How to Transform Your Business for Sustained High Performance

Most businesses never achieve their full potential because of many obstacles. This article is the first of a series that will provide you a step-by-step guide on how to transform your business from mediocre to exceptional.

High-Performance Transformation

Executive Series #1

Building a repeatable, high-performing business is THE mission of every CEO. So why do so many businesses fail to achieve this core objective? This article is the first in a series that will break down the problem and provide you a step-by-step guide to turn your company from mediocre to exceptional.

First, let’s make sure that we define the mission clearly. There are two key concepts in the mission:

Repeatable – Will the performance of the business be repeatable over a long time (10+ years)?
High-performance – Will the measured performance, profit levels (i.e., EBITDA % of revenue), and growth (i.e., % year-over-year) of the business, be significantly above industry averages?

15|15 Box – High-Performance

I will use the “15|15 Box” as the target zone to define high-performance. What I am describing when I say the 15|15 Box is a business that can maintain EBITDA margins that exceed 15% of sales while sustaining a year-over-year growth rate that exceeds 15%. You may be thinking, that is no big deal, but you might be surprised how rare this is. High EBITDA margins are not uncommon, particularly in well-established companies. You can also find fast-growing businesses, particularly in high-growth sectors such as software and high-tech. But, high EBITDA margins combined with high-growth rates, are truly rare.

5|5 Box – Mediocre-Performance

Let’s take a look at the other end of the spectrum; that is, what is mediocre (and typical). This would be a business with EBITDA margins of less than 5% and a growth rate of less than 5%. We’ll call it the 5|5 Box.

The Mission

So, let’s frame the mission, your mission. It is to move your company from mediocre (5|5 Box) to high-performance (15|15 Box) and keep it there.

If you are like most CEOs, your instinct is to get going and charge up the hill. If so, that would be your first mistake. Building a high-performance company requires planning, and more importantly, careful crafting of the landscape to prepare for your campaign. Jumping ahead in the process might get you a quick move to higher profitability or growth, but you will likely lose all the momentum after a year or two. The objective is to create sustained high performance. Can your business stay in the 15|15 box for ten consecutive years?

The Problem – Why are High-Performance Companies so Rare?

All CEOs run their companies with an aspiration to be great, so why are most businesses mediocre? The first level of the answer is that it is HARD. There is a long list of obstacles that companies face every day, most of which can consume a CEO. These CEOs are well-intentioned, but they are pressured to shepherd their businesses along a mediocre path. The pattern is repeated day-to-day. Without a significant intent and will to change, the business continues on its course.

Let’s consider the primary reasons that companies languish in mediocrity:

Measurement,
Incentives,
Lack of Vision,
Effective Strategy,
Execution Knowledge and Skills, and
Focus and Resources.

Measurement

You’ve heard the expression, “What is measured, gets managed.” While there is truth to that statement, it is also at the root of the problem that keeps businesses from achieving breakout performance. The problem is two-fold.

First, the act of measurement (or non-measurement) takes effort and inevitably affects the path of the business. You are drawn to focus on the items that are the easiest to measure and away from the ones that are hard to measure. The things that are hardest to measure also happen to be the richest in opportunity. For example, are you measuring your effectiveness in serving a market you aren’t in? Probably not, but that may be where your best opportunity lies. This issue isn’t about measurement at all, it is about where you are focusing your energy. It is hard to concentrate focus on something you aren’t doing.

Second, the measurement of virtually everything in a business is historical. Most executives talk about their business performance in the present tense, but they are talking about the past. They lose sight that what has happened often means little to what will happen. Your job as CEO is to change what will happen.

