Indicator of Management's Excellence?
I have a theory that has been borne out over 40 years—that you can judge a manager by his or her secretary. An excellent manager does not tolerate anything less than an excellent secretary, whereas poor managers will put up with poor secretaries.
I believe the same theory applies to prioritization processes. Excellent management teams will not tolerate anything less than an excellent prioritization process, whereas poorer management teams will put up with half-baked and compromised prioritization processes.
Poor prioritization processes are massively expensive in many ways.
Reductions in Profitability and Shareholder Value
McKinsey has shown that organizations that manage their capital well out perform their peers by 30% over time. [1] That is quite a difference.
The Royal Academy of Swedish Engineers found that the effective management of scarce capital was a key characteristic of highly successful organizations.
Strategic Process
When thinking about prioritization people think mostly of projects. However, your prioritization process is not about projects (although they will be the focal point) but about your strategy, your competitiveness and your future results.
What you do and don’t invest in and how well you invest and realize the returns, determines your results, profitability and shareholder value in the future.
"The Capital Crime"
Too often the project prioritization process is treated as a ‘dash for cash’ or a ‘justification’ process. Capital is treated as the last great slush fund for management. As the chairman said who is quoted in the foreword to our book, “The Capital Crime”,
“The game has not changed. It is all about capital and getting the funds you want - and we still don’t hold people accountable for the results. We knew how to play the game 30 years ago and it is still being played now.
“We allocate millions to executives who promise great returns. We track how it’s spent, often to the last cent, but we don’t follow through to ensure the returns are realized.
“We assume that ‘if we build it, they (the returns) will come.’ In other words, we know the cost of every project and the value of none.
“We know that we consistently waste capital and yet we do nothing to fix it. Meanwhile, managers continue to treat capital as the last great slush fund.” [2]
Poor managers do nothing about it, excellent managers and those aspiring to be excellent managers will look at their prioritisation processes and say, “We can and must do better.”
But where do you start?
One major organization went to their favorite (brand name) consultancy and asked them to devise a prioritization process for them. To their credit, the consultancy admitted they had not done this before and created a ‘best endeavors’ solution. Unfortunately, it failed the very first test of a prioritization process. Ten years later we found that this consultancy’s own prioritization process still failed this test.
We’ll explain this test in the next blog and give you some checklists to use to assess the quality of your own organization's management prioritization process.
[1] “How to put your money where your strategy is” Hall, Lovallo, Musters, McKinsey Quarterly March 2012
[2] The foreword “The Crime” from the entertaining TOP book, "THE CAPITAL CRIME".
