I'm writing this with tears!!!
Every company has just 6 Critical Functions©, entirely controlled by management, that CAUSE its short-term profits and long-term success. They also predict performance long before it can be seen in the financials or KPI’s. Changing the Critical Functions© by a little causes a large, even extraordinary, surge in financial returns; this has now been proven. The 1st year ROI can be extraordinary. But how does it work? Join the dialogue. There is a Comments button at the bottom of each entry.
At the root of all our profit improvement work lies the transformation of corporate culture. We seldom use that term, as over the years it has become diluted, vague, and clinched. We prefer a more modern term, the Operating Dynamic. Unfortunately, even though it is gaining in acceptance and currency, many people remain unfamiliar with it.
Performance Management is the most important of the six Critical Functions that determine the competitiveness and bottom line performance of companies. (Think of it as an attribute of corporate "Personality") It is one of the three identified in studies by McKinsey and LSE as generating a 40% increase in financial returns when improved by 20%.
What Has Gone Before
The Profile of a Successful Company Part I: Introduction
To lend or not to lend? To borrow or not to borrow? Those are the questions.
When all is said and done, the fundamental driver business performance is not its finance nor its strategies nor its operations; these together are responsible for less than 20%.
When insightful managers look at the causes of performance they are immediately struck with the overwhelming influence that just a few critical functions have to determine the success or failure of the company.
For forty years or more it has been known that 60% of acquisitions fail; some put the failure rate as high as 80%. The problem does not lie with the due diligence. By and large they are carefully and professionally done.
Rather, it resides in what the due diligence does not address at all: The root cause, the origin, the driver, of all performance and results, the Operating Dynamic of the company, its very Will to Compete. This is the stuff success (or failure) is made of; the stuff on which an acquisition should be based; the stuff with which a merger should be carried out. Yet is it almost never measured.
Why this is so, is simple enough: It is widely believed that the operating dynamic is something not measurable, something mystical, something almost spiritual; perhaps also because looking at the exposed soul of a company might be embarrassing.
But the operating dynamic is measurable - in great detail. And its measures PREDICT performance long before that shows in the financials. An article on this, first published in the CEO Refresher, may be found at The Corporate Polygraph. Another article, The Black Hole in the Due Diligence Audit, will appear in the October 2009 edition of Corporate Finance Review -
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There are just six critical functions that determine corporate performance. They constitute a company's Operating Dynamic .. They encompass its inherent Will to Compete .. They are entirely within the control of management.
When a great CEO mobilizes a company to face a great challenge, he does not just focus on costs or on revenues, on strategies or tactics, or even all of those. He focuses on evoking the very spirit of the organization and on transforming it, knowing that this spirit will do the rest. Great battlefield generals do this also.
When all is said and done, the fundamental driver of any business is not its finance nor its strategies nor its operations. These together are responsible for no more than 20% of performance.
|A Fighting Response |
Imagine . . . . All your people aggressively thinking, planning, working together - not just for the company's survival, but for its success.
The least would be an immediate surge in profits.
But less than 20% of people's goals are congruent with their company's. And that shows in its Will to Compete. Even in good times, this operates at less than 30% of its potential. If it is improved by just 20%, the bottom line improves by 40%.
First, measure it in detail. Once you know, transforming is profoundly simple, the ROI extraordinary.
What it is, how it can be measured and transformed, is addressed in our book Fire in the Corporate Belly. The book and individual articles can be purchased at Whales Tale Press.
The fundamental driver, the root cause, of all business performance is Corporate Will©. Not strategy, tactics, operations, or anything else that is measured in an audit or due-diligence. It costs virtually nothing to change and a small change triggers large improvements in corporate competitiveness and profits.
Corporate Will is that complex of organizational and human factors that underlie, drive and predict all corporate performance. It consists of fifteen* major organizational attributes - drivers and blockers - that generate and determine how the company performs. All are entirely within the control of management.
