Corporate Culture

This question posed in a discussion forum made us pause and think:

“Bosses think their firms are caring and “values-driven.” Their minions disagree. I think it’s hard from top-down, policy-driven firms to switch to values-driven because even the values are enforced top-down and bosses who have never listened carefully to their employees don’t suddenly start to do so – thus, they never know if their values have caught on or not. What do you think?”

Firstly we need to define Values – We will use it in this post in its economic sense, such as Economic Value Added, meaning that both value creation, return and risk evaluation is as such is ‘built into the value based system’.

Most corporate managers / leaders would probably understand values in terms of two different contexts:

  1. Values as guiding principles, morals, a ‘code to live by’, etc., shaping behaviours and norms
  2. Value in terms of the standard Du Pont analysisReturn on Investment (ROI) calculation methodology.

The third (and probably not last) way of viewing the values question is the economic value added approach, capturing:

  1. Economic Profit (including risk)
  2. Guiding principles and behaviours – the bottom up doing the right thing all the time view

Turning to values as a guiding principle, these are the ‘feel-good’ words and phrases we stick on corporate office walls, the intra- and internet “connecting” people inside and outside the organisation to the “emotional-side” and binding them together.

This is the way we believe the Value question has been posed.

Here we have the problem of the ‘generals in the tents’ versus the ‘generals in the trenches’ scenario.

The generals in the tents believe what their eyes and ears are telling tell.  “People look and sound happy, so they MUST be happy”.

The generals in the trenches believe what they ‘feel’ and experience everyday in their leadership roles amongst the ‘troops’ and employees they serve with are the real true values of the organisation.

This is where a disconnect manifests itself.  The two types do not see eye to eye or understand each other.  Charts, reports, statements, observations, facts separate the general in the tents from the raw emotions, feelings, qualitative experiences and ‘Values’ of the general in the trenches.

When they meet to talk, the language and behaviours each other uses and displays are different.  They don’t understand each other and each side leaves the conversation with a sense of an ‘unaccomplished mission’ and frustration.

To conclude and draw this ‘Values’ post together:

Right from the off, there is potentially a misunderstanding as to what is exactly meant by Values.  The corporate leadership may think, warm ‘fuzziness’ or hard numbers and return on investment, yet the employees and middle management layer think, “squeeze some more, but keep on smiling, here they go talking about values again and all I want is some certainty and job security…”

Finally, there has to be the recognition that culture and culture creation in organisations is not easy.  (We are not even talking cultural change here yet).

If it was, then it would obviously not be a problem.  There are many more factors and dynamics at play, so hopefully your question sets off an interesting discussion.

theMarketSoul ©2011


Risk-Based Change Management


Cost cutting has been a priority in the private sector, ever since the financial credit quake started in 2008, yet the words currently are ‘austerity measures’ and budget cuts in the public sector.

Most of the cost cutting in organisations has been along the tactical and operational lines and we believe that in the ‘age of austerity’ we are within, revisiting cost cutting from a more strategic perspective would add significant value to both the private and public sector organisation alike.

Budgeting (Photo credit: RambergMediaImages)

A Zero Based Approach

Within most organisations budgeting and budget setting is an incremental affair.  It is very much focused on a business as usual mentality and the status quo is rarely questioned or scrutinised with any level of depth and rigour, as long as the financial plan delivers the numbers senior managers anticipate and the investor community expects.

Yet this is exactly the kind of ‘tyranny of the status quo’ that has destroyed a significant proportion of value in organisations over the past two years.

A zero based approach addresses some of the short comings associated with incremental budgeting and financial planning.  It is by no means a perfect replacement for incremental budgeting, it cannot address all the strategic issues and it is fraught with its own pitfalls, yet we assert that a focus on some recent lessons learnt in organisations that have implemented cost cutting via a zero based approach can add value to our clients budgeting and financial planning systems.

Zero-based budgeting can be summarised as the process of preparing financial plans from a change perspective, normally building the financial plan from scratch (the zero base), viewing the process as if the organisation has not delivered the particular service of product in focus before.

