Making Strategy Real

July 2009

Making Strategy Real
by Don Tapscott and Paul Barter

Sponsored by SAP  

In today’s competitive global business environment
virtually all firms work diligently to analyze alterna-
tives and to create a business strategy that enables
competitive advantage. Once the strategy has been defined however,
nine out of ten organizations fail to implement it effectively.1 Trends such as global-
ization, increasingly empowered customers, and rapid and accelerating change make
closing the gap between strategy and execution more critical than ever. The current
difficult economic environment only increases this imperative. We are no longer living
in the “rising tide lifts all boats” world of recent years and effective execution is front
and center in the corporation. Today, many boats are sinking.

What is the answer? How can management communicate the strategy effectively
and assure that the entire organization has bought in to the strategy and is aligned
behind it? Business performance optimization systems are an important tool for
success. As corporations are blessed (and cursed) with ever increasing amounts of
rapidly changing data, decision-making limited to the executive suite or any one
silo in the firm is no longer a viable option. This can lead to strategy disconnected
from operations, decisions made without context and a lack of coordination across
the organization and throughout the business ecosystem. Utilizing business perfor-
mance optimization systems, empowered employees can confidently make timely,
strategically aligned decisions based upon facts as opposed to intuition or corporate
politics. These tools also enable transparency and act as a basis for enterprise risk
management.

These tools can fundamentally change our organizations. The role of management
is no longer that of “ultimate decision-maker” but that of “translator” and “coach”
who initiates the strategy and define the metrics which bring the efforts of each
stakeholder into alignment with the strategy as a whole. Good strategy effectively
implemented can provide the sustainable competitive advantage that all organiza-
tions aspire to.

Please consider the environment before printing this document © 2009 nGenera Corporation

TABLE OF CONTENTS
1 Introduction

2 Today’s Performance Reality: Data Driven Decisions
3 New concepts and tools of data driven decisions
3 It all starts with the data

3 Managing What We Measure
4 Enabling Strategic Agility
5 Driving process efficiency
5 Improved insight
6 Flexible solutions that support all users
6 The changing nature and demographics of the workforce
7 Benefits of decentralization
7 Ideal degree of decentralization
7 Reaping the benefits of decentralization: the hard data

8 Risk and Transparency
9 Conclusions
10 Endnotes

Making Strategy Real 1

INTRODUCTION

In the current economic environment, it is easy for managers to These examples don’t even begin to describe the breadth of
be sceptical about the future. The economic landscape is grim. economic breakthroughs we have seen in recent years. From
This year, America’s GDP has shrunk 6.2 percent compared to the relentless advances in microprocessor and storage technology,
baseline in 2008,2 and exports are down by 24 percent.3 Inter- to the explosive growth of the Internet, innovative new alterna-
national trading partners are faring even worse: Germany, Japan, tives to carbon based energy sources and the sequencing of
and Mexico’s GDPs regressed 14.4 percent, 15.2 percent, and the human genome, innovation is alive and well. The outcome
21.5 percent, respectively. It is also important to remember that of these trends has enabled breakthrough products such as
from a firm’s perspective, financial performance is a lag indicator the Apple iPhone and Nintendo Wii, the Toyota Prius and the
and that there may be continued challenging times ahead.4 Tata Nano, the Boeing Dreamliner and the Airbus A380. Firms
in all industries are accelerating new product introduction even
In China, even state run newspapers are describing “great in this challenging economy.
uncertainties” on the road ahead.5 Throughout the world,
economies are struggling, and the keystone for renewed Warren Buffett once famously said, “You only find out who
prosperity, the banking system, lacks the basic currency of is swimming naked when the tide goes out.” In the last year,
consumer confidence. In short, as many pundits regularly point the financial tide has clearly gone out further than anyone
out, the worldwide economic outlook has not been this grim expected.11 Although cost cutting is an important tool that
since the Great Depression.6 management can use to respond to today’s business reality,
determining which costs to cut is of paramount importance.
In this environment, it is easy to forget about the exceptional Generally, faced with the mandate to cut costs quickly, organi-
economic, scientific, and social successes we have seen in zations will revert to techniques such as cancelling projects,
recent years as individuals, firms, and nations have transformed deferring all discretionary purchases, and reducing head
themselves. Only ten years ago, just 20 percent of humanity count. While these may be necessary strategies, they can be
had regular access to communications technology and half the overused when leaders become too focused on simply hitting
people on the planet had never made a phone call. Today, over cost reduction targets and fail to consider the impact these
60 percent of us can place a phone call (or send an SMS message) moves can have on the organization. Amputation is not a wise
whenever we choose.7 For the first time in history, the majority weight loss strategy.
of humanity is connected and can make its voice heard.8 From
a health perspective, worldwide average life expectancy has Similarly, firms should not cut costs or investments in
doubled in the past 100 years, from 36.2 in 19009 to 66.6 in 2009.10 areas that will enable long-term competitive advantage.
The evidence suggests that if companies do not grow and