If they are identified and quantified, changing them is easy and virtually cost free. And changing them has been proven to have an extraordinary and magnifying impact on the bottom line. The Corporate 360° is a unique web-based diagnostic instrument. It creates an in-depth analysis of an organization's critical Will to Compete, and presents it in terms of a Balance Sheet and a P&L. This has never before been possible.
It is non intrusive; it is economical. Within days (or hours) the information can be in the hands of management. With that information, true and lasting mobilization is possible.
* The Attributes: All the factors we measure are to be found in our book, Fire in the Corporate Belly, see below. Additional attributes will appear in subsequent emails. Stay Tuned! Attribute No. 2 can be found at Corporate Commitment. Attribute No. 1, Acknowledgement of Work, may be accessed through the 2nd posting on our blog.
Within every company there is a source of competitiveness, of performance, of profits waiting to be tapped.
It is entirely within the control of management; it costs virtually nothing to change; and, if improved by just 25%, it generates a 40%+ improvement in financial returns*. Something no retrenchment, no reengineering, no tactic, no strategy, can provide. Finding it, mining it, is the first and most effective response to recession.
At some level, everyone knows it exists. It is acknowledged that it fundamentally generates all corporate performance and competitiveness. Yet few companies can clearly define it, manage it, or change it. It remains in the realm of guesswork and "the leadership thing."
But it can be defined, it can be managed, and it certainly can be changed. It is called the Operating Dynamic© of the company. Uncovering it, making it responsive to management is easy.
Since 1980 we have been measuring and helping companies trigger changes in this hidden profit center. One of the tools we use is at The Corporate 360°. It is quick, it is non intrusive, it is economical.
It has some fifteen major components. One component is Acknowledgement of Work.
For additional information, please contact us at:
847-599-9960 or DianeN@ManagementConsultants.com.
For some tactical and operational guidance from our archives and the last recession, see How To Manage In A Downturn.
The first line of defense in any business downturn lies in the company's Will to Compete. If that is strong, the company thrives. If it is weak, the company falters.
A company's Will to Compete is not just the fighting spirit of the CEO, though that is important, nor the sum of the individual managers' commitments to survive. It is the resultant leadership available to the company after all dissonance and misdirection are accounted for. Some people refer to this as the Spirit of the company. But another, more neutral term might be the Operating Dynamic©.
The Operating Dynamic is in fact the root cause and driver of all corporate performance.
As long as this remains invisible, it negatively impacts performance. But once brought into the open it can be changed, improved, put to work strengthening the company.
The nice thing about the Operating Dynamic is that it's entirely within the control of management, so improving it costs virtually nothing. And a small improvement there has been shown to cause a huge improvement in both competitiveness and the bottom line.
The first step is to measure it.
For information on the Operating Dynamic and its components click here.
Predicting and Transforming Corporate Performance
The Corporate 360°®
A Balance Sheet & P&L
Operating Dynamic of Your Company
All Corporate Performance is fundamentally driven by the Operating Dynamic© of the company. It is more important than strategy, tactics, processes, finance, or "culture". It is the root cause of success or failure. A healthy operating dynamic results in high performance; a poor or sick one causes decline or failure.
The operating dynamic is entirely within the control of management; it costs almost nothing to change. Improving it by even a little results in a large increase in financial returns - irrespective of initial performance.
It can be measured; it can be changed; yet it almost never is.
Knowing it in detail, and measuring it in terms of a Balance Sheet and P&L, allows companies to:
· Trigger significant, and sometimes remarkable, profit increases
· Predict future performance - far ahead of the financials or the KPI's
The Balance Sheet provides the current value of the operating dynamic: how it is working; what it is laying down for the future of the company good or bad. The P&L shows the trend line on the value. Together, they provide the Innate Trajectory of the company. (Nothing can predict a result further ahead than its cause.)
The Corporate 360° surveys provide a full-spectrum, in-depth analysis of the company's innate health. They are MANAGEMENT TEAM instruments only. They are web-based, simple and easy to respond to: the smallest takes less than five minutes to complete; the largest about thirty. Commentary can also be input and provides for a deeper level of diagnosis.
