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The Impact of Corporate Culture on Digital Intelligence

I just finished reading Corporate Culture: The Ultimate Strategic Asset by Eric Flamholtz and Yvonne Randle. The book is based on the premise that company culture is a critically important yet often uncredited driver of success and failure, even correlating to financial performance. And, like other aspects of modern corporations, culture requires active management. Companies with great cultures don't get there by accident. The book is a worthwhile read for those with an interest in general management and the implications of culture for mid-sized to large companies.*

The book defines corporate culture as the "values, beliefs, and norms that influence the thoughts and actions (behavior) of people in organizations." The connection between cultural attributes and actions made me think about applying the concepts of culture directly to digital intelligence. Why is culture important in the context of digital intelligence? Because simply hiring people or implementing technology isn't enough to achieve digital intelligence proficiency. I see proof of this on a daily basis as I work with clients who struggle with digital intelligence despite substantial investments in the best technologies and most talented teams. These organizations have many of the individual pieces but cannot put the puzzle together. Culture is the connective tissue that binds technology, people, and action together.

To take the idea a bit further, let's look at the five key components of corporate culture according to the book and their digital intelligence implications:

  1. Customer orientation. How a company views its customers; in digital intelligence terms, are you able to understand customer interactions across channels and respond to the needs of individual visitors and customers?
  2. Orientation towards employees. How a company views its people; in digital intelligence terms, are the insights and expertise of analysts and business stakeholders valued, and do staff possess the right skills within an effective organizational design?
  3. Standards of performance and accountability. How a company measures employees for meeting its mission; in digital intelligence terms, are metrics and KPIs tied to business outcomes and are they effectively delivered and actionable?
  4. Innovation and commitment to change. How a company embraces change and innovation; in digital intelligence terms, is continuous optimization considered a key approach for assessing the impact of content, promotions, and features?
  5. Process orientation. How a company operates; in digital intelligence terms, is decision making data-driven and are appropriate processes in place to properly govern and scale analytics activities?
  6. It is notable that the corporate culture framework organically incorporates elements of all four strategic digital intelligence components - technical approach, ownership structure, metrics and KPIs, and optimization.

How can you use culture as a lens into digital intelligence? Putting a cultural perspective on the strategic digital intelligence components provides a framework for understanding elements that are largely intangible, that is, they are rarely visible on balance sheets, org charts, or dashboards. Use the framework to:

  • Prioritize investments. Look for cultural consistency when considering staff, organization, project, and technology decisions to ensure adoption and actionability; this perspective is also an effective "tie breaker" when competing initiatives appear to be equal in terms of traditional evaluation points.
  • Identify digital intelligence gaps. Build a digital intelligence culture map for your organization against the five components of culture. Expressions of these facets may be very explicit or they may appear to be missing altogether. A "lack" of something doesn't mean it doesn't exist, it is simply poorly defined and should be considered a candidate for active management and remediation.
  • Hire staff. Cultural fit plays a huge role in a candidate's ability to contribute to digital intelligence at your firm, arguably more than academic credentials, references, and work experience. Evaluate recruits against your firm's digital intelligence culture. Are they customer focused? Can they work with other staff to develop effective analyses? Do they understand how to build business oriented measurement systems? Do they embrace change? Can they follow your firm's processes?
  • Guide career decisions. Are you considering making a move? Be careful about basing employment decisions purely on more compensation and a fancy job title. Evaluate prospective employers' cultures to understand their true commitment to digital intelligence success. Does the firm "listen" to customers? Do they invest in the development and promotion of employees? Is data used to drive business decisions? Do they encourage experimentation? Do processes support efficient analytics without limiting innovation? In the case of earlier stage organizations, use cultural indicators to validate their ability to effectively scale up a digital intelligence program.

It's interesting that the framework described in Corporate Culture provides a convenient wrapper for exploring the digital intelligence components, even in cases where these capabilities are quite subtle or are affected by complex relationships within a company. This is also an important reminder that our success is often determined by much more than technology; the human element deeply impacts even the most analytical efforts. * Side note - If your interests lie with startups and managing high growth companies, I strongly recommend Flamholtz and Randle's Growing Pains.

As Seen in: Forrester Research Blog by Joseph Stanhope/July, 2012


"Best Sellers:" Theirs and Ours

No. 1 Best Seller:  Corporate Culture, by Eric G. Flamholtz and Yvonne Randle

As Seen in: Stanford University Press/July, 2011


“Top 5 books to turn your high-tech innovation into a successful business”

A wise old entrepreneur once told me: "The leading cause of failure for entrepreneurial businesses is success." If not managed properly, high-growth ventures often fail due to the inability of the entrepreneurs to successfully transition their businesses through the various stages of growth. Now in its fourth edition, this book still offers entrepreneurs the best insights into what it takes to successfully navigate through the white water that constantly faces the owner of a high-growth venture.

As Seen in: The Christian Science Monitor by Jeff Cornwall/April, 2011


What Choices are there to Value People as Assets?

