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Solving the One Version of the Truth Conclusion of a 2-Part Series

Originally published December 15, 2011

In Part 1 of this series, The Myth of the One Version of the Truth, I discussed the philosophical groundwork for the problems that professionals in information management have with determining the single version of the truth. "They are simply misguided" was the conclusion. In this concluding part, I will present a solution that is so simple that you may find it hard to believe. Still, it works. By taking a post-modern approach to the single version of the truth problem that has been bugging information management professionals for such a long time, it simply disappears.

The reason why all these versions of the truth, often under the same name, exist in isolation is the vertically aligned setup of the management structure. Each business domain only reports up to strategic objectives, and most of the reporting is “self reporting,” the domain reporting based on its own data.

However, using a process-oriented approach, horizontally aligned and next to each other, multiple versions of the truth actually make sense. The various departments or business units each have a different relative position in the value chain and, therefore, a different view on the current revenue or the number of customers. This doesn’t mean that every single definition is valid and should be preserved – in fact, many definitions may be redundant. The real question is: How does an organization decide which definitions are valid and which are not? Valid definitions, placed in the right order, constitute “one context of the truth.”1

Take, for instance, the revenue analysis I did in a software firm. A quick examination revealed the existence of definitions such as gross revenue, net revenue, net own revenue, recognized revenue, management revenue, total commission revenue, invoiced revenue, statutory revenue, taxable revenue and actual cash inflow. There were management reports for most of these definitions, but there was no management report in which these types of revenue were grouped into context. Yet, creating a comparative relative analysis of these types of revenue reveals analytical value. Analyzing the difference between gross and net revenue provides insight into the discount practices within the organization. This is still fairly standard. But consider net own revenue, which excludes the revenue for licensed third-party components. If the percentage net own revenue decreases to a certain point, perhaps it is time to acquire the licensing company (or an alternative technology). Every salesperson should also be aware of the difference between net revenue and recognized revenue. Recognized revenue is the amount that may be booked into the current revenue based on bookkeeping regulations. Particularly interesting for salespeople is the total commission revenue, on which the salesperson’s compensation plan is based. Ideally this adds up to management revenue, but there may be double compensations because of sales overlay structures. There also may be a difference between the software sales. For example, perhaps an additional discount was needed because of a missed implementation deadline.
 
Cash flow is important as well, as revenue can only be spent again if there is actual money in the bank. Salespeople should be aware of the paying behaviors of their customers. Lastly, salespeople should also see statutory and taxable revenue to understand the impact of their sales results on stakeholder value. By organizing the different definitions of the term revenue in a flow, we can see the existing definitions that make sense and lead to alignment as well as those that add to confusion. The former definitions should be kept and the latter eliminated. This revenue report, with its different definitions of revenue, has created the long-awaited single version of the truth…or rather, one context of the truth. There are no synonyms possible anymore because all terms appear in the same report, and the combination of these represents a single flow of revenue. Perhaps even more important, this style of reporting has a positive influence on the behavior of the account manager. Instead of revenue, the account manager is enticed to think in terms of contribution.

“What is a train?” is a more complicated question than you would think at first. Different stakeholders have different views. For a passenger it is the means for the journey to their destination. From a regulator perspective, a timetabled train is a line that runs multiple times per day, based on budget and policies on public transportation. The planning department would also add maintenance movements and empty trains scheduled to travel to a new departure point. Traffic control would look at actual – including unplanned – train movements. The infrastructure department might actually count slots, a time window in which a train is supposed to travel, and this might include other operators’ trains as well. Through a horizontal alignment approach, organizing all definitions in a single report, the definitions become more transparent and comparable. There is value in analyzing the differences. It is important to minimize the difference between the demand plan and the operations. The difference is in planning efficiencies and the number of incidents and accidents. The closer the number, the more optimized the plan is. Then the difference between operations and the staffing plan needs to be minimized, allocating scarce human resources as efficiently as possible.

In the previous two examples, the one context of the truth was a value chain. In the case of a ratio, the context can also be a matrix. For instance, the average revenue per user (ARPU) is an important performance indicator in telecoms. One telecom operator I worked with distinguished between average invoice per user (AIPU), business ARPU, reported ARPU and analytical ARPU. Business ARPU is based on the AIPU, but includes interconnection revenues between operators (not visible on a customer invoice). Roaming users generate revenue too, which contributes to the reported ARPU and pollutes the ratio, as roaming users are customers from other telecoms. Not all revenue makes it to the reported ARPU – some revenue from foreign countries comes in after the reporting data. However, it should be still be allocated to the current period. This is called the analytical ARPU.

Defining an active customer is complicated. When do you start being a customer – when you sign the contract or connect to the network for the first time? When do you stop being active – when you only receive calls or text messages? When do you stop being a customer – after termination of the contract or when the warranty of the phone expires? What about prepaid users? If we create a single context of the truth, a different type of report emerges in the form of a matrix. From top to bottom, it would include various type of income such as fees, additional services, discounts, interconnection fees, corrections, and so forth. From left to right we would list active users, then total customers and roaming users. This matrix provides a new analytical insight – the quality of the revenue. The higher the percentage of revenue (fees and additional services from active customers), the higher the controlled revenue of the telecom provider. The higher the roaming revenue from other providers and the higher the other incoming revenues, the more you depend on others and the higher your uncontrolled revenue. This matrix serves as a risk management model as well.

