What are Organizational Competencies?
When companies think of organizational competencies, they too often only think of what employee skill sets are required to execute the business strategy. While this mindset is indeed partially true, there are also many other factors which come into play. Those factors support the integration of workforce performance and management activities to achieve three overall basic objectives: 1) directed to achieve the organizations goals, 2) directed to promote individual development, and 3) the provision of a culture which enhances operational excellence. When a more in-depth analysis of these three objectives is addressed strategically, i.e., in alignment with business goals, organizations are better positioned for success by having the right people in the right jobs who possess the right competencies and are both customer and employee friendly. The factors that come into play, all contribute to having a more committed workforce motivated by success with positive opportunities for personal development.
Organizational Goals and Alignment
Organizational competencies are much more than the ability to deliver work. They are, in addition to required individual skills, made up of ingredients which formulate the glue, or culture, which is singularly focused and drives execution through an integrated organization alignment to achieve the business mission. The business mission describes the values, first, to be delivered to the customer, and second, those which make the organization with its goals a great place to work. Organizational goals portray the culture as a set of shared attitudes, values, goals, and practices that characterize business attributes which attract customers and those which attract competent, skilled and motivated workers.
When companies are attentive to the needs and successes, both of their customer and their employees, the financial results are equally rewarding. Fundamental ingredients for a winning business culture include applying policies that treat employees with respect, genuinely valuing their ideas, soliciting input, listening intently and clarifying what is being said. The ingredients also include having clear and understandable linked objectives which are impartial, fairly measured and which gives objective feedback with appropriate rewards.
In December 2012, Forbes documented the results from a Glassdoor survey which unveiled its fifth annual Employees’ Choice Awards, which lists the 50 best places to work in the coming year.
“Unlike most workplace-related awards, which require companies to self nominate, the Employees’ Choice Awards rely solely on the input of employees who anonymously provide feedback through a survey. The survey goes only to employees in the U.S., but many of the companies have workers around the world.
Facebook was ranked as the top employer for a second time, with an overall company rating of 4.7 out of a possible 5. The social networking site received the highest rating in the 2011 Employees Choice Awards and was among the top three in 2012 – and it’s no surprise why employees are so satisfied.
The company offers great perks and benefits that help employees balance their work with their personal lives, including paid vacation days, free food and transportation, $4,000 in cash for new parents, dry cleaning, day care reimbursement, and photo processing. But employees also commented favorably about the opportunity to impact a billion people, the company’s continued commitment to its hacker culture, and trust in their chief executive Mark Zuckerberg.
Lori Goler, Facebook’s vice president of people and recruiting, told Glassdoor: ‘We strive to make Facebook a place where everyone is able to have an impact doing what they love. Receiving this award is a testament to the culture of builders we’ve worked hard to create.”
This example is one of many where companies have invested in development of positive work life balance initiatives that have lead to a creative culture. The ranking method for determining the top companies involved taking the cumulative average ratings from an 18-question survey from a half-million employees who responded. Employees were asked to rate their satisfaction with their company overall and key workplace factors, which included subjects as career opportunities, compensation and benefits, work-life balance, senior management, culture, and values.
While most companies are not “Facebook,” nor are they able to replicate the same perks, the point that should be understood is that developing a winning culture is important and forms the foundation for organizational competencies.
Planning and Organizational skills
Success in achieving Customer Satisfaction requires organizational skills which efficiently and effectively achieve business deliverable goals. These skill sets involve planning, implementing procedures, monitoring results, managing growth and ultimately achieving set goals. Beyond having business processes accurately documented and managed, employees should possess organizational skills of being self-disciplined and focused toward achieving the organizational objectives and goals. These skills include the ability to plan and prioritize actions and activities.
Time Management and Organizational Skills
Time management and organizational skills are mutually linked. Time management plays a crucial role in organizational skills which assist in setting time-lines to achieve certain goals. When processes are designed and measured by time standards, both management and employees are able to assess produced results. Using time to measure business process efficiencies develops and supports the ability to, not only achieve goals cost effectively, but it also provides the microscope which will highlight problems that need to be fixed in a timely manner. Contrary to the belief of some, our experience has proven that the majority of workers want objective visibility to work excellence. If time related measurements are not available, work tasks gravitate toward procrastination and ultimately never achieve desired goals.
Why are Organizational Competencies Important?
The concept of core competencies was developed by Gary Hamel and C. K. Prahalad. Their book, Competing for the Future, published in 1994 became a best seller. In their book, they suggested that business leaders view their organizations as portfolios of competencies and of products and services. This view of portfolios of organizational competencies provides a uniqueness and competitive edge needed to be successful in the future.
This combination of these organizational core competencies are the value opportunities and skills your organization possesses that set it apart from its competitors. When they are nurtured and leveraged in the marketplace, they are the sources of competitive advantage. They form the building blocks for future opportunities.
Development of these core organizational competencies takes time and continuous development. Driven by clear strategies to achieve the business mission, supported by well designed and managed processes, organizational competencies enable the exploitation of opportunities for growth and profitability.
Organizational Competencies developed around, 1) required skill sets, 2) firmly planted in an enriched culture, and 3) focused on business goals provide the greatest influence promoting business success. These three ingredients form a super highway for the success of any business.
Greater Yield can perform a business assessment analysis and provide objective third party feedback on the viability and alignment of company missions, strategies, organizational competencies and process efficiencies. The business assessment will also quantify available business improvement opportunities achievable by boosting performance to full performance capability. Call Greater Yield at 972-308-8533 or email at firstname.lastname@example.org. ]
To understand the practical applications of Supply Chain Management (SCM), it should be viewed from the perspective of how it supports total business operations. This view has been validated from many years of proven hands-on experience in SCM and total Operations assignments. Fundamentally, it is a process based management technique that adds direct value to the procurement cycle while supporting many other subsequent business functions. This process is only as good as its design, discipline in the organization and especially the linkages to the rest of the company (Business Development, Sales, Finance, Quality, Program Management, Engineering, etc.)
