A recently released study has identified and analysed the essential ingredients to help a company increase overall performance.
In the office products industry, there is a significant gap between the highest and lowest performing organisations. Reducing this gap is good for the market as a whole but it can only be achieved at the level of the firms.
A healthy, growing and prosperous global OP industry is important for everyone involved. The key to maintaining strength in the sector is to examine productivity as well as performance levels, ensure a lower cost base and efficiently use scarce resources.
The report, released by the UK-based Work Foundation, has revealed that highly successful companies maintain their position by managing equally well the strategic business drivers across five core areas, which are broadly defined as:
• Customers and markets – the priority given to customer needs; the collection of systematic market intelligence; a deliberate focus on product/service quality versus cost and speed
• Shareholders and governance systems – prominence of shareholder considerations in business decisions; adequacy of access to investment funds; how well-regarded by investment community
• Stakeholder relationships – how active firms are in their local community; how active among local business networks; how stakeholder-driven; how active their supply chain management is; how active is their pursuit of ‘socially responsible’ policies and practices
• Human resource practices – their capacity to attract high quality workers; how skill-intensive their workforce needs to be to drive competitiveness; their levels of investment in skills training; Trade Union recognition; proactive employee relations strategy; the percentage of workforce with access to performance pay
• Creativity and innovation management – proximity to technology ‘benchmark’ for their sector; employees rewarded for creativity; employee autonomy to innovate; the extent to which competiveness is ‘technology-led’.
A predictive Company Performance Index (CPI) was developed to measure a company’s strategic effectiveness across these five areas and from the results it was possible to measure by how much the top companies outperformed the average.
The results show that in terms of added value the top third of firms outperform the bottom two-thirds by £1,600 ($2,960) per worker per annum. Companies at the top of the index were generating 2.5 percent extra growth, 2.5 percent more sales per employee, 1 percent more profitability and 17.5 percent more growth in terms of exports as percentage of sales.
Entitled ‘Cracking the Performance Code’, the year-long research project into performance and productivity confirmed the CPI accurately measures firm performance. It breaks the ‘code’ of company performance by measuring strategic drivers and their implementation across the five core areas. The research also delved into the black box of the firms, conducting over 20 case studies to understand the ‘how’ of high performance as well as the ‘what’.
The share price performance of the listed firms at the top of the CPI index outperformed those at the bottom by 20 percent over the last year. This strong correlation is evidence of the way in which high performing firms can deliver shareholder value along with high levels of performance in other areas of the CPI.
Furthermore, the CPI is a powerful reader of any company’s performance ‘code’. The survey evidence shows that over 25 percent of the added value per employee is explained by the way the elements of the CPI plus basic factor inputs are combined and delivered. The impact of the CPI on basic factor inputs explains three percent of the difference in revenue growth across firms and six percent of the difference in gross profit.
The five core clusters of the CPI have a powerful impact both on firm-level performance and on total factor productivity. Acting on basic factor inputs they explain 76 percent of the difference in productivity across firms.
The five core areas of strategic inter-dependency captured by the CPI are translated into productive action through five ‘intangible’ factors of production.
These factors of production are:
• Culture and employee relations.
What firms should do
High performing firms have unique organisational structures resulting from geography, size and history that enable continued success. They have a higher degree of informality and continued dialogue supported by simple – though not simplistic – processes that allow faster decision-making. They openly share information between peers and networks of managers that need timely and accurate information in order to get the best job done. They have visible and accessible leadership and management, combined with high expectations from those in decision-making roles. They distrust the status quo, valuing quality rather than quantity, and have a focus on the long term and on outcomes. The culture and employee relations are characterised – not codified – by pride, innovation and strong interpersonal relations.
Low-performing firms had a focus on a narrower range of financially driven output metrics. Discussions about culture and performance were dominated by bureaucratic process and internal structure rather than customer satisfaction or end product. These companies did not have real energy or passion about the business or any restlessness with the status quo. Leadership in the lower-ranking organisations focused more on ‘what the numbers say’ rather than how top managers behave and interact with others. Interactions were more formal, structured and set-piece in format.
The high performing companies offered clear lessons in what to do in each of the five factors of production:
On structure:Do not get hung up on structure. It is more a function of size, where the business is located, its history and its traditions. Structure does not drive performance but enables it. It is a means to an end rather than an end in itself.