© 2009 nGenera Corporation

2 | nGenera Insight

develop new products they will fail. Of the 100 largest U.S. TODAY’S PERFORMANCE
companies at the beginning of the 1900s, only 16 remain.
During the 1980s, a total of 230 companies disappeared
REALITY: DATA DRIVEN
from the U.S. “Fortune 500.” As recently as June 8, 2009, DECISIONS
bankrupt automaker General Motors and financial giant
Citigroup were booted out of the Dow Jones Industrial The power of data driven decision-making has been
Average in favor of Cisco Systems and Travelers Company increasingly well understood for many years now.
Inc.12 Neither size nor good reputation guarantees success.
During and after WWII, William Edwards Deming wrote
We do need to position our firms to take advantage of about the power of statistical control of quality and the
selected new opportunities by cutting unnecessary costs potential competitive advantages that could ensue. Peter
that should probably have been addressed anyway. On Drucker built his impressive body of work on a number of
one hand, “You never want a serious crisis to go to waste”13 basic insights, one of which was the prescient statement, “If
and unproductive costs need to be rooted out. On the you can’t measure it you can’t manage it.”16
other hand, as William Gibson has pointed out, “The
future is already here… it’s just not evenly distributed.”14 As technology continued to advance, many firms began
The disruptive transformational products of tomorrow are to deploy what we would now call business intelligence
already in our competitors’ new product pipelines. If we systems. Today, when we say “business intelligence,” we
don’t continue to invest for the future, we are consigned often don’t mean any specific product but a broad range of
to failure. applications, technologies and methodologies that support
a user’s access to and analysis of information for making
Chief executives of corporations worldwide agree. In a decisions and managing performance.
recent survey, they identified excellence in execution as
their top challenge for 2009. In addition, alignment between In the modern era, business intelligence tools have been
strategy and execution, speed, flexibility, adaptability toenhanced by integrating financial applications into the
change, and risk management were all highly rated.15 mix and the resulting suites of applications are commonly
called enterprise performance management solutions.
All of these top five priorities are addressed by modern These suites enhance traditional analytics and scorecarding
business performance optimization systems consisting applications with financial applications such as: budgeting,
of business intelligence, information management, enter- planning and forecasting capability; profitability modelling;
prise performance management, and governance, risk and financial consolidation; and financial, statutory and
compliance capabilities. management reporting.

BELOW Figure 1: Top Five Concerns Among Executives Worldwide; Source: The Conference Board
Relative rankings
July/Aug. Oct. Challenges Cite challenge as being of 'greatest concern'

55.4%
1 1 Excellence in execution
46.0%

2 Consistent execution of strategy 47.0%
3
by top management 41.9%

3 Speed, flexibility, adaptability 46.6%
7 Oct.
to change 24.5% July/Aug.

44.6%
16 4 Global economic performance
17.2%

11 5 Financial risk, including liquidity, 43.8%
volatility, and credit risk 20.8%

Note: The global top 5 list is weighted by regional representation in global GDP as established by the International
Monetary Fund.



Finally, modern strategists such as Kaplan and Norton being considered, invariably the one supported by the
in The Balanced Scorecard and other books, have written most senior member of the firm is chosen. Mayer explains
about the importance of using more than just financial Google’s process of posting alternative solutions online
measures to manage a firm. The Kaplan model begins with in “beta” mode in different geographies or at different
mobilizing change through executive leadership, translating times and letting consumers’ real-time measurable choices
the strategy to operational terms, aligning the organization drive the final decision. In this way, Mayer says that “data is
to the strategy, motivating to make strategy everyone’s apolitical.”19
job, and implementing governance that makes strategy
a continual process. Strategy management applications Peter Drucker once said that, “the aim of marketing is to
begin with balanced scorecards and strategy maps, which know and understand the customer so well that the product
are then cascaded down to the scorecards, dashboards, or service fits him and sells itself. Ideally, marketing should
analytical engines and visual interactive interfaces of result in a customer that is ready to buy. All that should be
modern business performance optimization systems. When needed then is to make the product or service available.”20
these tools are appropriately utilized and broadly deployed The new generation of text analysis solutions represent
within firms and their extended business ecosystems, the some of the most powerful tools created to date for under-
hard data says that such firms outperform their peers, and standing the customer.
that their peers are noticing. By 2013, the use of business
performance optimization systems in medium and large
firms will increase by 32 percent.17
It all starts with the data
Before we can utilize business performance optimization
systems to align execution with strategy we have to start
New concepts and tools of data with trusted, accurate data or the proverbial “single version
driven decisions of the truth.” In one recent example, a national police force
Most recently, Google, SAP and others have expanded wanted a “single view of the criminal” and so created a
the definition of data driven decision-making beyond the central data warehouse from a variety of operational and
numeric realm to the textual world, where products are legacy systems. After completing the project, the force
sifting through the overwhelming quantities of written ended up with a database of 4.5 million names. This turned
words—both within the firm and outside. These tools out to be a problem since the population of the country is
augment traditional business performance optimization only four million. So, either everybody in the country (and
systems and their numeric decision support capabilities. more) is a criminal… or the police department has a data
They enable firms to derive insight and competitive quality problem.21
advantage from unstructured data. Leading firms are now
shipping systems that utilize text analysis to capture voice Firms have recognized the importance of accurate data
of the customer (VOC) insight. The systems address the and directed significant effort to address the issue. Dave
challenge of aggregating insight from the myriad unstruc- Greiner explains: “Our executives realized the importance
tured Web and enterprise applications, including online of having quality data. It became even more apparent as we
forums, RSS feeds, blogs, call center logs, CRM systems, acquired more companies, and we had to integrate more
email archives, and customer surveys. These text analysis different systems, databases, and data structures with our
systems normalize and incorporate text into an existing own. This enabled us to spend far less time debating which
data warehouse, where it can be correlated with data from numbers were correct and spend more time developing
existing structured sources and making it available for strategies and initiatives to bring those key performance
existing business intelligence tools to use in analysis and indicators in-line. As a result, it’s more actionable, and in a
display. shorter period of time.”22

