Thursday, June 23, 2011

Why good companies create bad regulatory strategies

By: Thei Geurts

In the McKinsey Quaterly, June 2011 edition, Andre Dua, Robin Nuttall, and Jon Wilkins discuss possible reasons why good companies create bad regulatory strategies. The authors argue as follows:

“The field of behavioral economics is rapidly making its way into the tool kits of regulators. In stark contrast, we’ve rarely heard, in our work with more than 300 companies over the past three years, a senior executive consider the impact that cognitive biases might be having on his or her company’s regulatory posture. That’s understandable—people don’t like to think about the mistakes they could be making—but it’s also a missed opportunity. Our sense is that looking at regulatory strategies through the lens of behavioral economics can help clarify the missteps corporate leaders make and the corrective measures they should pursue.

We’re not suggesting that leaders are downplaying the importance of setting an effective regulatory strategy. On the contrary, in a survey of roughly 1,400 global executives we conducted in January 2011, more than half of all respondents agreed that governments and regulators will be among the stakeholders with the biggest economic impact on their companies over the next three to five years. An even larger proportion expects governmental involvement in their industries to increase over that period—all this despite recent conservative shifts in the United States and the United Kingdom.

Nonetheless, a surprising number of corporate leaders and companies continue to take positions that may seem credible internally but are totally incredible to outside observers and regulators. Simply put, there’s a disconnect between external perceptions and internal beliefs that often undermines efforts to engage productively with regulators. For evidence of this disconnect, consider some other results from our January 2011 survey. Seventy-six percent of global executives responding said they believed that regulators would rate their companies’ reputations as positive. Yet less than a quarter said that their companies frequently succeeded in influencing regulatory decisions. These executives think they’re doing right in the eyes of regulators, but their own, self-reported results say otherwise…”

“A related challenge for companies in regulatory strategy is putting themselves into the shoes of policy makers…”
“Another issue for regulatory strategists is the prevalence of “stability” biases that create a tendency toward inertia. The impact of such biases is acute in regulatory settings because the typical career track of successful executives in many industries—save highly regulated ones, such as telecommunications or electric utilities—doesn’t involve exposure to government issues. As a result, those executives often are personally ill-prepared for shifting political winds that boost the importance of regulatory issues and are prone to underinvest in the regulatory skills of their organizations or to delegate without exercising sufficient oversight. That’s one explanation for the frequency with which companies must rapidly scale up their government-relations function when they or their industries enter the crosshairs of regulators—a phenomenon we saw during 2009 and 2010 as the US health care reform debate heated up.”

Source: Why good companies create bad regulatory strategies
About the authors: Andre Dua is a director in McKinsey’s New York office, Robin Nuttall is a principal in the London office, and Jon Wilkins is a director in the Washington, DC, office.

These arguments led to the following comment by the Be Informed International Business Development Consultant Thei Geurts. The comment is after scrutiny published in the McKinsey Quaterly on the 15th of June 2011.

“Reading this article makes one wonder what the state of companies’ internal regulatory mind-set really is. How sophisticated are their systems for translating strategic goals into policies, of tracking and measuring the output of these policies, of establishing a well-functioning continuous feedback loop, and of using predictive analysis? One may expect a serious gap between strategy and execution, because internal and external strategies require similar attitudes, capabilities, methods, and tools. As in the public sector itself, it must be quite difficult to close the gap between purpose and practice in these circumstances. In other words, one is tempted to assume that creating bad external regulatory strategies could be directly linked to having bad, or at least weak, internal regulatory strategies. By experience I have seen that there are ways to tackle this problem once it is understood and once the company has the capabilities to visualize, perform, and execute the solution.”

“Do you see this connection between external and internal regulatory strategies as well?”

Friday, June 17, 2011

Be Informed to be measured in Function points

By: Willem Dicou

Function Point Analysis (FPA) is a method for measuring the functional scope of an information system, by looking at relevant user functions and (logical) data collections. The unit of measurement is the Function Point (Fp), which can be used in various ways.

A widely used application of FPA is making estimates for system development. The costs for building a system are related to its size: the larger the system, the more expensive it will be. From past experiences we know how many hours it takes on average to realize a function point: the production standard. Subsequently it is possible to calculate the value of a system and compare it to the price it was paid for.

