Top 5 Management Tools
Bain Management Tools & Trends survey, 2017
Business management tools are methods used by organizations to improve their performance. There are a plethora of tools for each aspect of management. Planning tools such as scenario planning, process tools such as six sigma, and decision-making tools such as decision trees.
Since 1993, Bain & Company has surveyed business executives around the world on their usage and satisfaction with management tools. The 2017 survey provides us with a list of the top 10 tools based on usage. This article is an effort to introduce the top 5 tools. You can also access Bain’s reference guide here and the survey report here.
1. Strategic planning
Strategic planning is the systematic identification of the future. This enables an organization to make better current decisions.
Strategic planning is a simulation of the future. It enables a manager to look at the chain of cause and effect consequences over time of a decision to be made in the present. If the manager does not like what is seen ahead, the decision can readily be changed.
Strategic planning also encourages to view the organization as a system. To look at the enterprise as a whole and the interrelationship between its parts. Systems thinking upholds the view that the sum of the best solutions to individual sub-systems is less optimal than the best solution for the whole.
Some organizations manage the strategic planning objective by depending on intuitive geniuses (like Will Durant, Alfred Sloan), while others establish formal systems that are research-based and result in a written set of plans. Despite an either-or distinction, it is seen that the two approaches complement one another and can co-exist.
Eventually, a formal strategic planning system tries to replicate what goes on in the mind of a brilliant intuitive planner. But there are limits, and these limits must be appreciated. A process must be fully understood before it is formalized, there is limited evidence that managers have completely understood the strategic planning process.
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2. Customer relationship management
CRM is a disciplined approach to developing and maintaining profitable customer relationships. It is grounded in high-quality customer data and information technology.
The introduction of mass production methods in the mid-twentieth century enabled businesses to expand beyond their neighborhoods. This also led to a change in the purchase process. Earlier, businesses knew their customers intimately through regular face to face interactions on a daily basis. Now, customers lost their uniqueness and became just another ‘account number’. As businesses entered new geographies, their senior managers became more remote from customers on multiple dimensions like distance, language, and culture. This led to a demand for a better understanding and an intuitive grasp of customer needs so often found in local stores and salons.
CRM applications provide a common view of the customer by linking business functions with customer touchpoints like E-mail, call centers, and stores. Multiple studies have shown that CRM initiatives boost business performance by enhancing customer satisfaction and driving up customer loyalty. Customer-related KPIs monitored by a CRM application include customer retention rates, acquisition costs, sales per customer, and share of wallet.
Different types of CRM applications:
- Strategic CRM applications include market segmentation, customer lifetime value estimation, and activity-based costing. They focus on winning and keeping profitable customers.
- Operational CRM applications include lead management, campaign management, and event-based marketing. They focus on the automation of marketing and selling processes.
- Analytical CRM applications assist in the execution of strategic and operational CRM tasks.
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3. Benchmarking
Benchmarking is the process of identifying the highest standards (‘best practices’) and then making the improvements necessary to achieve those standards.
During the late 19th century, an American Mechanical Engineer, Fredrick Winslow Taylor expounded the idea that there was only one best way to do a particular work. This best method could be found out through the scientific study of that work. His studies encouraged companies to check upon work methods of related firms to develop standards for comparison. Setting the stage for the idea of benchmarking.
The most interesting development leading up to the formal idea of benchmarking was the rise of Japanese manufacturing post World War 2. Toyota Production System had adopted the idea of stock replenishment from the supermarket. Japanese industrialists toured American plants to identify ideas that could be adopted back home in the context of lean operations.
Benchmarking as a business process was established at Xerox in the 1970s. The company was losing business to its Japanese competitors which had entered the office copier market by developing lighter versions of big-speed copiers that Xerox sold. Xerox CEO turned to its Japanese JV partner Fuji to understand the unknown capabilities of its Japanese competitors. To its surprise, Xerox found its product development took twice as much time and their manufacturing cost equaled the sales price of competitors. This led Xerox to put together a team to create a process for learning from others which they called benchmarking. By the 1980s several major companies like HP, GM, P&G, and GE engaged in cross-company sharing of information and organizing comparative studies.
There are different approaches to benchmarking:
- Internal: Identifying the best internal procedures and transferring them to other parts of the organization.
- Competitive: Performed against competitors in the same market.
- Functional: Performed against a division of an industry leader sharing some common characteristics.
- Generic: Focused on processes across dissimilar organizations.
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4. Advanced analytics
Advanced analytics is a general term that indicates the application of analytic techniques to data in order to answer questions and solve business problems.
For a business to sustain over a period of time, it must enable its employees to make rational decisions consistently which are aligned with its strategic objectives and market conditions. What the business needs is for the right people to have the right information at the right time.
Although businesses have collected competitor information since the dawn of free markets, it was only with the rise of computing that they institutionalized such activities across all functions. Advances over the last years in data capture, processing, and storage have enabled businesses to integrate siloed databases. This data warehousing capability coupled with analytical tools provides them with predictive as well as prescriptive intelligence which supports the decision-making process.
Business analytics was originally conceived to support the sales function but modern solutions go beyond customer-centric applications to support supply chain visibility, price optimization, and workforce analysis.
A common axiom in marketing is that customers don't buy products, they buy benefits. Similarly, businesses don't buy spreadsheets, pivot tables, and algorithms, they rather buy the ability to discover value through the application of analytics. Applications of advanced analytics leading to business value include:
- Customer satisfaction through customer profiling
- Risk management through the identification of fraud
- Improved procurement through spend analysis
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5. Supply chain management
SCM is the management of relationships in a network so as to achieve a more profitable outcome for all parties.
Throughout history, many wars have been won and lost on the strength and weaknesses of supply chains. Many businesses have also come to realize the role of supply chain management as a source of competitive advantage.
In business, competitive advantage comes either from being a low-cost producer or by being a differentiated producer such that customers are willing to spend more for the unique offer. Organizations analyze their value chain constituents for opportunities to cut costs or engender differentiation. If they are not able to create a competitive advantage in a value chain element, then they are better off outsourcing that element. Effectively converting the value chain into a supply chain.
A supply chain view of the organization provides new avenues for attaining cost and value advantage. A business commanding a more responsive and reliable supply chain is able to achieve service excellence. While reducing safety stocks, lead times and uncertainties enable a business to reduce costs. As business models shift to being market-driven and get characterized by mass-customization, organizations will need to adapt their supply chains to cope with smaller inventories and shorter lead times.
Some popular examples of businesses able to create value through SCM initiatives:
- HP found postponement strategies to be useful in the printers and PC business. A postponement strategy enables safety stocks to be generic rather than customized by postponing product differentiation until the latest point in the supply chain.
- 7-Eleven Japan combines real-time POS data with a reactive supply chain to achieve the highest sales per square foot in Japan’s convenience store industry.
- Dell reacts to supply-demand imbalances by changing prices on its web site. This enables it to steer demand to components that are in stock resulting in increased sales.
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While we have talked a lot about what business tools can do, it is also worthwhile to keep in mind what these tools can not do. Tools can not think by themselves, rather due to their analytic veneer they might prevent thinking. Tools should be seen as a means to enable managers to question their assumptions and refine their existing thought processes.
Management tools are akin to what Steve Jobs termed as ‘ bicycle of the mind’. A bicycle can reduce your effort but will eventually take you where you take it. An organization might not be a fast runner at the start but an organization on a bicycle in the right direction might beat all its competitors.
“When we invented the personal computer, we created a new kind of bicycle…a new man-machine partnership”
— Steve Jobs (1980)