The surveys provide a 360° appraisal of the company and each of its units, from the inside, through the eyes and perspective of its managers those who will have to change it if that is necessary. The surveys put hard numbers on factors that cause, predict, drive and also block performance. They work for large companies and for small.
The instruments are a distillation of the turnaround and profit improvement work that FitzGerald Associates have engaged in since 1976. They have been proven in more than 200 organizations - low performing as well as high.
Survey responses and commentary are evaluated by our senior diagnosticians, not by computer programs. Findings are explored in-depth with the CEO's and management teams using our unique facilitation process.
· Quantifies the key management functions proven to directly impact profitability. Even our smallest survey addresses all major factors. Our largest allows CEO's to actively trigger changes.
· Presents the key functions in terms of a Balance Sheet and Income Statement together with their underlying drivers and blockers.
· Focuses management on priority issues and areas which will provide maximum return for effort.
· Evaluates a company's Corporate Will© (innate will to compete) and identifies action steps to improve it.
Leadership / Management
· Creates immediately understandable measures of the CAUSES of corporate behavior and their direct impact on profits, productivity and performance.
· Measures the effectiveness of ManageMENT: i.e. the resultant leadership and administration available to the company after all dissonance is accounted for.
· Provides immediate, in-depth analysis of the operating dynamic for an incoming manager.
· Facilitates inherited managers imprinting on the new CEO.
· Shows where improvements need to be made.
· Identifies areas of maximum return on effort.
M&A / Due Diligence
· Provides the hard numbers needed to predict future performance: something no traditional due-diligence can do.
· Identifies what needs immediate change - and how to do it.
· Guides and helps manage successful mergers.
Turnaround / Renewal
· Enables Preemptive Turnaround.
· Measures core motivations needed for a sustained turnaround company wide and unit by unit.
· Indicates the readiness of a company to make serious change or undertake a new enterprise.
· Identifies what needs to change - and how to do it.
Available on Web
The Corporate 360° Surveys provide a full-spectrum, in-depth analysis of the company's innate health. They are web-based, simple and easy to respond to: the smallest takes less than five minutes to complete; the largest about thirty. Commentary can also be input and provides for a deeper level of diagnosis.
A Master Session with Tom FitzGerald
Within any company there are just six critical functions, entirely within the control of management, that have a profound and determining effect on the bottom line. A small change to them generates a huge change in performance.
This works for high performing companies as well as troubled. Together they constitute a Cash Cow that is always available to any managing officer.
FitzGerald Associates discovered this in 1980 from their turnaround and reengineering work. They also discovered how to trigger changes in them; something just as important. Because this knowledge provided them with a competitive edge, they did not publish it.
A few months back, however, London School of Economics and McKinsey issued the report of a joint eight year study of one hundred companies. It showed that a 25% improvement in just three (of the six) Critical Functions results in a 42% improvement in financial returns*, something no strategy or tactic can generate. This study has since been supported by at least two other studies of 700 and 300 companies respectively. FitzGerald Associates therefore decided to make their intellectual property known.
These six Critical Functions can be measured in great detail. And so can the factors that drive them the factors that constitute a company's Will to Compete. Once measured, they can be transformed. And being transformed, they transform the performance of the company. Charisma is not required.
Tom FitzGerald, CEO of FitzGerald Associates, will discuss these Critical Functions, how they impact bottom-line results, how they relate to a company's will to compete and, of course, how to turn them into profits.
Data from real (but anonymous) companies will be shown.
Click here to register
All executives know the importance of monitoring the underlying health of their companies. And of taking action to improve it.
Within a company, no great change can happen, no substantial performance increase can be achieved unless and until that company faces clearly and fearlessly what it really is.
If you needed to generate within a year a 20% improvement on the bottom line, which do you think would be more effective?
Let us know what you think. Click "comments" just below on the right.
Phase I, the Hidden Phase, can not be seen from outside the company. It is also frequently, and needlessly, missed from within. However in this phase fully one third of the competitive value is lost. Recovery from this phase is termed Preemptive Turnaround.
