Following a presentation at a recent business conference, an attendee made a skeptical remark to me. "Last year I heard another large company's similar success-story testimonial, but a few weeks later that company announced poor financial results and was laying off employees," he commented. "Do these so-called improvement methods really work?" Indeed, it is difficult to explain contradictions such as these, where organizations praise themselves for doing good things but then do not produce positive results.

As I did not have a good reply for the man, I simply shrugged my shoulders, as if to say, "life is a mystery." Since then, I have pondered what may explain the paradox of how organizations can implement good business practices and still experience poor results.

The Challenge to be Successful

I have concluded that it is overly simplistic to link outcomes directly to specific management programs and employee actions because there are so many other variables that can affect results. Understanding cause-and-effect relationships can be tricky. Further, many employee actions are indirect and contribute to other possibly indirect actions that collectively influence an organization's success.

When we step back and take a broader perspective, managing an organization may be viewed as a lot of experiments; we are constantly testing what works best. But managing with the goal of improving an organization's overall performance is even more complicated and risky. For instance, the executive team must keep an eye out for market-share-grabbing innovations by competitors within the industry - and sometimes from outside the industry. For example, until Internet downloads of full-length movies became possible, Blockbuster may not have viewed such companies as AOL or Yahoo as its competitors.

There is a graveyard full of evidence about how difficult it is for a company to stay on top of its game. Think back to the buzz in 1982 created by the best-selling book In Search of Excellence, co-authored by Tom Peters, the popular motivational speaker and former McKinsey consultant. Out of the approximately 35 companies that passed the authors' rigorous test to qualify as the best in the U.S., 10 either have filed bankruptcy (including Delta Air Lines, Kmart and Wang Laboratories) or no longer exist, and most of those that also ranked as Fortune 100 companies have fallen from the list. How could great companies collapse?

Factors to Succeed

There are three main factors, in my opinion, that prevent an organization from achieving higher value on a sustained basis. Avoiding or anticipating each of them is the responsibility of the executive team, but it is the third one - performance management - that I believe explains the conference attendee's puzzlement. The three factors that can ensnare a company are:

  1. Failure to anticipate a market change. In the 1980s, computer time-share service bureaus were popular because they could purchase large, expensive mainframe computers that were unaffordable to most companies, then partition and rent the mainframe's capacity to customers while supporting them remotely. The demise of computer-service bureaus began with the entry of minicomputers that allowed companies to purchase and manage their own information technology. A lesson here is that a key component to strategic planning is anticipating risks arising from market changes.
  1. Quick moves from a competitor. At one point Sony Corp., with its audio stereo components and Walkman, was acknowledged as the industry leader. Today Apple, with its iPod and iTunes, is the accepted leader. This lesson is that effective strategic planning requires continuous research into the opportunities that today's technology revolution can provide for creating and marketing innovative products and services.
  1. Wrong selection of improvement areas. Some executive teams seek the elusive magic pill in the form of an improvement program that will provide a lasting competitive edge. A parade of consultants will march through a company's offices promising every kind of cure. To be fair, many improvement methodologies, such as customer relationship management systems, are not fads or fashions; they are truly foundational and required for survival. The point here is not that companies should be conservative and not experiment. Taking risks and excelling at learning from mistakes may arguably be the best traits for a long-term successful company. However, it is important that the executive team select the appropriate improvement programs (or properly sequence them) based on their organization's situation - initiatives that will provide the highest long-term benefits and support the organization's most important goals .

Knowing What Programs Not to Choose

Choices can cause debate and consternation. Should resources be allocated to technology investments, quality-improvement programs, customer service, marketing, sales channels, planning systems, cycle-time reduction programs or employee development?

Executives can be attracted to intriguing new management concepts featured in business magazines or championed by consultants. For example, quality circles were once a rage. One can make the case that one indicator of a good executive team is not just knowing which improvement methodologies to implement but which ones not to implement - or at least the ability to postpone any action until the time is right.

As organizations recognize that performance management is not a process or system - but rather an overarching integration of multiple methodologies leveraging data integration - they begin to see that long-term success depends on the wisdom of their executives. I am not discounting the importance of having a good workforce with high morale, but a competitive differentiator will be the executives' ability to know when to implement new methodologies and, more importantly, how to integrate them.

For example, to improve execution, an organization already exhibiting good customer service may need better key performance indicators (KPIs) from its balanced scorecard in order to align the workforce with strategy. By contrast, a different organization, operating with a spray-and-pray marketing mode, may not know which customer segment would gain the most from differentiated service levels and may benefit from a customer value management system.

Prioritize or Maximize?

The truly exceptional organizations are those that can quickly implement, sequence and integrate improvement initiatives. Many improvement initiatives are well-intentioned and can add value. Because improving many of these initiatives has been recognized as central to strengthening a company's competitiveness, today's more complicated debates arise over issues such as whether to implement several initiatives at once for long-term benefit or whether it is better to prioritize projects and seek to maximize short-term results.

A strong case can be made that superior companies excel in almost all areas where improvement initiatives are promoted. They plan and manage time, quality, cost and service levels in anticipation of different customer demands and expectations. With strong leadership that exhibits vision and creates a healthy culture that is less rules-based (to maintain status quo) and more principles-based (to empower behavior), many programs and methodologies can be implemented in parallel. Superior companies such as these are the types of organizations that will achieve the full vision of performance management - not just to manage their enterprise-wide performance but also to improve and strengthen their competitiveness and performance on a continual and sustained basis.

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