Some of the lessons learnt are briefly listed below:

  • Many versus few – Instructions and the interpretation thereof by individual users

    Journal of Human Capital
    Journal of Human Capital (Photo credit: Wikipedia)
  • Focus on the Full Time Equivalents (FTEs)  and people cost early in the process
    • Check Payroll Data integrity
    • Understand thoroughly the organisational restructuring issues (get Human Resources understanding the financial budgeting language early in the process)
    • Ensure a distinction between building a Business Case versus Budgeting
    • Confidentiality (how, who, what and staff and managerial morale implications)
  • Education process and ensuring skills, knowledge and information convergence to ensure the budget is delivered as a value added ‘conversation’
  • Appreciation of management style versus timetable for budget delivery
  • Over communicate (more information is better than more or inadequate assumptions)
  • Concentrate on the budget story (strategy and changes) and ‘hang’ the budget numbers on the end of the storyline (Making the budgeting process less ‘threatening’ to budget owners)

These lessons can be separated into two distinctive themes, namely the Human Capital dimension and the Systems issues.

Themes to be aware of

As far as the Human Capital dimension is concerned the major lesson is to ensure that both the budget holders and prepares are fully cognisant and understand the language of both budgeting and what the inherent risks and concerns around a zero-based approach is.

Key issues and risk are around work stream teams from different disciplines (HR, Finance, Operations, IT and marketing) not always having a common language and frame of references for similar linguistic terms and phrases.  Ensure that potential for misunderstanding the objectives and delivery mechanisms are addressed early in the Zero Based Budgeting approach.

Foster a culture of empathy within the management ranks and never underestimate the emotional impact that getting rid of people can have on both the managers having to make the tough calls and both the staff being called upon to leave and the staff morale of the people earmarked to remain behind and deliver the business as usual processes.

As far as the Systems issues are concerned, ensure that enough time and preparation goes into the planning and delivery of the Zero Based Budgeting mechanisms and tools, as you will be running a process that has not been utilised and thoroughly tried and tested under operational conditions before.  There are risks in the following areas to be aware of:

  • Data integrity
  • Spreadsheet modelling and calculation errors
  • Documentation and the support services (handling budget holder queries and concerns)
  • Skills and knowledge of the budget holders and preparers might be limited
A diagram showing the flow of knowledge in the...
A diagram showing the flow of knowledge in the Financial Planning Profession (Photo credit: Wikipedia)


As was suggested in the Lessons Learnt listing above, over communicate with managers, budget holders and preparers and staff.  Ensuring that adequate information is made available in comprehensible and non-technical language is the key to success.  Too often we have seen ‘lazy’ and shortcut assumptions being made, when a little bit of extra effort, ‘digging’ and asking the right people with the operational knowledge the right questions would ensure a more robust and rigorous budget.

Finally, ensure that both the process and outcomes are well documented and articulated as they serve as your shield and defence when the reality does not turn out as the best laid financial plan might have anticipated.

We view Zero Based Budgeting as a risk-based change management tool that assists and informs the senior managers in any organisation of the opportunities and risks inherent in designing and building innovative change processes to help add value to the organisation’s overall performance.

At theMarketSoul ©1999 – 2011 we have practitioners available who can assist you on a consultancy basis to operationalise the full 360 degree Financial Management practices most organisations require in order to ensure that they remain competitive, profitable and continue to create value.

Risk Management Ideas

Risk has as one of its essential elements TRUST as a foundation.

Trust on the other hand has many other factors that interplay and interact on it.

Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists.  Market participants step in to fill this ‘needs’ void.

English: Risk management sub processes
Image via Wikipedia

As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk profiles, risk attitudes, risk systems, etc., but an important part of the process is stepping into the realm of uncertainty and looking outwards and the wider market context we find ourselves in.

Being too prescriptive about the individual risk profiles and control systems will only stifle innovation and growth.  Some say we need a very healthy dose of growth right now, whereas others are content with the new world order of the ‘anti growth economic’ bias (our description of austerity) we have already entered in the Western Hemisphere.

Our positive risk management framework, also known as Value Oriented Risk Management encapsulates both risk and uncertainty management and combines it with the best offerings of Value Based Management.  (For more information or to contact us, please click on the Contact us link or read the article entitled “The Intersection – Where Risk, Value & Reward link by clicking on the embedded link.

Our Value Oriented Risk Management is the positive Risk Management focus, acting as an enabler ensuring that you unlock value in your organisation a midst the regulatory compliance constraints added to your management agenda.

TheMarketSoul ©2010

The trouble with Innovation – Part 4

Risk!  This will be the main theme of this part of the series we are investigating.  As highlighted in part 3 Risk Management and Sustainability are key factors to consider in unleashing Innovation and creativity in the organisation’s life cycle.


