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How to increase growth and improve business performance (Part I)

October 24, 2016

1. Introduction

There are multiple causes that explain why companies do not meet their goals: Loss of a technological wave, lack of anticipation to changes in consumer needs, slow response to competitive moves, etc. These factors are external and they normally translate into a gradual erosion of the competitive position in favour of other competitors that are gaining ground.

On other occasions, the cause of the competitive decline is within the Organization itself. What is surprising about these cases, is that being born internally, many companies fail to successfully react to this problem, while others, in their effort to do so, end up making things worse.

2 How does the “internal” problem come up?

More complexity: The organizational structure and associated KPIs described above is at the origin of a complexity that spreads throughout the entire Organization, from the marketing and sales functions, to Operations, IT, or Business Controlling. This complexity in turn results in higher costs (hidden and visible) and barriers to productivity growth. In summary, if in our attempt to manage complexity, we create more internal functions, these in turn generate more complexity. And complexity is the enemy of fast Time to Market and profitability.

Loss of attention to the core business: The organization tries to address too many issues at the same time, and huge efforts are dedicated to the internal coordination between the different roles that appear. The KPIs that are tracked and reported significantly increase. Sometimes a single KPI can be reported in up to 5 different ways: the objective value, the “ambition”, the real value, the value versus the competition, and its evolution over time. Little by little, basic elements of the business suffer loss of management focus. This loss of focus typically takes place first over those topics that are more qualitative in nature and therefore difficult to measure. For example, between a good sales script and mediocre one there can be a 25% difference in commercial activity. This difference is enough to turn an upselling campaign profitable, and therefore scalable, or unprofitable, and therefore, potentially discontinued.

The key teams, those that impact the core business, end up losing sense of responsibility and accountability. The new roles that appear discourage middle managers, which in many cases see compromised their decision making power. At the same time, the “front line” of the organization, the production, sales and customer care teams are unable to successfully manage all of the mandates from ] all the different roles of the organization. Sales suffer and customer satisfaction deteriorates.

In brief, the consequences are important. Sometimes the inertia of the business hides the performance deterioration in the short term, but sooner or later customer growth stalls, commercial costs increase faster than revenues, customer satisfaction worsens and the overall competitive position deteriorates.

4 Where to look to improve current business performance?

If you recognize any of the problems just discussed in your organization, please resist the temptation to create an “Efficiency Improvement Department ". To look for improvement opportunities, we suggest instead you ask yourself four key questions that we address in the next upcoming article : 4 ways to increase growth and improve business performance in the era of organisational complexity (2)