The exact structure and shape deployed seems to make little difference to high performing organisations. Though a topic beloved by CEOs and HR teams in slow-moving bureaucracies, the exact organisational shape seemed to matter little to the more successful firms. Whilst there were some general themes about how high performing companies organise themselves to manufacture their product or deliver their services, it was significant that no single organisational life design seemed to emerge. For high performing companies, structure is more likely to be an enabler than a driver of success and that ‘form’ is more likely to follow ‘function’.
On process:Keep processes simple and allow a higher degree of informality. Combined with continued dialogue, these will allow faster decision-making.
The top firms were also characterised by the apparent simplicity of their processes (although simple should not be confused with ‘simplistic’). Such minimalist organisational processes are driven by a general philosophy that less is more and by strong communications up, down and across the organisation.
Meetings were often referred to as an unnecessary hindrance and talk of steering committees and work groups was conspicuous by its absence. While some talked of the downsides of this ‘ready, aim, fire’ tendency, there seemed a general preference in the top-performing companies for this philosophy, above a more cautious and risk-averse approach to decision-making. The outcome, universally, was that decisions happen faster this way and that, even if they turn out not to be the right ones, adjusting course and actions afterwards can happen just as quickly too. Similarly, performance management was kept simple.
On communication:Encourage open sharing of information between peers and networks of managers so that timely and accurate information is given and received.
High performance means good communication between peers and an apparent willingness for managers to share openly all relevant information both to individuals and representative staff bodies such as Trade Unions and Work Councils. Communication and the steady flow of information not only up and down, but also across the organisation was typically seen as strength by all levels of staff. ‘Knowledge is power’ was not in evidence but ‘knowledge sharing’ was very much seen as a core organisational objective especially to those acting at the customer interface or on the factory floor.
On leadership:Make sure your leadership and management are visible and accessible and set high expectations from those in decision-making roles.
Openness, visibility and accessibility were characteristics of the prevailing leadership and management style in high performing businesses. There did not appear to be much evidence of so-called ‘transactional’ or ‘transformational’ behavioural styles. More apparent was a general lack of hierarchy accompanied by a strong focus to give people access to the resources, information and technology they needed to get the job done effectively. As reflected in culture, these organisations had equal measures of task and people-orientation, but this did not mean they were necessarily comfortable or affiliative given the competitive pressures they faced.
Leaders in these firms appear to set high standards and expectations of everyone around them but, at the same time, are aware of their position as role models. However, the stewardship model of leadership emerging is light years away from the visionary leadership model beloved of the business press and business leaders themselves and confirms others’ findings that it is better to be a clock maker than a time teller.
On culture and employee relations:Keep asking questions about the status quo. Value quality rather than quantity, and keep the focus on the long-term and on outcomes. Establish a climate of employee relations that is characterised but not codified by pride, innovation and strong interpersonal relations. Understand that collective mechanisms support this.
Of course all of the above are in some sense components of what might be described as ‘culture’. But culture in itself can be a conduit, enabler and driver of success.
In the high performing firms there were some clear cultural norms. First there was a distrust of the status quo (which extended in more than one firm to an almost paranoic fear of standing still). These organisations also valued quality over quantity, an external as well as internal focus and had a sense of pride about their ‘reason to be’. Managers seemed to have a positive self-image, be concerned about their own development and expect others to think the same way too. These behavioural norms clearly underpin cultural manifestations of leadership style and internal communication.
A long-term orientation around the needs of the customer was similarly evident. Elsewhere, knowing the business, pursuing excellence and subordinating processes and structure to outcomes and delivery were evidence of a strong achievement orientation. People had some real influence over what goes on in their work unit. Allowing workers as much control as possible over when, where, and how the job is done is a key feature of the high performing firms studied.
The restless curiosity and achievement focus seems to show through also in the employee relations philosophy of many of the top firms. Support, loyalty and long service aligned to the broader organisational strategies were much in evidence. A set of positive employee outcomes around pride, engagement and motivation seemed more associated with a challenging, open and dynamic working environment than merely with a culture of friendliness and strong interpersonal relationships. Trust and respect were products of solidarity rather than simple sociability.