FitzGerald Associates www.ManagementConsultants.com

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FitzGerald Associateswww.ManagementConsultants.co
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• University of Chicago
• GSB
• Consultants Roundtable

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FitzGerald Associateswww.ManagementConsultants.co
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• Corporate Profitability
• Performance Prediction

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Objective I

• To Identify
• The Root Causes
• The Drivers of Performance

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Objective II

• To identify 3 Critical Functions which,
• if improved by 20,
• will increase profits by 40

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Objective III

• To identify 3 Generators that
• positively effect the
• Critical Functions

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Objective IV

• To identify 3 key factors
• that BLOCK the Critical Functions
• (Blockers)

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Objective V

• To learn how to quantify the
• Drivers of Performance
• Critical Functions
• Generators
• Blockers

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Good News

• Sells no Papers

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The Long Goodbye A True Story

• The
• (20 year)
• Decline and Fall of
• Guernsey Dell

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• Meet
• Tom Horne

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Time Line

• Year Observables
• 1- 9 Internal Symptoms Only (Drivers)
• 10 Delivery Problems (KPI)
• 11 Customer Complaints (KPI)
• 12 First Signs of Financial Trouble
• 15 Mkt. Share Drops by 33
• 17 Bank Involvement
• 20 Guernsey Dell Sold

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From the Specific to the General and Back

• A Little Theory
• The Phases and Measures of
• Corporate Decline
• (More bad News)

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Phases and Measures Summary

• Phases Measures
• I Hidden Drivers
• II Subtle KPIs Drivers
• III Overt Financials KPIs Drivers

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Drivers of Performance

• The Organizational and Human Factors that
  Underlie, Drive, and Impel Performance
• The Root Causes of Performance
• The Predictors of Performance

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Drivers of Performance

• Entirely controlled by management
• They can be measured / quantified
• They Can Be Changed

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• Drivers of Performance
• Consist of

• Critical Functions 6
• Generators 9
• (Now for the bad news)
• Blockers 100

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Critical Functions (A Definition)

• Where the least change
• exerts
• the greatest result

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Analogy

• The Accelerator on a Car
• The Brake on a Locomotive

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Three Critical Functions

• Function (Guernsey)
• Performance Management
• (Virtually None)
• Talent Management
• (Virtually None)
• Cost Containment
• (Lip Service)

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Performance Management

• Goal Setting
• Rigorous Follow Up
• Rewards Based on Performance
• ?????

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Talent Management

• Purposeful Recruitment
• Serious Management Development
• Purposeful Turnover
• ????

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Cost Containment

• OK - You Know!

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LSE/McKinsey Study Take-Away

• A 20 improvement
• In the three Critical Functions
• Generates
• A 40 improvement in the bottom line

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Three Critical Functions

• Performance Management
• Talent Management
• Cost Containment

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Critical Functions

• All Companies Have These Functions
• Their Effectiveness Is the Question
• (Their Volatility Is the Issue)

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Effectiveness of Critical Functions

• A POSITIVE function () of Generators
• A NEGATIVE function () of the Blockers

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Examples Three Generators

• Corporate Decisiveness
• Acknowledgement of Work
• Accountability

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Examples Three Blockers

• Complacency
• Need for Consensus
• Distrust

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Linkage

• Drivers
• Blockers
• Generators
• Critical Functions
• KPIs
• Financials

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Linkage Example I

• Complacency
• (Blocker)
• Acknowledgement of Work
• (Generator)
• Poor Cost Containment
• (Critical Function)
• Loss of Clients
• (KPI)
• Reduced Revenues/Profits
• (Financial)

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Linkage Example II

• Distrust
• (Blocker)
• Reduced Decisiveness
• (Generator)
• Poor Performance Mgmt.
• (Critical Function)
• Loss of Quality
• (KPI)
• Reduced Profits
• (Financial)

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The Critical Functions Provide

• A Single Number analogous to the Bottom Line
• for the current state of the
• Operating Dynamic
• (As that is today so goes tomorrows financials
  )

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The Generators Provide

• A Single Number
• for the Trajectory of Operating Dynamic

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The Blockers Provide

• The Reasons WHY
• And the HOW to correct them

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Reliability of Drivers

• For All Drivers
• Perception is Reality
• Objective Reality (if any)
• is Unimportant

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Measurement of Drivers

• Use a questionnaire (Anonymity)
• Get responses of management (by team)
• From CEO to Supervisors (key staff too)

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A Critical Function Question
We attract and retain the best people Sr. Team
4 2 1 2 1 2
2 1
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A Generator Question
Our managers hold each other accountable Sr. Team
4 2 1 2 2 2
1 2
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A Blocker Question
Our managers are reluctant to speak their
minds Sr. Team
2 4 4 4 5 4
2 5
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Measurement of Drivers

• Results in Knowledge of
• What to Fix,
• What to Augment
• What to Transform
• And, Incidentally,
• a Profile of the Operating Dynamic of the
  Company
• and Each of its Units (if surveyed)

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Q A

• Where Does the
• 40 Profit Improvement
• Come From?

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• Wrap Up

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Wrap Up I

• Drivers
• Blockers
• Generators
• Critical Functions
• KPIs
• Financials

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Wrap Up II

• By end of Phase I Decline (Hidden)
• Fully one third the competitive value is lost
• By End of Phase II Decline (Subtle)
• Two thirds the competitive value is lost
• Only in Phase III (Overt)
• Do the financials show a problem

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Wrap Up III

• Long before Disaster strikes. . .
• the signs appear
• First in the Drivers
• (The smart CEO/CFO knows to look)
• Last in the Financials

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Wrap Up IV

• Long before Success shows. . .
• the signs are there
• First in the Drivers
• (The smart investor knows to look)

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Time Line

• Year Observables
• 1- 9 Internal Symptoms Only (Drivers)
• 10 Delivery Problems (KPI)
• 11 Customer Complaints (KPI)
• 12 First Signs of Financial Trouble
• 15 Mkt. Share Drops by 33
• 17 Bank Involvement
• 20 Guernsey Dell Sold

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Wrap Up V

• The Cost of Full Restoration
• Increases Exponentially
• With the Depth of Decline

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Wrap Up VI

• Measuring Drivers is quick
• The cost is low
• The ROI is GREAT

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Wrap Up VII

• An improvement of 20 in three Critical Functions
• results in
• a 40 increase in financial returns
  (LSE/McKinsey)

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Wrap Up VIII

• You dont have to be in trouble
• to get your 40

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QUESTION

• What would it mean. . .
• If your company. . .
• Increased profits by ONLY 20?

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URLS

• www.ManagementConsultants.com
• Then click on
• Webinar Links
• FitzGerald Associates

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