Why Care About Return on Management?

Today I want to talk about the business of healthcare. We spend a lot of time thinking about healthcare-related issues, but sometimes we must go back to the bedrock of sound business principles so that our focus may be improved. Recently, I reviewed a great lecture from Harvard’s Faculty Seminar Series (FSS). The video is available for purchase, but I’ll share the essence with you here. If you do wish to access the video, this link will get you there: http://gsb.hbs.edu/fss/title.html?385XC

From Harvard’s website: Dr. Bob Simons is the Charles M. Williams Professor of Business Administration and Unit Head of the Accounting & Control area at Harvard Business School. Dr. Simons presents a compelling view of Return on Management (ROM) – that is, the ratio of productivity released to the amount of management time invested. A timely topic to be sure as we consider all the times we think of management time as a black box of sorts without clear indications of productive output (in terms of creating value and competitive advantage). Dr. Simons helps frame the topic in such a clear way that we become cognizant of the meaning, value, and methods to maximize ROM. 

Simons’ lecture gives us key information surrounding the path to great ROM. I’ve learned that Simons underlines that “good intentions” are what lead us to excess management time invested vs. “productive organizational energy released.” By way of outlining, he shares “what gets us into trouble” on the path to a good ROM – things to avoid (“enemies”) even as this may appear counterintuitive and methods to embrace (“allies”):

  • Avoid a “Reach-For-The-Stars” strategy that finds the organization trying to do everything.
  • Embrace a clear understanding about which “customers, projects, investments, or activities are strategically out of bounds” for the organization.
  • Avoid overly Inclusive Performance Drivers – Too many Critical Performance Variables (CPV) where we find complexity leading to dilution in understanding what really is critical. Political correctness that seeks to include every corner of the organization contributes to this problem.
  • Embrace CPVs that are selected to “ensure organizational strategy won’t fail (competitive failure).”
  • Avoid too many diagnostic measures that create a culture where employees are not sure what they are accountable for or have so many measures that they cannot keep up. Simon mentions that humans have limits on processing (too much) information. Please refer to George Miller’s discussion of this topic at the following site:  http://psychclassics.yorku.ca/Miller/
  • Embrace an environment where “managers know their key diagnostic measures by heart.”
  • Avoid overly-sophisticated systems that create planning, budgeting, and control processes that “have a life of their own” and create too much paperwork while adding little value.
  • Embrace management processes and systems that “exist only where they add value to the bottom line.”
  • Avoid a culture and environment where employees have “little to no awareness of senior management’s hot buttons” in terms of the organization.
  • Embrace the sharing of organizational information from the ground floor up; know what is going on inside the business and see employees “routinely send strategically critical reports from the field back to their bosses.” Simon calls this “Everyone watches what the boss watches” and this means that the employees have their focus on the same things that the organization’s leaders are most concerned about. This information is feedback and is used to inform needed changes in operation or strategy.

In my career now, and importantly, in the future, these lessons are critical for making the best use of my management time and the overall organizational use of management time. Working towards a great ROM is not just a paper idea; this is a key advantage for organizational and personal success. From most industries, I think of all the  command and control projects that have been implemented and served to create a huge bureaucracy with more paperwork, resulting in more CPVs, more measures, and less clarity. In this era of big data, Dr. Simons’ lessons are significant as they help focus on the best use of management time, effort, and skill. I know I will not idly stand by and watch new systems be installed and used to generate data that is used without seeking to understand what is critical and what is noise. I know that Simons’ clear explanations will go into my toolkit for discussions with my peers and management going forward – most people are open to listening to well-reasoned new ideas provided they are presented in a spirit of moving the organization forward in a positive, constructive way.

My final thought is that Dr. Simons has presented ideas to use as we seek to take our organizational mission and vision and then implement a sound strategy that will create and maintain competitive advantage. He mentions that strategy involves choice – we choose and set strategic limits (not try to do everything) or we find ourselves facing “no choice made, no strategy.” Without setting these limits, we really do not have a strategy at all. In addition, Dr. Simons’ book, Seven Strategy Questions: A Simple Approach for Better Execution (2010) discusses taking your competitive strategy and turning that into action. His book is here:  http://hbr.org/product/seven-strategy-questions-a-simple-approach-for-bet/an/14832-HBK-ENG and here:  http://amzn.com/142213332X

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