Supply Chain personnel should be integrated into the complete Product or Service Life Cycle. This requires a well planned process which begins in the front part of the Cycle where new developments are taking place. SCM leads by jointly selecting the suppliers, getting forecasts of needs from the development folks and making initial supplier visits. These visits, jointly performed with Quality and Finance personnel, result in Supplier selection decisions and ordering of initial quantities of items or services. A legitimate Business Process for this makes for a smooth introduction of new items, reduced obsolete inventory of unnecessary items and projects that complete on time and on budget from the supply side. Without this process too many times a requisition shows up from the engineers for something procurement never heard of and it is needed yesterday from a shaky supplier. Suddenly Procurement finds itself in the critical path of a major Program or Project for the company. In these scenarios, the results usually produce excess and obsolete inventory. SCM should also be heavily involved in the end of life (EOL) cycle to avoid write-offs or very expensive shortages which force expensive EOL small quantity purchases.
Another key requirement is having the right Supply Chain Model or set of Models for the Business. Some items and services need to be procured only when an order from the customer is received (Make-to-Order). SCM should be involved in this scenario. SCM should maintain close communications with key suppliers as anticipated orders from Business Development and Sales go from 30% to 60% to 90%. With items and services that are routinely needed, a reliable forecast is necessary to allow SCM to manage the Order-to-Stock process.
Supplier Certification and Report Cards for Quality Performance, On-Time Delivery, and value performance are also a key part of SCM process and function.
Many times the logistics operations are part of SCM which aids in effective costs of delivery and on time delivery performance to the customer.
Capital Equipment is another a key SCM business process and takes even more discipline and intensive efforts up front to ensure that Capital items are obtained in a seamless manner, on-time and on or under budget. This requires supplier visits early and can be very SCM personnel intensive, more than many times anticipated or budgeted. However the benefits of obtaining the right capital equipment on-time and on or under budget can have a very positive effect on the Strategic Impact of the company.
Key benefits of implementing SCM in this practical manner leads to significant reduction in cycle time for an item or service from the time a requisition is completed until delivery of the item. In many cases the time is cut in half. Also very significant inventory reductions result from this work, many times cut in half as well. For the business as a whole, projects are supported such that their deliveries are routinely on time or ahead of schedule.
Actions to make the results a reality include:
Other solutions as indicated from the pain points. ]
It is absolutely necessary to have buy-in and support from the top management team for this to become a reality and reap the benefits. Effective reviews of SCM processes are best conducted by a cross functional team. By having team members from various functions interfacing with the supply chain allows for an enterprise-wide view of this critical process. Due to natural bias and paradigms it is essential that this initiative be lead by an individual outside of the enterprise.
Efficient processes require less time, effort and resources to produce better outcomes. Recognizing that staff in medical practices are already running very slim, and the labor of additional projects may be difficult to take on, it is important that practices create lean physician practices by examining processes, eliminating waste, using the most highly trained staff members to perform tasks only they can perform, and identifying revenue opportunities to yield gains in productivity, patient satisfaction, and quality of care. Most problems within a practice can be traced back to a process problem as opposed to a people problem.
There are several opportunities to improve financial performance through practice transformation. Some may include practice profitability (revenue and cost), practice referrals, practice “right sizing”, IT strategy, improved payer positioning, service portfolio by market, fee schedule/price negotiations, and best practice sharing.
Revenue is optimized by increasing and balancing both capacity and demand. Provider productivity is the lever on capacity. Revenue events and capture are the levers on demand. Three major strategies for driving enhanced revenue performance are improve productivity of billable resources, increase billable events and capture rate, and add new billable services. There are a variety of levers in the practice that are used to execute these strategies. These include ancillary services, billing and collections, coding standards, income distribution, physician extenders, population management, process optimization, and resource utilization.
There are three primary strategies to address the two major components of practice cost. Practice cost management strategies include expense management of general operating cost, process optimization and resource utilization of support staff cost.
Physician practices face significant challenges with execution: Prioritizing physician strategic goals, objectives and allocation of funds can create conflict during the implementation process. Needs of the primary care physicians and specialists may vary. Objectives such as growing margins, expanding the funding base for future needs, changes to governance and structure, market share growth, increased patient referrals, utilization, expanded clinical services, information technology infrastructure, and improved community access emphasize the need for physicians to enhance high quality and efficient patient care.
Successful physician practices understand and measure their practice performance and are mindful that there are four perspectives on Value in a Practice that should be considered. They include:
How does your practice measure in these perspectives on Value? ]
The main responsibility of leadership is to increase the value of your company in the eyes of its owners, employees and customers. Leadership is also about understanding the company’s environment, anticipating how that environment is changing and then having the knowledge to make the right changes that allow the company to remain competitive. It requires senior management to operate with a balance sense of urgency and focus, and the ability to maintain a proper balance between the customer’s needs and its own.
Leading change also requires awareness of the inherent tensions that exist within an enterprise. One of the key roles for leaders is to keep the competing demands of an organization equalized so that the enterprise remains in balance, much like the spokes of a bicycle wheel that needs to be adjusted to maintain proper balance to function efficiently. The challenge is to make certain that the wheel is always balanced and headed in the right direction, determined by a strategy to achieve pre-set goals and objectives.
Leadership also means enabling everyone within the organization to learn. For many organizations, learning is sometimes distorted and impeded because of every-day cultural constraints. Some of thee have probably developed within the enterprise’s history and past experience. Other constraints exist as a result of management’s mindset, behavior, and values.
Leaders must rigorously examine the cultural state of their enterprise as a part of the change process, and the address those elements that undermine customer, employee and shareholder satisfaction.
There is a process for leading change.
Experience has taught us that there are several critical and intersecting elements that need to be addressed when planning to implement change including:
Change initiatives are often disappointing because several of these elements are either unrecognized or, worse yet, ignored.
Primary responsibility of leadership is to increase the value of the enterprise.
Most enterprises are designed to deliver value to their customers through the products and services that they offer. They do this through the collective efforts of people who execute tasks within a process framework that is expect to deliver the right product, at the right time, in the right place at a competitive value.
