Managers must manage


B2B Management

B2B enterprise management is facing the challenges of mastering the dynamics and complexity resulting from globalization and total digitalization. They must comply with financial and non-financial performance requirements (see : Profitable Growth & Stakeholder Benefits).

The era of the 4th industrial revolution (Industry 4.0) is gaining momentum; on the one side it is causing the above mentioned requirements,  on the other side it is creating numerous opportunities to innovate (new markets, new industries, new products, services and methods).

Information and Management

The Profitable Growth of the future will more than ever depend on the intelligent use of information in management systems, more than ever it will be determined by the use of Artificial Intelligence.

Long before the era of total digitalization the exceptional value of information has been understood by management thought leaders like Peter Drucker, who expressed it in insights as  :

  • You can’t manage what you can’t measure
  • What gets measured gets done


Traditional Management Techniques

Traditional management techniques like ‚Management by Objectives‘ (MBO) and ‚Management by Exception‘ (MBE) are the de-facto standard in today’s management practices. It depends on the individual case to assess whether the digital era’s requirements on high-performance management are met or not.

From One-Time Course of Action Management towards Closed Loop Management

The management of a one-time course of action is oriented along linear sequences of events (e.g. waterfall modell) : a leading instance does plan for targets, places the order to execute, the assigned instance does excute the order, the results are detected and they are compared with the seeked targets (typical targets in the project management triangle : cost, schedule, scope). 
Repeately running through the linear sequence leads towards the principle of Closed-Loop-Management (closed cause and effect chain), which is the basis of some traditional and almost all modern management systems.

Referring to traditional management techniques, W. Edwards Deming’s ‚Plan-Do-Check-Act‘ (PDCAhas proven a high level of benefits in industrial management practices.

PDCA is a simple form of ‚Closed-Loop Managements‘; it is a rolling system, which forwards targets, being the result from a planning excercise (Plan), towards actions (Do), catch and record results (Check) and feeds back potential deviations (from a targets comparison) and correctives in the management loop (Act).

Closed loop methods which follow similar principles are OODA, DMAIC, A3, 8D/ PSP etc.

B2B Management ‚State-of-the-Art‘

Contempory B2B enterprise management almost always is based on processes including the phases ‚planning and target setting‘, ‚organisation and steering‘ and ‚control and decision‘.

Many B2B enterprises focus their management processes in six core areas :

  1. Marketing & Sales Management (incl. Product & Pricing Mgmt)
  2. Operations Management (Production & Purchasing)
  3. Human Resources Management
  4. Information Technology Management
  5. Strategic Management
  6. Financial Management

Operative Management versus Strategic Management

How can a management subject be classified as ‚operative‘, how be classified as ’strategic‘ ?

Professional practices do distinguish between operative management and strategisc management as follows :

CriteriumOperative ManagementStrategic Mangement
Time horizonshort termmidterm to longterm
Uncertainty (of events)low / neglectablemedium to high
Irreversibility (post decision) low / neglectablesignificant
Complexitylowmedium to high
Cause and effect relationsknown for sure, reproduceablepartly know / unknown
Money at Risklow to mediumhigh
Information basecertainuncertain / fuzzy information
Intentionexploitativexplorativ
Focusefficiency / productivity 
(do the things right)
effectiveness 
(do the right thing)

Management Effectiveness

A  management system’s effectiveness can be assessed by use of the achievement of targets and objectives. It rises / declines with

  • the steerability of actions in the target directions
  • the observability of results being achieved
  • the consistency of readjustments in case of deviations 

Resultats monitoring without readjustment is just a kind of ‚Laissez Faire“ while permanent steering of activities without results verification causes operative hectic rush. 

There is a continuum between the state of ‚no management‘ (red quadrant) and the state of ‚tight management‘ (green quadrant). 

Manageability (in the sense of effective management) means steerabilty (of actions) in combination with observability (of results).

