General Business Talk

It used to be that performance management was managed in one department. Today, performance management has spread throughout the entire organization, where almost every division must focus on performance management to some degree in order to be successful. Despite this wider range of performance management, enterprise-wide performance initiatives are not widely practiced. And without an enterprise approach, it is extremely difficult to align your performance to organizational goals and objectives.

According to software vendor SAS, a recent survey of 1100 businesses revealed that performance alignment was the PRIMARY benefit companies hoped to receive from their performance management efforts. Aligning performance to your organization’s goals and objectives is critical to your organization’s success. On the other side, lack of alignment increases inefficien­cies and risks and prevents optimal execution of the organizational strategy.

Think of this scenario as a model for linking corporate strategy to business objectives:

The executive board collaborates high-level strategic planning and identifies goals for the CEO and organization. The CEO then meets with his/her senior executives who in turn develop objectives derived from the CEOs goals and integrates those goals into the strategic plan. In turn, those executives meet with their managers who develop objectives derived from the strategic plan, and so on. Then, each subordinate goal is tied to one or more goals of their manager. Ideally, the final result is that every tracked goal in the entire company can map back to a corporate objective developed by the board.

Chances of organizational success are greatly increased by translating each high-level objective into a cascading series of focused performance measures. Using our previous example, the CEO may focus on net cash flow while the CFO looks at debt-to-equity ratio. The controller may focus on liquidity ratio, while the accounts receivable manager looks at days sales outstanding, and the accounts receivable clerk worries about percent of collections over 30/60/90 days.

This article discusses aligning corporate strategy to four key areas: departments/ divisions, workforce, finance, and systems.

Departmental Performance Alignment

Departmental performance alignment can be difficult when business processes within an organization span across multiple business units and functional support groups. To avoid bottlenecks, finger-pointing, and redundancy of work, shared performance measures that align people across organizational boundaries must be identified and responsibilities accounted for. For instance, a performance measure that includes percent of collections over 30/60/90 days might be applied both to accounts receivables clerks and sales representatives, thus sharing and integrating performance measures, encouraging collaboration and boosting overall performance.

Workforce Performance Alignment

When workforce performance is aligned with corporate objectives individuals in an organization develop a stake in that organization’s performance. Employees at every level are measured by something they understand and control, and that same measure is clearly linked to the goals of their direct supervisor and the organization as a whole.

Financial Performance Alignment

In an economy where results need to be achieved fast and investor confidence is low, CFOs and finance organizations are implementing integrated performance management to improve information quality and visibility. One challenge organizations face aligning performance is finding financial measures that are meaningful to those responsible for carrying out the work. Using the previous example net cash flow is a critical performance measure for executives, but it probably means very little to the accounts receivable clerk who has no idea of how their contribution improves net cash flow performance. Stick with simple financial metrics that employees can understand and control.

System Performance Alignment

The IT/IS department’s role is to provide technical support for the entire organization. While we know that this alone is a complex task, today’s business model requires systems to not only support users, but to align technology to meet the business needs of the organization. Understanding business unit objectives and translating them quickly and accurately into IT priorities is essential today. So how does an organization measure how well their systems are aligned to organizational objectives? By implementing vehicles for aligning and measuring IT performance, such as service level agreements, performance-based contracts, and products and services catalogs to generate reports that illustrate how well they are measuring up to business objectives.

If you can move closer to aligning performance in these areas your organization will be well on it’s way to surpassing all of it’s goals and objectives. While the goal of a performance initiative is to align performance to organizational strategy, it is most important to maintain flexibility and adapt to organizational changes quickly.

I work with a lot of small and medium sized businesses. The reason I do so is because I believe in them first and foremost. I believe they represent our future here in North America because they represent economic diversification and they find opportunity in areas big business won’t. Finding that niche market isn’t easy and sustaining it can be even harder. What I do is help sustain.

In the business world today, Small and Medium Sized Enterprises (SME’s) have a few common issues: they have limited resources; very smart and capable people; insufficient demand; and they’re excellent at what they do-at least operationally.

