Management Meta-Functions and Technology

Note: Demand Management in this blog refers to management of demand for resources within a firm. I want to clarify it at the outset, since all business organizations are on the supply-side from a macroeconomic point of view.

No business organization has a demand management function as a department entrusted with the responsibility of managing internal demand for resources. But this function is critical and strategic. In fact, it is a meta-function of all functional areas and it requires active involvement of executive management and the board.

Within any business organization, demand is the sum total of all current and outstanding requests for resources. Resources could be dollars or labor or technology and generally these resources are fungible. There are countless instances: We need to make two more acquisitions, spend more to enhance customer service, upgrade technology, roll out new products, grab a bigger market share, improve marketing of our new products, spend on improving product quality, give salary increases to hard working staff and so on.

Demand management is mostly the responsibility of senior management and this responsibility extends to the executive level and board room too. Demand is controlled and directed by the mission, strategy, goals, policies, governance processes, capital budgeting, spending limits, return on investment (ROI) targets, et cetera.

On the IT side, demand is controlled and aligned with strategic objectives through a technology governance process that includes, inter alia, "tough love" (sorry, Mr. Cruz Bustamante) prioritization, chargeback mechanisms, and reviews of business cases.

Since demand always exceeds capacity, management of demand is about making choices. Sometimes there is a fear about making choices and at other times macho managers think that they can do everything: expand the target customer segment and meet all their demands, reduce costs and improve quality. Making a choice involves giving up. Choice involves trade-offs. Choice means deciding what we won't do. Choice means saying no. Doing everything and keeping everyone happy seems so much easier. Demand management is left to the winds of organizational weather system - whether it is functional or dysfunctional.

At the strategic level weaknesses of demand management show up in compromises and insidious erosion of competitive advantage over a period of time. But in the short run middle management has to figure out how to bring the resources to meet the demand coming from various corporate projects and day-to-day operational priorities.

Supply management that requires provisioning and allocation of resources is broadly a responsibility of middle management. Middle management has to make sure that their staff are not drinking beer with their feet on the table. This last sentence is a joke but what I mean is that middle management needs to make sure that available staff and skills are effectively and efficiently allocated to critical activities. If demand management meta-function is not effective, then either middle management has to step up to control the demand or it will end up dropping one of the balls - no pun intended.

Finally, we come to the meta-function of capacity management. What is capacity? Capacity is the upper limit of the aggregate output of the firm. It is the maximum ability of a firm to get the work done. There are three key determinants of capacity:

1. Staffing
2. Best practices
3. Technology

Business organizations can expand their capacity by improving capacity utilization or by adding new capacity. Addition of new capacity is expensive, particularly when existing capacity has not been driven to achieve its maximum. All business organizations try to expand their capacity. Often this meta-function is recognized as doing more with less. Some of the firms do this by having their managers scream harder and louder. Others do this by burning the midnight and weekend oil. None of these methods are sustainable. Therefore, these are non-strategic. Strategic expansion of capacity involves improving overall fit among various functions and activities of the firm to optimize effort and minimize waste. Southwest Airlines and Wal-Mart are good examples. Strategic expansion of capacity involves recognizing one's strengths and uniqueness. Increases in productivity are invariably part of improvements in the "fit" among various activities of the firm.

You will notice that technology is only one of the variables in the expansion of capacity. Therefore, acquisition of technology to drive capacity expansion across the enterprise involves a lot more than mere implementation.

Technologists have to understand how they help organizations do more with less. At a given level of technology, when maximum capacity utilization and productivity have been achieved through the use of best practices, demand has to match supply. Most of the IT organizations have begun to understand it and they are establishing control processes to manage demand and supply.

In fact, very large organizations have to build internal economy of the firm in such a way that the resources are routed towards the most profitable strategic opportunities.

Each organization has to evolve its own method of building an internal economy for management of meta-functions of demand, supply, capacity, productivity and competition. For example, several advertising firms have multiple teams competing internally for the same contract. Some of the advertising firms, in fact, launch several competing projects for the same contract. On the other hand, within technology firms, internal competition takes the form of how to skin a cat. IT departments use project governance, activity-based costing, project management and various software development methodologies to manage these meta-functions to match demand and supply. When they don't, they drop the ball. Some commitments are left unfulfilled. Project time lines are extended. At the end of they day demand matches supply but it happens mostly in an unpredictable and ad hoc manner.