Dave Greiner, Data Czar at Siemens Healthcare explains
that what he’s really excited about is bringing this data in
from other sources. Greiner explains: “I speak to individuals
MANAGING WHAT WE
within the business – but outside of IT – about the new MEASURE
possibilities to go beyond what was traditionally possible
with decision support tools. It gives them new power to Even in the best of times, executives face myriad
put together a sales campaign or execute a cost reduction challenges: How can we forecast performance? How does
initiative in far more efficient ways. That’s what gets me our performance compare to that of our peers? What can
excited, that’s what I look forward to.”18 we use to measure our performance? What about risk? How
do we link key metrics to strategic objectives?
Marissa Mayer of Google has famously spoken about
how decision-making in many businesses has traditionally The senior executive’s most important role is to define
been influenced by the “political” position of decision strategy clearly and identify the key performance indicators
-makers. When two or more alternative decisions are that will align the organization and its strategy while


4 | nGenera Insight

execution with strategy permeate the entire organization
Case study: and the firm’s extended ecosystem. In their study of failed
strategy, Kaplan and Norton found that over two-thirds
Where the holes aren’t23 of failures were not caused by poor strategy, but poor
execution.24 In fact, some studies have indicated that up to
The Supermarine Spitfire was a combat plane used 94 percent of employees have no idea what the corporation’s
extensively during WWII. To improve pilot survival strategy is!25 Similarly, Kaplan and Norton observed that of
rates, Royal Air Force (RAF) research teams kept careful businesses that established strategies calling for growth
records of all damage sustained to planes returning in excess of nine percent, fewer than ten percent of them
from combat sorties. These records were combined and achieved their goal. It was only organizations that had a
mapped onto a Spitfire model to determine if specific culture that held strategy and execution in tandem that were
parts of the planes were being targeted. able to beat the odds and bring their strategies to fruition.

The data showed several loci of damage; it appeared Bruce Rogow, principal of the IT Odyssey26, tells us that in
that specific locations on the planes were being his discussion with a broad range of executives, the “How is
targeted. Additional armor was added to these execution aligned with strategy?” question can vary between
locations, resulting in an increase of Spitfire losses. The “It’s working,” to “There is almost no linkage between
researchers were perplexed. strategy and execution.”27 What is the difference? There is
no single right answer but Bruce reminds us that organiza-
It was Jay Wright Forrester, the inventor of system tions are composed of many individuals, each with their own
dynamics and random access magnetic memory, unique behavior. Cultural aptitude, a willingness to listen
who identified where the Spitfire data had led RAF and a real effort to understand what the strategy means are
researchers astray. While Forrester praised the accuracy equally important. Systems need to be used (and seen to be
of the data collection, he criticized the algorithm used used by everyone-including senior executives) rolled out and
to bring the data to life: it was not possible that specific supported in an active and ongoing manner, and adjusted
parts of aircraft were being targeted. based upon feedback from users. A good test question is,
“Do individuals really understand the firm’s strategy, have
Instead, the fact that so many planes were returning they internalized it and have they adjusted their personal
to base with holes in roughly the same places substan- activities, decisions and priorities?” If the answer is “No,”
tiated that the Spitfires could all sustain damage in then strategic alignment has not occurred.28
those locations while staying in the air. It was injuries
sustained in other locations that brought the planes
down, and those planes never returned to base to
be analyzed. It wasn’t where the holes were that was
ENABLING STRATEGIC
important, but where the holes weren’t. AGILITY
The extra armor was moved to areas that were There have been very few times in the modern age when
typically undamaged on returning Spitfires, resulting in flexibility has been as important as it is today. Firms simply do
a dramatic reduction in losses. not have hard data relative to supply or demand. The global
economic downturn has caused a myriad of both consumer
Forrester recognized that high quality data is not and corporate expenditures to decline in a negative feedback
enough: data needs to be understood in the correct loop. Cost of capital is completely unpredictable and inputs,
context in order to be useful. such as natural resources, are changing in price and availability
moment by moment.
Often, when the data driven execution is not
following the strategy, it is because the systems are In this volatile business climate, flexibility and strategic agility
skewed to analyze where the business holes are, rather are key. The concept of annual or multiple year planning is not
than to analyze where they aren’t. As with the Spitfires, currently realistic for most firms. Businesses must be efficient,
the data driven execution only reinforces the business flexible, and driven by customer and economic realities. We
problems. believe that there are three basic components of strategic
agility: process efficiency within and across businesses,
minimizing risk. Without doing so, it is impossible to align improved insight and decision-making for better collaboration,
employees’ actions with the organization’s short- and and flexibility to respond quickly to changing inputs and
long-term goals. create new business processes that align with operations and
strategy.
As the business world grows in complexity, it
becomes increasingly critical that this alignment of



