Managing flows of money and work inside an organization

*This is a [zero-AI-text]* Grigory Miloradov, DEXENTRI Consulting (c) 2023

Introduction to “Efficient Resource Flow Alignment” © ERFA methodology

In my previous posting I discussed the topic of efficiency and the in-born inclination of any organization to behave like a living organism eating as much and moving as little as possible – the “law of corporate relaxation”.

This phenomenon is manifested in both profitable and dilutive, growing and stagnating or declining businesses. Any organization finds ways to hide over-consumption of resources and under-production of value in the “jungle of business process complexity” and cover inefficiencies by collective decision-making and collegial accountability (which equals to zero-accountability or scapegoating). Thus, organization as a living organism imposes on its shareholders an inverted and destructive definition of efficiency – efficient, for a living organism, is to eat and sleep more and to run and hunt less. Paradoxically, it often finds allies in employed managers with their individual interests and motivations diverted from those of business. The big question, of course, is the following:

How can owners and diligent top managers counter the phenomenon of corporate relaxation and impose the healthy definition of efficiency – spending less resources to generate more value?

The answer to this fundamental problem might be found in applying flow management inside the organization.

It is an axiom that outside an organization the forces of market substantially improve efficiency by achieving the match of perceived value of oppositely directed flows between counterparties of any commercial deal. The flow of money from buyer to seller is +/- matched in value by the flow of delivery of goods or work from seller to buyer. Inside an organization, however, it is hierarchy that rules. Hierarchy play is never about the match of value. Seeing an organization as a system, as a “black box”, we can observe money flowing into it as equity, debt, and revenue, and we can observe money flowing out of it as payments for purchases of services, goods and labour that will be transformed into added value inside the “box”. And we observe the flows of work – what employees bring in every day – and flows of delivery to clients through direct and indirect sales channels. The hierarchy impact on resource allocation, and the indirect relation and complexity of these inflows, outflows and through-flows make it quite difficult to evaluate and influence the value match of payment and delivery. Here, the organization over its lifecycle gets more and more able to unbalance this match in its favour – to underdeliver in work results and get overpaid in money and benefits.  The mismatch can be very substantial. It accumulates over years, and when such a mismatch bursts, hundreds or thousands of employees - whole business units - get fired with dramatic damage.

“Efficient Resource Flow Alignment” © ERFA

Consequently, it is the organization’s structure and “rules of the game” inside the organization that distort the value match of flows of money and work. Somewhere in the structure the flows of money evaporate out of the company through various pay-out holes, not met by sufficient crystallization of value in other segments of the same structure. It would be beneficial, therefore, to bring some of the market principles into the organization and to reflect them in the internal rules of the game. 

Bringing market principles into the organization becomes possible with the management methodology focused on transmission of flows inside an organization – “Efficient Resource Flow Alignment” © ERFA – that we have developed at DEXENTRI Consulting to enable owners and leaders of companies to improve efficiency by internal transformation and implementation of flow-based rules of the game for their operations.

Five Flow Domains of © ERFA

“Efficient Resource Flow Alignment” © ERFA previews operating any organization by just 5 Flow Domains, each headed by one responsible Head of Domain with final authority on spending money and accepting delivery. 4 of these 5 Flow Domains – “Finance”, “Market”, “Technology” and “Human” - are externally facing accounts that are entitled to make outside payments and receive flows of goods and work matching or exceeding in value the money paid for them. All flows to and from outside, according to © ERFA approach, have no entry and exit gateways to the ”Blackbox” of the Company other than these 4 accounts. The 5th Flow Domain is “Product” and it is not directly facing the outside world but interacts with other 4 Flow Domains based on “money vs. delivery” contracts. 

Money and work in “Efficient Resource Flow Alignment” © (ERFA) approach have always just one route – from outside to Flow Domain to Flow Domain to outside – strictly according to “money vs. delivery” contracts. This transparent flow management makes it impossible for any node to shift responsibility for delivery – the Head of Flow Domain is always the only accountable person when the match of paid money and delivered work is questioned by another Head of Flow Domain.

Tell goodbye to "corporate relaxation"

ERFA © approach counters corporate relaxation phenomenon by impossibility of hiding over-consumption of money (and resources in general) and under-delivery of value in the complexity of business processes. It will trim the organization, put healthy pressure on everyone, clarify responsibilities, enact intrinsic money-driven motivations and bargaining energies of employees, connecting their delivery and the money that they will earn together with the company. Happy empowered employees will create better products that loyal clients will buy again and again pleased by the value those products give them. At DEXENTRI Consulting, with all due respect to buzzword topics of modern management, we fundamentally believe that business is primarily about making money. Let us admit that people work in companies primarily to earn money. If we agree on this, then we are on the same wave and the pragmatic ERFA approach will work for you, too. 

Focused on how Companies can improve their cash and value generation, ERFA © methodology sees every aspect of doing business subordinate to flow of money and what comes in return.

System approach and methodological integration

Efficient Resource Flow Alignment (ERFA) © connects internal rules-of-the-game and organizational structure with popular agile approaches and to other organizational concepts, like, for example, “zone-to-win” by Geoffrey Moore, in a clear and logical operational model to improve businesses’ performance by optimally directing flows of money and work through the organization as a system. It improves efficiency of a Company’s product management by assessment of 2 flow dimensions of the product portfolio and each product - investment dimension and process dimension. To orchestrate Product and Project Management practices (Agile, Scrum etc.) with overall management and financial framework of the Company’s business, ERFA © methodology provides the necessary bridge between what Product and Project Management is required to deliver and how resources are provided and controlled to achieve those expected deliveries. 

The consequent flow management and “money vs. delivery” view facilitates better product KPI achievement, total allocation of every cent of resources to product value generation and value capturing on the market.

Motivated employees and satisfied customers

ERFA © methodology clearly explains who is responsible for what, who can decide what, and who can demand what from whom under which potential penalty for sub-expected delivery. Leaving no ambiguities, it makes employees confident, conscious of money aspect of their deeds, and turns them to responsible and motivated partners of the company as they see direct link between the performance of their Flow Domain and the money that their Domain will be able to pay them as bonuses for agreed or exceeding performance. 

 It empowers productive regular performance reviews where employees can ask right questions, understand each other, speak out hard truths about hard realities of business, healthily bargain, decide based on data and seek and execute solutions to become better together in the next quarters. The interdependencies of Flow Domains make it clear that only together as one system the 5 Flow Domains can achieve full match of value between money flow and delivery flow.

Conclusion

Based on common sense and rational thinking, ERFA © methodology is open for every company to implement a successful efficiency-focused transformation just by an internal effort. As any profound transformation, © ERFA methodology implementation will be a journey of change management, requiring full attention and involvement of CEO or owners of business. DEXENTRI Consulting offers a free “ERFA © Transformation Blueprint for Self-Starters” and is ready to provide help and support to Owners and CEOs of companies who wish to achieve transformation faster and more smoothly by engaging dedicated external specialists focused on improving efficiency of organization and its product management practice. Visit www.dexentri.com  website, request Blueprint free “ERFA © Transformation Blueprint for Self-Starters” and more info and contact me to share your views or ask questions on what ERFA can bring for your business.