The NESMA (Dutch Software Metrics Association) developed counting guidelines that in 2003 were certified by ISO as an official ISO standard. Basis for the Standard are the NESMA FPA counting guidelines as expressed in the “Manual of counting guidelines for the definition and application of function point analysis”. The standard is known as NESMA ISO / IEC 24570 and is now used in many countries worldwide.

Based on these standard guidelines, Be Informed created a directive by which systems developed using the Be Informed Business Process Platform can be measured, in both the preliminary stages based on the Be Informed Pattern Engine, and subsequently using the models stored in the repository. This directive has been validated by Galorath, an internationally renowned company in the field of software metrics.

Measurements of actual systems show that it is possible to reach a four to five times better score per function point using Be Informed. These results are already significant, but are even more remarkable when we consider that function points within Be Informed are not only used in building and testing, but in the "full life-cycle" of implementations.

Thursday, June 9, 2011

Business and IT Alignment

By: Frank Buytendijk, chief marketing officer

I recently received a promotional email for a "masterclass" on business and IT alignment. The training promised answers on the following questions: "how do you know your IT strategy is aligned with your business strategy?", "how can you put together a governance model that ensures IT follows the business?" and "Pitfalls and success factors".

I checked, the email wasn't from 1983, but seriously from 2009. How can we still have that discussion? Has nothing improved in the last 20 years? And moreover, how can business/IT alignment be so misconceived?

First of all, let's define alignment, this is usually skipped already. From a social-psychological view, a person is aligned when the self, self-perception and external perception closely match. The self-perception is how you look at yourself, and the self is who you really are. If there is a mismatch you could become delusional, frustrated, and generally uncontrolled. You don't understand yourself. If there is a big gap between the self and self-perception, and the external perception, people expect you to be someone that you are really not. This leads to role distance, and unauthentic behavior too. The same can be said of organizations. If there is a big gap between true organizational behavior and who we think we are, we are kidding ourselves. Did you check out your mission statement and values lately? And if there is a big gap between external perception and the organization's true motives, you spend more time figuring out how to spin your strategy externally than actually executing on it. Quite dysfunctional.

Same with business/IT alignment. Like any relationship, it needs to come from both sides. Business perception about value needs to match the IT perspective. But... functional relationships should be based on equality. If both parties agree that IT should follow the business, you're in a dependent, submissive relationship. Not mature.

Business needs to align to IT, as much as IT needs to align with the business. It's a two way street. The nature of technology dictates so, for starters. If you are a carpenter, and you buy one of those circular saw tables (new technology), you'd better organize your process and work around that table, instead of lifting the table to go to the wood. If IT were to follow the business, deleting text on a screen would have to be done with Tipp-ex. The whole point of technology is to not align with the business, but to bring innovation. New, different, better ways of working. If anything, business should align to technology in order to be more successful. In fact, secretly we do so already. It has become a best practice to adapt the business to the processes built into the ERP system and CRM application, and rightly so.

Then, let's discuss Business/Business alignment. How many times is IT struggling with suboptimal business cases, based on budget held by the business, by having to put in a departmental solutions, because each department is "unique"? IT is often found to be "nerdy" and having "no sense of urgency" for talking about architecture and infrastructure. True, IT driven projects are usually not very successful (the business will see to that), but the only thing worse is a business driven project. Short-term successful, but ill-architected, nothing repeatable, and lots of them combined form one big negative ROI in two years down the road. It is the role of IT to see commonality between functional requirements, and take an integrated approach. It would be a lot easier if the business departments would align with, well, the other business departments, instead of IT having that struggle all the time themselves.

And, while I am on the subject, it's a pity if organizations are still discussing business/IT alignment. The real battlefront has moved on already. The name of the game is value chain integration. Aligning all stakeholders around a successful and sustainable business model. Making sure partners, suppliers and channels all benefit from integrated logistical and administrative flows, while taking into account the requirements of investors, regulators, and society at large. This is how alignment contributes to the business strategy.

But perhaps we should start with something else. Remember the definition of alignment. The self, self-perception and external perception need to closely match. Perhaps the real problem is the gap between self and self-perception. IT people sometimes think too little of themselves, and desperately want to be seen as a 'business partner' and considered of strategic importance. Don't worry. You are. Because of the nature of technology. And IT people sometimes think too much of themselves, claiming they understand the business better than the marketing, operations or sales executives. Don't kid yourself. When was the last time you talked to a customer, and constructed a multi-year deal? Think of yourself as who you really are: at the core of business innovation, while at the same time making sure the business runs smoothly.

Thanks for listening. Rant over.