BELOW Figure 2: The Supermarine Spitfire has in its history an important lesson about data analysis; Source: Wikipedia

Driving process efficiency enhanced business insight. Processes based upon newer
service oriented architectures are key enablers of business
Organizations can improve efficiency by establishing and IT flexibility.
end-to-end business processes with centrally managed
integration. These can lower total cost of ownership and Once a firm has reliable enterprise data and efficient
act as a framework for creating and enhancing applications end-to-end business processes in place, the stage is set for
that meet business and user requirements faster and enable performance optimization systems to help decision-makers
gain insight into market
BELOW Table 1: Achieving Superior Performance reality. Armed with this
intelligence, the company
High This quadrant represents companies This quadrant represents leading
that have invested in performance
can make rational, strategy-
companies that have performance
optimization systems but their usage optimization systems built into their aligned decisions in various
is not ingrained in the corporate continuous cycle of re-strategizing areas, including budgeting
culture. These companies likely have and executing. The superior insight and resource allocation.
sufficient software and data and response time afforded by a
warehouses, but they are not used as robust system, as well as a culture
assets due to the lack of a unified that values and uses analytics, Improved insight
strategic vision. Fully 30 to 40 percent enables these firms to weather most
of organizations operate in this any economic situation. Only ten to Business performance
quadrant. 20 percent of organizations operate optimization systems,
Technical in this quadrant. including business intel-
Ability of ligence, enterprise perfor-
the Firm This quadrant represents companies This quadrant represents companies
for whom accurate data and systems that are eager to adopt a continuous mance management and
do not exist in any meaningful way. strategy based on performance governance, risk and comp-
These firms have not invested in BI optimization systems, but lack the liance applications, are
tools at all, be it financially or technical means to do so. Such firms not blanket solutions that
culturally. Positively, any new BI are typically set back by inconsistent can be applied in equal
initiative will be operating on an datasets and business processes and measure in all firms. Instead,
entirely blank slate. therefore have no single version of
the truth. Approximately 20 to 30
approaches to adoption
percent of organizations are in this need to vary based on
category. These organizations seek the technical and cultural
Low greater technical capabilities. disposition of the firm in
Low High question. In general terms,
to successfully use decision
Cultural Aptitude support tools to bridge the


6 | nGenera Insight

gap between strategy and execution, there must be both
Case study: adequate technical infrastructure, as well as a corporate
culture operating at all levels that strives to integrate
emergenCy mediCal real-time analytics into decision-making processes.
assoCiates29 Contrasting low and high corporate technical abilities with
low and high cultural aptitudes for the use of BI tools yields
Emergency Medical Associates (EMA) strives to the 2x2 in Table 1 (previous). While there is no “one true
provide the best quality medical care at the lowest cost way” for the perfect use of tools for gaining insight, the
to its patients while maintaining an environment for its best companies can strive to marry high technical abilities
physicians to practice medicine and be professionally with a corporate culture that aggressively seeks out and
satisfied. Jonathan Rothman, EMA’s director of data uses analytic data. Against this standard, there are several
management, has developed and deployed a suite of ways that a company can fail to realize its potential when it
analytics tools to provide EMA’s health care profes- comes to BI systems usage.35
sionals with information tailored specifically to their
department and role. “You log in,” Rothman explains,
“and everything you need hits you over the head.”30
Flexible solutions that support all
users
Rothman recognizes that it’s not possible to satisfy In the early days of corporate decision support tools,
everyone with a single solution. In addition to providing solutions were called “Executive Information Systems” and
interactive dashboards, EMA’s analytics platform targeted specifically to the needs of senior executives.
generates regular reports and emails them as PDFs to Although such systems were a best practice at the time,
users with lower levels of technical facility. Individuals they were very complex and utilized teams of technically
of every level of technical sophistication are able make savvy support workers who were there to deliver reports in
decisions informed by accurate, up-to-date infor- whatever format senior executives required. Senior leaders
mation. continue to be important users of tools that drive business
performance optimization, but they are no longer the only
After the events of September 11, 2001, there was users or even necessarily the most important ones.
widespread concern about bioterrorism and viral
attacks. Rothman explains: “EMA responded by devel- Most of us have understood for some time that the types
oping the capacity to cluster patients into ‘syndromic of skills required of today’s workers differ greatly from those
groupings’”31—or collections of patients who present required in past generations. We tell our children to stay
with certain symptoms. With this capability outbreaks in school and work to increase our personal skills through
become much easier to track. The links between ongoing education and training. Indeed, job requirements
symptoms and diagnoses can then be used to flag have changed over the last forty years with the rise of
subsequent potential cases. automation and information technology and there’s little
demand for routine and manual tasks. Access to information
When it comes to data, Rothman says that more is is fundamentally changing the nature of our work.
better: “If we were purely motivated based on financial
outcomes and had purely developed a financial BI
solution, then we would not be pulling the data that
The changing nature and
we’re now using today to survey for swine flu.”32 EMA’s demographics of the workforce
centralized database becomes more effective and In their 2003 academic study, Autor et al. examined how
powerful as more symptom-diagnoses links are added. job skill demand has been altered by computer technology
Thanks to the existing infrastructure it is relatively easy over the years.36 They concluded that IT capital was substi-
to “extend capabilities, evaluate additional data, and tuting for activities involving repetitive tasks and comple-
capture new insights by applying new logic.”33 menting activities involving non-routine problem solving
and personal interaction. The implications for business
Rothman’s system provides health care profes- performance optimization are significant: these tools need
sionals with the information they need to make to address non-routine tasks and allow for new, creative
informed, critical decisions at crucial moments—all insights and competitive advantage.
without getting bogged down by mountains of data or
cumbersome interfaces. In a space where signal versus Yet, such tools must also meet the end user’s terms, as
noise can make the difference between life and death, Dave Greiner points out: “A lot of people that use our tools
EMA’s IT systems have been designed from the ground may not be frequent users. They’re not going to want to use
up to deliver timely and accurate information. “There’s a tool where they have to massage data to uncover a buried
nothing better,” Rothman beams, “than a smart, astute, message.”37 This is especially true of employees of the
connected physician.”34 Net Generation. Net Generation employees—those born
between 1977 and 1997—have grown up with immediate



