STRATEGIC

Organizational Performance – Getting Beyond the Financials

Mark Komen, President

Kodyne, Inc.

Plymouth, MN

We often get seduced into thinking that financial metrics are the only true indicators of organizational performance and effectiveness. Did we meet our budgets? Did we meet or exceed (or miss) our revenue, gross profit, net income or EBITDA numbers? These items, important as they are, are really measures of outcomes. They indicate that, when all is said and done, here’s how we performed against our plan. However, I like to dig deeper to see what is going on inside organizations that creates the numbers and that’s the essence of this essay – what’s said and done IS what drives the performance we measure.

Some questions I like to ask and explore:

How did your organization manage risk this year?
Where did you see any new capabilities develop inside the organization?
How would you rate the quality of the decisions made this past year?
How much of the business that you felt 90% confident in getting did you actually get?
Did any new leaders emerge from your staff?

There are more items I could add to the list but these are my top 5. Risk management, decision-making, leadership, capabilities – all of these things drive the performance that’s reflected in the numbers we see on those income statements and balance sheets.

Let’s drill down a bit into the concepts.

Risk – Your organization faces many types of risks every year – financial, marketing, selling, hiring, and releasing new products or services to name a few. Determining your tolerance for risk is important. Quite frankly, some organizations take more chances than others. But what is at stake? Are the risks manageable? Is the downside something you’re willing to gamble on to achieve the upside? Is the upside even achievable or is it wishful thinking? Is preserving the status quo a prudent thing to do? What assumptions exist about risk in your organization? What messages do you hear (or send) about taking risks? Given the uncertainty in the marketplace these days, coming to terms with risk is an important concept. The messages you send in your organization about risk are equally important.

Decisions – Closely coupled to risk is the decision-making process you use. Are you deliberate in your decision-making? Do you have a process? Do you subscribe to the “Shoot from the Hip” philosophy? Do you take a “Ready, Fire, Aim” approach? I like to talk about decision-making because it gets at the very nature of business operations. Who makes what decisions? Is everything handled at the top? Are any decisions de-centralized? Are they ever reviewed to see how effective they were, after the fact? And why did we assume that landing that XYZ account was a slam dunk? How did we actually close that deal … or how in the world did we lose it?

Capabilities – This has more to do with the combined capabilities of your staff than with buying a new piece of equipment. It’s about being able to do more and, as a result, being able to differentiate yourself in the marketplace. Maybe someone has attended a training class and brings new expertise to the organization. Maybe someone has learned (or created) some new software that improves efficiency or allows the organization to offer more or unique services. Perhaps a new hire gives you an inside track to a new market segment. As you enable your staff to do more, they’re more likely to become better engaged in their work, furthering your chances of achieving the organization’s plans for the future.

Leadership – Quite simply, this is about people stepping forward and signing up to get things done. This can involve staff at all levels of the organization from the shipping dock to the executive suite. Leaders grab onto an initiative and make it their own. They rally others to join the cause. They are accountable for delivering the goods, so to speak. Oftentimes, particularly in small businesses, the owner feels that they need to get personally involved in managing work assigned to others on the staff – thinking that they are providing leadership. However, their micro-managing is usually at the expense of addressing higher-value opportunities (such as strategic planning, launching marketing initiatives, securing better financing, or meeting with key customers) that far outweigh the value of their contributions to designing that new brochure that was assigned to someone else.

So think beyond the numbers. Take a look at the things that help your organization grow and develop. Paying attention to these may make those numbers look better and better every year.