However, in the word life-cycle we already have a clue as to the inevitability of decline and ultimately the death of the enterprise, per se.


In the current climate, Risk Management has a pure Compliance and Regulatory connotation.


We assert that there are two sides to the Risk Management coin:


A Negative and Positive approach to Risk Management.  In the negative worldview, risk is associated with mitigating and loss prevention strategies, namely compliance and regulatory requirements in addition to downside risk alleviation.


A Positive Risk Management framework would look to the up side and Value Creation potential of enterprise governance frameworks.


The overall philosophy and practical application of the model is embodied  in a sound risk management framework underpin by the convergence of Internal Auditing and Financial Controls and the Value drivers inherent in the Value Based Management approach, namely

(1)    Creating Value

(2)    Managing Value

(3)    Measuring the Value created

The focus in measuring and managing for value and thus superior organisational performance is encapsulated in performance and investment drivers such as:

  1. Sales Growth
  2. Operating  Margin
  3. Cash Tax rates
  4. Fixed Capital Investment
  5. Working Capital Investment
  6. Cost of Capital
  7. The Planning Period


Creating Value


The departure point in creating value ultimately has to have Innovation as one of the factor inputs required to create Economic Value in any organisation.  This in combination with other economic factor inputs such as capital, land and labour are the foundation building blocks of any organisational sustainable growth approach.


Therefore, combining resource inputs such as capital and labour with innovation, in the right mix and during the right time frame are the sustained growth drivers in any organisation.


In the next article in this series we will address the next step in the Value Based Management framework, namely ‘Managing Value’ and the further step of ‘Measuring the Value created’.

theMarketSoul ©2010

What do you do?

One of the comments we picked up on during the CeBIT 2010 fair was this:


IBM @ CeBIT 2010, Hanover, Germany
Image via Wikipedia

At around 80% of the exhibitor booths it is very difficult to figure out what the company does or sells.


Now we might split hairs over the accuracy of the 80% estimate, but we want to focus on the underlying theme in the message.  Are you making it clear exactly what you do?


And this is exactly where we run into some major difficulties.  There are a multitude of issues and factors to consider in marketing what we sell or do.


However, what we have experienced in the past is that it is mostly a process drive issue.  If you sell only one or two products or service lines you focus almost exclusively on the customer or client.  Transform the organisation into a multiple portfolio product and services supplier and the situation is vastly different.  It has something to do with the organisational life-cycle.  Mature organisations are so often tied up in bureaucratic inward focussed processes that they lose sight of the ultimate objective of serving their customer base as effectively as possible with internal processes promoting efficiency.


However, what tends to happen is that the customer gets neglected, the sales message distorted and the internal political processes and empire building takes over.  Egos drive the internal bureaucracy, the buck gets passed from silo to silo and the organisational drift away from value creation is well and truly established.


And not focussing on the key sales message of what we offer our customers and the consumers in large is very evident in your display and ‘sales pitch’ at exhibitions and fairs.


Therefore, go back after the event; think about the core purpose of value creation, value management and value measurement the mantra of Value Based Management and combine this with a Risk Based Approach to managing the processes and get everyone in the organisation to understand and apply Value Based principles so that you can serve you true constituency, namely your customers first.


This will please the shareholders as economic value gets created and the other stakeholders will benefit in proportion as long as the focus is in the right place.


Remember that a Value Based Management approach has a key value driver focus and it is both a skill and art in getting the balance right.  In future articles we will elaborate on the seven key value drivers which underpin the Value Based Management approach.


Facteurs de performance
Image via Wikipedia

We want to conclude the ‘What do you do?’ question with a short note on performance management and bonuses.  At a broad level part of the issue underlying performance bonuses is that the focus is mostly on divisional or individual business unit performance, rather than on enterprise performance.  Again the epitome of the silo and bunker mentality.  Unless the enterprise can thrive and is sustainable, it does not matter how successful the individual business unit or division is.  Successful business units can always be divested of if the choice is made by the executive leadership team and then the unpleasant consequences of dancing to new master’s tunes are an inevitable opportunity cost to individuals.


So rather than fall into the trap of financial underperformance, wasted energy and frustration, ensure that we understand Enterprise Value Creation and Enterprise Value Measurement, to ensure longer term sustainable business practices.


English: Cover for Sustainable Business Booklet.
Image via Wikipedia

theMarketSoul ©2010