BELOW Figure 3: EMA’s performance optimization systems Based on these definitions, the best person to make a
empower health care professionals to make data-informed particular decision is the individual with the best specific
decisions; Source: Emergency Medical Associates knowledge of the question at hand. Consequently, firms
are left with two options: move specialized knowledge
to existing decision-makers (which by definition is costly)
or move decision rights to people with specialized
knowledge.

Ideal degree of decentralization
While decentralization avoids the challenges of trans-
ferring specific knowledge, it does introduce a new compli-
cation: the potential for newly empowered decision-makers
to make self-interested decisions—a risk that can only be
reduced to a point with incentives and controls. Organiza-
tions must balance the benefits and costs of decentralized
decision-making with those of a central strategy and a
common customer focus.41
access to rich data; they will expect the same at work. As
employees of all ages grow accustomed to the near instant To achieve this balance, firms need to aggressively
results provided by Google and others, the prospect of a communicate the overall strategy, align incentives with the
six month reporting cycle quickly becomes archaic. Modern plan, and let the employees do the rest. Eric Schmidt, CEO
tools will need to provide all employees with visual, custom- of Google, said of his approach:
izable, and immediate access to useful information.
“Most companies use employee portals as an HR
mechanism. Here are your benefits, here are your
Benefits of decentralization vacations days, and so forth. That is the classic view
When decision-making is decentralized, responsibility and that is the wrong view. The right view is to ask
moves to a large number of individuals in the organization, ‘How can you spread information within the company
but all decisions need to be coherent and aligned with the that causes employees to solve problems without
overarching strategy. Thomas Malone, MIT Sloan faculty any executives needing to deal with them,’ sort of
and author of The Future of Work: How the New Order of a work minimization strategy for executives. Get the
Business Will Shape Your Organization, Your Management employees to do the work. It is much more efficient.
Style and Your Life, opines: “We can afford to have vastly They’re happier and I’m happier.”42
greater numbers of people well enough informed that they
can make a lot more decisions for themselves, decisions In order to determine the ideal degree of decentralization,
that, in the past, were only possible in central offices.”38 He organizations need to lower the costs of making decisions;
argues that decentralization has three main benefits:39 this is achieved by improving information and control. In fact,
it turns out that aligning execution with strategy is often
1. It encourages motivation and creativity most difficult for middle managers. It is relatively simple to
2. It allows many minds to work simultaneously on the identify scorecard metrics for CEOs and individual contrib-
same problem utors. It is often much more difficult to identify metrics for
middle managers. Therefore, success in aligning a firm’s
3. It accommodates flexibility and individualization
execution with its strategy is often achieved here.
But perhaps most importantly, decentralizing is about
aligning decisions with individuals with the skill and
knowledge to make this decision. To make an informed
Reaping the benefits of
decision, a decision-maker needs knowledge. But not all decentralization: the hard data
knowledge is created equal: some knowledge is general, or Decentralizing decision-making has a number of positive
inexpensive to transmit. For example, general knowledge organizational repercussions, as previously identified. But
can be a news story, an industry statistic, or financial results the right information technology investments can help
for a particular business unit. In contrast, specific knowledge make the most of those decentralized structures.
is costly to transmit.40 Think of the operational knowledge
that comes from twenty years of experience in a manufac- Table 2 (over) illustrates the result of a productivity study
turing environment, the knowledge to trade energy futures of 232 firms in relation to both decentralization level and IT
on an exchange, or the ability to run an IT department for a investment. First, the table illustrates that on its own, decen-
large multinational. tralization of decision-making can result in a moderate
productivity improvement of 1.6 percent. Second, it shows


