FitzGerald Associates
www.ManagementConsultants.com
University of Chicago
GSB
Consultants
Roundtable
FitzGerald Associates
www.ManagementConsultants.com
Corporate Profitability
Performance Prediction
Objective I
To Identify
The Root Causes
The Drivers of Performance
Objective II
To identify 3 Critical Functions which,
if improved by 20%,
will increase profits by 40%
Objective III
To identify 3 Generators that
positively effect the
Critical Functions
Objective IV
To identify 3 key factors
that BLOCK the Critical Functions
(Blockers)
Objective V
To learn how to quantify the
Drivers of Performance
Critical Functions
Generators
Blockers
Good News
Sells no Papers
The Long Goodbye
A True Story
The
(20 year)
Decline and Fall of
Guernsey Dell
Meet
Tom Horne
Time Line
Year
Observables
1- 9
10
11
12
15
17
20
Internal Symptoms Only (Drivers)
Delivery Problems (KPI)
Customer Complaints (KPI)
First Signs of Financial Trouble
Mkt. Share Drops by 33%
Bank Involvement
Guernsey Dell Sold
From the Specific to the General…
…and Back
A Little Theory
The Phases and Measures of
Corporate Decline
(More bad News)
Phases and Measures
Summary
Phases
Measures
I Hidden
II Subtle
III Overt
Drivers
KPI’s + Drivers
Financials + KPI’s + Drivers
Drivers of Performance
The Organizational and Human Factors that
Underlie, Drive, and Impel Performance
The Root Causes of Performance
The Predictors of Performance
Drivers of Performance
Entirely controlled by management
They can be measured / quantified
They Can Be Changed
Drivers of Performance
Consist of
Critical Functions ~
6
Generators
9
~
(Now for the bad news)
Blockers
> 100
Critical Functions
(A Definition)
Where the least change
exerts
the greatest result
Analogy
The Accelerator on a Car
The Brake on a Locomotive
Three Critical Functions
Function
(Guernsey)
Performance Management
(Virtually None)
Talent Management
(Virtually None)
Cost Containment
(Lip Service)
Performance Management
Goal Setting
Rigorous Follow Up
Rewards Based on Performance
+ ?????
Talent Management
Purposeful Recruitment
Serious Management Development
Purposeful Turnover
+????
Cost Containment
OK - You Know!
LSE/McKinsey Study
Take-Away
A 20% improvement
In the three Critical Functions
Generates
A 40% improvement in the bottom line
Three Critical Functions
Performance Management
Talent Management
Cost Containment
Critical Functions
All Companies Have These Functions
Their Effectiveness Is the Question
(Their Volatility Is the Issue)
Effectiveness of
Critical Functions
A POSITIVE function (ƒ) of Generators
A NEGATIVE function (ƒ) of the Blockers
Examples
Three Generators
Corporate Decisiveness
Acknowledgement of Work
Accountability
Examples
Three Blockers
Complacency
Need for Consensus
Distrust
Linkage
Drivers
Blockers
Generators
Critical Functions
KPI’s
Financials
Linkage Example
I
Complacency
(Blocker)
Acknowledgement of Work
(Generator)
Poor Cost Containment
(Critical Function)
Loss of Clients
(KPI)
Reduced Revenues/Profits
(Financial)
Linkage Example
II
Distrust
(Blocker)
Reduced Decisiveness
(Generator)
Poor Performance Mgmt.
(Critical Function)
Loss of Quality
(KPI)
Reduced Profits
(Financial)
The Critical Functions
Provide
A Single Number analogous to the Bottom Line
for the current state of the
Operating Dynamic
(As that is today – so goes tomorrow’s financials )
The Generators
Provide
A Single Number
for the Trajectory of Operating Dynamic
The Blockers
Provide
The Reasons WHY
And the HOW to correct them
Reliability of Drivers
For All Drivers
Perception is Reality
Objective Reality (if any)
is Unimportant
Measurement of Drivers
Use a questionnaire (Anonymity)
Get responses of management (by team)
From CEO to Supervisors (key staff too)
A Critical Function “Question”
We attract and retain the best people
Sr. Team:
(5)
(4)
(3)
Neutral
(2)
(1)
4
2
1
2
1
2
2
1
A Generator “Question”
Our managers hold each other accountable
Sr. Team:
(5)
(4)
(3)
Neutral
(2)
(1)
4
2
1
2
2
2
1
2
A Blocker “Question”
Our managers are reluctant to speak their minds
Sr. Team:
(5)
(4)
(3)
Neutral
(2)
(1)
2
4
4
4
5
4
2
5
Measurement of Drivers
Results in Knowledge of:
What to Fix,
What to Augment
What to Transform
And, Incidentally,
a Profile of the Operating Dynamic of the Company
and Each of its Units (if surveyed)
Q&A
Where Does the
40% Profit Improvement
Come From?
Wrap Up
Wrap Up I
Drivers
Blockers
Generators
Critical Functions
KPI’s
Financials
Wrap Up II
By end of Phase I Decline (Hidden)
Fully one third the competitive value is lost
By End of Phase II Decline (Subtle)
Two thirds the competitive value is lost
Only in Phase III (Overt)
Do the financials show a problem
Wrap Up III
Long before Disaster strikes. . .
the signs appear:
First in the Drivers
(The smart CEO/CFO knows to look)
Last in the Financials
Wrap Up IV
Long before Success shows. . .
the signs are there:
First in the Drivers
(The smart investor knows to look)
Time Line
Year
Observables
1- 9
10
11
12
15
17
20
Internal Symptoms Only (Drivers)
Delivery Problems (KPI)
Customer Complaints (KPI)
First Signs of Financial Trouble
Mkt. Share Drops by 33%
Bank Involvement
Guernsey Dell Sold
Wrap Up V
The Cost of Full Restoration
Increases Exponentially
With the Depth of Decline
Wrap Up VI
Measuring Drivers is quick
The cost is low
The ROI is GREAT
Wrap Up VII
An improvement of 20% in three Critical Functions
results in
a 40% increase in financial returns (LSE/McKinsey)
Wrap Up VIII
You don’t have to be in trouble
to get your 40%
QUESTION
What would it mean. . .
If your company. . .
Increased profits by ONLY 20%?
URLS
www.ManagementConsultants.com
Then click on
“Webinar Links”
FitzGerald Associates