How would you define “money transfer transactions” in a retail bank? Every retail bank has a vast array of reports around the number of these transactions and their monetary values, broken down by business unit, product and most probably geography. But how many reports would there be that combine those definitions to closely align the various steps in the money transfer process? The report would start with how many customer contacts throughout the various channels kick off a money transfer (without necessarily completing it). The next step would be to distinguish money transfers between customers’ accounts, between bank customers (both not requiring a clearing house) and between banks. Some transactions will be rejected for various reasons – the account is overdrawn, the receiving bank does not accept the transaction because of missing or incorrect information, the account is blocked or the account no longer exists. When counting transactions per week or per month, there might be differences as well. Transfers have a transaction date, a clearing date and an interest date. Counting transactions using any of these dates will lead to different results per period. Even after the transfer is completed, the actual process continues until all information is correctly reflected in the bank’s general ledger. If we analyze the multiple stages in money transfers and detect patterns, we can derive predictive value from the one context of the truth. Sudden changes in customer contact moments can predict workload later in the process and consequences for the cash position reflected in the general

All these examples provided a demonstration of how taking a relative and horizontal view solves the single version of the truth problem. We can start separating the wheat from the chaff. In other words, creating a relative view on the truth helps dramatically reduce the number of reports and definitions. Many different definitions have been created for historical reasons, political reasons or because people were not aware of any other relevant definitions. With the one context of the truth, every business department will see where it adds value in the chain and each can concentrate on the definitions that make the most sense.

Moreover, horizontally structured management information can provide greatly improved insight into an organization. In the software company example, understanding how to define revenue –which allows account managers to understand the financial consequences of their operational sales decisions – can lead to changed behaviors that are more fully aligned with strategic objectives. In the railway company example, gaining deeper insight into operations is possible through a horizontal value chain and a methodology that provides an understanding of what drives operational efficiency. In the mobile telephony company example, breaking out average revenue per user helps us evaluate the quality of revenue and gain deeper insight into what average revenue per user actually means. In the retail banking example, transaction volumes can be predicted by understanding existing patterns and using forecasting algorithms.

Could it be that Simple?

How can a problem that a field full of intelligent people has struggled with for twenty years be so simple to solve? This cannot be true. There must be a catch to it. Let’s explore this a bit further. The problem itself is forced by one of the most dominant paradigms in business, the hierarchy. Information management as a discipline is shaped very hierarchically, and creating alignment is mostly a vertical exercise – it is hard to escape the central paradigm of a discipline. With all best practices being hierarchical of nature, we are not naturally challenged to question a hierarchic approach. The solution I am describing here is neither unique nor new.

Creating horizontal alignment – aligning the value chain – is the core competence of professionals in business process management (BPM). They do not have the single version of the truth problem at all. Transactions in processes typically are a single version of the truth. In fact, BPM suffers from the opposite problem – how to deal with multi-reality. Sometimes, truth changes during a case, affecting the outcome of the process. Updating pension plans based on marital status or changing employers can take notoriously long. Applying for health care benefits, based on taxable income, can be horribly complex as taxable income often has multiple stages of determination. The problem BPM professionals face is how to complete a process that is fundamentally based on a single version of the truth when the underlying truth changes. Information managers and process managers should talk more with each other. But specialists often offer great depth within their discipline, without knowing much of other disciplines. Conversely, generalists have an overview of multiple disciplines, but may not have enough insight to tackle specific problems. Solving fundamental problems such as the single version of the truth or handling multi-reality requires some deeper thinking by both specialists and generalists.

Life is What Happens When You’re Busy Making Plans

Throughout this piece I have been playing with the terms truth and reality. The more you think about it, the harder it seems to distinguish the two. It is not easy coming up with examples of something that is reality, but not true, or vice versa, without really thinking it through. Traditional philosophers have an easy job here; they could say that reality is a manifestation of deeper-lying truths. But post-modernists have a hard time. Still, there is an important difference between reality and truth for them as well. To demonstrate this, I will rely on truths of fact and truths of reason. This distinction was made by German mathematician and philosopher Gottfried Wilhelm Leibniz (1646-1716). A truth of fact is based on observation. For example, if there are three apples on the table, and others observe the same, we call it a truth of fact. For me, truths of fact are synonymous to reality. Reality is based on observation too. But there is more to truth than reality. Truths of reason follow the path of logic, but this doesn’t always have to be reality. For instance, any probabilistic statement, such as predicting rain for tomorrow, doesn’t have to become reality. And sometimes, following logic just leads to absurdity. “I fit in my coat, my coat fits in my bag, therefore I fit in my bag” is logically completely true, but not very realistic.

Trying to create a single version of the truth doesn’t bring you closer to what’s real. In fact, the post-modernists reason it will only lead you further away from reality.

So … every time you are studying a graph in a management reporting system, or you look at a process description, you are simply watching shadows on the wall. To paraphrase John Lennon: Reality is what happens when you are busy defining truth.


Reference:

  1. The analysis on how to solve the single version of the truth problem is based on Chapter 6 of Performance Leadership (Buytendijk, F., McGraw-Hill, 2008).
  • Frank BuytendijkFrank Buytendijk

    Frank's professional background in strategy, performance management and organizational behavior gives him a strong perspective across many domains in business and IT. He is an entertaining speaker at conferences all over the world, and was recently called an “intellectual provocateur” and described as “having an unusual warm tone of voice.” His work is frequently labeled as provocative, deep, truly original, and out of the box. More down to earth, his daughter once described it as “My daddy sits in airplanes, stands on stages, and tells jokes.” Frank is a former Gartner Research VP, and a seasoned IT executive. Frank is also a visiting fellow at Cranfield University School of Management, and author of various books, including Performance Leadership (McGraw-Hill, September 2008), and Dealing with Dilemmas (Wiley & Sons, August 2010). Frank's newest book, Socrates Reloaded, is now available and is highly recommended. Click here for more information on how to get your copy today.

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