Editor’s note: Lea A. Strickland is President/CEO of FOCUS Resources, a strategic business consulting firm, based in Cary.
_________________________________________________________________________________________In building organizations, all too often we get caught dealing with the day-to-day operations and fighting fires that put immediate pressures on our ability to be in business. Successful businesses are able to fight the fires and deal with day-to-day issues while keeping the long-term objectives of the business in mind.
No organization can achieve long-term success without addressing the day-to-day, short-term realities. However, the organization that is so myopic as to look only at the short term issues and challenges never gets the opportunity to look up toward the horizon, the long term objectives – growth, profit, positive cash flow.
How then do we balance the realities of dealing with the demands of today (working in the business) with building the business (working on the business)? The key is developing:
Clear Objectives Enable Organizations
Clear objectives allow an organization to know what goal every activity is working toward. When the strategic objectives of an organization are translated into specific targets that relate to near-term deliverables – milestones and timing – the resources of the organization are focused on the relevant tasks and outcomes. Where “relevant” is defined as those activities which must happen today to ensure survival as well as those which are steps toward the long-term path, all are performed within the construct of the organization’s performance standards and targets.
The performance targets established for the various levels of the organization have effect only IF the organization has the ability to establish measurable criteria. Those criteria must also be used as a means of evaluating performance and rewarding or correcting specific and overall behaviors and activities.
Performance Metrics Must Have Relevance
Performance metrics without management review and evaluation are meaningless exercises. Management control and oversight include establishing decision-making criteria and constructs that facilitate decision-making at all levels. The optimal decision-making level is the one where the question or challenge arises.
Decision Making Requires Practice
How do you enable decision-making at all levels of the organization? It requires a core culture, clear objectives, and specific targets which result in specific decision-making criteria. Furthermore, it requires a willingness to accept decisions which lead to less than ideal results. Because sound decision-making is a learned process, there will be times when the decisions made will reflect inexperience and lack of complete knowledge. An organization which creates a structure that develops in its entire team the talent and ability to make decisions is an organization which has the potential to respond quickly to changes in its environment.
The ability of the organization to develop decision-making abilities needs to be accompanied by an environment/culture which encourages the willingness to act rather than wait for things to happen and then respond. Organizations often possess within their operations members who are able to make a decision in the moment and in context of the information available. What many of these organizations do not possess is an environment which differentiates the willingness to take action from the outcomes of the decision and rewards the behavior it desires.
Organizations Get Trapped
Organizations fall into the trap of focusing on whether or not the results were “ideal”, “right”,” optimal”, or whether the person who acted did so in the context of the situation. Analysis of how a decision was made is as important (often more so in the long term) as analysis of outcomes. If an organization is to maximize responsiveness to its total environment, then the ability to monitor and act quickly, nimbly resides in the organizations decision-making capabilities at all levels.
In analyzing a decision — breaking it into two parts, the outcomes and the process — as the organization gains knowledge of what went right and what, if anything, went wrong. Keep in mind that the best decisions can often result in the worst outcomes due to unforeseen factors or unpredictable variables. The knowledge gained through a post mortem analysis of decision processes and outcomes is something that improves future results. Looking at decisions which have good results is as critical as looking at ones that have poor outcomes. Sometimes the outcomes are independent of the decisions and the decision-makers. (Sometimes people get lucky and sometimes they are unfortunate.)
Because differentiation between the process and the results enables the organization to improve the process of analyzing situations and alternatives to improve future decision-making results, it also enables the organization to reward better decisions and outcomes without penalizing and discouraging those who act and get less than optimal results. Many organizations get caught in analysis paralysis because of real and perceived penalties for acting and not getting the theoretical results expected.
One example of differentiating outcomes and decision-making processes is a situation that involves two different projects. Both projects have aggressive performance targets. In the first project, a manager is expected to revamp an existing manufacturing facility and improve production rates and costs – of course, doing so on budget. The second project is the launching of a new version of an existing product.
The new product launches on time and under budget. The manufacturing facility renovation on the other hand is significantly over budget and unit costs for the product come in higher than expected. Who gets the bonus?
Well with just the facts above it looks like the new product team wins hands down. But the outcomes as measured don’t tell the entire story. What are the implications of the outcomes and the potential ramifications long term? What process was used to make the decisions and what other outcomes could have resulted?
In analyzing the new product launch, it is found that “under budget” is a result of making fewer targeted advertising buys and running smaller ads. The long-term implications are that sales of the product are significantly less than expected and are a direct consequence of not getting the word out.
The manufacturing operation renovations were over budget because they included an “upgrade” of the fire suppression and detection system in the plant. It was learned during the project that the fire system hadn’t been replaced in over 30 years. How was it discovered? A small fire occurred on the main production line and the equipment didn’t work. If the local fire department hadn’t responded promptly the entire plant could have been substantially damaged, shut down for a long period of time or permanently. The decision to go “over budget” was an investment in the long term for the business.
Now who do you think performed better? Evaluating performance requires taking into consideration both the short-term realities and the long-term objectives of the organizations. One without the other results in suboptimal decision-making that holds the organization back.
The ability to balance the near, mid, and long-term perspectives and objectives is the measure of how competitive an organization is. The ability to achieve balance is rooted in the ability of the organization to define, communicate, and measure true performance where it matters, when it matters.
Lea A. Strickland, MBA CMA CFM CBM, is President/CEO of FOCUS Resources, a strategic business consulting firm, based in Cary. Strickland is nationally recognized as a consultant, speaker, columnist, and author on the strategic, operational, and financial issues of businesses of all sizes. Her experience in financial and operational leadership spans from Fortune 500 and Global 100 companies to early and growth stage technology companies. She is the author of “Out of the Cubicle and Into Business”, a guide for first-time entrepreneurs working on defining the business. She has over 200 published articles and has numerous appearances in national publications and media including Entrepreneur Magazine and Entrepreneur Magazine Radio. She can be reached at 919.234.3960 or email@example.com. Her website is www.focusresourcesinc.com
FOCUS Resources, specializes in early and growth stage companies (primarily in technology, bio-technology, and other emerging industries) advising on the start-up, strategic, financial, funding, and other areas related to commercialization and profitability. FOCUS Resources is also recognized as a leading advisor on the business issues and requirements associated with governmental funding (SBIR, STTR, and other sources).