8 | nGenera Insight

BELOW Table 2: Productivity Benefits of IT Investment
Case study: and Decentralization47
deriving insight From the PhysiCal High + 1.6% + 4.6%
World With reality mining43 Decentralization

Sense Networks, a company that specializes in reality Low 0 –3.7%
mining (the process of gleaning analytic data from the
real world) performed an experiment with geo-data. The Low High
firm bought access to GPS location data from several
taxicab dispatch companies. Greg Skibiski, chairman
and CEO of Sense Networks, explains: “It was real-time IT Investment
data of all the taxis moving around: where someone got
in, where they got out; anonymous trip data.”44
ization and IT investment are high, companies can expect
Analysts at Sense Networks started to construct productivity benefits of 4.6 percent, the most significant
a story from the data. They were able to infer the gains of all.
income levels of cab customers by cross-referencing
census information with cab-trip origins. The analysts Finally, in these highly decentralized decision-making
then looked at the destinations of these trips, corre- models, firms must ensure the large number of decision-
lating GPS coordinates to known business locations. makers is properly supported by the IT tools to make
Using this data, combined with the financial records better decisions. Simply put, the IT investment has a direct
of publicly traded companies, the analysts looked for bearing on the firm’s ability to deliver appropriate business
a relationship between the frequency that cabs visited intelligence.
retail locations and the financial performance of those
businesses. There was no such correlation. There was
however another. RISK AND TRANSPARENCY
“It turned out,” Skibiski recalls, “that one of the most Information is power, and if you have an informational
valuable predictors was how far people are willing to advantage, you can derive market advantage. This is
travel to get to the stores.”45 Not only were analysts able especially true when it comes to identifying new and different
to see a correlation between distance traveled and sales market opportunities and responding to them. It is also true
reported, but for the chains of retailers that performed for identifying risk (in all of its various flavors) and avoiding it.
well, there was a corresponding drop-off in sales from The goal isn’t to predict the future; rather it’s to be able to
competing companies. enumerate the consequences of what the future may hold in
order to aid decisions.
Skibiski then started investing in accordance with the
predictions they obtained from their taxi based model: The Lehman Brothers story and others like it are now the
“We did eleven stock trades based on this a couple of stuff of legend. These tales highlight the importance of risk
years ago. We nailed ten of them. That was a really great management for any layman to understand. As Robert Kaplan
proof-point for any financial services business.”46 has summarized, “Now we’re seeing the consequences of
not making risk management a strategic part of strategy.”48
While correlating GPS data to stock prices may be
outside the scope of what many firms are willing to Less well known are numerous firms, such as Pimco, that
do with their analytics dashboards, Sense Networks make decisions based on different types of risk analysis.
demonstrates the possible uses for the rich amounts of Pacific Investment Management Co. LLC, (Pimco) is one of
real-world data that will be available to the firms of the the largest fixed income managers in the U.S. In 2005 and
future. 2006, many in the organization advocated entry into the
mortgage backed securities business but Bill Gross, the CEO,
These firms will require creative insights to spot and was sceptical. He thought that if the real estate market could
capitalize on the trends in data that will determine their appreciate by ten percent in a year, it could also depreciate
competitive advantage. by the same amount—even though this had never happened
before and his staff reassured him that such a thing was
that IT investment on its own actually results in a produc- impossible. (Mark Twain once said, “It ain’t what you don’t
tivity decrease. That is, firms that invest heavily in IT without know that gets you in trouble; it’s what you know for sure
a proper organizational structure to leverage these new that just ain’t so.”)49 Nevertheless, Gross asked his staff to
capabilities, will see returns on their investments that are 3.7 run the numbers and identify what would be the effect on
percent lower than average. Finally, when both decentral- Pimco if housing prices were to decline by that much. The



