Events, News, & Ideas

Market Efficiency

Inertia from past activities is an overwhelmingly powerfulforce in most hierarchical organizations, where reinforcing the status quo toprotect institutionalized policies, procedures and systems more often ensureagainst the evolution of novel methods to lower cost structure. The problemwith any status quo is that, after precious resources have been “invested” indeveloping new capabilities, however commonplace, there is a naturalinclination toward protecting them, in spite of their importance to customers.Indeed, sunk costs of all kinds often end up as dead weight that customersnever really valued very much in the first place.

Simply put, efficiency boils down to the discipline todiscontinue those activities which no longer matter to customers.

When applied to markets, it means that sacrosanctapparatus ranging from the sales force or customer service might be on thechopping block as more efficient methods to connect and maintain connectionwith a firm’s markets evolve. For example, many organizations have begun usingsocial media to respond to customer complaints or service calls, while mostcompanies have automated their sales process to some degree, many dissolvingthe sales force entirely as sales becomes less a matter of updating customerorder records – a task which might be done online – and more a matter ofbuilding lasting relationships of trust with much more narrowly targetedcustomers based on potential lifetime value.

All throughout the month of February 2010 Aurora WDC will be celebrating its 15^th anniversary and we’d like to share some thoughts on the role of intelligence in business organizations and how it’s changed over the years.

On February 3^rd, 1995 (by coincidence also my 25^th birthday) I completed the Articles of Incorporation for Aurora Worldwide Development Corporation and started building a wall to section off a 12-by-25-foot office on the eastern side of my mother’s beauty salon in tiny Chetek, Wisconsin – my hometown, where I’d returned to pursue the next phase of my career. Though I wasn’t sure at the time, precisely, that Aurora would be a competitive intelligence consultancy, we’ve since established a respected position in the field and I knew there was a desperate need among businesses of all kinds to close the gap between what they THINK they know and what they ACTUALLY know.

Closing this gap is the nature of intelligence in all industries – it demands both skepticism as well as courage to convey to powerful decision makers the things they didn’t know they didn’t know and deliberately discount the value of “known knowns” that no longer prove valid.

In the years since, I’ve come to call this gap the “stochasm” because the self-deceit it produces can make the events that unfold around an organization seem almost… well, random in their punishment of managerial decisions that seemed like such good ideas at the time.

This impression of randomness however is mistaken. Indeed, substantially all of the mistakes that will ever happen in organizations derive from this decision stochasm phenomenon (aside from “Acts of God” which are truly random) which have also been called "blindspots" or "sway" - indicating we fall under their intoxicating influence.

Overconfidence based on assumed knowledge is a far more immediate enemy than any mere competitor could ever be. As a result of my sincere belief that stochasm itself is the enemy, a few years ago I set about finding a tasking doctrine that could better explain and predict industry change than traditional competitive strategy theory. In my search, I discovered Harvard Professor Clayton Christensen’s Disruptive Innovation Theory and the core theories of innovation that accompany his explanation of how change happens in industries of all kinds and how that change can be understood and anticipated.

However, as Clay would often lament, the methodology, though thorough, was less accessible than it could be to the rank and file workforce in commercial firms. Likewise, in my adjacent field of competitive intelligence, it has often been said that most of what we need to know about the external environment in order to understand it is already known inside the firm; the remainder is more often than not “nice-to-know” or granular detail which would prove diminishing in its returns in understanding what’s coming next. The real problem is in surfacing that knowledge in time to make a difference.

Beginning around 2005, I set about trying to distill Christensen’s theories into a series of intelligence tasking questions that could be presented to a knowledge workforce to answer and test the design of a more “social” methodology. At the same time, Web 2.0 made it possible to be social in enterprises of all kinds, once IT was sufficiently consumerized. The result of this work within Aurora's intelligence frame of reference we call RECON – which describes five domains of anticipating change – Risk, Efficiency, Customers, Outlook and Novelty; these five domains apply themselves to commercial firms in four organizational contexts – Markets, Operations, Products and Strategy.

The theory goes, if a company could present the resulting five-by-four matrix of question types – 20 in total – to the knowledge workforce for scoring and weighting according to probabilities, then a large portion of the risk of mistakes arising from managerial stochasm could be avoided. Indeed, new forecasting methods such as prediction markets could augment the mathematical probability determination of seemingly “quantum” events using social media technologies to aggregate information about the same questions.

