The corporate world is changing. The biggest firms in the world are almost entirely public corporations, and an every smaller number of the largest firms are privately owned. Of the largest firms in America, the top five public firms are about four times larger than the largest private firms. This pushes more and more people and processes into the public camp. Unfortunately, the last couple of decades have had too many stories about high quality firms that have gone under because they were not efficient enough (how many department store and supermarket chains are gone?), or lacked transparent in their operations (Enron?) or were change leaders who didn’t change fast enough (Blockbuster, Circuit City, CompUSA). Shareholders have put increasing pressure on big firms to be more professional and have fewer unexpected results. Add to this a long period of merger-mania that has made the largest firms larger than ever. And of course the drive towards international operations. It’s increasingly difficult to tell which firms are American, or British, or Chinese. Every large firm has some operations in another country, most recently that means a distant location that can exploit markets in and around India and China.
All of this is interesting, but how do these changes affect you? What these changes mean to you is that these four concepts are now front and center on your agenda: Regulation, Transparency, Qualification, and Standardization. Let’s break it down:
- Regulation: A public company agrees to a higher degree of regulation than a privately held firm; it’s a requirement to be a public firm. However, there have been many spectacular failures of this regulation in the last few years, and regulation is on the rise. Remember, regulation doesn’t just come from the government. Stockholders, internal regulators, and other groups. The more general regulation, the more it puts a burden on every service group. Consider how every time a Wall Street firm has a possible breach in confidentiality (such as insider trading) the ripples look like this: Have all employees received confidentiality training (HR-Training); are documents treated with confidentiality (document and copy centers); are corporate computers secure (IT department); do you control visitors in your building (facilities, building security, conference center management); how are temporary workers managed (HR, Procurement); are all papers destroyed before they leave your workspace (?). This is just one tiny example.
- Transparency: In order to regulate a firm, you need to know what everyone is doing. As firms become larger, it is increasingly difficult to know what everyone is (or is not) doing. That’s one of the reasons why the need for meaningful reporting… meaningful reporting… is increasing. You don’t just need to provide more information, more individuals need to have access to this information. As you may have noticed, the more you can report, the more you will be asked to report. This is a good thing. If your reports are better than any other source, then your data may be a proxy for something larger. For example, the activity in the document center may be a proxy for overall corporate activity in a Legal or Investment Banking firm…. but it may require greater detail (different documents may be associated with new accounts vs. ongoing account work)and greater resolution (perhaps weekly reports instead of monthly, or reports by user sub-groups).
- Standardization: It’s great to have everyone report information, but do any two groups make the same assumptions in their reports, or use the same terms the same way? It’s common that when there is some sort of improvement or positive thing to report, MANY groups may each take full credit for it. Because of the way that firms are built in silo’s and given the way that incentives are provided to managers. That’s OK when you’re just looking at one group, but when you look at the entire firm as one operation a $1,000 cost saving looks like a $10,000 saving. And of course if one manager’s claims to have created a saving, will a second manager (claiming the same saving) even be aware of a conflict over the credit? Individual reporting systems are getting linked up. Methods of reporting are becoming more standard. With standard terms and measures across a firm, there is a multiplier effect in transparency. Now you not only see more, you know what you are looking at.
- Qualification: Most support services used to be learned through on the job training (OJT)on the job. That’s still largely the case, but today you need verification of your abilities. In part this may come from an internal assessment, but in part it needs to come from an external source… from an educational facility or a certification body. When a profession is relatively new, there are few external sources for training or certification. Look at IT. There were technical colleges 30 years ago, but the profession grew so explosively and in so many different directions, that OJT outpaced external certification. Now there are many different specific school degrees and certifications that apply to different aspects of IT. Everyone needs to show more documentation of their qualification to do their jobs than ever before. Documentation of qualification is another form of transparency, although both the value and the limitations of qualifications are often misunderstood. Still, qualifications provide a “shorthand” that indicates the level of knowledge in a group.
Let’s put these separate concepts together. As your firm gets larger and is under more pressure from stockholders for profit and transparency, as regulators also increase reporting needs, all units will be required to report more… which leads to still more reporting. As all units of the firm expand their reporting, reports will need to be more meaningful and more integrated, using the same terminology and methodologies for reporting. This will work together with a push or more standard qualifications, which will infuse your firm with more people with similar educational and training backgrounds (Six Sigma, PMP, Agile, Prince2, etc.), reducing barriers to communication. However, isn’t one of the reasons why we all limit our reporting that some people might not understand the inner details of how we work? They might make superficial observations and look for changes that aren’t good for my group? Even if I want to be transparent, if too much information is available, won’t I spend my entire life just defending how my group works?
These are legitimate concerns. The reason that most large firms have divided their business into different silos is so that each business can do what it does best, in its own way. But due to all the changes we’ve been discussing, there is a push towards breaking through silos… which are more likely to be seen as barriers to profitability than as useful structures for managing a business. The secret to successfully managing in 2011 will depend on your ability to embrace these changes, but still maintain control of your operations. And that is a great subject for tomorrow’s Blog. But for today, that’s my Niccolls worth!