answer: financial catastrophe. He passed on the opportunity importantly, this means making the process integral both to
and now looks like a hero.50 enterprise risk management systems and every component
of the business intelligence system deployment. The
Andrew W. Lo, a professor at MIT’s Sloan School organizational culture must encourage employees to bring
Laboratory of Financial Engineering, says, “If corporate concerns about risk forward early; particularly when models
leaders, portfolio managers and regulators want to make are being applied in new ways or in new service offerings.
good risk based decisions, they need to have the right It is important to model extreme events as part of the
framework to analyze the data.”51 Business performance technology development process. We have learned from
optimization systems, with their vast repositories of data the Lehman Brothers example and others that extreme
about customers, suppliers, products, finances and more, events do happen. The appropriate culture can transform
are at the heart of the risk and transparency debate. A solid battles about risk between optimists and naysayers into
technology platform is a pre-condition to transparency. a focused dialogue about the nature of risk and how to
To share information with their stakeholders, companies manage it. There are many ways to reduce and hedge risks.
first need to capture, organize and store all of the relevant It is important to consider the alternatives at the outset,
data—you can’t share and explain what you don’t have and as opposed to when an unacceptable outcome becomes
don’t understand. As David Ticoll and I noted in our 2003 reality.
book, The Naked Corporation: “If you’re going to be naked,
you’d better be buff.”52 CONCLUSIONS
The consequences of not having a single version of the Making strategy real, through the effective deployment of
truth (or of sharing the wrong one) can be dramatic. On business performance optimization systems, is no longer a
January 9, 2004, the Royal Dutch/Shell Group of Companies “nice to have” capability. At a basic level, these systems are
(Shell) announced it would need to re-categorize hydro- now a survival requirement. When executed exceptionally,
carbon reserves that had previously been disclosed. The they are also an enabler of innovation and long-term
announcement triggered a series of negative events for competitive advantage—supporting the process efficiency,
the company. First, Shell was placed on Standard & Poor’s improved insight, and flexibility, that are the backbones of
CreditWatch, and its credit was downgraded on April 19, strategic agility. Such capabilities also enable transparency
2004.53 Second, a number of senior executives resigned, and the identification (and avoidance) of risks that are an
including the group’s chief financial officer, the chairman of increasingly important component of successful business in
the Committee of Managing Directors, and the upstream the modern era. Smart firms are embracing business perfor-
division’s chief executive officer. mance optimization systems and are already beginning to
enjoy the competitive inside track.
In 2007, at Société Générale, trading irregularities were
not reported to bank management by staffers who noticed
them because, as a report by the Bank’s own investi-
gators noted, “This was not specifically a part of their job
description.”54 The Bank later reported a $7.3 billion loss,
which was allegedly due to unauthorized trades by one
employee, Jérôme Kerviel.55

The fact that enterprise risk management (ERM) capability
is no longer a “nice to have” but now a “must have”
capability is highlighted by the fact that last May, Standard
& Poor’s announced that it would start incorporating ERM
into discussions with companies that it rates and might
soon begin to score companies based upon ERM. The
move sent a strong message to enterprise business and
technology leaders: Stop procrastinating and get your ERM
act together ASAP.

How do you anticipate events that by definition are hard
to predict? Firms must start by creating an organizational
culture that encourages employees to take ownership of
risks and weigh them against potential rewards. This means
providing the appropriate tools to enable modeling risks
and analyzing their business impact. While individual events
may be difficult to anticipate, it’s nevertheless helpful
to have an understanding of their consequences. More


10 | nGenera Insight

ENDNOTES
1 Robert S. Kaplan and David P. Norton, The Strategy-Focused Organization, Harvard Business School Press, 2000.
2 “Economy in Worst Fall Since ‘82,” Wall Street Journal, February 28, 2009, www.online.wsj.com.
3 3 Ibid.
4 Christina Torode, “Balanced Scorecard founder: In recession, think risk management,” Search CIO, March 17, 2009,
www.searchcio.com.
5 Catherine Clifford, “Jobless claims: It’s still tough out there,” CNN Money, May 21, 2009, cnnmoney.com.
6 Alkman Granitsas, “ECB Provopoulos: Financial Crisis Is Still ‘Unfolding,’” Dow Jones Newswires, May 27, 2009, www.
nasdaq.com.
7 “Worldwide mobile cellular subscribers to reach 4 billion mark late 2008,” International Telecommunication Union,
September 25, 2008.
8 Alex Pentland, “The Nervous System of the Human Race has Come Alive,” What Are You Optimistic About, Harper
Collins, 2007.
9 Matt Rosenberg, “Life Expectancy,” About.com Geography, August 17, 2007, www.geography.about.com.
10 U.S. Census Bureau, International Database, 2009 via www.infoplease.com.
11 “The Swimming Naked Awards,” The Economist, December 16, 2008, www.economist.com.
12 Daniel Carty, “Dow Jones Boots GM, Citibank,” CBS News Blogs, June 1, 2009, www.cbsnews.com/blogs.
13 Rahm Emanuel, “Rahm Emanuel on the opportunities of crisis,” The Wall Street Journal Digital Network, November
19, 2008, www.WSJ.com/video.
14 “The Science in Science Fiction,” National Public Radio, November 30, 1999, www.npr.org.
15 Frank Tortorici and Linda Barrington, “Weakening Global Economy and Growing Financial Pressures are Increasing
CEO Concerns,” The Conference Board, December 2, 2008, www.conference-board.org.
16 Thomas H. Davenport and John C. Beck, The Attention Economy, Harvard Business School Press, June 2001.
17 “Worldwide Economic Crunch Forces Enterprise Infrastructure Software Growth to Slow, 2008-2013,” Gartner
Dataquest, April 9, 2009.
18 Interview with, Dave Greiner, Data Czar for Siemens Healthcare in the US conducted by Paul Barter and Jeff
DeChambeau, nGenera Insight, June, 2009.
19 Marissa Mayer, “Data is Apolitical,” Stanford University’s Entrepreneurship Corner, May 17, 2006, ecorner.stanford.
edu.
20 Peter F. Drucker, Management: Tasks, Responsibilities, Practices, Harper & Row, 1974.
21 Timo Elliott, “Data Quality and Bandit Sheep?” BI Questions Blog, February 29, 2009, www.timoelliott.com.
22 Interview with Dave Greiner, data czar for Siemens Healthcare in the U.S. conducted by Paul Barter and Jeff
DeChambeau, nGenera Insight, June 2009.
23 Ibid. Interview with Bruce Rogow, principal of IT Odyssey, conducted by Paul Barter and Jeff DeChambeau, nGenera
Insight, April 24, 2009. Bruce heard this anecdote in 1969.
24 Robert S. Kaplan and David P. Norton, Strategy Maps. Harvard Business School Press, 2004.
25 Ibid.
26 Each year, Bruce J. Rogow visits 120 IT executives under his IT Odyssey to develop a real time and broad perspective
on how organizations are getting the most from their IT investments.
27 Interview with Bruce Rogow, principal of IT Odyssey, conducted by Paul Barter and Jeff DeChambeau, nGenera
Insight, April 24, 2009.
28 Ibid.
29 Interview with Jonathan Rothman, director of data management, Emergency Medical Associates, conducted by Paul
Barter and Jeff DeChambeau, nGenera Insight, April 29, 2009.
30 Ibid.
31 Ibid.
32 Ibid.
33 Ibid.
34 Ibid.