Management’s role is to make decisions about what the organization should be working on to keep the enterprise positioned to grow and prosper. Increasing value is about simultaneous improvement in three areas: First, the processes that the enterprise uses to do the work, next, the decisions that are made about what work to do or. Of equal importance what not to do, and finally, understanding how the people think, behave and interact throughout the process of change initiatives.
The biggest problem we encounter, and it’s a primary reason for Greater Yield existence, is that most enterprises have difficulty integrating their people, processes, and decision-making within a robust mechanism for creating value. We like to use the model of a three-legged milk stool. The departure of any one of the three legs causes the stool to collapse.
It’s senior manager’s job to integrate these elements into their organization’s transformation effort. Leadership must be focused on changing what is required to increase value and that translates to doing what’s best for the company and the customer.
But knowing what is required is simply not enough. Management must then clearly explain its expectations to everyone involved, be ready to remove obstacles to delivering on their understanding and, finally, inspire the company to stay the course while making the changes that are needed.
When a change effort is started, management must know what the financial benefits of a transformation effort will be, what resources and costs will be associated with the effort, and how long it will take, what the end state will look like and most important, how those within the organization will respond.
All companies are different, as each operates within a prescribed environment, with a different set of objectives, abilities and vulnerabilities. But the details of what senior managers need to know are not nearly as important as having a process by which reveal what they don/t know (but perhaps think they do) and how they can learn what they need to know.
The challenge is that critical transformation issues are often unseen by management. Change requires an unbiased pair of eyes with the vision to se all of the factors that interfere with creating value. This is especially true when overcoming cultural barriers.
Risk part in leading a change involves the culture impact.
Failure to properly assess the culture of the company and not dealing effectively with the barriers to change can lead to a total unwinding of the change process. Culture is a complex subject and has many facets that affect enterprise outcomes. The ability of leadership to correctly diagnose and then respond effectively to cultural issues almost always determines the difference between the success and failure of a transformation.
Another risk associated with not dealing with cultural issues properly, is the loss of time. That is, the more resistant a culture is to change, the longer it takes to make it happen. However the loss of time should not deter anyone from starting the process.
How does a leader begin to shape the behavior of her or his organization to foster the change desired?
First and foremost, leaders must do what they say they are going to do. People respond more to action than words. Observation of successful leaders indicate these individuals demonstrate the following behaviors:
Everyone views change differently. They response to change can range from optimism to pessimism, from opportunity to threat, from responsibility to nuisance, from a chance to learn to a chance to fail. The whole process is framed by what motivates and energizes each individual. We all have the chance to grow from our individual and collective experiences. One of the cornerstones of change is setting in motion actions that motivate and energize each individual.
Leaders must know how the spirit of the organization can be harnessed through inspiration of others as well as their own personal commitment. It’s the job of leadership to empower their people and then focus their energies on achieving a common goal. This turns potentially negative emotions into positive emotions.
Leaders usually see change as an opportunity to succeed, but often overlook the spectrum of sentiments that the res of the organization feels. They tend to lump everyone into silos and ignore the latent energy that resides in every person in every organization. The leader who can tap into that energy can succeed in bringing clarity to the vision of the entire organization.
When middle managers and employees perceive change as a threat, their supervisors must convince them that change can be a very positive and healthy development in the organization’s life. This can be especially potent when the effort is viewed as an opportunity to grow and thus enhance one’s career. These actions are an excellent source of strengthening both of entire enterprise and each individual.
It is the executive’s responsibility to show the organization that change does not necessarily have to upset the balance, threaten the status quo, or be disruptive. The message is that embracing transformation can be a very elevating experience for many companies and the people in them.
To alter vision it takes courage for a leader to see him or herself as others do. The leader must also create a vision for the transformed company. That people can accept for themselves. There are attributes demonstrated by high performance cultures, among these are:
The leader’s vision should ultimately embrace the adoption of these ideals. Indeed, it should illuminate them in a compelling way. When these behaviors become an enterprise wide ethic, culture change will be accomplished and more often that not, results will exceed expectations. ]
Since the passage of the Sarbanes–Oxley (SOX) Act in 2002, the new regulations forever changed the way U.S. public company boards, management and public accounting firms handle compliance in the pharmaceutical industry and in other public companies.
Within the pharmaceutical industry, board of directors (BOD) along with the assistance of management began reviewing the impact of SOX while implementing changes to conform to the new reforms. Corporate responsibility for compliance, enhanced financial disclosures, fiduciary duty to shareholders, and code of conduct are just a few of the significant compliance mandates.
Since the enactment of SOX, the importance of governance and the Board of Directors’ role in pharmaceutical compliance has heightened substantially. The driving force behind an organization’s success, sound governance protects shareholder value, empowers both the Board and management team, while maintaining the integrity of the company.
Under SOX, the BOD’s role is strengthened in matters of establishing company policy, setting the strategic direction, making significant decisions and maintaining effective governance oversight. Ultimately, the Board is held responsible for the company’s activities, strategy, risk management and financial performance.
Through various committees, the Board ensures that the policies and procedures are followed and in compliance with the law. Administered by a written charter, committees help enforce governance-related issues. In most pharmaceutical companies, committees oversee Audit and Risk, Compensation, Board Nominations, and Executive or Governance functions.
The Audit and Risk Committee assists the BOD to ensure that appropriate management controls are in place to help certify the integrity of financial reporting. Some of this committee’s functions assist the Board in fulfilling oversight responsibility with respect to:
The members of the Audit Committee may not receive, directly or indirectly, any fees from the company or any company subsidiary other than those incorporated in the Board Compensation policy and may not be affiliated persons, as defined in Rule 10A-3 under the Securities Exchange Act of 1934, of the company. The Securities and Exchange Commission (SEC) require at least one member of the Audit Committee be an “audit committee financial expert.”
In addition to the Audit Committee expert, the Board requires that the chief executive and chief financial officers must certify the accuracy of the company’s financial statements and operations. The act of certification demonstrates that the officers are giving formal assurance to the Board, investors, lenders, employees and other interested parties that these documents have been reviewed carefully. More importantly, the certification process makes the C-level executives accountable for the accuracy of the reports.
