Decision Grids

Decision Grids

An important tool in both operating model work and organisation design work is the decision grid.   The format is simple. Place the decisions you want to consider down the left hand side of a table and the organisation roles (like CEO, CFO, etc) that are likely to be involved in the decision along the top of the table. This gives you a grid of boxes where decision meets organisation role. In these boxes you then place a letter (or words) that describes the relationship that that organisation role has in the decision.

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The best known mnemonic is RACI – standing for Responsible, Accountable, Consult, Inform.   But there are other mnemonics that I find more useful. So this article is about which mnemonic and how to get the best from the tool.

RACI

The RACI mnemonic was developed to help people think about activities rather than decisions, for example, the activity of producing the annual report or the activity of developing new customers.   In this context, Responsible means the person who is responsible for doing the activity: the project manager for the annual report or the business development manager for new business.   Accountable means the person whose job it is to make sure that the activity is done and done well: the CFO typically for the annual report and the head of business development for new business. Another way of thinking about Accountable is “who is the most senior person who will get fired if this activity does not happen or is done badly”.

There is a long tradition in academic literature that argues that responsibility and authority should be aligned. This means that the person who has authority should either also be responsible or should have the person who is responsible reporting to him or her.   RACI has been developed out of this tradition, with the word accountable standing in for the word authority. So it is for this reason that R and A are the first two letters of RACI. The last two letters standing for Consult and Inform do not need much explanation.   They enable those related to the activity, but with limited power over the activity, to be acknowledged.

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The reason why I find RACI less useful than some alternatives is because the words accountable and responsible are often confused in people’s minds and do not have a clear, intuitive meaning. Also, the words are less useful for decisions than for activities.   My preferred mnemonic is RAPID

RAPID

RAPID was developed by consultants at Bain & Co in order to create a focus on decisions and decision processes. There is a famous Harvard Business Review article titled “Who has the D?” by Marcia Blenko (if I recall correctly).   The D stands for Decide: who is the person with the authority and power to make the decision? For example, who decides what the sales targets should be? Or who decides what text should be included in the Chairman’s statement in the annual report?   For the latter, presumably it is the Chairman. For the former, is it the head of sales or the head of finance or the CEO or …?  You can see from these examples that part of the skill of using this tool is to define the decision quite precisely: so it is possible to pin it on one of the people involved.

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R stands for Recommend.  Often, in a decision process, the person who is responsible for doing something (the P for Perform) is also expected to make a recommendation about what decision should be made.  This recommendation is then approved (decided) or not by a boss or the leader of some committee.

I stands for Input: a person who is expected to have some input into the decision.   For example, the CEO might have some input to the Chairman’s statement, but not decide or recommend. The regional heads of sales and the financial controller might have some input into the sales target.

A is the most difficult letter in RAPID. It stands for Agree. It is mostly used where there are constraints on the decision such as legal or financial issues.   A person who holds an Agree role should sign off the decision based on whether it meets some standard, for example it does not break a law or require more money than is available.  In other words the remit of the person with an Agree role is quite limited.   Agree does not give the person the power to question the logic of the decision or recommend alternative points of view (but of course it does not stop someone offering their opinion.)  It just means that the person holding the D can ignore the opinion offered unless the opinion is limited to the specific standard or requirement (such as is it legal?).

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One of the strengths of RAPID is the idea that there should be only one person holding the D. Hence the article title “Who holds the D?”

Other mnemonics

There are quite a range of other mnemonics in part because popular tools like RACI and RAPID both have weaknesses. Neither addresses the hierarchy of mangers or governance bodies above the decision maker, each of which typically has the power to overrule the decision maker.   Neither has letters for all the possible roles connected with an activity or a decision.

RASCI, standing for Responsible, Accountable, Support, Consult, Inform, is one alternative. RAS standing for Responsible, Approve, Support is another alternative.

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Those working on operating models or organisation designs should not feel constrained by RACI or RAPID.   Be comfortable creating your own set of letters to address your particular situation, whenever one of the popular mnemonics does not address all the issues being raised or addresses more issues than it is useful to raise.

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Locations footprint

Location is one of the spaces on the Operating Model Canvas.  But I have not blogged about locations at any point.  This is partly because the topic is pretty self explanatory, and partly because I have found other parts of the operating model puzzle more interesting.   So let me say something about locations.