35 Don Tapscott and Steve Elmore, “Managing Enterprise Information: Architecting for Survival and Positioning for
Success in Tough Times,” nGenera Insight, March 2009.
36 David H. Autor, Frank Levy and Richard J. Murnane, “The Skill Content of Recent Technological Change: An Empirical
Foundation,” The Quarterly Journal of Economics, November 2003.
37 Interview with Dave Greiner, Data Czar, Siemens Healthcare, conducted by Paul Barter and Jeff DeChambeau,
nGenera Insight, May 29, 2009.
38 Thomas W. Malone, “Ten questions: Faculty report from the frontier of management,” MIT Sloan, March 2005.
39 Ibid.
40 Michael Jensen, Fundamentals of Organizational Strategy, Harvard University Press, 1998.
41 Louis V. Gerstner Jr., Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround, HarperBusiness, 2002.
42 Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business,
Free Press, 2003.
43 Interview with Greg Skibiski, Sense Networks, conducted by Alan Majer, nGenera insight, April 14, 2009.
44 Ibid.
45 Ibid.
46 Ibid.
47 Chiristina Torode, “Firms urged to keep an eye on risk management in times of crisis,” Enterprise Innovation, March
27 2009, www.EnterpriseInnovaiton.net.
48 Erik Brynjolfsson and Lorin M Hitt, “Beyond the Productivity Paradox,” Communications of the ACM, Vol. 41 No. 8,
August 1998.
49 “Mark Twain” WikiQuote, retrieved May 28, 2009, www.en.wikiquote.org.
50 “The Opportunities Brought to you by Distress,” MIT Sloan Management Review, Spring 2009.
51 Ibid.
52 Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business,
Free Press, 2003.
53 Standard & Poor’s Credit Rating,” Shell Press Release, April 19, 2004.
54 Jonathan Rosenoer and William Scherlis, “Risk Gone Wild,” Harvard Business Review, May 2009.
55 Ibid.


ABOUT THE AUTHOR
AUTHORS

Don Tapscott is one of the Paul Barter has been an
world’s leading authorities executive analyst with
on business strategy, with nGenera since 2005. Paul
emphasis on how informa- has authored and co-
tion technology changes authored several nGenera
business, government, and papers including “Rethink-
society. He is the author or ing Business Intelligence,”
co-author of 13 widely read “Platforms for Innovation”
books, including Wikinom- and “Marketing 2.0: Be-
ics, which was the best yond Pops and Clicks.” Paul
selling management book has over 25 yearsof experi-
in the United States in 2007 ence in the IT product and
and is now translated into services sector with firms
22 languages. He is Chair- such as Compaq, General
man of nGenera Insight, a Electric and T4G Limited. In
global business innovation addition to industry experi-
company, headquartered in ence in sales, marketing and
Austin, Texas with offices in strategy development, Paul
the U.S., Canada, and the also teaches E-Commerce
U.K. Don directs several of Marketing and Technology
nGenera Insight’s research Strategy in the MBA pro-
and education programs, gram at the York University
which serve a marquee list Schulich School of Business.
of Global 2000 customers. Paul studied Engineering
Tapscott is also an adjunct and Economics at the un-
Professor at the Joseph L. dergraduate level and holds
Rotman School of an MBA from the North-
Management at the western University Kellogg
University of Toronto. International Executive MBA
program.

I am grateful to Paul Barter, Alan Majer, Bob Morison, Naumi Haque, Ian Da Silva and
Jeff DeChambeau of the nGenera Insight Team for help in researching, reviewing,
and editing this paper and I also thank SAP for their financial support of this project.
However, the views expressed are my own, and I and nGenera take responsibility for
the opinions expressed herein.

Don Tapscott, Chairman, nGenera Insight


Making Strategy Real

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