Four decades ago in the 1960s, researchers and academics created methodologies to close the information gap created by the increasing value of intangible assets. A group of researchers at the University of Michigan authored a series of papers to develop the field of "Human Resource Accounting." In January 1967, the Harvard Business Review published, "Put People on Your Balance Sheet," which discussed various methodologies for classifying human resources as assets, including:

  • historical cost,
  • replacement cost, and
  • opportunity cost.[4]

Even the American Accounting Association allocated expertise to evaluate these approaches. In 1972, and again in 1973, the AAA formed a committee to evaluate the merits of "Human Resource Accounting." However, according to Eric Flamholtz, due to the difficulty of finding public companies to serve as test cases, the movement to put "People on the Balance Sheet" lost its momentum.

As Seen in: The Huffington Post, THE BLOG by R. Paul Herman/October, 2011


Flatten Your Learning Curve: Read the Classic Business Books in Core Areas

Organizational Development with Change Management An understanding of organizational development and change management is critical for younger companies. Keys to success are planning and developing strategy, an appropriate organizational structure and controls, and provide management development.

  • Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firm by Eric G. Flamholtz & Yvonne Randle

As Seen in: Smart Lemming/May, 2009


“New Challenge for Minority Businesses in the New Economy”

The smallness of scale and lack of product diversity among minority dealerships were cited by GM and Chrysler as primary factors upon which their decision depended.  This example illustrates most vividly how corporate supply chain success for minority firms, given the new economy, will depend upon their ability to build greater scale and capacity.  Capacity building therefore is the new mandate of minority business development. To meet the new challenge, minority businesses must become Professionally Managed Enterprise (PMEs).  History shows that only a small percentage of businesses will achieve the scale of operation that is typical for firms that become PMEs. One of the most essential guides to understanding the challenges and elements of achieving PME status is a landmark book by Eric Flamholtz and Yvonne Randle (2007) Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firm.  (John Wiley & Sons: San Francisco).  The Gazelle Index’s staff strongly recommends this book.

As Seen in: The Gazelle Index by Thomas Danny Boston


“Costs soaring? Overhaul your business”

…a business can't cut its way to prosperity. It must also enhance revenue. Goldin suggests optimizing the price you charge (possibly by passing higher costs along to consumers) while also attempting to increase sales volume. Promotional activities can be a good investment: A sales slump can be a catalyst for more effective marketing. Seek out new niches or channels to pump up sales. For a retailer, this could mean looking into specialty food stores or food services. Companies dealing in fresh foods could research expanding into the frozen arena. "You really have to explore the gamut," Goldin says.

Looking deeper

Reacting to price increases may only be addressing surface symptoms, however, says Eric Flamholtz, Professor of Management at UCLA's Anderson School of Management. "It's not just the question of 'Costs are going up, how do I handle this? Do I negotiate a little better?' That's only going to be a transactional perspective, as opposed to a management perspective," Flamholtz says. He suggests looking at the big picture - the current environment, your competition and industry trends - and then figuring out something unique about your business to build on. For example, Bell Carter Olive Company became a dominant player in the black olive industry by focusing on being a low-cost producer, which required a reassessment of both its business operations and its raw material purchases. Once you've decided on a course, evaluate all aspects of your operations and determine how well they meet your company goals. That means taking a hard look at your market position, the services you offer, your operational and management systems, and even your company culture. "What he really has to do is to step back from the immediate problem, take a more fundamental look at his business, and do a strategic assessment," Flamholtz says.

As Seen in: CNN Money Small Business Blogs/November, 2008


Stages of Entrepreneurial Growth

Preparing for growth and handling it professionally are keys to organizational success. When I was growing businesses in the 1990s, I found books by Eric Flamholtz helpful in putting things in perspective. Of particular use was his volume Growing Pains: Transforming from an Entrepreneurship to a Professionally Managed Firm. I know that not everybody is a big reader, but this one volume can be a big help in guiding entrepreneurs through tough transitions.

As Seen in: The Entrepreneur’s Mentor/February, 2008, Let's Value People as an Asset, and Bring Financial Statements into the 21st Century


“10 books For Every Business Leader”

Growing Pains,” by Eric G. Flamholtz and Yvonne Randle on understanding your company’s predictable stages of growth and the inherent problems of each stage.

As Seen in: Church of the Customer Blog by Ben McConnell/January, 2007


“In the early 1990s, we worked hard to make the transition from an entrepreneurship to a professionally managed company. But even as we did so, we tried to retain as much as we could of our entrepreneurial spirit, our esprit de corps, our ability to innovate and renew ourselves. We invited Eric Flamholtz, business professor at UCLA, to advise us on making that passage. He had written a book called Growing Pains, and recognized the symptoms all too well when he arrived at Starbucks. Fast-growing companies, he believes, go through predictable stages; no one is immune to them. He has developed management strategies to help company founders at each stage deal with the personal and professional challenges they confront as their enterprises mature into professionally managed firms. At Starbucks, Eric Flamholtz worked with us to develop strategic planning and management systems. Slowly, painfully, we’re learning how to set priorities and better manager rapid growth.”

As Seen in: Pour Your Heart into it: How Starbucks Built a Company One Cup at a Time, Hyperion, 1997 (pp. 201-202) by Howard Schultz, Chairman and CEO of Starbucks and Dori Jones Yang.