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Closing the gaps: to maximize their value, firms must close the gap between managerial and technical skills. It won't be easy.

The incredible array of short, easily digestible business and self-help books offered in airport bookstores appeals to our persistent hope of finding some simple and bold recipe for solving our biggest problems, in business, in politics and in our personal lives. Despite gushing back-cover praise, they seldom deliver what they implicitly promise. The real solutions, simpler but more difficult to implement, consist in bridging crucial conceptual, practical and cultural gaps that we ourselves have brought about because we lack the will and discipline to learn and apply what is already known.

First, there is a conceptual gap between what we claim to do and what we actually do. A principal example is that virtually all business executives profess to make every decision by choosing the option that adds the most value to their firms. In reality, most decisions focus on maximizing short-term profitability, since few firms have well-understood or sound, model-based measures of their current value or of the prospective value added by alternative actions they are considering. The implicit and rarely challenged assumption seems to be that maximizing long-term value is brought about by maximizing short-term profitability, as routinely measured by current accounting conventions. One solution is to simply stop claiming to maximize value. Another is to develop measures of current and prospective value that enable one to actually do what one has been professing to do all along.

Second, there is a practical gap between what we know in principle and what we actually apply in practice. Business executives often cite a need for better measures of risk and value and better data to support them. Collectively, much is known that could actually help them develop such measures and relevant data. Unfortunately, there are throngs of websites, consultants and firms that claim relevant expertise, and executives recognize their inability to discern which among them actually have the knowledge to deliver what they promise.

These first two gaps partly stem from a crucial and rapidly growing third gap, a cultural gap between technical experts and their organizational managers--groups with contrasting training, experiences and, often, views of how their firms can and should deal with the risks to which they are exposed and their opportunities to increase in value. During the past several decades, businesses have become ever more dependent upon information technology, data analysis, and statistical analysis (data mining) of client information and of business results. At the same time, business executives are challenged by the widening gap between their managerial skills and their understanding of the technical skills on which their firms increasingly rely. Managers lack crucial technical knowledge; technical experts lack crucial organizational understanding. The solution lies in changing the aspirations, qualifications, training, and experience of both business executives and technical experts, so that managerial experts are also technical experts in at least some domains, and so that technical experts develop greater understanding of their organizational context. In our increasingly technical world, this is a key challenge for businesses, for our economy, and for universities.

Audio:

Listen to an interview with William H. Panning at www.bestreview.com/audio.

Best's Review columnist William H. Panning is an independent consultant and former executive vice president at Willis Re Inc. He can be reached at bill@williamhpanning.com.
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Title Annotation:Property/Casualty: Loss/Risk Management
Comment:Closing the gaps: to maximize their value, firms must close the gap between managerial and technical skills.
Author:Panning, William H.
Publication:Best's Review
Geographic Code:1USA
Date:Apr 1, 2012
Words:539
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