Here’s how management accountants and other CPA’s can use something called an OODA Loop to their advantage.
A fighter pilot flying a 13-ton F-16 in combat must make rapid decisions in a fast-changing environment. The decisions faced by management accountants may typically be a little less stressful, but fighter pilots can still teach controllers, CFOs, and other CPA executives how to out maneuver the competition.
A key decision-making tool employed by fighter pilots, the OODA Loop, has made its way into the corporate world since it was developed in the 1970s by aviator John Boyd, a U.S. Air Force colonel who was an influential military strategist. OODA stands for “observe, orient, decide, act,” and an OODA Loop is a rapid-response cycle that emphasizes brain over brawn.
“Boyd’s first big idea was operating inside the OODA Loop, which was basically being able to change the situation more rapidly than the other side can figure it out,” said Chet Richards, a former Boyd colleague and author of Certain to Win: The Strategy of John Boyd, Applied to Business. “So when the other side thinks it’s just about got a good mental model of what youre doing, you’re doing something else. And, furthermore, you can exploit the fact that he thinks he’s figured out what you’re doing when it’s really not what you’re doing, to continue to change the game.”
Operating inside the OODA Loop is akin to treating a situation like a game of chess, always staying at least one step ahead of an opponent. The approach has proved to work with individuals (the original fighter pilot model) and large entities, whether military or corporate. Once you complete a cycle of the loop by acting, you observe any changes in the situation and your opponent’s reaction, and then start the cycle again.
When I talk about this to people who are well-versed in the martial arts, they say, ‘So what? That’s what we do all the time,’ ” Richards said. “I say, ‘Yeah, but you don’t do it with a 100,000-person army!’ That’s the big difference.”
Here’s a look at each step of the OODA Loop and ways they might be applied to the work of a management accountant striving to give his company an edge on the competition:
Observe. Boyd’s observation phase for pilots included taking in unfolding circumstances—the constantly changing world around them. Experience helps them focus on what’s important and tune out the rest.
“Boyd called this steering process ‘implicit guidance and control,’ ” Richards said. “No matter what else is going on, you’re always observing, keeping your eyes open, especially to things that don’t seem quite right.”
Management accountants must have a strong working knowledge of various components of their business to make informed observations, according to Michael Rowe, CPA, CGMA, the COO of ING Source, a manufacturer of compression hose and sleeves.
“If you see a trend that’s not happening in line with what your expectations are, you drill down and find out where it stems from, whether it’s a tech, or a process, or a customer,” he said. “It requires management accountants to work with operations to understand their goals and aspirations and what they think is important. Then working with sales in the same vein. And then you bring that back to work with IT to create the feedback loop, capturing the information so you can monitor it.”
Orient. Getting oriented involves consideration of multiple factors, including previous experiences and analysis and synthesis, according to Boyd’s model. For a finance professional, the orientation stage of the OODA Loop may involve comparing current practices to an organization’s standards. The side with the more accurate orientation can make better predictions and is going to have an advantage,” Richards said.
James B. Jordan, CPA, CGMA, has worked for large corporations such as IBM and Accenture. His recent work as an independent consultant has found him teaching business principles to religious organizations. Here are the questions such an organization might ask itself during the orient phase: “What is the process that’s supposed to occur when we count the money in the church and eventually get it into the bank?” he said. “What is the process for receiving invoices and getting them approved, and getting the checks cut, and getting them posted and getting them reconciled?
Decide. Threats come at fighter pilots and martial artists too rapidly to allow for exhaustive analysis and careful decision-making. Experience guides their choices during the orientation phase. CPA’s have more time to test hypotheses and choose a course of action informed by their intuition and expertise.
“You’ve got to be able to get to the details and understand them, but then you’ve got to be able to pull up quickly and see the big picture and connect the dots,” Rowe said. “It’s a way to ensure you’re moving forward, you’re not going backwards. It’s all about seeing how the trends are going and then staying in line with what your wishes and plans were, as well as how you compare to where you were and where you want to go.”
Act. Theory and the real world intersect in the action phase, particularly when a client implements your recommendations.
“Management Accountants could stop at this point, but the OODA loop model insists that you should keep learning by observing the results and refining your base of knowledge,” Richards said.
For accountants, the action phase might mean going back to the department where an issue originated, making a recommendation to the manager, and following through to ensure implementation. “When you decide, when you have that information, you don’t just report—you recommend,” Rowe said. “What do you recommend doing differently? ‘Here’s what I think we ought to do.’ ”
The ultimate goal of the OODA Loop concept is to encourage individual enterprise in service of the common good, according to Richards. “The heart of Boyd’s method is to fire up creativity and the initiative of everybody in the organization,” he said. “Harmonize it to accomplish the purposes of the organization. A smoother and more effective process for making decisions and taking actions will help accomplish this not only in your own practice, but also in your clients’ organizations.”
Source: journalofaccountancy