When it comes to strategy, many SME’s understand they should have one and yet the implementation seems always to be on the B list of To Do’s.

One of the problems that crops up in strategy sessions is the perceived need of being all things to all people. Doing this is expensive and risky. What you want is a better understanding of Who your business really wants as a client and then develop the strategy to support the way you go about marketing and distributing your product or service.

If you can think of the market as having three kinds of clients you’ll see better what I mean.

We all will have a primary motivation and some secondary motivations behind that:

• Cost Conscious
• Service Conscious
• Gadget Conscious

People carry some blend of these with one of them being dominant. Think of yourself when you go out to buy something-it’s not typically just the cheapest, or just the best service or just the newest gadget; it’s often a blend of the three.

• Do you need the latest and greatest and are you willing to pay a premium for it? And do that again when the next generation arrives? And again?
• Or do you need something that works well, lasts forever and you’ll pay a premium for that?
• Do you always buy something somewhere that’s more expensive (in terms of time or money) than elsewhere but you go just because the service rocks?
• Or do you need something that will fill the gap right now and all you need is the least expensive version out there?
• Do you buy somewhere that’s always the cheapest even though the service is terrible and the place a mess?

These are all combinations you need to consider in your business so you can build a culture within to support the combination.

Cost Conscious: Your competitive advantage comes through effectively reducing costs; therefore your emphasis in your business supporting the cost conscious client is one in which you must value quality, safety, productivity, internal reliability, efficiency and systems. You need to eliminate problems, mistakes and costs. Customer support must be reduced and expectations will have to be managed accordingly. Disciplined teamwork and efficiency will be something you want to focus on. You need the right kind of people in place to do this.

Service Conscious: Finding solutions is the emphasis here. Building lasting, profitable relationships is key and customization is the way. The Principle of 80/20 is top of mind where you understand that 80% of your profit comes from the top 20% of your client base. You know who these clients are and put your best people on them. Regular contact and targeted referrals will grow your business well. Don’t make the common mistake that the clients who you end of talking to the most are always the most profitable—sometimes these are your biggest strain on scarce resources. Evaluate the numbers and understand the metrics. Sometimes you’ll be surprised that you’ve never even heard from some of these people. But you want them to understand you value their business and you want to treat them well. Values which support building relationships and focus on the client are items you need to promote. You need the right kind of people in place to do this.

Gadget Conscious: Delivering the Next Generation Of has its merits for those who care. This is the next generation of planned obsolescence. Delivering the Next Generation ahead of your competitors means you need to prepare your markets to spend money on things that may not have existed before. In today’s technology driven world this happens faster and faster. It means when you’re building your business you must to focus on creativity, R&D, new ideas, concepts, design and timing. Your people need to be focused on the future, enjoy experimentation, engage in dialogue, talk ideas out and be open to new ideas. You need the right kind of people in place to do this.

How do you get the right kind of people in place to do this?

First of all, understand you can’t just put all your eggs in one basket-you need to have some level of price consciousness even when your service levels are the best in the industry. And despite the best service in the world—no body will buy from you if the product doesn’t hold up to the client expectations. You also have to solve the client problem at some level when you’re competing on price-you just have to make sure you don’t have many client problems through decent quality, managing client expectation and lots of FAQ’s so clients can solve the issue on their own without your intervention. So it’s very important to have the right kind of people in place doing things in your business to support the function. It’s the blend that makes the difference.

There are two ways to get the blend right: Your strategy around hiring needs to incorporate the appropriate questions, understanding and evaluation to understand better who you’re bringing on board in what role. This will sustain the future.

For your current staff you can undertake an evaluation of what their values are to ensure the values are aligned to meet the needs of the business. If you’ve not been aware of this in the past—expect that you’ll be perceived by those whose values aren’t aligned with those of the firm to be rocking the boat. Eventually they’ll move on…and it’s best for both of you. What you’ll loose in misaligned values you’ll gain in better relationships with your clients-regardless of which motivation rules their behaviour.

