The Many FP&A Rooms of the Organization Mansion

Editor's Note

The popular label "schools of business/management administration" is a myth; in point of fact, they are schools of business techniques, not management.

Hard-core business specialties (e.g., accounting, finance, statistics, taxation, economics, operational management and computer science) in school curriculums have the benefit of providing a solid foundation of knowledge competency provided the individual is willing to take responsibility for learning after graduation.

Learning how to manage–observed Peter F. Drucker–is a different story. The quest for scientific exactitude in business education implies that there are correct answers to complex issues.

Drucker strongly objected to the proposition of ideal solutions to any management problem as the following words attest:

"But there, so far, are no right answers. Indeed, if there is one thing clear today, is there is going to be no one 'right answer.’ We need diversity of approaches… We need a great deal of experimentation/trial-and-error-learning.…"

As future articles will detail, Drucker strongly believed "management" is a liberal art. The role of the liberal arts, in simplified terms, helps define the key issues and provides insights for resolving uncertainties.

Managers must draw on all the insights of knowledges from various fields including the humanities and social sciences (psychology, philosophy, economics and history) and the physical sciences and ethics. But the focus of this knowledge must be on effectiveness and results.

Mathematical model building and other forms of today's new analytics are extremely important. But "crunching numbers" to make the equivalent of life-and-death management decisions on products, people and the like is misguided.

Analytical techniques assist management in reaching a conclusion; it does not provide nor is it intended to provide a final judgment-free mechanical answer.

As most of our readers realize real life management is characterized by crises, tensions, turbulence and uncertainties. A synthesis of analytical approaches and methodologies based on management as a liberal art are, indeed, needed in many situations.

But to make the needed synthesis really work, a new form of organizational structure is usually required.

Stated differently, practically no problem in management life ever presents itself as a case on which a decision can be taken. What typically appears at first sight to be the elements of the problem rarely are.

Management may see a clash of personalities and specialties (e.g., quants V. advocates for the role of behavioral sciences in improving management performance); the real problem may well be the wrong organizational structure.

Indeed, a knowledge-based workforce requires a different kind of organizational structure–a structure that demands all members act as responsible decision-makers and renders explicit what each individual is responsible for and what their contribution to goals and objectives must be.

If people know what they're responsible for they will act responsibly.

Many of the issues discussed in this article can be, in many instances, solved by adopting a new kind of organizational structure–most notably, what Drucker called "the responsibility-based organization."

Come to CLW 2020, and learn from Jim Champy and a group of organizations the underlying prerequisites for making the responsibility-based organization an operating reality… and in the process significantly improving knowledge worker productivity by providing career professionals with what they value, expect and need to maximize their contributions. 

This article details some telltale signs of organizational dysfunction and provides what might be termed traditional measures of success but offers a warning that maximization of certain kinds of performance might very well, in the final analysis, yield sub-optimal results when a given situation is viewed in its entirety.

Introduction

The organization mansion has many rooms.

Business schools tend to divide their curriculum between hard quantitative-oriented courses, such as operations management and finance, and soft behavioral courses, such as change management, ethics and leadership.

The former relies on a run-by-the-numbers MBA-like management approach. The latter recognizes that people and human behavior matter most. This separation of the curriculum is like chambers in a mansion.

In one set of chambers are managers who apply the quantitative approach of Newtonian mechanical thinking. They see the world and everything in it as a big machine.

This approach speaks in terms of production, power, efficiency and control, where employees are hired to be used and periodically replaced, somewhat as if they were disposable robots. Some “data scientists” work in these rooms.

In contrast, in another set of chambers are managers who apply the behavioral approach. They view an organization as a living organism that is ever-changing and responding to its environment.

This Darwinian way of thinking speaks in terms of evolution, continuous learning, natural responding and adapting to changing conditions. 

Different Rooms for Different Functions

Regardless of the use of the Newtonian or Darwinian managerial style, specific rooms in the mansion are dedicated to functions such as developing new products, marketing to acquire new customers, or fulfilling customer orders by delivering products and services.

