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Helping Leaders

Better Execute Strategy & Manage Enterprise Risks


Matt Barney
Today more than ever, leaders find it difficult to systematically manage risks effectively. High-
profile disasters such as Lehman Brothers record breaking $639 Billion USD bankruptcy
have highlighted the urgency for better ways to manage enterprise risks while winning in
the marketplace. In the case of the 2008 banking collapses, some leaders had sufficient risk
management controls, and survived. Bank of America, for example, was one who retained
sufficient stamina to both survive and also rescue Merrill Lynch and Countrywide. But even
Bank of Americas Chief Risk Officer was let go after failing new government-mandated stress
tests (Story & Dash, 2009). A key question is whether Lehman may have survived if its leaders
were more clear about the risks of complex derivatives in Lehmans portfolios.
An introduction to the Cue See Model
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The reason Enron and Lehman Brothers are spectacular examples is because they are rare. Much more common are the perpetual uncertainties
and risks that might not destroy the firm but could thwart goal achievement. Most leaders deal with ever-moving bottlenecks- the constraints
caused not only by internal operational gaps, but also by supply chain variation, competitor actions and government legislation. Take for
example, Infosys award winning Finacle product. A USD $200 business unit with customers in 80 countries, Finacles product was awarded
the highest honors by Forrester and Gartner in 2010. The challenge that Finacles senior-most leader, Haragopal Mangipudi, faces is the
ability of his operations to scale effectively to a tsunami of diverse, global demand. Mangipudi desires more clarity about the location, and
size of bottlenecks in his P&L. With better visibility, he would be better able to direct his teams actions in order to realize his aspirations to
have an annual run-rate of a billion US dollars in revenue. Typically, bottlenecks move over time (Triestch, 2007). Tracking these uncertain
gaps in a global P&L would require a huge amount of manual effort to support leaders ability to track and remediate uncertain gaps. For
practical reasons, its not done today.
Leaders need practical help to effectively manage complexities in managing their value chains - especially when the strategy changes. It is
extremely difficult for a leader knowing the flow of value across geographies, time zones and market segments. Models augmented by decision
aides help Leaders manage complexity.
One practical solution is to build on existing frameworks for business process management. Infosys uses an approach inspired by the
Malcolm Baldrige quality framework called Infosys Scaling Outstanding Performance (iSOP, Figure 1).
Effective Business Process Management (BPM) supports strategy execution and clarifies decision making about risk mitigation. But this
requires a paradigm shift in BPM away from transactional workflows and toward monitoring the probabilities of achieving goals based on
alternative investment portfolios within the leaders sphere of responsibilities.
Figure 1: Leadership and the Cue See Model
To start, leaders need support to define firm-level targets. This way, leaders can quantify their strategic intent, cascade it throughout the firm,
and with the help of appropriate tools, examine bottlenecks that require their periodic attention. Such a system could help free senior leaders
to focus on strategy, CxO relationships and the complexities of the competitive landscape while knowing that operational risks are effectively
being managed. By having intelligence built into each layer of each business process, it would help middle and junior managers avoid solving
the wrong problems. But Business Process Management software needs scaffolding to articulate the flow of value, ensuring that it realizes
ultimate long-term strategic objectives. Table 1 summarizes the assumptions from organizational science used to frame the Cue See model
software components.
Table 1: Assumptions for the Cue See Model
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Cue-See, Systems Engineering & Goals
The Cue See model is an approach developed to blend expertise across a variety of business sciences to help leaders make better decisions about
executing strategy and mitigating risk. Evidence from Finance, Industrial/Systems Engineering, Organizational Psychology, and Economics are
integrated into what is hoped is a practical approach to make better decisions about investments, respecting the complexity and scarce time of
senior leadership decision making.
Systems engineering has refined approaches to articulate system-level requirements that impose requirements on sub-systems. Since an
organization is one special kind of probabilistic system, these same methods may be used to deploy goals through all processes. Industrial
Engineers and Design for Six Sigma Master Black Belts call this Requirements Flowdown. In contrast, the ability of a system to realize ultimate
goals is called Capability Flowup. Figure 2 gives an example of the flow down of goal targets, and allowable sources of variation from ultimate
outcomes (capital Ys), to lower levels of performance (lowercase ys) through meso and micro processes (depicted by xs). Figure 2 hypothesizes
the specific causal links between the Cue See models four process factors and ultimate financial outcomes. The intent is to clarify how the
organizational system is designed to execute strategy and ensure the probabilistic combination of assets is likely to win in the marketplace.
Each facet of the Cue See model has a different impact on balance sheets, profit and loss statements, and income statements. The models four
factors in have probabilistic relationships with each other and cause ultimate goals to be realized (see Figure 2):
Quality - The degree to which a product or service is useful to the customer. The relationship between quality and price; and quality and
quantity is probabilistic. Higher quality (Low cost of poor quality; fewer defects) favorably affects total costs, as indicated by the positive green
arrow between quality and cost.
Cost - Expenses are the total sum of monetary outlays in a period across all processes and overhead in the firm. Some costs are supportive
(G&A) while others directly vary as a function of production/service delivery, and are allocated to the cost of sales.
Quantity - Volumes are the units delivered. In manufacturing, they are products sold; in services they are the number of customers served.
Overproduction of units or over engineering services beyond the marketplace demand negatively affects cost shown by a red arrow between
quantity and cost.
Cycle Time - The timeframe in which the cost, quality, and volumes are produced. This is a critical lens through which to consider organizational
performance, with respect to the dates the business wants to achieve strategic goals. Cycle Time is additive in that each process and sub