Incentives

Incentive systems for executives and managers are typically flawed and work against exceptional business performance. The key flaws typically fall into the following categories:

Timing – Most management incentives are built around past performance. This is a tough problem for all companies, but it is critical to design an incentive system that translates clearly into future success,
Measurement – Incentives are typically aligned to items that can be objectively measured. While that may give everyone a sense that the incentives are fair, it is also likely to focus a manager on the wrong things,
Team Alignment – There has been entrenched thinking that each individual should be measured separately and paid for their contribution. Peter Drucker introduced the idea of Management by Objectives (MBOs) in 1954. This idea became widespread in corporate America and is still. While this system may lead an individual to increase a specific performance metric, it does little to drive the whole organization to a common goal. I have found that achieving great performance requires an organization to strip away individual objectives and align everyone with common, clearly-visible goals.

Lack of Vision

Business leaders who don’t have the vision to achieve something exceptional are unlikely to achieve greatness. CEOs must spend a considerable amount of time exploring the Vision for the company and discover what it will take to achieve greatness. This process is not about simply painting a picture of the destination; it is about discovering the path to get there.

The CEO must also develop a story that describes the journey towards the Vision. The story must be regularly shared in clear, easy-to-understand, terms. The way the story is told may vary between the leadership team, office employees, engineers, and workers on assembly lines or in the warehouse. But all should feel the same sense of direction. When the Vision evolves, and it will, changes must be reconciled against previous stories and shared with everyone.

Effective Strategy

A strategy is not something you can touch and feel, it is a set of ideas that describes what, when, how, and most importantly, why resources of the company are going to be deployed to achieve an objective. The strategy is embedded in the Vision story, but the quality of the strategy determines the credibility of the Vision.

A poorly conceived strategy will completely undermine your efforts to achieve your Vision. The team may hear the words, but they won’t believe them.

Building a great strategy is a process. It requires research and data. It requires extensive and repeated dialogue with the leadership team. It requires engagement throughout the organization and with customers and suppliers. It requires revision and evolution.

Execution Knowledge and Skills

Execution excellence should be fundamental for an executive leadership team. However, in most businesses, it is not. Further, strategic execution, the actions that move the company towards the strategic Vision, are almost always absent.

The problem is two-fold: (1) basic execution skills and tools are missing, and (2) the Vision and strategies have not been translated into actionable items.

In simple terms, if you can’t execute your strategic plan, does it matter what direction you are headed? You have to get your execution discipline in top shape to succeed. If you, and your leadership team, haven’t mastered execution skills, your priority will be to build this discipline. There is no reason to worry about your strategy until you have execution in order.

Focus and Resources

Running a business on a day-to-day basis is challenging on the best of days. When the marketplace is throwing curveballs at you it can seem impossible. This is largely because many companies are designed, in their organizational structure and resources, to exist treading water. The thought process is that any extra resources will add expenses and drive profits further down. So, the cycle repeats; no effort and focus is placed on moving the company to a better place, so you stay where you are. It can feel safe; the return on the cost of the extra resources to get you to your Vision destination is uncertain. However, I can predict something certain; if you don’t make moving toward your Vision a strategic priority, you will never get there.

I want to plant a seed for you to consider. You and your leadership team will probably need to spend much more time and energy focusing on developing and executing a strategic Vision. Most leadership teams less than 20% of the time that is needed to develop and maintain a Vision and strategic plan that will make their business exceptional. Instead, they spend most of their time repeating the same strategy that got them to, and keeps them, in their current state. If you have team members who seem annoyed coming to strategic meetings because they are too busy, that is a strong indicator that you need to realign the priorities and resources of the organization.

Where to Begin?

I have framed the problem. Now the challenge is to break it down into a step-by-step process that you can execute; I will do that in the coming articles. I will try to make it as straightforward as possible. However, I want to caution you that the process, in practice, isn’t easy. There is nothing in business that will test your courage more than breaking from your current, proven trajectory. You will potentially risk everything to reach something great. You need to decide if you are willing to take this journey.

I do want to encourage you that the result of this effort, which will likely take years, will be a healthier, smoother running, business that is a joy to lead. You will also create a work environment that gives all the employees an abundance of opportunities to grow.

So, take the first step and…