A Compensation Committee for a pharmaceutical company is responsible for selecting, evaluating and approving the company’s directors’, executive officer and senior management compensation plans, policies and programs. To ensure fairness and avoid conflicts of interest, this committee checks to see that compensation levels are appropriate, competitive, structured to avoid the encouragement of risky behavior, and promote effective performance and ethical practices, while properly reflecting the company’s objectives.
In addition to salary-related matters, members of the Compensation Committee must satisfy the independence requirements of the New York Stock Exchange. The committee must meet the definition of “non-employee director” under Rule 16b3 of the Securities Exchange Act of 1934, and be an “outside director” for the purpose of Section 162(m) of the Internal Revenue Code of 1986.
The Nominations Committee reviews the structure, size, and composition of the Board, and identifies and evaluates qualified individuals for appointment to the BOD. This committee is responsible for disclosure, communications and oversight of the process by which shareholder’s nominate Directors.
Individuals considered for board appointment may have characteristics that include knowledge of the company and/or the pharmaceutical industry, skills (such as communication, strategic, financial, information technology, marketing, research and development, etc.), diversity, senior management experience, and compatible personal characteristics. The nomination of new board members often is based on the matrix of existing board members and filling voids where needed.
The Governance Committee for a pharmaceutical company has the authority to oversee compliance-related management issues including:
Included in the Code of Conduct is the prohibition of certain types of payments and interactions between pharmaceutical companies and physicians / health care practitioners. It has been common practice in the past for pharmaceutical companies to take physicians to lunch or invite them to participate in educational seminars in an effort to talk with them about new and current product offerings.
Under the Federal Physician Payment Sunshine Act, a provision under the Patient Protection and Affordable Care Act (PPACA) of 2010 (national healthcare reform), pharmaceutical companies are required to disclose the names of physicians and teaching hospitals who received any form of material payment or other transfer of value. The regulations require that companies list the amount of the payment, in addition to providing background information such as the date, exact form of the payment and a description of the payment. For example, PPACA requires details outlining specifically how the payment was used – for example, food, entertainment, gifts, travel, and/or consulting fees.
The first report under the Sunshine Act will be due in 2013 for the calendar year 2012. The data in the reports will be reviewed to assess potential violations of the federal Anti-Kickback Statute (42 U.S.C. Section 1320a-7b(b). Like the company’s financial reports, this report must be certified, and any false statements are subject to prosecution under the Responsible Corporate Officer Doctrine.
The Code of Conduct has some very specific applications for pharmaceutical companies. Under the Code, producers of drugs and prescription medications sold to consumers must provide the purchaser with details of all risks and complications that may occur from taking the drug.
Furthermore, the Code mandates that drugs may only be marketed for the specific purpose approved by the FDA. All pharmaceutical sales and marketing are required to include key facts and to avoid deceptive marketing practices. Marketing strategies used to promote drugs for off-label use are strictly prohibited.
Unfortunately, there are numerous areas that present potential opportunities for fraud. In the pharmaceutical industry, the most prevalent types of abuse include kickbacks, off-label marketing, consulting and advisory arrangements with health care professionals, and various sales and marketing courtesies.
In recent years, the pharmaceutical industry has witnessed an extensive list of fraud-related settlements and judgments. In September 2010, Novartis pled guilty to off-label marketing of Trileptal. Forest Pharmaceuticals agreed to a settlement to resolve allegations related to the unlawful distribution and promotion of Levothroid; the promotion of off-label uses for Celexa; kickback payments to physicians prescribing Celexa and Lexapro for unapproved pediatric uses in treating depression; and the submission of false payment claims.
During the same time-frame, AstraZeneca settled a case for the unlawful promotion of Seroquel and misleading physicians about the drug’s safety. Johnson and Johnson was cited for off-label marketing of Topamax. And just this year Pfizer agreed to settle allegations that the company’s employees bribed physicians and other officials in Europe and Asia. In November 2012, GlaxoSmithKline agreed to a settlement resolving allegations of false and misleading representations involving Avandia safety claims.
Given the strict enforcement of fraud and abuse cases, proactive pharmaceutical companies carefully review physician, marketing and sales spending policies and practices, making the necessary changes to establish a “best practices” protocol to ensure Code compliance. The firm’s Code of Business Conduct and Ethics should be required reading for employees of all highly regulated industries – most especially pharmaceutical companies. While not a mandate, each BOD should require every director, employee, and agent acting on behalf of the company to sign a statement certifying that the individual must have read, understand and abide by the firm’s Code.
Educational awareness emphasizing the importance of incorporating superior governance and ethics in pharmacy practices, while promoting transparency, accountability and adherence is critical in a strong compliance-based program. To make sure that the workforce is committed to honesty and integrity, ongoing communication of the Code of Business Conduct and Ethics is essential, and the Board must ensure that adherence to the Code is monitored and any infractions are promptly enforced.
A strong Board, a well-developed compliance program and the adherence to sound governance practices within the decision making process, will optimize the performance and accountability throughout all levels of a pharmaceutical business.
As featured in Pharmaceutical Compliance Monitor: www.pharmacompliancemonitor.com ]
The economic downturn that started in early 2007 with the decline of the residential mortgage market was a distressing blow for many business owners who were accustomed to operating in boom times when generating revenue was easier and cash flow was more predictable. The recession visibly impacted top-line revenue for numerous companies and industries; but beneath the surface, other hidden weaknesses also became apparent— inflated cost structures, impaired decision making ability, inadequate financial and process controls, and employees ill-equipped to adapt to the increased financial pressures placed on their companies. The volatile combination of decreased revenue, loosely managed variable costs, and static fixed cost structures quickly and severely affected bottom-line profit for many companies. It is in these adverse conditions that the mettle of business owners is tested. A business accustomed to smooth sailing can leverage this adversity and transform itself into a lean, savvy company capable of thriving in good times and bad. When the ‘Power of Ten Percent Success Principle’ is applied into these situations, the results can be extraordinary. This case study details how one such business emerged from the recession a nimbler, more profitable company. The author was there and lived every minute of it!
