory, this is called "perfect competition." But not all current profits are fair and reasonable. Some profitability is based on a market's intransparency: customers are unaware of better or cheaper alternatives, or are unaware of the abnormal profit taken on a product or service. Under conditions of perfect transparency, these margins will disappear, leading to margin erosion for large and established firms. Many small firms, doing business in a certain region or in a certain niche, even exist by the grace of intransparency and as a result will be wiped out completely.

The conclusion is simple. Part of your profitability exist because of intransparency. Transparency can lead to margin erosion. Is that what you are looking for?

Customer behavior

But let's assume, realistically, that an entire market can't attain perfect transparency, and that only individual corporations can provide some transparency to their customers. You can reason that that provides competitive advantage, because transparency can increase customer loyalty as customer come to trust and prefer a particular brand. Unfortunately, it is equally easy to reason the opposite point of view. A recent Harvard Business Review article pointed out that this form of customer loyalty can actually lead to lower profitability, because loyal customers who have a long history with a company expect the best deals and know how to get them.

Organizations have responded by seeking ways to counter these expectations. One hotel chain had a loyalty program for highly profitable customers that included an occasional upgrade to a suite.  These savvy customers came to expect upgrades and were even disappointed if they didn't receive an upgrade within the expected timeframe. The program started to have a negative impact on customer satisfaction. The solution to this problem involved creating a number of scripts. In one example, the loyal customer would occasionally be told on check-in that the hotel was overbooked, but that he or she would be upgraded to a suite as part of the loyalty program. Research shows that if there is a problem with customer service and it is quickly resolved, customer satisfaction will be higher than it was before the incident. In fact, the solution of using scripts has actually added intransparency to the process.

The conclusion again is straightforward. Customer loyalty partly exists due to intransparency in the relationship.

Public relations

Corporate transparency is touted as being good for a corporation's image, and is a key ingredient in compliance and governance. Transparent companies inspire more trust and will be less inclined to create and allow irregularities, which are likely to be scrutinized closely in the environment they have created. But is such corporate transparency really such a good thing? Consider the example of one large multinational firm which is actively positioning itself as a transparent company. Its annual reports win prizes and the company is highly involved in corporate social responsibility activities. However, the tax office in one of the countries where the company is active found some irregularities in the firm's tax planning department. Newspapers linked "good image" to this tax issue shareholder value vaporized. Because the company had  publicly prided itself in its transparency, it fell even harder.

Still, opacity (or intransparency) is an even bigger risk. Not showing what you're doing is simply not accepted anymore. Customers want to know type of business they are dealing with. If you don't integrate in your value chain, at one moment you'll be shut out. Regulators simply demand the information they require. And competitors who did get transparency right will overtake you left and right.

It's simple, we live in a transparent world. Period. How to balance the pros and cons? That's an interesting journey for all of us...

--frank

Please check the Oracle Enterprise Performance Management Space, the place to go to see what Oracle is up to with its BI and EPM offerings. It's also the place where you can find our "thought leadership."  Wikipedia defines thought leadership as an increasingly vital driver of business success. Its aim is to engage people with companies through innovative ideas.

Although this ultimately boils down to Oracle having the best BI and EPM software available to the market, our key goal is to advance the discipline of BI and EPM, irrespective of software. We want to make people smarter in how to leverage their investments in BI and EPM.

With our thought leadership we'll describe best practices, but that is not enough. We will also describe the "next practices" for EPM, how to manage for change, innovation and improvement. We'll investigate on how to do things different, to gain competitive advantage. Sometimes doing things different is necessary because the current way is simply not working. And sometimes we'll describe how to do things different, simply for the sake of doing it different. This helps to flex the mind, forcing you to think, and take a position.

We aim for our thought leadership to be futuristic, provocative, and disruptive. To take you (and us) places where we haven't been before. It's great if you agree, because then we both move forward. But it's also fine when you disagree, and tell us. Because then we have a discussion, and we (hopefully) both learn from that discussion.

Lastly, Wikipedia also mentions that a distinguishing characteristic of a thought leader is "the recognition from the outside world that the company deeply understands its business, the needs of its customers, and the broader marketplace in which it operates." You'll be the judge of that. . . 

--frank

Little Top 5 lists are always fun. Here's mine...

Top 5 Management Books You Should Read

Earlier in this blog, I wrote about Jorgen Heizenberg's listing of the 10 truths about BI. He first reported on the first six, and now on the top 4.

Here's the top 4, and my contributions to them...

