Analyst Perspectives

The idea of devising and using maturity assessments to improve business performance has been a staple of management, functional and strategic consultants for decades. It’s based on two unassailable principles. One is the general assertion that companies differ in their ability to do anything along a range from nonexistent to advanced. The second is that at any time it’s possible for a knowledgeable individual to construct a scale of competence for some business function from least to most mature based on the important characteristics about how an organization designs and executes that function. Using maturity scales is a handy way for executives and managers to size up where they lie on a continuum of capabilities and an easy way to define the steps necessary for improvement. Maturity assessments have the advantage of being straightforward, but there’s the danger that they can be overly simplistic.

Ventana Research does benchmark research that assesses the maturity of organizations across four dimensions: people, process, information and technology. One aspect that differentiates our maturity assessments from others is that we separate the information element from technology – usually they are combined. The reason we separate them is that our experience shows that the information dimension (which covers issues such as accuracy, adequacy, accessibility and timeliness of data) is a separate domain from software, hardware and networks. Data issues are pervasive and become increasingly severe with the size of an organization. Because the underlying problems with information are different, they must be addressed in different ways from technology issues. Another aspect of maturity that we believe many consultants do not handle well is laying out the business issue to be addressed in a way that recognizes the interconnected relationships among the four dimensions. Addressing only the people-related issues of some challenge a company faces (such as communications, training or management style) may produce positive results in the short run, but these gains are likely to fall short of their potential or prove to be transitory unless related process, technology and information problems are tackled at the same time. Our comprehensive approach is the foundation for our research. It’s why we think our benchmark research is different and relevant to executives and managers.

Our maturity assessments demonstrate that companies that are more mature on the people, process, information and technology dimensions get better results than those that do not, and there is a strong correlation between a company’s level of maturity and the results it gets. For instance, one of the most important ways to measure the quality of a company’s planning, budgeting and forecasting is their ultimate accuracy. Our recent integrated business planning benchmark research revealed that 22 percent of innovative companies (those at the highest level of maturity) say their budgets are very accurate, while none of the tactical (lowest level) ones do. Meanwhile, 15 percent of the tactical companies say their budgets are inaccurate but none of the innovative ones do.

A useful example that illustrates the futility of failing to take a holistic approach to improvement initiatives is the New York City subway system. Starting in the late 1960s, the city began starving the subway maintenance budget to fund other things. When tax revenues proved increasingly inadequate to meet the city’s needs, the situation got worse. As a consequence, track maintenance was performed less frequently. Tracks that are out of alignment or otherwise less than perfect increase the wear and tear on the subway car “trucks” (the wheel assemblies) and may even damage them. This increases the cost of maintaining the subway cars. However, because there wasn’t enough money to keep up with repairs, damaged cars rattled along, causing further damage to the tracks. As the condition of the tracks worsened so did the condition of the trucks. As the situation spiraled downward, trains increasingly had to be taken out of service, causing delays and overcrowding. Poor service caused ridership to decline and revenues to fall, further straining the budget. Trying to fix a problem this severe in a piecemeal fashion is futile. Money spent on track and truck maintenance was going to waste because the systemic issue was not being addressed.

The subway system greatly improved in the 1980s because New York City made a sustained, multipronged commitment to reverse the decade of decay in its subway maintenance efforts. Money was a big part of the solution, but so too was technology. In this case, it involved rebuilding the track using welded rails and keeping the rails in alignment using advanced fasteners rather than old-fashioned spikes. Rather than continuing to accept a roadbed configuration that was state-of-the-art when the subway system opened in 1907, the city invested in technology that lowered maintenance, improved reliability and improved the customer experience by increasing reliability and reducing noise levels.

All corporations can benefit from the same holistic approach even if their challenge is not mechanical. For instance, sales force improvement initiatives often focus exclusively on training or coaching (in other words, the people dimension) or managing the sales “funnel” in disciplined fashion (an element of the process dimension). Too often, these efforts do not pay attention to data-related issues (could account executives better prioritize their sales efforts with more or more up-to-date information?), or to whether the right software is being used to manage the process or provide the ability to tailor incentive compensation on the fly to adapt to changing market conditions. Sales force consultants tend to be skilled in people and process issues but often don’t have the mandate (or the understanding) to address information and technology.

Finance departments’ shortcomings are routinely driven by a cocktail of poor process design or execution, use of the wrong software (misuse of desktop spreadsheets in particular) and data issues. Trained as accountants, finance executives often suffer from an inability to manage to an appropriate level of detail and fail to see the forest for the trees. In other words, they are plagued by a set of self-reinforcing issues related to process, technology, information and people. Our recent financial close benchmark research found that companies on average are taking a half day longer today to close their monthly and quarterly books. An attempt to accelerate the completion of the accounting cycle (and increasing the maturity of a company’s close) almost always benefits from a combination of efforts. These include a systematic process of fine-tuning the process design, using up-to-date consolidation software and eliminating the use of desktop spreadsheets wherever possible. As well, companies must have the determination to close faster and explicitly set and reinforce a faster close as a departmental goal.

Ventana Research’s maturity assessment enables companies to quickly identify the root causes of a business issue. Because the maturity assessment evaluates the usually interconnected people, process, information and technology factors that drive performance, it enables a more comprehensive solution. Our benchmark research consistently finds that while enough companies are able to excel along all four dimensions to demonstrate that top performance is feasible, a majority lag in their ability to execute core business processes.  Executives and managers are usually realistic enough to want to make steady incremental improvements to increase their competence rather than attempt to do a wholesale transformation in one fell swoop. Our maturity assessments make it possible to determine where there are opportunities for incremental improvement so that an organization can begin to address them in a comprehensive fashion.

Maturity assessments can be a useful tool for companies to improve performance. Achieving lasting gains in performance requires a comprehensive approach to addressing all underlying people, process, information and technology issues that prevent an organization from achieving sustainable progress. Maturity assessments that cover these four dimensions are the best way to establish goals that can reliably improve corporate performance.

Regards,

Robert Kugel – SVP Research