In late 2008, one family-owned business in the specialty fastener distribution industry stood to earn its typical yearly five percent net profit margin and enter the next year with a strong balance sheet and customary profit generation goals. Having a month earlier retained the services of Your Ten Percent, LLC. (‘Y10P’), an outsourced operational finance firm that specializes in permanent, part-time CFO placements, the company soon found itself with a dynamic cash forecast that allowed the business to gain financial clarity like never before. The cash forecast was created with the assumption that 2009 revenue would roughly equal 2008 revenues. For this approximately $10 million revenue company (exact numbers have been modified to preserve confidentiality), this meant a monthly cash increase of $50,000 or a yearly profit of about $600,000. The management team had not yet realized that revenue had peaked and was about to drop precipitously.
THE FINANCIAL STORM OF 2009
If 2008 ended with a bang, then 2009 started with a whimper. By February 2009, monthly sales had substantially declined by 30 percent compared to prior years. A corresponding revision of the cash forecast revealed a $50,000 per month cash burn—a complete 180 degree swing from what the management team had anticipated! Unsure whether the sales would continue to decline or if the bottom of the demand curve had already been reached, management faced a bleak worst-case scenario—total deterioration of the cash supply within 18 months, subsequent over-reliance on bank credit (if that was still to be available), and finally an inability to meet its financial obligations. The root cause of this malaise stemmed from declining revenues that had thrown the company’s fixed cost structure completely out of whack. Action was needed, but the action needed to be surgically precise; thereby preserving the company for what management hoped would be better days ahead.
The company had recently undergone ownership succession and was now in the hands of a very capable ownership team who realized their strengths and limitations. They excelled at supply chain management, but were not as skilled in financial management. The company relied on a local CPA firm to compile sub-ledger information and to prepare financial statements, a slow process that typically required more than 30 days. The team was desirous to improve the financial controls on their business as well as improve their management decision-making processes. Their decision to work on their business in late 2008 was fortuitously timed as no one could have predicted the severity of the pending industry downturn.
What would happen to this company? How well would it survive the storm? And more importantly, would it ever be able to rebound? Before tracing the company’s lifecycle through the last 3 ½ years, we will introduce the financial engineering approach used on the business.Position company for future growth and profitability
THE POWER OF 10% SUCCESS APPROACH
Our financial approach in a new situation is to immediately focus on cash flow. Cash is the lifeblood of any business and a deteriorating cash position is not a viable option. With a handle on cash, we then focus on implementing financial engineering techniques that continuously predict and analyze operating results. We isolate the root causes of variances and work to improve the predictability and profitability of the company. We quantify our improvements using what we call The Power of 10% Success Principles— Target a 10% Profit Improvement,  Work within a 10% Threshold, and  Do More with 10% Less. The combination of these techniques can have a dramatic impact on a business. In the case of the distributor, we developed a framework of associated tasks:
FINANCIAL ENGINEERING AT WORK
By February 2009, management began preparing financial models based on different cost reduction scenarios to determine which corrective actions would most benefit the company. Management routinely convened forecasting sessions to test a variety of scenarios—worst case, expected, and best case. This triage process continued for four months as management focused on restoring positive cash flow. These initiatives included an across-the-board payroll reduction (an independent analysis of payroll determined that most salaries exceeded market values), other fixed cost reductions (the small items that when added together become meaningful cost reductions), inventory optimizations, and refunds of tax overcharges. Concurrently the team implemented the general ledger module and began reaping the benefits of timelier financial reporting. By June, management had returned the company to monthly profitability. By the end of 2009, the company had earned a slight profit for the year. The company had exceeded the break-even threshold and anticipated generating a more meaningful profit the following year.
As 2010 approached, management was anxious to know whether the industry would continue its descent, idle in neutral, or rebound. Regardless of the uncontrollable future, management had a much different outlook now, having spent a year trimming fixed costs. Management continued the newly developed habit of rigorously analyzing the cost and benefit of new financial investments whether in people, equipment, or inventory; as well, existing investments were frequently monitored. The company had positioned itself to weather another storm, but also to grow should prior product demand resume.
In Q1 2010, the company experienced a rebound in the fastener industry with sales recovering more than halfway to previous peak levels. As accounts receivable increased, the team focused on managing it customer credit policy as well as on evaluating its freight carriers for cost efficiencies, and reinvesting in areas of the business areas such as technology, warehouse equipment, and leasehold improvements. Outsourcing opportunities for non-core business activities were considered. Industry best practices were researched and implemented. Sales force compensation was revised to better link performance with results. Management continued to develop and improve its business analytic capabilities. A hiring freeze allowed natural turnover to decrease headcount by 20 percent while salaries were increased for the most valuable employees. Within the year, management had trimmed variable costs by 1 percent and fixed costs by 4 percent. With the aid of a newly retained CPA firm, the company upgraded its accounting practices to better comply with IRS standards. By year end, management had financially repositioned the company from essentially breaking even at the beginning of the year to generating an 8% net profit margin by the end of the year (in other words, a 60 percent profit margin improvement over the last good year). The company had prepared itself to break through the 10 percent net profit margin ceiling in the next year.
2011 can accurately be described as a breakout sales year. Various sales initiatives had increased revenues to just under pre-recessionary levels, but the quality of the revenue stream was improved—it was more stable and more profitable because it focused on growing relationships with the high-volume, profitable customers. Management was not afraid to say ‘no’ to low-volume, non-strategic customers by raising prices. Sales increases again outperformed industry averages. Management attributes this success to focusing on stocking a sellable product mix and strengthening relationships with key supply chain members.
Also in 2011, management implemented more sophisticated treasury management techniques and continued its habit of holding accountability sessions with its professional service providers. Routine audits of provider bills revealed errors, which negatively impacted the company. The errors were quickly corrected. During 2011, management increased revenue by 10 percent, lowered variable costs by an additional 1.5 percent, and decreased fixed costs by another 1 percent, resulting in net profit margin growing to 14 percent. The 10 percent profit threshold had been shattered and management was eager to see if 20 percent net profit margin could be reached.
