By
Guy Amisano, President, Salient
Management Company
One of the greater problems in managing large, complex enterprises is the misalignment between people in authority and those who operate the business every day. This article is about a realignment of the organization around the same objectives for creating value and empowering people down the organization to use their specific experience to take a direct role in the value-building process.
Typically, it is the authority, the CEO and his or her staff, who ultimately control the business levers—price, programs, resource allocations, etc.—and the information to support their decisions. But the sheer volume of data flowing up from transactions forces them to rely on summary information. The fact is, summary information hides that most vital connection between specific investments and the value created by them. CEOs will complain about the lack of visibility.
Local managers work with their counterparts directly. They know them personally and, from these personal relationships, acquire that special knowledge that can't be quantified or summarized. Their "street" experience gives them a unique grasp of those nuanced opportunities and threats that can't be rolled up or analyzed by higher offices. They are most likely to know the best thing to do.
So we suggest a new way, the Virtual CEO. These persons would be ordinary managers, except that they share precisely the same motives as the actual CEO, all the intelligence they need to plan, execute and review their progress, and the authority to exercise all the levers that apply to their own portion of the business. The promise is much more efficient use of resources and, of course, much better overall performance.
How do you motivate an everyday manager to think like a CEO?
CEOs are paid to make their enterprise more valuable. If, at the end of the year the enterprise is more valuable, they gain personal wealth in proportion. The computation of value accounts for profit and volume growth – which represents the potential for future profit. To make an ordinary manager act like a CEO, it is important to measure their work output in the same way: the value added by their work against the sum of their responsibilities – their own enterprise within the enterprise – and build a compensation package that rewards them in proportion to the value they will have created.
Defining the Virtual CEO's world
The Virtual CEO's (VCEO) world comprises a certain number of entities, such as customers, personnel, product SKUs and other assets. Each entity has a certain value, the result of time and money spent on it and the money and growth produced by it, which rises or falls depending on the decisions taken by the VCEO (both the action taken and the value result are recorded on transaction documents and stored in computer files). In fact, Salient UXT keeps a daily updated statement of current value – P&L – for every single entity. So the VCEO's measure of personal value is the dead net gain in the value of all the people, places and things for which he or she is responsible.
How Salient's software supports the Virtual CEO
Salient's managerial support software, sometimes called Margin Minder®, should be seen as a giant feedback machine that reaches out to many sources to gather data that will help score value added by activity, and then organizes everything for that VCEO to see clearly what needs to be done to exploit value building opportunities and eliminate value consuming activities.
Salient's analytical database captures from transaction records and other data all of the terms necessary to measure true value added, then sets up all of this information to represent the VCEO's entire business world, including all of the people, places and things for which he or she is responsible and all the actions taken to improve their value. Scoring value added is current and continuous, as new information increments the model every day.
The second part is to put every possible answer directly at the VCEO's fingertips, so that there is no possible situation that can't be scored and acted upon in time. This is the necessary answer to decide: spend more here or less?
Finally, trust but verify
Entrusting your business to parts of the organization who have never exercised power can be a scary proposition. Because Salient's performance management solution shows all patterns and trends of business activity, and the values produced by it, the whole truth is always visible at all levels to all parties with authority to know, which means there is never a need to place trust in summary information. This unique property of Salient's software certifies the value of all activities, so a value add-based compensation plan for your Virtual CEOs is feasible.
In summary, by motivating and empowering all of the managers in your organization in the same way as your top executive, with appropriate tools to monitor and adjust resources to maximize returns, your organization will see dramatic changes in both morale and in profitability.
As always, please contact me if you would like to discuss these thoughts further.