processes require a certain level of time to achieve the target quality, cost and quantity levels. The total amount of time required to produce
services or products affects the degree to which the customer is delighted, and ultimately the desired level of economic profit realized.
The purpose of the Cue See model is to help characterize organizational level strategic goals requirements themselves throughout the company.
The Cue See model reflects a framework and set of methods to design and manage an organization and/or processes toward specific outcomes.
It borrows highly refined approaches to articulate system-level requirements that impose requirements on sub-systems, such as parts from Lean
Six Sigma and Reliability Engineering. Six Sigma methods use techniques such as the House of Quality also known as Quality Function
Deployment are another way establish relationships between ultimate outcomes and lower level performance requirements. This cascade of
requirements from the top of the organizational system to lower level processes, and the resources required to perform effectively is also known
as the Critical to Quality (CTQ) flowdown.
In the Cue See model, each of the four variables (QCQC) have different tolerances, or ranges of variation that are sufficient for the firm to
achieve its goals. Quality is ultimately customer defined, and parameters that drive customer delight could be targeted around one of three
options - minimize, maximize, or optimize around a target. Higher quality creates less waste and reduces total costs. At various process steps,
however, quality may take different forms, depending on the outcomes required to fulfill ultimate customer requirements. Quantity is also
Cost of Capital
Taxes
General
Administrative
Costs Q&A
Cost of Sales Gross Receipts
Price
Volume
Quality
Cost
Quantity
Cycle-Time
Brand Loyalty
Figure 2: Relationship Between Facets of the Cue-See Model and Financials
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Phases in Cue See Management
The Cue See model proposes an approach by which all assets can be specified, valued and optimized to achieve an organizations goals. The
steps by which to apply the model parallel those recommended by risk managers:
Step 1
Step 3
Step 5
Step 2
Step 6
Step 4
customer defined, and producing too much, or too little to service the marketplace is wasteful and dissatisfying to customers, so it is always
an optimized variable around a target. In many cases, its desirable to have processes and business models that can scale to different levels of
production with varying demands from customers, but even then there are optimized targets. At the firm level, cost and cycle time ultimately
are cumulative across all organizational processes. At first glance, it might seem obvious that lower costs are always better. That is true, if
and only if customer requirements can be fully met (or exceeded) with lower cost processes. Investing too little can aggravate customers by
skimping on quality, or the quantity they wish to purchase, or create processes too slow to fulfill customer wishes, therefore cost minimization
can be nearsighted and wasteful. Because too few investments in a process and too much expense are both wasteful, cost is also a target variable
in the Cue See model. The cost targets are established to ensure apriori system-defined margin targets. Cycle Times requirement profile is
similar to cost, although usually, faster processes make customers happier. But this isnt always the case. A customer of a luxury spa or fine
dining experience wont want to be rushed. Suppliers to manufacturers may not have space to store materials or equipment that arrives before
a new factory is built to house them. At the same time, anyone who has waited in line at an amusement park for a ride can acknowledge that
cycle time cant be too long either. Cycle time is a variable in the Cue See model to be optimized around a target that will please customers.
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Conclusion
Early studies on the Cue See model are promising (Barney, 2009a, Barney 2009b, Barney 2010), and it is hoped that with additional evidence
and tools, the Cue See model may better focus leaders actions in the areas most likely to realize ultimate goals (Trietsch, 2005). This paper
outlines hypotheses and an early example of applying this interdisciplinary, cross-level approach. Future work needs to examine other
aspects of finance and operations decisions including probabilistic contingency-based valuation including Managerial Real Options (Munn,
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uncertainty with a leadership GUI that respects Vilfredo Paretos 80/20 Principle. By programming a BPM system with the Cue-See models
targets and specifications for every process and team, in all 4 areas of process performance that are necessary and sufficient for firm-level
performance, uncertain bottlenecks can be prioritized. Within each leader or work teams sphere of influence, the software can be used to
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to make improvements or reduce variation; or it can include situations where the root cause isnt obvious and classical Lean Six Sigma (e.g.
DMAIC) methods are better applied. In this way, the Cue See model can augment a firms Business Operating System and Dashboard
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a strategically-cascaded set of goals across the enterprise, and characterized against specific performance targets in all four of Cue Sees
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This combination of the Cue See model and the software should help leaders at all levels focus on what really matters to the firm, and not
drown in the complexity of too much information. If specified correctly, they can rest assured that the measures and deltas tracked in their
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should help make this faster. Also the ability to collect digital data should dramatically accelerate the speed with which improvement projects
can collect good data.
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About the Author
Matt Barney, Ph.D.
Vice President and Director of the Infosys Leadership Institute
He has held global leadership positions at AT&T, Lucent Technologies, Motorola,
Merck, Sutter Health, Virtual Mindworks, and The Scientifc Leader. He has published
in areas ranging from Human Capital Asset Management to Lean Six Sigma. He is co-
editor of the best selling book, The New Six Sigma and authored 3 patents, with two
more pending. In 2007, he was named a Future Leader by Human Capital Magazine.
Barney is a certifed Motorola Master Black Belt, a certifed Risk Manager; and holds
a masters and Ph.D. in Industrial-Organizational Psychology from the University of
Tulsa; and a B.S. in Psychology from the University of Wisconsin-Madison. Dr. Barney
can be reached at Matthew_Barney@infosys.com

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