4. BI projects need high level sponsorship

Jorgen argues this may be needed in a very hierarchical organization, but surely not everywhere? I agree with him. BI needs to be embedded in every business domain, and it needs to be part of every manager's daily job. Maybe it is needed to get BI started (as the business case sometimes is harder to make than -- say -- a general ledger), but the goal should be to make it sponsor-independent asap. Also because the initiative needs to survive if the sponsor moves on to a different job.

3. BI development should be done incrementally.

Jorgen argues what the opposite of that would be. Long sequential waterfall projects? With Jorgen, I simply agree with this truth.

2. BI projects require a business driven approach

The only approach more disastrous than the IT driven approach, is a business driven approach. Where an IT driven approach often leads to technical beauty, but not too many users (as has been established many many times in the last 20 years, this is hardly controversial), the business driven approach leads to small silos of implementation that each have their own little ROI, but have an overall very high TCO because there is no leverage beyond every single little application. Jorgen says a good approach can come from both sides. I agree, and would like to add the key is in doing it together, as both skill sets are needed. Hardly surprising!

1.One Version of the Truth

Jorgen doesn't believe in it anymore, he is happy if there is just one version of the facts (data quality, lineage, etc). Hmmm... I am still more hopeful. There's ways of achieving it that are less political of nature ("One Version is fine as long as it is My Version..."). For those of you who have followed the blog a bit longer, the answer is in "horizontal alignment."  But that's for a next blog...

Since the dawn of MIS (Management Information Systems), the most important objective has been to create a single version of the truth. That is, a single set of reports and definitions for all business terms, to make sure every manager has the same understanding. Most organizations have many different definitions of the business terminology they work with on a daily basis. This is often visible with common business words such as "revenue," "number of employees", and "number of customers." For any given market, there are specific terms that have different meanings within the industry and to the outside world, such as the word "flight" for an airline, "account" for a bank, and "student" for a university. There is actually a rule for this:

The more connected a term is to the core of a business, the more definitions of it exist.

In the last 20 to 30 years, countless efforts have been made to identify different versions of the truth and collapse them into a single definition so that all business departments can align along the same meaning of business-critical terminology. Rarely have these exercises been successful. In fact, I would call most of them misguided. There is a reason for so many definitions. If a term is closely connected to the core of the enterprise, many business functions will add their unique interpretation of that word. You might wonder what value a business department brings to the organization if it does not have its own unique view. This doesn't mean every single definition for a term is valid and useful. On the contrary, many may be redundant. The challenge, of course, is how to decide which definitions are valid and which ones are not.

A good example can be found in the software industry. If we look at the term "revenue," many versions of the truth emerge during and after the sales process. Here are just a few variations:

• Gross revenue: Total sales before software discounts, customer bonuses, and lead incentives for partners. Customer bonuses may comprise discounts on or free consultancy, training or other services.
  
• Net revenue: Total sales after software discounts, customer bonuses, and lead incentives for partners.
  
• Net own revenue: Net revenue minus royalties. Royalties are fees that need to be paid to third parties whose software the company resells as part of its own portfolio.
  
• Recognized revenue: Due to compliance regulations, not all revenue on the contract may be recognized in the period the contract is signed.
  
• Revenue U.S. GAAP: Revenue, including corrections based on U.S. reporting regulations.
  
• Revenue Local GAAP: Revenue, including corrections based on reporting regulations specific to the country where revenue is recognized.
  
• Management revenue: Total revenue as the base for internal reporting, using net revenue as the starting point. Revenue recognized in other countries but belonging to the account management structure in the manager's country must be added. Revenue recognized in this country but realized for an account manager in another country needs to be subtracted.
  
• Commission revenue: Revenue specific to a sales person, upon which his or her variable income, bonuses, and other incentives is based. Corrections may appear for recognized revenue for and from other account managers.
  
• Invoiced amount: The amount that is invoiced and received in the current or next period. This amount may not all be revenue for the current quarter. For instance, multiple years of maintenance revenue is invoiced upfront.
  
• Statutory revenue: Recognized revenue aggregated to the legal entity level. A sales office in a specific European country, for example.
  
• Fiscal revenue: Revenue for a fiscal entity for which corporate income tax (CIT) needs to be paid. Legal entities and fiscal entities are not necessarily the same.
  
• Revenue for value-added tax: The total of invoiced revenue broken down into the various categories of VAT.
  
• Cash inflow: Invoices paid by customers in a certain period, including other sources of income such as interest. 

In this somewhat simplified list, there are thirteen variants of revenue. In many cases, management reports will refer to the generic term "revenue" for many of them. Which definition of revenue is actually meant is often determined by the manager or business domain for which the report is created.