In 2012, the company is well positioned to explore investment opportunities. As inflationary pressures have intensified, the company purchased inventory at existing prices and sold at higher prices. A strong balance sheet has given the company the flexibility to seek acquisition targets. Already continued focus on profitable sales has increased revenues by 5 percent. Targeted cost reductions have decreased variable and fixed costs by half a percent each. As of June 2012, the monthly net profit margin is averaging 20 percent. Will the company cap out at 20 percent net profit margin or will it be possible to reach higher? Only time will tell.
The fear caused by the recent recession will long be remembered. However, the unknowable future is certainly brighter because management has firmly adopted a financial engineering mindset based on the Power of 10% Success Principle. Now management focuses on constant business improvement. New revenue lines are constantly sought, expenses that vary from forecast are routinely investigated, and suppliers are routinely re-quoted. Management continues to prioritize action items according to their impact on the financials and management’s ability to control that impact. Come high tide or low tide, the company is ready to meet the future.
For more information on how to apply the Power of 10% Success Principle to your business, please contact Peter Baldwin at email@example.com. ]
Crude oil and natural gas are predicted to remain the principle sources of energy worldwide through 2030 and developing country demand is likely to drive consumption up 50% by then (Daniel Yergin et al).
New technology applied to production of "tight" oil has reversed the decades-long decline in US oil output and may limit the upside in prices, thanks to a boom in places such as the Bakken shale in North Dakota and the Eagle Ford shale in Texas. The possibility of price reversion to the mean, triggered by potentially vast new sources of supply, suggests that firms in the upstream segment of the oil industry should structure their business to be able to operate profitably at a price below $32.50/bbl (the median inflation-adjusted price since 1970).
Natural Gas accounts for almost a quarter of US energy consumption. Currently, the monthly average price of gas for delivery at the Henry Hub is below $2.30 (its lowest inflation-adjusted price in 16 years). Some producers are truncating or postponing drilling programs in cases where the plummeting price of natural gas has driven projected ROI below target.
Yet the discovery of enormous new gas supplies, which may drive prices even lower, could precipitate a great change in the global economy, opening enormous opportunities to domestic producers who can rise to the challenge. The US, the "Saudi Arabia" of natural gas, can flip from a large energy importer to a large exporter.
Royal Dutch Shell's chief executive, Peter Voser, told the Financial Times that Shell has more than 40,000Bn cubic feet of gas reserves in the US and Canada already and it was "now time to deliver that". He added that "Shell's priorities were bringing down production costs and maximizing revenue for the gas...we have enough on our plates concentrating on those issues."
From integrated majors like Shell to energy producers of all sizes, the factor that will most likely differentiate the victors from the victims of such turbulent and disruptive markets will be operational excellence.
Operational excellence involves identifying and removing root causes of any effort that does not add value to the end-to-end business process. Removing activity that slows down the outlay-to-cash cycle or which creates avoidable waste and rework enables the enterprise to:
The leading consultants at Greater Yield bring years of experience in analyzing and identifying areas where the highest positive impact can be made in an organization through application of relevant tools and methodologies that transform mundane systems into synchronized, streamlined end-to-end business processes that consistently and punctually deliver value to the enterprise and its customers.
Typical areas in which operational excellence can shorten cycle time, reduce errors and add value:
Process Value Management
Greater Yield's skilled and seasoned consultants have helped employees at all levels in hundreds of companies worldwide adopt and internalize a view of business as a series of interconnected processes. Our consultants mentor and convey a disciplined yet flexible methodology to streamline the business by ensuring that each and every step in a critical process adds value, can be executed to specification within the shortest possible cycle time and with the highest possible yield.
The outcome is a seamless end-to-end business process with minimized waste, generating faster and better results, using fewer resources.
As featured in Oil & Gas Monitor magazine: www.oilgasmonitor.com ]
The one thing that all owners of companies and C-level executives share is the
desire to be successful. And, most define success as the ability to sustain continuous positive results that steadily grow over time.
To better support the growth of a successful business and yield greater results, senior executives need to evaluate the effectiveness of their management strategy. In many cases, the management style, current business model, and the efficiency of current operations needs to be analyzed to ensure they contribute to the desired financial and performance results without unwanted side effects.
Fundamental management initiatives are well known, but many times they are not executed in an efficient manner. Greater Yield uses nine areas of focus, referred to as “Decisioneering,” to help senior management “Right Start” the re-energizing process to put any business on the road to reliable and sustainable results.
Regardless of industry or business size, these nine criteria are vital to the success formula of any company. Each step in the Right Start process encourages many drill downs, allowing for measurement, evaluation and improvement along the way. These “Decisioneering” factors are:
The Right Team. Operational staff is a resource that senior management must influence in order to achieve success. Therefore, selecting and managing the right team is critical for having the Right Start to sustainable high performance.
To properly manage the right team, senior management needs to balance the skill sets required to accomplish the goals at hand. Acquiring and developing the "right" talent to lead the team is equally as important as creating the "right work place attitude." Next, comes team-building. The focus needs to be placed on the company, and not on individual “all-stars.” The team needs to be forward thinking and proactive, while concentrating on building relationships within the group. Once a cohesive team spirit has evolved, the business has succeeded in forming social capital that allows for more efficient handling of day-to-day activities, but also creates a more productive environment that is better prepared to deal with the emergencies and unplanned events.
In teambuilding, many managers start with breaking the team into four major personality types: analytical, amiable, expressive and driver. The goal is to create a diverse and healthy balance, by avoiding having too many of the same type on the team. Once the right team is in place, the business is positioned to move aheadmore effectively through the other eight “Decisioneering” initiatives.
Communicate. Effective communication sets performance expectations. Frequently overlooked, effective communications plays an important role in helping employees avoid conflict and comply with the goals and objectives of the company.
Establishing rules for proper communication, while obtaining feedback and testing team members, helps ensure that management’s key messages are understood. By instituting clear expectations that are communicated and re-enforced from the top down, a consensus-building environment is achieved and productivity and profits grow.