First, location is important.  Should you locate near customers or near suppliers or in a low cost country or where there are skilled employees or ….?  These are big operating model issues and the right answer is changing due to digital technologies.

But location is not just about which countries to be in.  It is also about which cities or towns in a country to locate in.  It is also about the type of buildings that are needed for the work and the people who do the work.   And it gets more detailed than that.  Location can be about factory floor plans.  It can be about which departments are on the top floor of an office building and which on the ground floor.  It can be about open plan or cubicles or partitions.  Mars is famous for its open plan even for the CEO and CFO.   Zara is famous for locating its Product Managers in the middle of an open plan space with the design teams located around the outside of the space.  This helps easy communication between designers and product managers, who know what is selling in the market.

So location has many dimensions.

Second, location is important because it is frequently connected with big spending: the land, the buildings, the equipment, etc.  When doing a business case for an operating model change, the locations costs are frequently a significant element.

Third, location is often a major constraint on operating model work because of legacy buildings and employees with deep location roots.  The best operating model is not always possible because of buildings or people.

Fourth there is little guidance on what should be included in a locations footprint chart.  Clearly it should visually communicate the locations through a map or a floor plan.  But what other information should be on the chart?  Here is a list of items to consider:

  • type of work carried out in the location
  • number of people in the location
  • logic for the location (which could be “legacy”)
  • information about the buildings and other assets at the location
  • important connections between locations

Please suggest some more items that you may have seen on a locations footprint.

Fifth there are few tools that I am aware of for helping you think about locations.  In different industries, there are industry specific tools.  So a supermarket company will have extensive tooling for identifying the best locations for its supermarkets.  However, it terms of generic tools, there are none.  As a result, I have developed a stakeholder tool for thinking about location (see exhibit).   This needs some work – but is a helpful starting point.  It is possible to take any activity or any asset and use the tool to consider whether there is a stakeholder logic for positioning that activity or asset in one location or another.

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Process improvement and operating models

I have been stimulated by an article by Craig Tickel of GoLean6Sigma that argues that there are only 5 ways to improve a process:

  1. Reduce Non-Value-Added Steps
  2. Improve the Measurement System
  3. Reduce Common Cause Variation
  4. Reduce Special Cause Variation
  5. Move the Mean to Improve Process Capability

I love people who simplify and Craig has some great exhibits in his article, so what follows is not meant to be a criticism of Craig, it is rather pointing out that a strategic/operating model approach to process design is different from, and probably should come before, a Lean6Sigma approach.

As I thought about Craig’s list, I came up with the following list of additional ways of improving a process that stem from taking an operating model view of the problem, as opposed to a waste and variation view.

  1. Digitize or automate steps in the process to reduce cost or improve value delivered
  2. Combine steps in the process with similar steps in other processes to get economies of scale
  3. Link steps in the process with similar steps in other processes to get good practice sharing or standardization
  4. Separate the process into two or more processes or sub-processes to enable better delivery of different value propositions
  5. Outsource steps in the process to suppliers with better skills or lower costs
  6. Change the suppliers or the contract with suppliers to get better supplier performance
  7. Change locations for some steps in the process to attract more skilled staff or to access lower cost labour or capital or other inputs to the process
  8. Change the people model or the people working on the process to get better people performance
  9. Change the decision authorities related to the process or to steps in the process to get better decisions made (e.g. centralize or decentralize or ..)
  10. Change the overhead activities supporting the process such as finance or HR or IT or … to reduce overhead costs or improve value delivered
  11. Innovate steps in the process to develop lower cost solutions or greater value or less variation (this last point is starting to overlap with Lean6Sigma work)

For those of you familiar with the Operating Model Canvas, I have been mentally working through POLIS (processes, organisation, location, information and suppliers).  I could go on (adding M for POLISM), but hopefully the point I am making is clear.  Lean6Sigma is for improving a process that has already been designed to fit with the strategy and operating model.  But often, what is really needed is a process redesign to get better alignment with strategy and operating model.  While Lean6Sigma goes some way to achieving this, an operating model approach followed by Lean6Sigma is more likely to get the job done right.

