How can companies keep outperforming their peers and competitors time after time? What makes a company perform to the very best of its potential? And what is the right mix of short-term and long-term management? Joe Forehand takes a look at the characteristics that make – and keep – companies great
What makes a company perform above others? In an increasingly complex global business environment, traditional explanations are no longer adequate. To become a high-performance business today requires an entirely new perspective, uncommon flexibility and adaptability, and a new set of practical, solutions-oriented capabilities.
High performance is a continuous journey. It is about continually closing the gap between what a company is achieving and what it has the potential to achieve. It takes into account all influences – internal and external – and adjusts accordingly.
A high-performance business is extremely effective at managing paradoxes. It knows how to balance present and future agendas – it understands that managing for long-term growth is as essential as delivering short-term results.
It manages seemingly paradoxical values, like flexible workforces and employee loyalty, globally driven change imperatives and local empowerment, and it has a willingness to enter new markets and a highly disciplined approach to risk management.
There are many more such characteristics that drive high-performance businesses. We have embarked on a programme to understand the high-performance business in an industry-specific context. Our programme also seeks to lay the foundation of a discipline that a company can use to become a high-performance business.
New foundations The dramatically altered environment that makes high performance so crucial to business success today has been emerging for years. There has been a steady accumulation of a number of powerful, interconnected trends.
Our research identifies eight key trends that constitute a new watershed era for global business. This new era includes an environment of fluid market and industry boundaries, shifting regional risk and opportunity, rapidly changing formulas for economic value, and disparate economic shocks. The eight trends are:
- growing interconnectedness through global capital flows, global standards for technology and increased transnational trade – all braced and supported by international treaties and protocols;
- increased organizational scale and complexity, with wider asset deployment, ever more complex reporting structures, and increased tensions between control and flexibility;
- pervasive low-cost technology, creating the opportunity for a technology environment that is always on, always active and always aware – leading to productivity gains and competitiveness;
- resurgent geopolitics, manifested in anti-globalist actions, with significant impact on global business strategies;
- increased volatility from accelerated financial and technology cycles, as well as from unpredictable events such as terrorism;
- amplified scrutiny from financial markets, regulatory bodies and the public that magnify nearly every aspect of an enterprise’s financial and operating performance;
- new roles for knowledge and intangible assets coming from the new economy, where brand, intellectual property, reputation, loyalty and, perhaps most important, a commitment to innovation become key competitive weapons;
- changing nature of workforces, with new capability development, motivational and retention challenges for employers.
In this environment, the characteristics of high performance need to be redefined in the context of specific industries and particular periods of time if they are to be practical and helpful. There are, of course, characteristics – such as superior leadership – that are applicable across all industries. But they need to be modified and applied in both an industry and a buyer value-driven context.
The redefining of what constitutes high performance is crucial because over the next three to five years – although it varies by industry and geography – the environment will become even more demanding at all levels.
As we are moving from global economic recession to recovery in the developed world, we believe management talent, new organizational models, growth and innovation – coupled with precision execution – will further separate the leaders from the laggards.
This is in stark contrast to the safe and stable environment of the 1990s, when most players in an industry were lifted by good tides or were acquired, and to the past few years when companies were rewarded for cost management efforts and the strength of their balance sheets.
In the unpredictable environment ahead, business leaders will need to grow revenue and market share by managing more things more precisely with a narrower margin for error than ever before: each customer, each product, each price, each unit cost, hour-by-hour supply chains and the like.
Organizations that understand the environmental shifts and recalibrate their strategies to meet the challenges ahead will be the winners, outperforming their competitors and the marketplace. Detailed, precise, real-time knowledge will drive that understanding.
The characteristics of high performance
Our findings suggest that all high-performance businesses share certain features, notably a hierarchy of capabilities that reflect foresight rather than chance.
First, high-performing organizations have a certain insight and ability to determine the most important industry drivers of present and future value. High performers have an uncanny ability to sense and respond to major environmental shifts.
Second, high-performance businesses are masters of action, turning insight into action. They create adaptable and executable strategies that can weather uncertain environments. They have leadership teams that adapt to rapid change, and are flexible and fast learning.
We recently completed research in the area of high-performing workforces and found that leadership and management development issues were the top concerns for CEOs today.
Third, high-performance businesses understand which of their core competencies are crucial to driving value. They master these core competencies and compete on them, yet they also know when and how to achieve extended mastery by partnering in other areas. They are not obsessed with a made-here mentality. They outsource intelligently or seek alliances and partnerships. Industry by industry, companies and governments are looking at outsourcing as a strategic change weapon – one that provides performance and flexibility.
Fourth, high-performance businesses are obsessive about winning the battle for the customer. They know that connecting with customers unlocks real business value. They use customer insight to create highly satisfied, lifetime customers who in turn drive significant economic benefits.
Fifth, every high-performing business has something unique to it – a cultural bias toward winning, a genetic code that is difficult to replicate. We call this the “high-performance anatomy” (see box). Think of it as a predisposition to perform at the highest levels.
Finally, high-performance businesses understand that, depending on the circumstances, they must have the ability to be both tortoises and hares. This is particularly true in relation to their technology investments. High performers know how to harness technology to make appropriate investments with a focus on long-term success, not just short-term profit maximisation.
The role of technology
There is no question that the IT industry is at a critical point in its evolution. Thirty years ago it was largely craft- and skill-driven. Everything was customized for each client. Today it has reached a level of maturity that is ushering in an era of standardization and commoditization.
These forces have led to a huge increase in the use of global resources, common tools and replicable methodologies that have lowered costs significantly.
However, getting value from IT solutions is not a given. Buyers today are seeking outcomes tied to business results that help to drive real economic value.
In essence, technology is no longer about the box – it is about the output. IT partners are looking for outcomes. The good news is that academic and business researchers have found strong positive relationships between IT investments and operating efficiency, business performance, competitive advantage and growth in shareholder value.
But IT value is not created equally. There are clear winners and losers because companies vary greatly in their ability to drive business value from IT investments. High-performance businesses know we are in an age where IT matters more than ever and they consistently get up to 40% more value from their IT efforts than their competitors. This IT-value premium can separate the winners from the losers.
In an environment where businesses have a narrower margin for error, information – and how it is used to add value – is critical. The I in IT remains a challenge for many companies and few business executives would say they have all the right information at the right time.
High-performance businesses also know they must have a “today” focus on cost-effective, secure delivery of IT, as well as a “tomorrow” focus on using innovation for future success.
Over the past few years, many companies focused on cost reduction, and on simplifying and rationalizing IT. While this will be an ongoing process, we have also found that the highest performers use innovation to seize competitive advantage. They look for the next increment of productivity.
The good news, for the businesses most able to adapt, is that we are at the foot of the next wave of change and innovation in technology. It is being driven by a convergence of web services, RFID (radio frequency identification), mobility and insight technologies. In this next era, technology will be embedded in everything we do.
High-performing businesses will grow revenue by embedding technology into their services and products. They know that the value of IT resides more in applying technology to improve business productivity than it does in the technology itself.
Finally, with regard to technology, high-performance businesses live by a unique, information-based, balanced scorecard – a benchmarking technique that encourages and drives high performance and is taken seriously at all levels of the company.
The challenge ahead
The highest performers in any industry consistently outperform their peers and the marketplace over time. They manage their organizations efficiently and effectively today, while still investing in and planning for future growth.