Cultural Change. Typically, corporate culture entails the attitudes, beliefs and actions of the top management of the company, and it is often the biggest barrier to making any improvements within an organization. Many executives assume that employees automatically understand management goals and objectives. All too often, company executives are burdened by cultural short-sightedness resulting in a misplaced reliance on irrelevant procedures, useless measurements and ill-advised cash expenditures in the vain attempt to implement positive change.
Examples of cultural issues can range from simple blaming behaviors, to a non- accountability mindset, or to ownership-related attitudes that say "this product or service was not invented here."
For executive managers determined to significantly increase a company’s return on assets, a close examination of cultural issues is warranted. Eliminating culture problems is most often the most difficult part of a company's goal in trying to improve results, but the payoff can mean profound and sustainable change.
Effective Meetings. As companies grow, new functions develop and departments grow. A common result of this phenomenon is that employees hold more meetings in an effort to communicate. Frequently, employees complain that they never get anything accomplished due to "back-to-back meetings."
To implement more effective meetings, the leader must have a clear plan as to what the meeting is for and what the expectations are as a result of the meeting. The leader should distribute an agenda and the necessary materials prior to the meetingto allow everyone to study the subject matter at hand, while encouraging more productive employee contributions.
Insure that the right people are included in the meetings to allow information to flow quickly, while facilitating the decision-making process. Follow-up items and due dates should then be assigned to re-enforce accountability.
Proper planning results in more effective meetings which allows for more effectiveuse of management’s time. It also gives executives time to evaluate decisions by establishing parameters for issues that need immediate action and those that could wait for a group consensus.
Leadership. Leadership increases the value of the company in the eyes of its owners, employees and customers. Leadership is also about understanding the company's environment, anticipating how that environment is changing, and having the knowledge and courage to make the right decisions to improve and maintain the company’s competitive advantage.
The leader must have a clear vision as to where the company is going, and how to navigate the balance of urgency and focus, all while meeting the needs of both the customer and the business. Leaders must also understand the direction the business is headed, and know the milestones that need to be accomplished within a reasonable timeframe, which indicates that the organization is on the right path.
Silos. At times, employees within a department work so well together that they appear to operate independently from the other parts of the company. However, while the 'silo' appears efficient to outsiders, it is an extremely inefficient business model.
The employees of each silo fail to understand that the lack of integration within the company creates an organization that is more complex, and layers of management that must now manage that complexity. In this environment, such cumbersome business structures fail to satisfy the customer, which should be the overarching goal of an organization.
Effective leaders must find ways to promote cooperation across departmental, hierarchical and functional boundaries. To break the silos, leaders establish enterprise-wide goals with metrics to indicate progress and instill the mindset that each person within the organization has the obligation to contribute to the common goal. Usually, the organization must adopt a ‘process view’ work model with cross-functional departmental teams dedicated to improving customer satisfaction. Senior management should reward collaboration, encourage networking and create an environment of alignment.
Measuring Success. Measuring progress is indispensable when it comes to
demonstrating the actions taken and the effort required to yield positive tangible results. Progress is seldom linear and sometimes the organization’s momentum will stumble. Measurements gauging progress help ‘re-energize’ an organization by showing how much the company has advanced, while instilling confidence in the company's strategic plan.
A good measurement system has clear objectives, is integrated, relevant, meaningful, accurate and timely, while being understood organization-wide. Most importantly, it is utilized throughout the organization. Built with the customer in mind, the measurement criteria should be action oriented using leading indicators to give the organization immediate feedback, so corrective actions can have real impact.
The design and implementation of a system of measurements is a most difficult undertaking and generally needs outside intervention to help the organization's leadership.
Regulatory Management. While executive leaders are trained to run a company, few are familiar with the complex regulatory environment. Business leaders must develop the ability to understand and respond to various government regulations quickly, while spotting, analyzing and dealing with other legal issues that may be distracting at best, and are many times detrimental to business operations. To be successful, management must learn to work effectively and efficiently with inside and outside legal and regulatory counsel to resolve problems and proactively manage risk.
A most common problem is the way a business manages regulatory compliance. Finance manages financial reporting compliance; HR manages EEOC compliance and other departments handle compliance as a stand-alone function. By taking a strategic view of compliance costs, management can reduce the redundancy of efforts, while gaining a clear understanding of corporate risk, company-wide.
Executive Mentoring. At times, most leaders could benefit from the counsel of a seasoned executive from outside the organization. A successful leader recognizes the benefits of independent counsel and will seek advice in times of need, and as a source of ongoing executive level development.
An investment with the highest ROI, an executive mentor is a coach that provides open and honest advice as well as an independent viewpoint to organizational challenges, while offering sage advice to help fine-tune leadership skills. As a confidant, a mentor is a safe sounding board and a supportive listener that has the ability to talk an executive through tough leadership issues. A mentor also encourages critical thinking through situational teaching and known outcomes.
As a company ages, senior management must continue to provide innovative performance improvement solutions to an increasingly complex organization in order to keep a business on track. Improvements and new processes are not necessarily of long duration, nor are they costly in terms of company resources in time and money.
Executing the nine "Decisioneering" principles can bring change to any organization. And the investment of resources should help an organization realize substantial savings by performing operations the right way, the first time. Right Start management results in 'less scrap with no rework,' requiring less time, less money and reduced cost. A Right Start management approach to business results in a better-managed company that operates at peak performance, while generating higher profits.
About the Authors:
Debbie Womack and Jim Taylor are Principals with Greater Yield, a provider of innovative performance-improvement solutions for critical and complex business issues. Providing senior-level experts who work with all levels of businesses as trusted partners, Greater Yield empowers organizations through technology and business ROI-driven changes, transfer of knowledge and delivery of measurable results enterprise-wide. Greater Yield is a woman- and veteran-owned company. ]
Meaningful business measurements are essential and critical management tools for success. If you don't know where you are, or where you have been, how can you know where you are going? You can't manage what you can't measure. A very applicable quote by Albert Einstein, "Not everything that can be counted counts, and not everything that counts can be counted." This thought needs to be fully understood when talking about measurements.