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Lean6Sigma and operating models

I was stimulated by a LinkedIn discussion about how to ensure the customer is part of thinking about waste.  The answer of course is obvious – the customer is at the heart of all judgments about waste.  If an activity does not contribute to the value proposition that the customer is receiving, it is waste.  If the activity costs more than the benefit that the customer gets it is waste.

This then caused me to reflect on how to make some of these judgments especially in situations where the customer does not pay for the service being provided: a common situation between internal functions or in public sector activities and charities.  Here all of the tools of marketing and product development and service design need to be brought to bear: focus groups, indifference curves, observation, surveys, enthnography, etc.  Which is one of the reasons for the Lean guidance “Go to Gemba”.

I then began to consider what factors other than judgments about “customer value” and “cost” should influence judgments about waste – and where “strategy” comes into the equation.

Strategy defines who the target customer is and what needs of these customers are being addressed and what needs are not being addressed.  If Lean work is done without defining in advance who the customer (or beneficiary) is and which of these peoples’ (or organisations’) many needs are being addressed, it is easy for the work to lose direction.

But I also realized that there is another constraint on judgments about waste – the operating model.  Whether you consider the operating model to be part of strategy or not, it is still something that needs to be decided before work on lean process design begins.   The operating model is the collection of processes, types of people, organisation structures, IT systems, locations, suppliers and management systems chosen as the best means of delivering the value proposition.   When “leaning” each process, black belt experts need to consider how that process fits into the larger operating model and avoid eliminating activities that may not deliver to the customer of the process, but may be important to the integrity of the larger operating model.

In practice, this is achieved by recording the “stakeholders” of the process – not just the customer; and recognising that the process must deliver value to all of its stakeholders.  As a result, an activity in the process may be necessary even though it does not deliver value to the “customer”: it may be delivering value to another stakeholder.

A simple example is the annual report that companies produce.  This adds no value to customers – but is required by law, and adds value to shareholders and debt holders and those who make contracts with the company.

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People Models

One of the problems I have been working on is a way of thinking about people models.  I have had two stimuli.  First my son worked for Mark Warner (the holiday company) one summer and I was amazed to learn that he was paid almost nothing (€50 per week) and that his minimum wage was made up with the cost of his accommodation and benefits, such as use of facilities.  Yet there were three people applying for every job and he loved his experience working with Mark Warner:  he also did a winter season with them.   This seemed to me to be an interesting people model. 

My second stimulus was that operating model work is about making choices.  So I began to lay out the choices that are made for different people models.  Choices about the sort of people to be hire – skilled or unskilled, motivated by money or by meaning, etc.  Also choices about the offer to these people – full time or part time work, above average or below average pay, etc. 

This thinking evolved into a four column format for laying out a people model.  I have since thought that maybe it should be a two column model.  But here is the four column version.

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Lets start with the first column: the type of people that you want to hire into the skill group.  Each item involves making a choice.  “Contract” is about the type of contract that these people want.  “Location” is about where the people live.  The next exhibit shows the choices made by McDonald’s for staff in restaurants and Eden McCallum for consultants. 

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There are different ways of laying out these choices.  The above is a crude Powerpoint with a misspelling of McDonald’s!   But the next visual shows a more attractive display of a skill group with three roles in it. 

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A similar analysis and series of choices can be made for the “value proposition” to the people you have decided you would like to attract. 

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And for the column “career path”

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The last column on “culture” is more difficult to boil down into a few choice areas.   This of course is also true of the first three columns.  There are many choices that are not represented.  But the cultural values column is particularly difficult to illustrate in terms of simple choices.  So instead, I attach my summary of the people model for Mark Warner (my views not an official Mark Warner document!).

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In developing this tool, I also realised that it makes little sense to create a people model for a company.  People models need to be created for important skill groups within a company.  yes a company may have an overall employer brand.  But it will not have only one people model.

 

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Organisation charts as organisation models

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Value chains, IT4IT and reference models

I have recently had a most rewarding exchange with Mark Smalley, who is part of a group working on IT4IT (this includes an information architecture to help IT tools interact with each other and a reference model – “an IT value chain” – that will help leaders of IT functions create their IT operating models).  Of course, once my book on operating models – Operating Model Canvas – is available in March, IT leaders can use it instead!

The issue we were debating is whether a reference model should have one value chain or many (and if many – how many).  The IT4IT reference model only has one value chain – Strategy to portfolio (plan), Requirement to deploy (build), Request to fulfill (deliver), Detect to correct (run) – all aimed at one value proposition “efficiency and agility”.

