A company’s performance and its profits are closely linked. To maximise profits you need to optimise your business’s performance at every level. And to do that you need to know exactly where you are now and what your company is capable of achieving. You must be able to measure your journey.
Performance assessment often turns into a subjective process with different opinions from each group of stakeholders. Shareholders assume the company could perform better and executives are convinced that performance is the best it could be, given the circumstances. Managers will justify why they’ve done well and employees will explain how, despite all the obstacles, they managed to get the job done.
In most companies it is impossible to say who is right because performance has long been a matter of opinion. Conclusions are made (and future strategies defined) on the basis of perception and points of view.
It’s true that measuring performance objectively is not always easy. And measuring maximum potential can be even more challenging. However, it isn’t just a question of poring over data. There are many variables that strongly influence company performance.
For a complete and credible assessment, seven key aspects of performance optimisation must be evaluated.
- Is the strategic vision shared and fully implemented?
Is the strategy right according to the company’s situation, market and industry trends? In my experience, boards, CEOs, CSOs and whoever is responsible for defining the strategy put a lot of thought into where to lead the company. They are aware of new opportunities and changes in the market and in client habits. The problem does not usually lie with the strategy itself but with its implementation.
Effective implementation of the strategy requires that all the key people are onboard, that processes are lined up accordingly and that management systems (goals, planning, reporting) are coherent with the strategy. Every resource, step, piece of data and action must be directed to achieving the desired goals. Procedures, reports and organisational structure should be lined up with the new challenges. And staff should be aware where the company is leading to, and act accordingly.
There are several ways to check on the strategy implementation. For details of practical exercises you can do, click here.
- Is the management team cohesive?
The way the management team works together is a determining factor in company performance. Lack of cooperation between areas, different visions of the same problem, contradictory instructions or lack of coherent criteria for making important decisions are a clear symptom that the management team is not working together as a team.
In many companies each area points the finger at another. The commercial area blames the production area for lack of compliance, production blames commercial for creating impossible customer expectations, and the financial area blames both for unnecessary spending, costly mistakes or unnecessary discounts. And so the list of blame goes on…
These perceptions usually come from a lack of understanding between areas, and this lack of understanding often begins with the management team.
A management team that does not cooperate is not a team. It is a group of managers. Cooperation is essential for a company to operate as a whole. Departmental division is simply a tool for better organisation, but all too often become a way to operate. Contradictions or different service standards for different divisions, even when common, are detrimental for the business,
This lack of coherence almost always has its origin in the different perspectives within the management team, So understanding where the management team is standing is essential for performance and profit. To get directions on how to check the cohesion of your management team, you can click here.
- Do the managers have proper management values and behaviors?
Everybody behaves according to his/her own values. And when it comes to management, values determine behavior and performance. Investigate the management values of all the individuals with managerial responsibilities (executive, mid management, supervision, team leaders, etc.). This will give a complete picture on how well the company is managed at all levels. Do not forget that most of the resources are managed directly by supervisors and team leaders, and that the influence of top executives in the day to day management is limited. That’s why it is important to check at all levels.
Values such as sense of urgency, client orientation, cooperation, motivational leadership, system utilisation and openness to change are decisive in a high performance culture. Poor standards lead to poor performance so this is a key aspect to check if the ambition is to achieve excellence.
There are several surveys that can be used, and one-to-one interviews that can be done in order to assess management values. To get directions on a few of them click here.
- Are the processes lean and clean?
Lean processes without repetition or rework, which have the right information available at every step, along with defined procedures and decision-making criteria are a condition for success and high performance. Processes, as well as being effective, have to be lined up with the strategy.
Assessing the processes will identify several obstacles to increasing performance, such as bottlenecks, not only in terms of production but also in terms of information due to lack of organisation, criteria definition, poor procedures or grey areas.
The two main parallel processes to check are:
- From Lead Generation to Delivery (and after sales service)
- From Procurement to Pay.
Process analysis has become an essential tool for IT implementation, but doing it from a performance point of view is a slightly different issue.
To get directions on how to proceed to process analysis click here.
- Are the management systems effective?
A management system consists of all the tools that are available to manage resources. It includes forecasting, the definition of goals, planning and assignment of tasks, following up the work done, reporting and taking corrective action if required.
To be effective, a management system requires coherence, alignment with the strategic goals, clear key performance indicators, proper assignment tools, optimised planning and execution of the work, and correct performance information that allows a timely and effective follow up in order to take corrective action when required.
The level of performance of the different functional areas will depend heavily on the management tools available for the managers and supervisors. So the analysis of those tools will also give a very accurate vision of what is measured and how the key performance indicators are followed up.
The analysis should be conducted in all the functional areas and subareas in order to have a complete picture of the company as a whole.
To get directions on how to perform a management system analysis, click here.
- What does the data on key performance indicators say?
One way to assess performance is to simply compare statistical data on indicators and to see how the performance has been evolving in the last years/months/weeks. It is simple and easy but it can lead to the wrong conclusions. A positive evolution does not mean that the company is performing well. In fact without knowing what the optimum performance is, performance evolution graphs usually lead to complacency.
All statistical data collected over long periods of time could (and usually does) hide lost time or lost opportunities, quality failures, etc., in big averages. And improving the last period is not optimum performance, it is just an improvement. So statistical data will give an indication but can never be taken as conclusive. In order to get valid conclusions, you need to compare it with the best feasible performance.
- What’s the best feasible performance?
The only way to establish the best feasible performance is to observe actual performance. And that means collecting data from direct observations over a short period of time.
The objective should be to identify the best feasible performance or the best demonstrated performance. For example, if we want to know how many units a production line can produce, we have to sit there and count the units produced during a specific period of time. Let’s say that when there are no obstacles and everything goes smoothly, the line produces 100 units per minute, and, after a few hours of observations the average result is 80 units per minute. Although 100 was reached only once or twice, this is the standard and this is what the line should produce consistently. This is the Best Demonstrated Performance. In your statistical data best performance will probably appear as 80 units per minutes. If the company uses this parameter to plan production (and this happens in most companies), it is already giving up potential before starting to work.
This Best Demonstrated Performance is the Optimum Performance. So, taking statistical data full of averages and comparing it with the Best Demonstrated Performance will reveal the amount of room for improvement and performance potential.
For directions on exercises to assess your optimum performance click here.
If the subject of performance were a simple one, all companies would be performing at their best. Everybody wants to do their best. Not only CEOs, executives and managers, but supervisors, workers, subcontractors, suppliers, etc.
The first problem all companies face is that not only are there many things to improve, but it is difficult to define the goal to be achieved.
In my experience with companies of all kinds and cultures around the world, the main problem that prevents companies achieving significant improvement is the fact that they don’t know how much can they improve. This leads them to consider any improvement as the goal.
The identification of the full potential for improvement makes the company (all the stakeholders) more ambitious. And this is the first step to obtaining amazing results.
A full assessment will create ambitious expectations which will in turn lead to significant improvements in performance and profit.
If you are interested on getting your company to perform at it best and would like any kind of further advice or involvement from me, please do not hesitate to contact me for a free skype call.