Building a Great Corporation
Organizations can achieve value for their businesses by incorporating the concept of health and performance in their organizational structure.
- Jul 15, 2019
- 11 min read
In the current corporate environment managing immediate targets with continuing goals is a trying task for executives, but it is an essential one.
There is an increasing trend in the organizations to build on a new concept of “performance and health”. The notion is inspired from the human anatomy. In the apparent sense, people appear to be healthy and fit but does not possess any bankable strength for hardships of a dynamic life. Similarly, organizations can be lucrative for first few years but may not be able to maintain the same effectiveness in the long haul.
Companies aiming to incorporate the concept of performance and health in the fabric of their performance need to achieve time enduring accomplishments and successes. However, to obtain results decades after decades is a herculean task in the business industry. In the current conditions dominating the corporate world, factors such as blustering economy, fluctuating stock market, etc. has made it difficult for managers to concentrate on long term goals. Their motivation is simple -immediate survival. The statistics depicts that a significant number of major liquidation and bankruptcies of companies have occurred in the recent years. The trend highlights the innate perils existing and limiting continual business development.
The principle causation of such tendency according to most organization is the growing emphasis by the financial sector on the quarterly profits. They assert that minimal recognition is awarded to the long-term development and framework, especially in case of instant loss of profits. The pragmatic indication mostly nullifies such criticism but there is an existence of few such financial analysts that concentrate on temporary monetary gains and create a rift between stockholders and management. It is crucial for the managerial executive to actively play their role in demonstrating to the financial sector and the board of directors their intent of cultivating long-term value of the businesses. In addition to enhancing the companies’ short-term performance, it is imperative that they do the groundwork for steady and robust growth for decades
Unbalanced Short-Term and Long-Term Goals
Companies’ management teams and executive heads have had access to various means and methods to achieve a holistic framework and encourage “systems thinking” within their performance. This has been the case for a while. However, deeper analysis of organizational performance demonstrates two scenarios. When this approach is used, its employment is reflexive, hence unproductive or it is overshadowed by the need to survive and financial expectations. In addition, the recent protocols established for financial reporting has augmented the pressure of delivering short-term results.
It is an undeniable fact that immediate profits are essential. Companies can only develop assurances in their capabilities to deliver long term value when they can deliver short term goals. But it is imperative for companies to be able to materialize their current progress, projections, abilities, associations and resources into future profits.
In the recent years, one of the largest financial service organization experienced the pitfall of losing focus on performance and health mantra. The organization delivered outstanding financial gains in the first few years of operation but disappointingly the performance was coupled with poor customer service, reduced share price and a significantly large surge in employee revenue. However, according to the company executives their accomplishments are not comprehended by the financial sector. But the financial market did grasp the reality, that the immediate goals were achieved at the cost of company’s long-term value.
This type of short-range attitude is common in the corporate world. According to a recent poll conducted, executives admitted to their willingness to decline a decent investment opportunity with reasonable turnover if it corresponded to a compromise on their quarterly income projections. In fact, over eighty percent survey respondents acknowledged that it is acceptable to reduce R&D cost and marketing expense rather than to lose their shorter-term income goals. And they said so realizing that such compromises can lead to reduced future value of the company.
The results of the poll highlight the fact that companies may be considering the long-term value and health, but their approach is superficial. For example, organizations use a scorecard method to jungle their immediate and continuing goals. This approach comprised of obscure and confusing data and hence does not produce effective results. In recent years, many executives have revealed to be stunned to discover that their managers were focusing on quarterly financial outcomes and knowingly disregarding the vital performance indicators for long-term value and performance.
Long-term strategies are rendered ineffective due to manager’s predisposition to merely focusing on their department’s performance rather than contributing in developing an action plan for the entire company. In such silo-structured organizations, executives avoid involvement in other departments and even actively barricade change. In fairness, such approach is not intentionally malicious. It is simply influenced by a concrete idea about the responsibilities and limitations of a manager’s job description. It is believed that an organization is a collective of numerous distinctive and independent units and hence, should be evaluated as such. This approach prevents a total grasp of the way activities should be consistently managed across the organization, which in turn hinders growth and health.
A New Concept of Organizational Health
Due to the staggering failure experienced by companies concerning health and value, a positive change is on the horizon. Corporate world is becoming increasingly cognizant about long-term health. An extensive survey conducted recently showed that majority of directors now aim to shift their concentration from quarterly outcomes to developing policies, evaluating risks, investing in new leadership and assessing factors that can influence corporate health. An increasingly large number of companies want more data such as detailed market trends, in-depth breakdown of all stakeholder’s expectations and types of organizational problems. At least forty percent of the directors want stronger and broader associations with regulatory bodies, media and general public. More important, most of them want to enable their organization to capitalize on opportunities for long term health and performance and eliminate resistant to warranted change, whether internal or external.
Measure of Organizational Health
There are five important factors in developing corporate health and performance. If companies can incorporate these aspects in their operations, they can achieve and maintain long term health and performance.
