FitzGerald Associates University of Chicago GSB Consultants Roundtable
Corporate Profitability Performance Prediction FitzGerald Associates
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
Sells no Papers Good News
The (20 year) Decline and Fall of Guernsey Dell The Long Goodbye A True Story
Meet Tom Horne
YearObservables 1- 9 Internal Symptoms Only (Drivers) 10Delivery Problems (KPI) 11Customer Complaints (KPI) 12First Signs of Financial Trouble 15Mkt. Share Drops by 33% 17 Bank Involvement 20Guernsey Dell Sold Time Line
A Little Theory The Phases and Measures of Corporate Decline (More bad News) From the Specific to the General… …and Back
PhasesMeasures I HiddenDrivers II SubtleKPI’s + Drivers III OvertFinancials + KPI’s + Drivers Phases and Measures Summary
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
Critical Functions~ 6 Generators~ 9 (Now for the bad news) Blockers > 100 Drivers of Performance Consist of
Where the least change exerts the greatest result Critical Functions (A Definition)
The Accelerator on a Car The Brake on a Locomotive Analogy
Function (Guernsey) Performance Management (Virtually None) Talent Management (Virtually None) Cost Containment (Lip Service) Three Critical Functions
Goal Setting Rigorous Follow Up Rewards Based on Performance + ????? Performance Management
Purposeful Recruitment Serious Management Development Purposeful Turnover +???? Talent Management
OK - You Know! Cost Containment
A 20% improvement In the three Critical Functions Generates A 40% improvement in the bottom line LSE/McKinsey Study Take-Away
Performance Management Talent Management Cost Containment Three Critical Functions
All Companies Have These Functions Their Effectiveness Is the Question (Their Volatility Is the Issue) Critical Functions
A POSITIVE function (ƒ) of Generators A NEGATIVE function (ƒ) of the Blockers Effectiveness of Critical Functions
Corporate Decisiveness Acknowledgement of Work Accountability Examples Three Generators
Complacency Need for Consensus Distrust Examples Three Blockers
Drivers Blockers Generators Critical Functions KPI’s Financials Linkage
Complacency (Blocker) Acknowledgement of Work (Generator) Poor Cost Containment (Critical Function) Loss of Clients (KPI) Reduced Revenues/Profits (Financial) Linkage Example I
Distrust (Blocker) Reduced Decisiveness (Generator) Poor Performance Mgmt. (Critical Function) Loss of Quality (KPI) Reduced Profits (Financial) Linkage Example II
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 Critical Functions Provide
A Single Number for the Trajectory of Operating Dynamic The Generators Provide
The Reasons WHY And the HOW to correct them The Blockers Provide
For All Drivers Perception is Reality Objective Reality (if any) is Unimportant Reliability of Drivers
Use a questionnaire (Anonymity) Get responses of management (by team) From CEO to Supervisors (key staff too) Measurement of Drivers
A Critical Function “Question” We attract and retain the best people Sr. Team: (5) (4) (3) Neutral (2) (1)
A Generator “Question” Our managers hold each other accountable Sr. Team: (5) (4) (3) Neutral (2) (1)
A Blocker “Question” Our managers are reluctant to speak their minds Sr. Team: (5) (4) (3) Neutral (2) (1)
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) Measurement of Drivers
Where Does the 40% Profit Improvement Come From? Q & A
Wrap Up
Drivers Blockers Generators Critical Functions KPI’s Financials Wrap Up I
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 II
Long before Disaster strikes... the signs appear: First in the Drivers (The smart CEO/CFO knows to look) Last in the Financials Wrap Up III
Long before Success shows... the signs are there: First in the Drivers (The smart investor knows to look) Wrap Up IV
YearObservables 1- 9 Internal Symptoms Only (Drivers) 10Delivery Problems (KPI) 11Customer Complaints (KPI) 12First Signs of Financial Trouble 15Mkt. Share Drops by 33% 17 Bank Involvement 20Guernsey Dell Sold Time Line
The Cost of Full Restoration Increases Exponentially With the Depth of Decline Wrap Up V
Measuring Drivers is quick The cost is low The ROI is GREAT Wrap Up VI
An improvement of 20% in three Critical Functions results in a 40% increase in financial returns (LSE/McKinsey) Wrap Up VII
You don’t have to be in trouble to get your 40% Wrap Up VIII
What would it mean... If your company... Increased profits by ONLY 20%? QUESTION
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