Phase II Decline, the Subtle Phase, is visible from outside, to those who know what to look for. This is measured in professional due diligence audits. Another third of the competitive value is lost in this phase. Recovery from Phase II is termed Business Correction.
Phase III Decline, the Overt Phase, can be seen by all. Recovery from here is classic Turnaround.
Each phase has its unique attributes and unique measures. Working backwards:
We are often asked why our work causes such significant shifts in systemic performance: Quite simply, we have a technology that allows managing officers to focus powerfully the energies of the management teams on the core drivers of performance. And transform them.
Before sustained corporate growth is possible
At all times, in all companies, irrespective of size or industry, there is an Innate Trajectory(C) to their performance and viability that is independent of the economy, of the competition, of the current bottom line.
Of the roads to corporate development/improvement, three great avenues stand out:
Strategic/tactical change takes time to implement; is always disruptive; then takes time to prove - the success rate is seldom encouraging. And it is always expensive. The ROI (if any) is measured in percents per annum.
Reengineerig also takes time to implement; is even more disruptive; then takes time to prove that it works - the success rate here is little better than 30% (Hammer & Champy). It is of course expensive. And the ROI (if any) is still measured in percents per annum.
The third, improving the operating dynamic, is quick. It focuses and mobilizes the company. It costs little. It shows on the bottom line immediately - systemic improvements always do. And this provides the funds for further development.
The ROI is measured in multiples. A first year ROI of 10:1 is the least to be expected.
To transform the operating dynamic of the company requires just three things:
For information on diagnosis, see article Mirror,Mirror, on the Wall . . .
For Information on triggering corporate change, see article: Fire In The Corporate Belly
- If you want to know how your company did yesterday,
look to its Financials.
- If you want to know how your company is doing today,
look to its Parametrics.
- If you want to know how your company will do tomorrow,
look to its Operating Dynamic.
The Operating Dynamic is that complex of organizational and human factors that drive, impel, and therefore predict performance; they act independently of the economy and the competition.
They can be identified.
They can be measured.
They can be transformed.
We wrote the paper in June and offered it to just four publications: Corporate Finance Review (CFR), The CEO Refresher, Strategic Finance, and the Journal of the CEO Institute. Within two days, all four had accepted. CFR is running it as the lead in a special issue: The changing role of the CFO; The editors deemed the subject matter to be that important.
|Our Workforce Is Our Greatest Asset. . . Really?|
And they seem to believe it. After all, it stands to reason: if there were no workforce - i.e. management and workers - there would be no company; if that workforce were in poor shape, the company would fail. It makes sense at every level.
But there is something about that claim that doesn't gibe with reality. Let's look:
Traditionally, the value of a company is defined as its assets, its liabilities, and its capital. (See! no people.) And because of their importance we put numbers on them, we measure their improvements and declines. And we do so unit by unit, profit center by profit center, and for the company as a whole.
Also, we audit them, very carefully, at considerable expense; such is their importance. And because we have measures for them, we can manage them.
Now let us look at our Greatest Asset: There are no measures. No numbers. Nothing to show its current value. Nothing to show its trajectory. Nothing that is the equivalent of the balance sheet and income statement.
It seems we have no measures. We guess about our greatest asset.
If our people are all that important, why don't we have measures like the balance sheet and P&L? Why don't CEO's and corporate boards insist?
But there is help. Since the early 1980's, FitzGerald Associates have been providing CEO's and CFO's with the ability to measure the value and trajectory of their workforce - management and workers.
Now, CEO's have a reliable tool that puts a numeric value on the workforce and its trajectory. And, because the performance of todays workforce - management and workers - determines tomorrow's bottom-line, CEO's can predict how the company will perform tomorrow.
So, let us ask again: If your workforce is your greatest asset, how are you measuring it? How are you managing it?
If you would like information on this technology, please contact us at info@ManagementConsultants.com or 847-599-9960. There is no obligation, we know that this is not for everyone.