It is essential that an organization’s policy and strategy should be time frames sensitive. And this should be evident in their portfolio of plans and initiatives. A large organization does have multiple units and department and they are bound to have different and unique strategies, but it is important that at least few are able to evolve with time and take advantage of investment prospects. A successful portfolio should include plans that cater to the short-term goals and initiatives that can deliver future possibilities in terms of new target markets, products, technologies, etc. The main concern is devising and executing initiatives capable of managing short-term performance and long-term health on a risk adjusted basis.
Companies can evaluate and access their performance and health by utilizing a vigorous range of performance metrics. Metrics should be such that they can be practically controlled in numbers and achieve an equilibrium between distinct business units. Moreover, they should reflect the vision and mission of the company. Unmanageable number of metrices can be detrimental.
Depending on the type of industry and vision, an organization should recognize the key performance indicators and metrics. One company can value product research and development the most while other can be more focused on client relations and satisfaction. In addition, there are some common metrics monitored by most organizations including but not limited to financial indicators, operational metrics (such as quality), organizational metrics (such as employee development), external relationships (such as regulatory bodies, government), etc.
It is a problematic task to methodically detect and monitor health indictors and metrics that clearly exhibit company’s strategy and is influenced by its value. A practical solution is to consider short, medium- and long-term value.
Near-term metrices reflects the company’s ability to produce immediate outcomes, which in turn shows the probability of success over next couple of years. For instance, a company manufacturing consumer product should identify if profits are correlated to increase in prices or should they adopt a marketing strategy to augment its stocks.
Medium term metrics are intended to show an organization’s chances to sustain and enhance its growth and investment returns in five to ten years period (can be longer depending on type of industry and product life). For example, for a retail website, customer service and brand recognition are the most vital metrics of health and value.
Companies’ longer-term metrics should be able to evaluate and maintain their current profits and recognize and capitalize on new investment and growth opportunities. Additionally, they should be capable of identifying and tackling new risks such as modern tech, changing market predilections, innovative customer service practices, etc. These metrics should also track the portfolio of initiatives launches and their respective progress to ensure adequate prospects for growth and development which adds value to the maturing businesses.
In addition to aforementioned factors, it is undeniable that companies achieve success or failures due to the people working in it. Therefore, it is important to develop metrics that can measure the company’s ability to keep its employees and nurture talent for future leadership.
An effective framework of metrics is achieved by continuous adjustment and refinement. Ideally, top management tier should limit their assessment to five metrics for various business areas and time periods. Financial and performance teams should ensure the suitability of these metrics by periodic reassessment for future value.
The way organizations interact and communicate with the principle stakeholders is another important factor, especially the personnel and financial market. It is high time that such communications also experience an evolution. In terms of financial markets, the companies need to recognize the suitable investors for a specific action plan before approaching. Moreover, it shall be beneficial for management to communicate with financial analysts familiar with their organization to gain insight into the industry and highlight workable benefits achievable by their strategies. Discussion on business value not associated with any time period or operation essentials is futile.
In recent years, few companies have disconnected the evaluation of near-term financial outcomes from strategy development. It is an effective change which should be adopted by most businesses. It is also advisable for operational heads and analysts to communicate as efficiency of operations is a key aspect in an organizations capability to maintain its growth and performance.
Strong and two-way dialogue with the personnel is also as crucial. If the employees are unaware of what is happening with the organization, it is indicative that upper management are not communicating intent rather only the outcomes.
Organizational leadership have responsibility towards company’s health and its performance, and they must remain mindful of the fact. Health of a company demands a wide array of capabilities, sometimes innovative ones. Success often depends on the inclination of the current leadership to include and nurture future talent.
Personal attitudes, in terms of leadership, is also essential to any organization’s health. Leaders should focus on totality of the organization rather than just their own departments. Health of any company warrants a broader perception and closer association of business units. It can be achieved by providing senior management with wide array of responsibilities. Another approach is to create a peer environment amongst the managers and providing them with collective roles. Organizations should keep in view the long terms goals when handling new talent and leadership and keep close monitoring of motivation fashioned by financial gains, acknowledgment and career advancement. Long-term policies and plans for advancement to managerial positions can
Good governance is yet another critical factor in an organization’s health and directors can play a key role in achieving it. Board meetings can be an effective tool is determining a company’s ability to withstand pressure and accommodate change over extended periods. Surveys have demonstrated director’s intent to attend to such approach. When dealing with long-term investment opportunities, the need for good governance becomes paramount. There is a deficiency of quick reviews in these situations, hence directors need to maintain a vigilant monitoring of factors such as organizational capacities, market trends and supplier relationships, etc.
In the recent economic reality, the need to concentrate on near-term results make sense but does not help in achieving health and performance for different time frames. It is important for organizations to balance the immediate profit projections with maintainable profit turnover for decades to come. It can be achieved by introducing innovation in policy making, interaction and management. Suitable and cleverly devised metrics are need for the entire organizational operations. Value should be created in goals irrespective of time frame so that directors and leaders can assess their aptitude in maintaining health and performance.