Paul Kearns
Director, PWL and author of
‘The Value Motive’
www.paulkearns.co.uk

Five Principles of EBM -

#1  Face the hard facts, and build a culture in which people are encouraged to tell the truth, even if it is unpleasant

Those of us committed to evidence-based management, the truth seekers of the business world, would be horrified at the prospect of inviting the legal profession in to adjudicate for us on what constitutes the truth about management effectiveness. Nevertheless, we would do well to take heed of one of their guiding principles; that no sound case can be built on circumstantial evidence. A company’s success can often be down to having a great product or market dominance rather than any special management capability. Coca Cola’s sales figures do not tell us that they employ great salespeople or even that they have any particular competence in marketing. Whatever expertise they possess, it did not stop their launch of Dasani water failing in the UK. In fact, it is precisely because simplistic, financial measures do not provide evidence of effective, organization-wide management that EBM has become such an important issue.

So what does effective management look like? One definition could be getting the best possible value out of all the resources available whilst ensuring a sustainable level of performance. This is inherently a long term prospect. However, some private equity partners might beg to differ. They might define their own management effectiveness as maximising short term profit, at the expense of increased debt and reduced long term value. If the EBM movement cannot resolve these potentially conflicting perspectives though it is unlikely to have a future. In short, EBM needs to be seen as the best way to create value if it is to be accepted as the best way to manage. But this will require a radical re-think about what organizations, themselves, value.

Certainly those who still say profit is king will have to admit that their perspective is a very one-sided view of the world. Microsoft still makes huge profits but that just tells us it is managing to hold onto its monopoly (for now). We also know that Microsoft has been heavily fined for some of its tactics, which makes it difficult to argue that profit automatically equates to acceptable management practice. There is also the issue of market context. If EBM is about unearthing some of the fundamental truths about effective management perhaps the fast-changing world of IT is not the best testing ground: management really has its work cut out in mature industries, like fast moving consumer goods, automotive and pharma. These are the crucibles in which EBM needs to be tested and its prime focus will have to be on evidence about the people dimension because all other levers for competitive advantage have already been pulled.

Conventional indicators will be of little use though. Market capitalisation, shareholder returns and return on net assets all suggest that something must be going right but they are all historical and are not great predictors of future performance. If EBM is to be a better predictor it needs to offer better alternatives to the welter of KPI’s, CSF’s, scorecards and dashboards that abound. Performance measurement, heralded as a cure, has become worse than the disease. If EBM is to achieve a pre-eminent position in organizational leadership thinking it needs simplicity and insight, not more sophisticated numbers. The emphasis should not be on performance measurement but the extent to which every individual understands the value objectives of the organization, is willing to give their best to achieve those objectives and knows exactly what is required.

The key piece of evidence we need is value. Reducing cost is not value if it means cutting corners. Improving customer satisfaction is not value if loyalty does not translate into revenue. Improving productivity is not valuable if quality falls. Value does not lend itself to deconstruction into a scorecard, it is what the whole organization is about. Every single employee has to understand what value means to them and any evidence of conflicting objectives is evidence of an organization that is not effectively managed.

Using these types of criteria, not only can we make our own minds up about how Microsoft has been managed in the past but also, more importantly, we can predict the way it is likely to go in the future with some confidence. Here is a view from one of their own employees, a Windows developer who had been with the company for five years – (quoted from the UK’s Sunday Times, 18th June 2006)

‘Deep in the bowels of Windows (the business unit) there remains the whiff of a bygone culture of belittlement and aggression. Windows can be a scary place to tell the truth.’

What is the long term, value potential of an organization that is a scary place to tell the truth? What more evidence do we need?

© 2007 Paul Kearns