How Different Versions of the Truth Provide Insight

With the idea of a value chain in mind, having different versions of the truth provides additional insight. However, this insight only occurs if these different versions of the truth are placed into context. One way of doing so is to create a revenue report that cuts across the various definitions of revenue, such as:

gross revenue  >   net revenue  >  net own revenue   >  recognized revenue  >

management revenue  >  commission revenue  >  invoiced amount  >

statutory revenue  >  cash inflow

By organizing the different definitions of revenue in a flow, we can see which existing definitions make sense and lead to alignment, and those that add to confusion. The former definitions should be kept, the latter eliminated. In a sense, the revenue report-with the various definitions of revenue that it includes-has created the long-wanted single version of the truth, almost intuitively. There are no synonyms possible anymore, as all terms appear in the same report and the combination of them represents a single flow of revenue. We have essentially created one context of the truth.

This one context of the truth brings not only more alignment, but also a deeper understanding of the business. For instance, an account manager may already know the difference between gross and net revenue-but through net own revenue, sees that his or her contribution is really low because of all the royalties that have to be paid to third parties. Or the account manager may notice that his or her clients take a very long time to pay their invoices, negatively impacting cash inflow. Through management revenue figures, a sales manager may see how much of the revenue is not realized for his or her geographic region, possibly leading to a reassignment of customer accounts. Lastly, looking at statutory revenue, all managers see how their operational decisions affect external reporting and compliance.

Want to know more? Send me an email, and I happy to share the examples I have collected working with many customers on the subject.

Check out the following press release: MAYOR BLOOMBERG UNVEILS CITYWIDE PERFORMANCE REPORTING (CPR):

"The mother of all accountability tools," that's how Mayor Bloomberg called his citywide performance reporting system, which was built with Oracle Business Intelligence.

With the system, the city openly publishes a number of performance indicators to the public; here's a link.  And here's a screenshot...

It is interesting to see how government agencies are implementing best practices to be more "run like a business," but in this initiative I see the opposite. Business can learn quite a bit from this initiative. Here are my takeaways:

Transparency makes a difference

Little Top 5 lists are always fun, I wrote recently...

I shared my lists with a few people, and Ron Dimon and Jorgen Heizenberg posted on the same topic in their blogs, as well. Ron runs an excellent blog called "Did somebody say strategy?"

Ron takes a contrarian position on jargon, I just LOVE what Ron wrote about it:  "GRC is a holistic alignment of synergistic enablement." He was kidding, of course.

Jorgen's blog called "BI Guru Online" adds a category -- BI improvements he would like to see -- and comes with some interesting suggestions. The comment on spam filters is entirely his, though.

What are your fav fives?

--frank

Colleague Mike Larimer has started a blog, http://projectrenegade.blogspot.com/.  In this project he talks about Smart Space, a very innovative new Oracle product in the BI and EPM family. Here are a few sentences from his blog entries, that set the scene:

Smart Space is a radical departure from the traditional BI/EPM application. For years the BI/EPM market has been focused on providing more and more features. These features are added to backend services bringing us to the 'system' we have today. However most of these features are simply added to existing user interfaces. Over time these interfaces, though packed with features, have become difficult to use, underperforming and nearly impossible to customize. [...]

 

With Smart Space, we have taken a completely new approach. It is simple and elegant.

Smart Space uses "gadgets," directly placed on the desktop. Mike defines gadgets as:

Gadgets (or Widgets) are mini applications that expose key content(bits of data) or features generally from an larger (full) application and they deliver these feature or data in a simple and visually pleasing manner.

Typical gadgets on the desktop could be the weather forecast, stock prices, a to do list, and a web cam checking on the children in the day care center.

Gadgets are a true innovation, when it comes to Oracle's objective to make BI pervasive. For many operational users, who are not sitting behind a pc all day, even opening up a web browser and start a report or dashboard can be too much hassle already. I've been using the following example for a while now. Imagine you are the manager of three fast food restaurants. You're probably busy the whole day helping out everywhere. Sitting down in an office, and checking "sales per hour" in a real-time fashion simply won't happen. Yet, it is important information. Having a screen somewhere in the back of the kitchen, with 3 simple dashboard gadgets on the desktop, showing sales per hour, combined with 3 webcam gadgets showing how many people stand in line in each restaurant, may help you to manage the other 2 restaurants while you are working in the 3^rd. You can call the other and tell them to open up a new cash register, if it is busy and the sales per hour drops.

Or imagine you are operational manager in a zoo, and you need to decide if you will put icecream in front of the entrance store, or a load of umbrellas for sale. A simple weather forecast gadget combined with real-time visitor numbers, somewhere on a screen where you have a look at once in a while makes a great difference.

In short, using gadgets helps you use entirely new audiences with your BI investments.

In his blog, Mike also shows a few examples of gadgets, I copied one below. One thing is certain, Mike has a great taste in music!

--frank