Business
The Best Way to Measure Company Performance
OK, I stole the title. John Hagel III, John Seely Brown, and Lang Davison posted on this very topic on the Harvard Business Review today. And then they spent the entire time dissing return on equity and touting return on assets in its place.
Hello? I understand the whole “business-exists-to-make-a-profit-and-nothing-else-really-matters” position, but are ROA or ROE really the best ways to measure company performance? I thought the balanced scorecard came along because our obsession with financial performance wasn’t working. Apparently, a lot of folks can’t stop obsessing.
Case in point: HuffPost Business. If you visited its home page today you would find articles on Goldman Sachs, predatory lending, Hank Paulson, the Treasury Department, AIG’s bonus cutbacks, robber barons, financial crisis, financial innovation, bank bailouts, Federal Reserve, credit card blacklists, financial reform, economic oracles, Citigroup, China, more on the Federal Reserve, home sales, jobs bill, dollar vs. euro, Greece bailout, still more Federal Reserve, etc. About the only articles on the home page that weren’t about money were about health care and fast cars.
It shouldn’t be HuffPost Business; it should be HuffPost Finance. And they’re far from alone. Pick any random site that purports to tell you what’s happening in the business world and you’ll find that 90% of their articles revolve around finance. The same is true for most business magazines.
This is how the Baldrige Criteria, which define performance excellence, measures company…
5Mar2010 | Steve George | 0 comments | ContinuedThe Real Heroes
Toyota’s front-page fall-from-grace has rivaled that of Tiger Woods, a business world parallel to the sporting world’s latest scandal. No wonder. Our business publications, from BusinessWeek to Fortune to Fast Company to the Wall Street Journal, weave their stories around the companies and executives who have risen to the top today. It is a cult of personality, no different than the teams and stars in the athletic world or the TV shows and actors in the entertainment world. We read about a company’s breakthrough performance or an executive’s startling turnaround and we place them on a pedestal and feel betrayed when they fall off.
They always do, of course. No company or leader can sustain performance excellence indefinitely. There are Baldrige Award winners that have failed after they received the Award, but so what? The Baldrige Award doesn’t guarantee unending success. It simply recognizes that, in the year it was received, that organization was one of the best-run organizations in the country. Next year, who knows? It’s like winning the Super Bowl one year (not that I’d know what that’s like, living in Minnesota) and expecting to win it next year and the year after, ad infinitum.
We’re focusing on the wrong thing. Baldrige Award winners have a lot to teach us about designing, managing, and improving effective processes in all areas of a management system. They have the results that show how well those…
24Feb2010 | Steve George | 2 comments | ContinuedThe Top Innovative Companies
Fast Company has named The World’s Most Innovative Companies 2010. The top 50 companies were not selected by scientific process but rather by a committee that heard arguments for and against each candidate. As the editor states, “we amass and assess information on thousands of businesses, looking for creative models, far-sighted risk taking, and paradigm-busting execution.”
The top 20 most innovative companies are: (1) Facebook; (2) Amazon; (3) Apple; (4) Google; (5) Huawei–a Chinese telecom equipment provider; (6) First Solar; (7) PG&E; (8) Novartis; (9) Walmart; (10) HP; (11) Hulu; (12) Netflix; (13) Nike; (14) Intel; (15) Spotify–a European music-streaming site; (16) BYD–a Chinese car-and-battery maker; (17) Cisco Systems; (18) IBM; (19) GE; and (20) Disney.
That’s quite a variety of companies, from the “old guard”—Intel, IBM, GE, and Disney—to the “tech titans”—Amazon, Apple, and Google—to “green” companies First Solar and BYD.
Fast Company also identified the ten most innovative companies by industry, including consumer products, retail, technology, the Web, and consumer electronics.
It’s interesting to note that two-thirds of the 50 were not on last year’s list. As the chairman of HTC, ranked second in consumer electronics, said, “What you have learned is never enough.”
To read more about innovation, click on these articles:
- 3 Systematic Innovation Processes
- Making Innovation Part of Your Culture
- Innovation in the U.S.: The Bigger Picture
- Management System Innovation
- Innovation and Quality
How Can You Stay on Top?
For years, if you wanted the highest quality car, you bought a Toyota. Ford, General Motors, and Chrysler floundered. Toyota’s reputation grew. The Toyota Production System was the poster child for Lean, for eliminating waste and shortening cycle times while improving quality in the process.
And then its goal changed from being first in quality to being first in global sales. A culture built on slow-and-steady, where teams were given months to find solutions and leaders spent years developing their capabilities, gave way to quicker product launches, faster plant openings, and rapidly expanding supplier networks. Customer started to grumble. Flaws appeared. Recalls tarnished a reputation that seemed indestructible.