Market Risk

So I begin with the first of these intersections between external domains and internal contexts – Market Risk – or the questions driving loss of status quo in the markets the company currently serves.

More often than not, this is because the company has defined its markets incorrectly – rather than interpreting markets based on “jobs to be done” or problems to be solved, most companies mistakenly think of their current markets as stationary targets based on age, sex, income or geography and then try to create a strategy that can fit each one.

Intelligence for Corporate Governance Part II: How the Board & C-Suite Can Avoid the 15 Bad Habits of Poorly Governed Companies

January 27, 10:00 - 11:00 AM Central Time

11:00 AM Eastern / 8:00 AM Pacific 

Featuring Walter Smiechewicz, Chief Consultant at Audit Integrity, The second of a two-part series from Aurora WDC on Intelligence for Corporate Governance, co-presenter Ronald Kral, Managing Partner at Candela Solutions LLC, will join Mr. Smiechewicz for the January 27th event following his January 6th presentation of Part 1 of the series, "Risk Intelligence in the Boardroom" - a PDF of the Slides as well as MOV of the Video from Part 1 are also available. Register Today! 

Walter Smiechewicz is Audit Integrity’s Chief Governance & Risk Consultant. He is a specialist in the design and implementation of internal audit, governance and risk protocols for U.S. and international companies. His work in enterprise risk assessment is recognized as “best in class” in the top selling case study Four Approaches to Enterprise Risk, published in 2006 and reprinted in 2009 by the Institute of Internal Auditors. He has been published in IIA’s Internal Auditor Magazine, the Journal of Banking and Finance, NACD’s Directors Monthly, Fraud Magazine, Financial Executive, Directorship Magazine and interviewed by Bloomberg News and Best’s Review. Walter’s professional background includes seven years with Deloitte & Touche and over 15 years with U.S. corporations as General Auditor and Senior Managing Director of Risk Assessment. A frequent guest speaker on risk and internal audit, he is a member of the IIA; Financial Executives International; Professional Risk Managers International; AACSB Professionally Qualified Faculty; and the National Association of Corporate Directors. He is a CPA (non-practicing) and holds a BBA Accounting from Cleveland State University, as well as an M. Divinity from Columbia International University. Mr. Smiechewicz is based in Audit Integrity’s Los Angeles office and may be reached by email at wsmiechewicz@auditintegrity.com.

Ronald Kral is the Managing Partner of Candela Solutions LLC, a public accounting firm with a national focus on governance, risk and compliance. He works extensively with executive management teams and boards, especially those of public companies registered with the SEC, to: §         build governance awareness through in-house training, §         streamline regulatory compliance efforts, and §         devise risk assessment tools to empower success. Prior to forming Candela Solutions in 2003, he was a Principal Consultant at PricewaterhouseCoopers (PwC) where he led performance auditing, internal control, and governance projects. He began his public accounting and consulting career with a California-based CPA firm as a Financial and Compliance Auditor, where he worked extensively with Ernst & Young on joint projects. Ronald is a nationally recognized speaker on regulatory accountability, business ethics, internal controls, boardroom leadership, and SEC rules & regulations. Mr. Kral was a member of FEI’s Task Force on the COSO Monitoring Guidance Project and has authored numerous articles on governance, risk and compliance. Ronald is a member of the AICPA, FEI, IIA, IMA, and WICPA. He is a licensed CPA in Wisconsin and California, and holds an MBA from Arizona State University and a BBA from the University of Wisconsin. Based in Madison, Mr. Kral can be reached at rkral@candelasolutions.com.

Arik Johnson is founder and chairman of Aurora WDC. As managing director and architect of Aurora’s consulting business, he works with organizations of all kinds to develop their intelligence apparatus to anticipate, monitor, detect and interpret change in their business environment. Aurora WDC's competitive intelligence, market research and business planning services empower the most respected enterprises in the Americas, Europe and Asia-Pacific. He is a Fellow of the Society of Competitive Intelligence Professionals and speaks and writes widely on topics related to competitive intelligence. Mr. Johnson can be reached by email at arik.johnson@aurorawdc.com.

Intelligence for Corporate Governance Part I: Risk Intelligence in the Boardroom

January 6, 10:00 - 11:00 AM Central Time