Employees are the lifeblood of any company, as all business owners and managers are well aware of: good ones know what their job responsibilities are, how to use their time effectively, and what their bosses expect them to accomplish on a daily basis. But good employees don’t usually happen by accident: they are made good through effective employee training.

Unfortunately, many companies choose to cut fiscal corners in their training departments, hoping that their employees will simply learn as they go. This is a risky strategy, however, and many workers simply fall through the cracks: bosses assume they know what to do, when the employees’ performance clearly indicates otherwise. Here are some ideas to help jump start a training program for small business employees.

– Put training back into the company budget. If training becomes a priority, Human Resources will have the freedom it needs to develop a strategy that will see to it that workers get the training they need to perform more effectively. The owner and managers all need to be supportive of those in charge of developing a training program, and need to make sure that there is money earmarked for this purpose and this purpose alone.

– There must be a consensus on what the needs are when it comes to training, and because funds are no doubt limited, the program should focus on these needs first.

– Do not implement any large-scale training program before testing it out on a small group first. This just makes good common sense: something may look great on paper but end up being a disaster in practice. Small-scale testing will provide the feedback necessary to fine-tune the program or overhaul it altogether.

– Choose your training methods and accountability system carefully. There are plenty of ways to train employees: you can run a mentoring program, bring in a professional trainer, or set up online training classes that can put them through a graduated skills acquisition program. Many businesses choose a combination of the above, to give their employees a variety.

– Make sure that the training each employee receives is relevant to his or her duties: putting everyone through the same program may not be appropriate and employees will tune out if they feel like they are being made to learn skills or knowledge they will never use.

– Follow up with training by employing a measurement system to assess the effectiveness of what employees are learning. You may also want to implement a computerized system that can track the successful completion of training, both online and through other methods, by individual employees.

Having well-trained employees means lower worker turnover rates, a more content work force that has an investment in the successful accomplishment of their daily tasks, and a more professional environment overall. Employee training is well worth the effort.

Management systems like ISO 14001, occupational health and safety,  ISO 9001,quality,  food safety or HACCP and financial management can very readily be integrated.  All the systems except quality  are risk based and should use a consistent risk management tool within a business. In the new carbon constrained economy the business can also include its accounting for its carbon footprint as part of its environmental sustainability.

What is crucial to making an integrated system work effectively is having straightforward procedures that are process based and cover all risks with a single reporting mechanism for the initial report of incidents, near misses and suggestions. Workers easily become confused by too many forms and instructions and then ignore them. In many cases having more than one different stand-alone systems can even be directly conflicting for the workers involved.

During the implementation phase you do need to separate your decision making about different activities because the risk of environmental harm from a single activity many be very different from the occupational safety risk of the same activity. An example in the agribusiness field would be the use of hydrogen peroxide which breaks down readily to form water and oxygen. This is so environmentally safe that it is even approved for use in organic farming. However from an occupations health and safety viewpoint it is a very hazardous liquid because it breaks down too easily and can extremely dangerous for personnel to handle in larger quantities.

In a case like this, the highest risk is what is managed in all circumstances and instructions, training, checklists, maintenance, equipment and contingency planning are implemented so that they cover the worst case scenario.

One of the biggest pitfalls for a business with a fully integrated management system can be inflexible Government inspectors from organisations like the national quarantine inspection service, the work place safety inspectors and the environment protection authority who only want to see their own issue and have no real concern about the effective operation of the business outside their narrow tunnel. The pressure that these people assert needs to be resisted without alienating them because they are present for only a few days and are not the people with the responsibility for managing the business and making a profit so that the business remains sustainable. One way that usually appeases these people is to separate the different forms of incident report into separate files so that those inspectors need only look at their own area. There are also real business benefits from this separation because it is easy to analyse problem areas and build in continual improvement.

It is hard to see how a mix of management systems can be truly effective if they are not integrated while a fully integrated management system is simply the way that the organisation does business.