What really drives performance in your organization?
by Warren RutherfordBusiness owners are increasingly asking these questions: What is it that really drives performance and profitability, and how can we identify, quantify and measure all the assets of our company so that we can increase its performance?
Let’s discuss below some of the basic factors that drive performance and discuss how you might begin to measure and manage these factors more.
Why is this important?
The key drivers of performance have actually changed in the last 10 to 15 years. Most products and services are now bought on the basis of brand, reputation, service, employee engagement and other factors. Add technology’s impact globally and it means that competitors miles away can reproduce products and services at less cost.
Business value is usually reflected in financial terms. In 1978, when New York University’s Stern School of Business conducted a study with the country’s major corporations, it found that there was a 95 percent correlation between a company’s balance sheet and its market capitalization. In 2005, the Stern School redid the study, and found that there was now only a 28 percent correlation!
What does this mean?
Business value today is more dependent on non-traditional assets and things not measured on the income statement and balance sheet. What truly drives a company’s performance today? The financially measured assets of a company remain important; however, the 72 percent uncorrelated assets are more significant to business profits. These include intellectual property, corporate strategy, corporate brand, operational and administrative systems and processes, access to capital, off-balance-sheet items (activities related to knowledge, collaboration), company reputation and the experience and decision-making strength of the corporate executive team.
Consider the following – most staff time is spent solving complex and routine problems by applying their knowledge, collaborating and leveraging of organizational systems; and eight out of 10 employees produce services – providing expectations of value, rather than tangible products.
David Norton’s Balanced Scorecard Report reports that:
• Only 5 percent of a workforce understands their company’s strategy.
• Only 15 percent of senior management spends more than one hour a month defining strategy and aligning operations to it.
• Only 25 percent of companies have their operations aligned to the strategy.
• Only 40 percent of companies align their budget to their strategy.
As we develop this intellectually based workforce, are we able to understand how to increase their performance? Do we understand how our employees think and make decisions?
We all have a unique view of our world. Our values, likes and dislikes develop over time. Once in a business setting, we need to understand these “unique views” to help each employee perform better and help the business increase its performance and profit.
Take a few minutes and reflect on the following questions:
As a business owner, are you intent upon understanding each situation and asking a lot of questions before you decide; are you inclined to want to get the work done right now or are you more concerned with how that decision will impact others? How do others in your business view the same situation?
If your business utilizes a variety of teams to make decisions, are they working as effectively as they can or are there internal conflicts among team members? When establishing sales targets for your sales staff, are you adapting the sales targets based on the thinking preferences of your sales staff? Does it matter?
If a work task requires a strong, systematic approach, what happens when you place an employee predisposed to just “get the job done” in the work task? Are customers and co-workers satisfied with the results?
What can you do?
Managing a company to excellence is not simple, but it is not complex either. How can you increase your overall performance and market worth? Let’s look at some steps you can take.
First, how do you define your company’s strategy? How many of your employees understand it? How aligned are your operations to your strategy? How aligned is your budget to your strategy?
Next, what decisions do your employees make? What are the key factors to be reviewed for each type of decision to be effective? Do your employees understand what those key factors are, and why they are key factors? Are your employees making decisions utilizing these key factors?
If they are, then your company quite possibly has the right types of people in the right places at the right times doing the right things right. Congratulations are in order. Now seek to reinforce it to contribute positively to driving your company’s success by providing higher quality products or services, more satisfied customers, effective product marketing, increased sales growth, profitable operations and increased market share.
Warren J. Rutherford is president of Rutherford Advisors Inc. as well as a business adviser and mentor to small and medium-sized business. He provides B2B solutions through his Alignment Marketing program, www.alignmentmarketing.com, and performs market research for businesses. He can be reached at rutherfw@comcast.net or at www.RutherfordBusinessAdvisor.com.
Published in Cape Business November/December 2007
Warren Rutherford Warren Rutherford founded Rutherford Advisors Inc. in 1997, and has more than 26 years experience providing management advisory services to business and government. He is an accredited Executive Associate for the Institute for Independent Business, an international nonprofit organization established in 1984. He also performs market research for businesses and is an Associate Reseller with MapInfo Corporation. 
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