25.06.2012

By Simon Miller

I picked up my old 1972 Bristol car from the garage the other day having had it nursed through its annual MoT. As I drove away I had to adjust the rear view mirror and glanced through it now and again, but still most of my focus was looking forward at the road ahead. This made me wonder why many businesses do not run themselves in this way.

Many businesses focus their management and risk efforts on information that is readily available: sales for the past week, monthly management accounts for the past month, utilisation of some kind or other and so on. This information tends to be black and white, easy to verify, straightforward to access and historic. In itself this gives some potentially misleading and false comfort to people who like deep analysis of facts. While this might be fine for managing day-to-day resources and checking what has happened, is it good enough for today’s business environment?

At the time my Bristol was built, when Edward Heath was prime minister, the qualities for management were loyalty to a rigid hierarchy, dammed hard work and being pretty clever. This was in a world when life and business were relatively predictable. Annual accounts were produced many months after the year end, and that worked well. The Cold War prevented true globalisation so competition and supply chain risk was limited. Computers were in university labs and emails and 24/7 connectivity were a dream. Regulations were less rigid. Some might say they were the good old days.

In today’s world, these management qualities are no longer adequate. The speed of change in capital markets, geo-politics, technology, competition from multiple channels and changing business models mean that businesses must pay more attention to the road ahead than ever before. Who would have thought that fax machines, video recorders and car maker British Leyland would have come and gone?

It is the synthesis of information that is now less readily available that can give a better sense of the current and future health of an organisation. What your customers and key staff feel, the quality and reliability of the order book, the future volatility of raw material prices, over reliance on key customers, upcoming regulations and disruptive innovation from new competitors. All of this information is not black and white, it is often impossible to verify and often, it isn’t easy to get hold of.

In today’s world, which features the Toyota Prius, the incredible speed of the growth of businesses such as Pinterest and the continuing Euro crisis, it’s clear that different skills are required. Today, there has to be an acceptance that the world will continue to change at a faster and faster rate and that your business will have to adapt accordingly. Secondly, that the people who are managing and assessing the risk need to be adaptable, creative and comfortable with different shades of ambiguity – as I said, things are no longer black and white. While assessing the health of an organisation today may not be easy, it won’t be any easier a year ahead. But unless you do, the speed of change may well kill any business that performed well last month.

In addition, completely new skills are required, as the ability to collect massive amounts of raw data from many sources, build models to identify trends and patterns to enable decisions to be made, should be critical to all businesses. The ability to review the sector in which you operate and develop scenarios of possible outcomes is, in my view, a necessity.

Having the ability to face the need to radically change your business to meet new competitive models while letting go of all the emotional baggage and history is becoming essential. Dealing with any complacency that might continue to exist in the boardroom, will also be pertinent.

Most organisations do plan ahead, but all too often this is an annual strategy session or budgeting process which is then immediately shelved. In my view, not enough effort is focused on continuous and rigorous scanning of the road ahead. My question to you is: do you know the percentage of your efforts which are focused on the past and the percentage which will be focused on the future?

The question for me is how long will my Bristol car last? Some might say that concerns over emissions will eventually send it to the scrap heap or recycling site.

But as Nevada became the first US state to legalise robotic cars earlier this year, my gut instinct tells me that driverless cars are more likely to replace it.