We often refer to these functional rooms as silos. Sub-optimization typically exists among the rooms. Managers operate their rooms to their own liking.

In the old days, each room had its own fireplace, so the room’s comfort level was individually controlled. When the mansion was refitted with central heating and air conditioning, the managers were increasingly forced to compromise and agree. Most managers were not happy with the new arrangement.

In today’s organization mansion, there is an increasing need to understand how one’s room affects another. For example, managers in the production room have grown to like a minimalist décor with low inventory clutter so that they can quickly assemble parts or documents or creates apps in reaction to widely varying tastes of customers.

In a neighboring room, sales managers like tall stacks of products so that they never miss a sales opportunity due to a shortage. A growing problem in the mansion is that these managers’ methods, goals, and incentives increasingly affect each other.

Teamwork and collaboration are the ideal way to live in the organization mansion. But despite all the encouragement from scholars and media, good teamwork is tricky to attain.

Success comes only to those teams of people who place their own self-serving interests below the more important needs of their organization. The mansion is more important than its rooms.

As Patrick Lencioni describes in his book The Five Dysfunctions of a Team, one problem in team behavior cascades into another that collectively escalates to degrade any organization’s performance.

For example, when different managers secretly tamper with the mansion’s central thermostat, they are exhibiting an absence of trust in each other. Rather than confront one another, managers typically prefer to avoid conflict.

Instead of debating what will work best for all, they resort to secret discussions with a few other “room” managers. Once someone, often an executive, inserts authority and resets the thermostat, the adverse consequence is a lack of commitment to it by others because no one listened to their opinions.

The breakdown in teamwork then gets worse. Because of the lack of commitment and buy-in to choices made by others, room managers avoid accepting accountability for the conditions (i.e., their performance) of their own rooms.

They begin locally adjusting things to offset what they don’t like, and they pay less attention to the mansion as a whole. They revert to putting their individual needs above the collective goals of the functional team they work with and of the organization as a whole. Total enterprise performance does not improve and may possibly decline.

The FP&A Chambers

My belief is there are some rooms, perhaps just closets, where managers see usefulness in blending the characteristics of the Newtonian and Darwinian styles. They also believe in teamwork and collaboration.

The trick to general management is integrating and balancing the quantitative and behavioral approaches–and truly behaving as a team.

These managers of the closet rooms are the ones who understand the full vision of FP&A to be the seamless integration of multiple managerial methods.

FP&A methods include strategy execution with a strategy map and its companion balanced scorecard (KPIs) and operational dashboards (PIs); enterprise risk management (ERM); driver-based budgets and rolling financial forecasts; product/service/channel/customer profitability analysis (using activity-based costing [ABC] principles); lean and Six Sigma quality management for operational improvement; and resource capacity planning.

An FP&A Mansion Empowers Executives, Managers and Employees

Command-and-control style managers who prefer to leverage their workers’ muscles but not their brains run into trouble. Ultimately, things get done through people, not via the computers or machines that are simply conduits for arriving at results.

Most employees are not thrilled by being micro-managed. The good performers are people and teams who manage themselves and positively collaborate with others, as long as they are given some direction and timely feedback.

The C-suite executive team creates value by communicating their strategic direction by answering, “Where do we want to go?”

They produce results by leveraging people who focus on identifying projects or processes to improve follow the path from the executives answering “How will we get there?” The potential capabilities of people may arguably be the most wasted asset of an organization.

In an FP&A mansion, each chamber is furnished with strategy maps that set the direction from the executive team. Each room is further provided information and analysis tools, heavy with predictive analysis, so its employees can determine ways to achieve the executive’s strategy.

Balanced scorecard dashboards are in each room for feedback so that everyone knows how they are doing on what is important. The mansion has a single enterprise-wide information platform rather than many disparate out-of-sync data sources.

People are empowered with near real-time information to quickly make decisions because they increasingly lack time to seek answers from higher-level executives. By behaving as a good team and collectively collaborating, managers in this mansion don’t just manage performance–they improve performance.

The FP&A mansion has many IT-enabled rooms, but its managers are all on the same team.