The Friday Interview: Jonathan Hornby, SAS

20 May 2005

Anyone keeping a weather eye on the management journals could hardly fail to have noticed the tenor of recent coverage around business strategy — or more precisely, where it fails. According to some estimates, less than 10pc of strategies are executed effectively. The problem seems to lie not so much in coming up with a workable plan, but rather seeing it through successfully. As a result, Jonathan Hornby (pictured) is a man in demand.

Hornby is responsible for the direction of strategic performance management strategy at SAS, one of the world’s largest privately owned software companies. He is also a regular speaker at international conferences — he made a recent visit to Dublin to give a talk at the MBA Association of Ireland’s MBA Management Update seminar and lectures on performance management at the University of North Carolina. He also works with business thought leaders from management schools and commercial and public sector organisations.

He takes the view that the principles of performance management can be the key to unlocking an organisation’s effectiveness. Although an IT company pays his wages, a feature of Hornby’s comments is that the subject of people occurs with just as much frequency as technology does.

The hallmark of an organisation that performs well is a focus on clear goals and a strategy, or alignment as Hornby puts it. “You make sure everything is centred around the goal, you act as a single team, with a very clear and consistent vision,” he says. “Another [factor] is agility: you move fast, not only with the task in hand but with change. If you can understand where you are getting to and why you want to get there, you’re more likely to get there faster.”

Technology enters the discussion when talk turns to the obstacles that lie in the path of a business. “When organisations are slow to move it’s because of the information in front of them. Some companies have the data but don’t have the technology to distil it,” Hornby declares. But he quickly returns to the intersection of people and technology. “Some organisations have the tools but ignore them and go with gut feeling. Some have the tools but the information is not given to the right people. You need to get the information to the right people in the right format at the right time. Good performing organisations tend to have that mix right and it helps that organisation to act fast.”

Hornby feels organisations should empower employees to make decisions themselves. “If you do that, things happen a lot faster,” he observes. “The goal is to get [data] to every person who has an interaction with a customer or process and who can make a decision on it. Everyone says ‘time is money’. If you have to take time to make a decision then the cost of the decision goes up.”

Understanding cost is another theme Hornby turns to; he takes issue with traditional financial accounting models that he claims often may not relate to the reality of the business or else different divisions have different measurements, which prevents them from being evaluated and compared on an equal basis.

Typical financial accounting is “good for bankers but if you can take that kind of information to a business manager, it’s very difficult to map that to figures you get in a profit and loss sheet,” he states. Instead, Hornby urges businesses to look at the issue of cost by associating it with an activity that the organisation does. As a result, he claims, the reasons why things change in terms of cost become clearer. “You start to get a much better understanding of the value of the organisation.”

This leads to the practice of activity-based monitoring — where the cost for each part of a project is counted and balanced with the activity that the organisation is supposed to deliver. Many organisations have lots of administration-type tasks; for example Hornby cites the generation of a report, which has a cost that breaks down in terms of IT usage, personnel time, production and so on. “Let’s say you produce a 150-page report every month. Does anybody take action on it? A lot of time, you tend to find that report never sees the light of day; it’s just put on a shelf. You start to ask ‘What would happen if we didn’t produce these reports’? In my experience, if you look at most organisations, you can probably find 30pc of those activities do not add value to the company.”

There are other angles organisations can take to understand cost, Hornby adds. “Far too often, companies don’t understand that they have customers, products, activities or channels that are losing money,” he says. This gives him the opportunity to reiterate his belief that traditional financial models aren’t best suited to helping an organisation really get to grips with its costs. “Because traditional financial models aggregate information and then they spread it pretty generically, they spread costs across units in the same manner — but not every department is the same. By spreading it too high a level, they miss the fact that some customers are losing the company money.”

Creating transparency across an entire organisation is essential. Scorecard- or dashboard-style measurements that provide useful data can help staff remain focused on the task in hand. They can remove the clutter of unnecessary information and deliver the data that employees need. “There’s a need for one version of the truth, because different areas of the business might be using different ways of measuring, for example, profit in one group could be something different in another one,” Hornby points out. SAS estimates that in a typical implementation of this principle, close to 80pc of time is taken de-duplicating, correcting and transforming data.

As part of this ‘one truth’, companies must improve communication, especially in terms of strategy. “If there are mixed signals, employees don’t know which one to follow,” Hornby says, noting how office politics can come into play. “Many people follow either their instinct or certain people. If there are mixed signals, employees don’t know which one to follow, so they pick which one is the loudest, the most powerful or has the most chance of success.”

As part of the alignment he referred to earlier, he says organisations must remove ‘silos’ or the feeling of one department versus another. “You need to act as a single team and understand how processes flow through a company: if there is a holdup in one area, it could be to the detriment of another. Understanding that we’re all interdependent on each other helps get the job done faster and more effectively. Then you can focus on turning threats into opportunities.”

Gaining the support of staff is crucial for such a project but Hornby acknowledges that this can be difficult. When a strategy has been formulated, senior management must communicate why changes are being made and it must remain consistent with those messages. Rather than implementing the plan from the top down, Hornby suggests working from the bottom up. “Identify a division within the company and start there; go one department first. If you’ve got all that, you can make headway and it proves it can work,” he says. “If it’s from the top down, you’ll have a problem potentially with turf warfare and people looking out for their own area. This slows the whole process down. Top down is the textbook approach — if executed right, it’s the best way of executing strategy — but it tends to get bogged down in practice. For the quicker wins, the bottom-up approach gets everyone joined together.”

What a scorecard does is put the company’s activities in the rear view mirror — the data it shows refers to what has already happened. The next step, says Hornby, is to consider deep analytics and pattern recognition — seeing how behaviours influences outcomes. “Once you understand why things happen, you can start to project forward,” he says. “How come one part of the business in a different part of the company is working better than another? Maybe it’s the mix of skill sets in that area. If you’re using analytics you can see the answer a lot faster and a lot clearer.”

As SAS sees the world, there are five steps to the evolution of information within an organisation: operate, consolidate, integrate and optimise, through to the holy grail — innovate. This happens when a company’s knowledge of its own business and the wider market is so deep, relevant and accurate. It can analyse risk based on the experience of having evolved its data through the previous four processes. This goal is obviously aspirational, though Hornby insists it can be achievable. “Very few companies are actually there: whenever a company innovates or changes it is always successful because it reads the market right,” he says. “That takes a good mix of hindsight and foresight. We hold that level as the ultimate vision of where you want to be.”

By Gordon Smith