Management Styles

Closed-loop management systems show four characteristical performance levels regarding it’s effectiveness and dynamics  :

passiveManagement is reluctant in face of internal or external impulses, they don’t take initiatives. Measures to counterfight problems are not initiated or – in case they are – only after a (longer) time delay.
reactiveManagement gets active in response to internal and external impulses (after the fact). Immediately identified problems will be solved. Problem causes will not be completely eliminated, partially at it’s best.
activeManagement influence developments by means of prompt and realtime initiatives (at the fact). Problem causes are eliminated sustainably; the future orientation relies on a short term planning.
proactive  Management acts target oriented, based on their own initiatives, based on early predicitions and plans; they try to influence future development early on and try to make them happen in the desired way (before the fact).

Management Effectiveness and Value Chain

Management effectiveness and management focus can be classified according to it’s location in the value chain : 

  • The results of operations are products and services and the related COGS; the operations management loop does focus on internal ressources (staff) and downstream value chain stages (suppliers). These instances are bound to instructions, they can be steered more easyly, can be observed consistently and are effectively manageable 
  • The results of marketing & sales are sales and order intakes; the marketing & sales management loop does focus on external ressources (customers and competitors) being only modestly or not at all steerable and observeable.

Management Performance

Accessible levels of target achievement and of manageability can be illustrated by applying the 5-stage Process Capability Maturity Model (US DoD and Carnegie Mellon) to management systems.

.

Vertical
CMM levels 1 to 5

Horizontal
Management system phases (in the style of PDCA)

CMM Level 1Passive
no  management in the classical meaning – operative processes being executed; the results being captured and registered (open loop)
CMM Level 2Reactive
Business administration : basic management processes are defined; results being planned and being triggered; operative processes results (cost, time and results) being registered, may vary more or less as a results of dysfunctional or non-existing  controlling (open loop)
CMM Level 3

Active management
Basic management processes are defined; results are planned and are steered,achieved operative processes results (cost, time and quality) are registered, while being more or less reliable caused by funktional controlling (closed loop).

Contemporary B2B enterprises should try to achieve and maintain this level as a minimum management performance standard 

CMM Level 4Predicitive management (see:  Predicive Analytics)
Management processes do work on basis of quantitative informations, including targeting and forecasting expeceted performance.
Controlling does function.
CMM Level 5

Proactive management (in the sense of Prescriptive Analytics)

Managment processes and results are measured, predicted and optimized either on basis of : 

  • Decision support systems,  or
  • Decision automation / management automation.
    This is the domain of artificial intelligence in management (Industry 4.0)

Which CMM Level is appropriate ?

Management systems at CMM Level 1 to 2 can be sufficient for low complex and low dynamic businesses 
(e.g. 2 sales reps, 10 products and 20 orders per day) .

Running complex, dynamic businesses (e.g. 200 [2.000] sales reps, 3.000 [30.000] products and 2.000 [20.000]  orders per day ) requires to operate at CMM level 3 to 4; if sustaining performance (World Class … ) and competitiveness is the target, CMM level 5 is required.

Management CMM Level and Profitable Growth : Examples

A management system’s CMM level and the related management style influence the achieveability and the sustainablity of Profitable Growth immediately.

The subsequent example shows the revenue development of 3 enterprises (in dependance on real cases) for the decade 2006 to 2016.
For the sake of compareability, the revenue levels are scaled to the reference basis of 100% in the fiscal year 2006. The effect of the 2008 financial crisis can be seen as a revenue kink in 2009 followed by a subsequent recovery until 2011. 

  • Corporation 1 (green) : Profitable Growth
    Management consistently performs at CMM level 4; enterprise recovers well post crisis and continues to grow sustainingly at % p.a.
  • Corporation 2 (orange) : Stagnation
    Management at CMM level 2 to 3; enterprise recovers post crisis and stagnates at the level of 2006.
  • Corporation 3 (red) : Downturn
    Management at CMM level 2; enterprise does not recover post crisis and continues to turn down