The Baldrige Criteria ask how you create a sustainable organization. That’s not the same question as how you sustain a great organization, and based on results, you can’t, at least not indefinitely. Companies rise and fall. Some reach the top and dominate the landscape for years, even decades, but they, too, eventually lose the lead.
Why is that inevitable? The Baldrige model can help your organization achieve performance excellence and it can help you sustain it, but for how long? New owners and chief executives enforce new agendas, hungry competitors draw away customers, and markets, economies, and industries change.
So how can you stay on top? Or is it impossible?
17Feb2010 | Steve George | 0 comments | ContinuedEngaging Customers in a Digital Age
In a recent survey of businesses in the UK, mainland Europe, and the U.S., 62% of respondents agreed that differentiating their value proposition by customer service rather than by product was essential or very important (click here for the article). In fact, as customers, 74% said they were likely or very likely to buy more from a company as a result of service excellence that goes beyond expectations.
The Baldrige Criteria ask how you engage customers to serve their needs and build relationships. Engaged customers are loyal, do more business with you, and recommend your products and services to others, which is why more and more companies are taking steps to develop “very satisfied”—as opposed to merely “satisfied”—customers.
One obstacle to engaging customers, according to Pegasystems, which commissioned the survey, is the constraints imposed by legacy Customer Relationship Management (CRM) platforms. Only 43% of respondents can provide a consistent customer experience across all delivery channels. Part of the problem can be traced to the digital divide: legacy CRM systems don’t have the flexibility to adapt to differing requirements and can’t deliver a high-quality customer response to all customers.
I’m reminded of a story Michael Dell tells in Behind the Cloud by Marc Benioff and Carlye Adler. Benioff had told Dell about an internal networking technology they were using at salesforce.com to create a feedback loop with their customers. Dell adapted the technology to create IdeaStorm,…
15Feb2010 | Steve George | 0 comments | ContinuedThe Most and Least Ethical Companies
According to Covalence, a Swiss research firm, Monsanto is the least ethical multinational corporation in the world. Covalence used quantitative and qualitative data to evaluate 581 companies over a seven-year period. Criteria included labor standards, waste management, and human rights records.
The top-ranked companies were IBM, Intel, and HSBC. Rounding out the top ten were Marks & Spencer, Unilever, Xerox, General Electric, Cisco Systems, Dell, and Procter & Gamble.
The worst were:
- Monsanto Co. This is the same corporation that Forbes named America’s Best Company in December. Apparently, ethics wasn’t part of the equation.
- Halliburton Company. Dick Cheney’s legacy lives on in both the business and political worlds.
- Chevron Corp.
- Freeport-McMoRan Copper & Gold Inc.
- Philip Morris International Inc.
- Occidental Petroleum Corporation
- Ryanair Holdings plc
- Syngenta AG
- Grupo Mexico SA de CV
- Total SA
The companies on this list may survive in the short term because of their economic success, but sustaining that success is another matter. As Adam Werbach, former Sierra Club president, wrote, true sustainability has four equal parts: economic, social, environmental, and cultural (click here). It’s hard to imagine any corporation standing for long on one of those legs, no matter how strong it is.
To read more about corporate social responsibility, click on these articles:
- Corporate Social Responsibility
- Purpose-Inspired Growth
- New Guidelines for Social Responsibility
- Supporting Your Communities
- New Study of Corporate Citizenship
Harvard Business Review’s Most Influential Management Ideas of the Decade
Everybody has a Top 10 list and HBR is no different. Well, they’re a little different: Their editors came up with the Top 12 most influential management ideas since 2000 (“The Decade in Management Ideas,” Julia Kirby, January 1, 2010):
1. Shareholder Value as a Strategy. And not a good one. Even the guy who popularized it concurs. “Shareholder value is a result, not a strategy,” said Jack Welch. “Your main constituencies are your employees, your customers, and your products.”
2. IT as a Utility. Cloud computing is the latest step toward buying computing capabilities as services.
3. The Customer Chorus. Technical and social developments have given customers a stronger and more pervasive voice—and companies are finding ways to listen.
4. Enterprise Risk Management. Chief risk officers hold the new umbrella over pockets of risk that had been scattered, and addressed separately, throughout the organization.
5. The Creative Organization. The ability to produce creative output was seen as a competitive advantage to encourage through collaboration and diverse perspectives.
6. Open Source. Wikipedia, which represents the power of open source, was born in 2001.
7. Going Private. According to the article, “As the decade wore on, private equity’s playbook for turning around businesses was increasingly held up as best-practice management,” especially in the areas of strategic focus and governance.
8. Behavioral Economics. Rational thought alone does not explain human decision-making. Yup, that’s the 2000’s in a nutshell.
9. High Potentials. Some managers…
4Jan2010 | Steve George | 1 comment | Continued
