The concept of governance has taken on new forms and broader definitions over the past decades. As a result of continuous changes in the business and operational landscape, there are several definitions in use – corporate governance, program governance, IT governance, marketing governance, financial governance and of course, global governance.
Even as the various models serve specific needs, a simple yet powerful model can be defined in terms of the following two goals:
- Operational Excellence: Are we properly executing what has already been chartered? How are we measuring this and how well are we taking corrective actions when we see a deviation?
- Future Orientation: Is our charter still aligned with what we should do in the future? How are we measuring this and, how well positioned are we, to take advantage of the future landscape in business? Future orientation has a strong relationship with risk management.
Monitoring with an eye on the goals
At the simplest level the measurable areas are marketing, sales, technology, customer service, operations & finance. At this level, the metrics relate to how well we are doing. Examples include:
- Are we continuously improving our campaign conversion rates?
- Are we reducing our unit operational and technology costs each year?
- Are we improving customer retention rates?
- Is the time to market reducing on a relative basis?
- Are revenues per customer increasing?
- Are we increasing revenues in the areas defined to be of strategic importance?
Operational excellence is strategically important because it also demonstrates how well the firm can move as it evolves with the market. Cohesive, integrated, well monitored operations are essential not only for strong P&L performance but also, to identify inclination for the future.
Although an organization may excel at operations, future orientation is a critical aspect to ensure that the organization is moving in the right direction. Failures in this governance aspect can be disastrous as proven by the present day industry landscape. The objectives of Future Orientation can be achieved by scanning the market and re-creating (not validating) the vision for two, five and ten years. The most pertinent questions are:
- Are our products evolving in the right direction? Are they still relevant?
- Are we reaching our customers through the right channels?
- Are we striking the right partnerships?
- Is the regulatory framework changing?
As these questions demonstrate, Future Orientation is a more subjective process. It’s easy to interpret the data and trends and reach the wrong results. Microsoft, Nokia and Sony seemed strong a couple of years ago, but do they still enjoy that position? Maybe, but a change is sweeping through their industry which they must counter. Yahoo and Kodak went through the same uncertain stage eight years ago. Most IT services firms now include specialization and benefit-driven services to the list of generic and on-demand IT services. Those that still believe that IT services is about providing technical services to support business projects and cost reductions,may see themselves relegated to the commodity level. Banks felt that they could get around the Durbin amendment by setting direct fees on debit cards, ignoring that this was a sign of changing times, and the entire revenue model needed to be examined and strengthened. Credit card companies still see mobile and online as alternate channels even though their entire interchange fee and credit model is apparently at risk.
Metrics from Operational Excellence may indeed serve as leading indicators but they do not provide the entire picture, especially when the playing arena itself is evolving. Atop down approach that is broader works better, because it encompasses aspects that the firm may not even be measuring at the time.
The Next Step
An obvious next step is to define the individual metrics under the various measurable areas. For most firms, it should be a matter of consolidating these under a common and strategic umbrella. Future orientation must be prioritized. Entire business models, regardless of the industry, are changing due to technology and market evolution. Evaluate risks and opportunities first, because they will likely define your operations and investments over the next period of change. Do share your thoughts on this.