How to find opportunities for performance improvement inside your business
Do you have more than one product or sales territory or branch in your business? If you do this whitepaper will show you how to define a sequence of changes that will transform your business performance.
Of course you need a KPI model to find and test the decisions before you make them, because you cannot improve performance unless you are measuring performance.
It is a three-step process and it works every time. It works because when you focus on your key performance indicators they provide your summary of the real levers of productivity.
Step 1: Find the best and the worst performing units in your business and compare their KPIs. Where are they different?
Step 2: Now dig a little deeper, what is A doing better than B? What is B doing differently from A. What drives A’s superior performance?
Step 3: Ask your “what If?” question. What if B did the same as A at this stage in the process? How profitable would B become? Keep asking “what if?” and very quickly you will have a new strategy for B. You will have defined the decisions that B needs to take to become as good as A.
The best way to show you how to do this is to describe a real example from my casebook. I have created a small KPI model to show you the numbers and the sequence. This will help me illustrate the sequence, so it is worth the work of following through the sequence.
When you see how simple it is it will blow your mind.
When you apply it to you own business you can use the same process to transform your profitability and know that it will work, because one of the units is already doing it.
A government client was in the facilities management business. They maintained air bases for the air force, doing everything, maintenance, new construction, systems, that was needed to keep them operational and able to respond to emergencies.
They looked after 2 air bases, let us call them North and South. North was much more profitable than South, in fact South was losing money. They used the same systems and did similar types of work.
One was bigger than the other, and that had confused the debate about how to improve the performance of North because people were looking for scale economies. They were looking in the wrong place.
They sent me the annual accounts for North and for South. It was immediately obvious that they were different, but no amount of poring over the accounts was going to produce the answer. Better accountants than I had been doing that for three years without generating any strategic insight.
I chatted to the managers about what they did so that I had a starting point for creating a KPI model that would work for both sites.
The modeling technique
I drew the model on a large sheet of paper, wrote in in the numbers for North, and got the calculator out to test it. Then I built it in Excel, and added the numbers for South.
The “What if?” questions
What if North worked as well as South at a specific function or operation? And vice versa.
As I worked my way through one function after another I found the levers of performance improvement.
South outperformed North in operational returns. North had lower overheads. South had lower asset turns which suggested under-utilized plant and equipment.
From analysis to strategy
The analysis generated a performance improvement strategy that we knew would work because one of the units was already doing it. In addition, we knew what the target performance was and what the effort would return.
When it was implemented, we found that some of the projected returns could not be achieved because of concealed operational differences between the two units, but overall after 12 months , the ROFE for the combined units had been improved by over 75%.
You can find similar returns hidden in your business if you start asking “What if?” questions and use a KPI model to reveal the strategy.
This brief article cannot show the detail and the screenshots of the model results, but it you would like a full explanation it is avaiaible at bizlearn.biz > Themes > Strategy.