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Mark was explaining that this is a useful starting point for any IT team, who will then need to develop this value chain or define additional value chains as they work on their operating model.  I was expressing discomfort because I feel that a reference model for IT should show the model of a typical IT function, not a generic model that could be applied to any function that builds and runs solutions for organizational needs.  I suggested that the IT4IT reference model should have different value chains for the different categories of service that an IT function provides – ERP related, desk top related, communications related, etc.

This led Mark to ask a very difficult question.  If you go beyond one value chain, how do you know when to stop?  Do you create a separate value chain for every application?  “Revisiting your concern about IT4IT not distinguishing between IT’s different services, it seems a bit like saying that a publisher’s process model doesn’t distinguish between its different publications. Or Zara and its products. While the services and products differ, surely the process / value chain is more or less the same?”

Here is my response (with a few edits and improvements) – comments welcome.

“I also understand the point you make about Zara or a publisher.   But, it is here that my strategy knowledge is helpful.

If you take Ashridge Business School, there are multiple levels at which you can think about value chains

Highest level – market segment – open courses, tailored courses, qualifications courses, weddings, conferences, etc
Middle level – type of course – for example within open courses there are finance courses, strategy courses, marketing courses, etc
Lower level – type of session – for example within a course, there are sessions on different topics given by different lecturers

We could do value chains for all of these levels, or we could try to do just one value chain for the whole of Ashridge.  At the lowest level we would probably have over 1000 value chains.   So the issue is how do we decide what level is useful for helping translate strategy into operating model design?

The answer lies in the degree to which value chain activities need to be combined or kept separate organisationally for the purposes of delivering the value.  This in turn depends on the economies of scale from combining activities across value chains and the degree to which the value propositions for different services differ. We can easily see that you would not want the same people designing a wedding as designing a finance course.  We would probably not even want the same people doing the admin for both.  But we could probably have the same waiters for both.  In other areas, there are plenty of opportunities to combine without loss of unique value proposition: it will be OK to use the same marketing, admin staff and class room and even some lecturers on a finance course and an economics course.

With a knowledge of business schools, if I was doing a reference model for business schools, then I would distinguish between the value chains for executive open, executive tailored, MBA, undergraduate, conferences and community events.  Conveniently this is six value chains: a manageable number.  In my experience, it is usually helpful to start with a small number (but often more than one).  Why these six, because there is enough difference in the value propositions to cause large parts of the value chains to need to be kept organizationally separate (and the economies of scale are not large enough to demand combination).   I observe that one of the problems that many business schools have is a failure to distinguish organizationally between executive open and executive tailored, and I presume that this is because they have not done separate value chains for each and so do not fully understand the different skills involved.

As you can see the judgments I am making depend on a good deal of strategic knowledge about the differences between different value propositions, the skills required and the likely size of the benefits from economies of scale.  Unfortunately, I don’t think there is a way round this, and, as a strategist, I feel that trying to get round this will cause loss of connection with the business.

This is my point about a reference model for IT.  There is enough difference in the value propositions between, for example, ERP related, desk top related and communications related (and no dominating economies of scale) that these value chains should be  considered separately when translating IT strategy into an IT operating model (ITOM).  Not all IT teams will decide to keep them separate.  But many will, and it is important that the team thinks long and hard about whether to do so or not. The IT4IT reference model does not help them to do this.  In fact it infers that creating separate organizational units within IT to pursue separate value chains is probably not the right answer.”

Mark was gracious enough to respond: “Point taken Andrew, and I think that I’ll modify my ITOM presentation to accommodate this aspect. Thanks. I’ll also share it with the IT4IT forum”.

There is a lesson from this exchange that is relevant for any operating model.  Start by thinking about the customer segments and the value propositions.   Then develop value chains for each value proposition that you consider may be different enough to warrant some separation of delivery capabilities from the other value propositions. (But keep to a handful of value chains, at least to start with, because otherwise you will be come overwhelmed.) Only then think about what activities along the value chain to combine across value chains.  If it is obvious that all of the activities should be combined across the value chains you have defined because there are economies of scale and little difference in value proposition elements, then you are working at too low a level of detail.

What do you think?

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