APPROACH TO MEASUREMENTS
If there is a thoughtful approach to measures, many times a "Balanced Scorecard" approach is taken aspiring to attain meaningful measures for the business. What occurs more often is that most of the scorecards end up being financial measures with a few measures on people development (training) and some aimed at business development (new customers or new markets). When examined for effectiveness, we find most results being measured are lagging indicators. This approach is similar to driving down the highway at 70 mph but only looking in the rear view mirror and not ahead to see where the business is going. What is missing is a meaningful set of Driver measures which can predict if the business is on track. What are Driver measures? These are usually Business Process measures such as Order Fulfillment Cycle Time, Product/Service Development Cycle Time, New Product time-to-market and key measures of Quality - First Pass Yield which quantifies doing things right the first time.
Too often we find the prevailing conditions and state-of-measurements within companies are:
These points are verified by testimonies from executives who require accurate and undistorted views of their business to make critical decisions. Some of their statements are:
WHAT ARE MEANINGFUL MEASURES
The pertinent question that should be asked is, “What metrics are relevant and meaningful to business success?” There are four axioms of meaningful performance measurements:
All business executives and managers, at every level, have a critical need for accurate, timely and meaningful performance data to navigate through the highly demanding environment to successfully compete, grow and sustain profitability. Foremost, whatever strategic goals and purposes exist for the business, the product(s) and/or service(s) delivered must align economically with the resource capabilities and facilities to deliver them. The delivery resources must also produce them with an acceptable quality, at an affordable price and with timely availability to meet customer needs.
CATEGORIES OF BUSINESS METRICS
Fundamental business metrics generally fall within three overall major categories: Financial, Operational and Quality. Within each of these major categories we find three essential attributes of cost, quality and time associated with each task. And traditionally, we find most business measurements are designed to measure functional results which lack one or more of these attributes with a focus on history. The major disadvantage with managing operational performance with historical data is that results have already been experienced. This is similar, as previously stated, to trying to drive a car looking into the rear view mirror.
When we analyze functional results, we find they are generally aligned with the structure of most financial budgets. Their shortfall is that they do not provide a true operational performance picture of business processes. Functional results give poor visibility, if any, to current or future delivery capabilities. True operational performance results can only be attained by focusing on business processes and their associated attributes. Ideally, the best visibility is attained from real-time data; however few companies have this capability. Even fewer companies are equipped to provide predictive forward projections based on current business conditions.
CONNECTING MEASUREMENTS TO SUCCESS
This white paper illustrates the importance of understanding the hierarchical relationships and linkage of meaningful process measurements to business success. Every action in a business is achieved through the execution of a process. Business processes can be simple or complex, inexpensive or costly, slow or fast, inefficient or efficient, poorly designed or well designed and can achieve results in one location or in multiple locations. Every process has common elements with three basic meaningful process measurement attributes, cost, time & quality which are drivers of performance. The metrics are the drivers, which if measured and managed will provide the control and visibility of true operational performance.
By closely examining the three major categories of business process metrics, financial, operational & quality, we find that the foundation and driver of financial and quality results squarely rests on acceptable operational performance of business processes. When business processes are designed, measured and managed appropriately, the financial and quality metrics will follow with positive results. There are other factors which can impact business financials and quality, i.e., outside uncontrollable costs and material quality, etc. However, in every case the controllable actions within a business entity will be driven directly by the effectiveness and efficiency of business processes. Using driver measurements immediately identify problem areas at the time when they are occurring and can be fixed. No more waiting until historical data is analyzed and effort is expended trying to discover what happened.
Every action in a company, whether it is white collar or blue collar related, fits within a business process. There are many key performance indicators (KPI's) which are important quantitative measurements to know about the product or service related status, such as meeting the schedule, performance to budget, raw material inventory, WIP and FG inventory, customer needs met, pipeline, etc. However, these are not indicative of the measure of operational efficiency of process tasks.
MANAGING WITH MEANINGFUL METRICS
Holistically, when we analyze business entities, we find four core sets of processes:
When core business processes are interconnected, analyzed, measured and managed, the full process performance capabilities can be determined and monitored. This also provides clear visibility to all the sub-sets and any constraints and barriers which restrain attaining full performance. This approach provides executives and managers with timely and accurate information from which they can manage effectively for desired results.
A simplified example of a set of Strategic Thrust associated processes below:
Vision » Mission » Objectives » Strategy » Tactics » Market Positioning » Strategic Plan » To Development & Revenue Processes
This set of processes is shown to illustrate that the flow of more intangible white collar work tasks are as identifiable and measurable as those involving substantial hands-on work activities. The major task blocks, from the creation of a Vision to completion of the Strategic Plan, all have multiple sub-tasks which can be measured, by time to complete, invested costs and a required level of quality which produce a corroborated and acceptable forward direction for the business. The aggregate of these process measurements summarize the financial costs, the responsiveness and the approved quality of the Business Plan.
Business entities with meaningful business measurements have demonstrated the value of these essential and critical management tools for achieving and sustaining business success. These tools which contain true performance results and actual business process capabilities provide not only clarity in decision making, but timely management intervention when needed. The measurements of cycle time (CT), quality (FPY) and costs ($) are proven key attributes which provide the mechanisms to steer, correlate and directly link operational performance to business financial results. With these measurements, effective business controls can be implemented and monitored with an added measure of performance and delivery predictability which in most cases is available without the investment of costly real-time IT systems. These measurements provide business executives and managers the capability to determine if they are maximizing current business performance against their full realizable potential. Unobstructed visibility also exists to drive continuous operational improvements. Ultimately, the ability to successfully compete, grow and sustain profitability is critically dependent upon accurate and timely meaningful measurements in order to maximize asset utilization and provide all stakeholders the returns they expect.
To further investigate how to determine your full operating potential, apply these meaningful business measurements to improve your business performance and manage for success, call Greater Yield at 972-308-8533 or email at firstname.lastname@example.org.
As featured in Ezine Articles: ezinearticles.com ]