Thursday, November 29, 2012

Four Ingredients in High Performance Organizations’ Secret Sauce

 High performers are more outward-looking and focused on the business dynamic.

In a recently released business report, Ernst & Young has identified four factors that drive Competitive success in today’s global economy: customer reach, operational agility, cost competitiveness and stakeholder confidence. The report also articulates the business new normal facing in business during the last couple of years.

<·      Market variation: The new economy is more varied than the old. Businesses are competing in a multi-speed world in which variation between countries and sectors has never been greater;

·     Volatility: Another enduring feature of today’s interconnected market is its volatility. Some are arguing that as the consumers of the rapid-growth markets play a bigger role in the global economy, cyclical volatility has inevitably increased.

·       Cost pressure: As consumers and governments rein back their expenditure, and as borrowing to buy becomes harder, there is undoubtedly a greater cost consciousness in the wider economy.

·       Uncertainty: In the past 12 months, any global board looking to manage strategic risk will have increased the weight it attaches to major strategic threats

Based on such business dynamic, the objective of the report is to find out what it is that high performers are doing differently and set out the lessons that other Businesses must learn if they are to emulate the success.

1. Customer reach

 High performers are more outward-looking and focused on the market. They seek the deep understanding of their customers’ demands and expectations and are increasing marketing spend to attain this insight.

  • They are getting closer to customers’ need, also looking beyond today’s solution. One of the major drivers of change continues to be the impact of technology. Digital technology now allows for both more focused communication and consequent customization than ever before. 
  • They prioritize innovation with focusing on incremental innovation of new products for current customers and current products for new markets.
  • They embed innovation into every aspect of their organization. High performers adopt the innovation 2.0 -a spiral approach to business model innovation, suggests a loosely structured, circular process that allows companies to connect with the various points of the spiral in different ways and at different times, ultimately reaching an innovative breakthrough.
  • By adopting innovation 2.0 approaches, the most innovative companies can:
    1. Take advantage of changes in the external environment
    2. Continually revamp their business models to achieve competitive advantage
    3. Innovate to obtain specific business outcomes, such as increased agility, or productivity. 
  • On speed: Being fast is more important than being first. Only one person can ever be first to do something and the record of commercial success for such pioneers is at best mixed. Speed, however, matters for everyone. The speed to market, the speed of change, the speed of operations. These are often the difference between success and failure.

2.  Operational agility

High performers respond smartly to change but, more importantly, respond speedily. High performers continue to accelerate while low performers are reaching the limits of their organizational capacity to respond. They adapt flexibly to fast-changing circumstances, by deploying technology, devolving decision-making and enhancing the skills of their workforce

  • On flexibility: Consistency remains a favorite mantra for management. Consistency facilitates efficiencies in operations and the ability to deliver a shared brand promise across service, sector, and national boundaries.
  • Taking advantage of technology: Increased use of technology is the most popular way that high performers seek to improve their flexibility. Almost half have taken this step, compared to 37% of low performers. 
  • Based on an earlier report: The DNA of CIO: In the evolution from providing tactical support for the business to becoming a strategic partner, CIOs need to align the priorities of IT to those of the business. CIOs also need to provide wise counsel, turning information into insights when the business is seeking to deploy new technology. At the highest level, CIOs are called upon to help develop the business further -from delivering transformation through to introducing business model innovation.

3. Cost competitiveness

 High performers understand what drives cost and what drives value.

  • They are externally focused on value-creation and opportunity. They place more emphasis on customer segmentation and market analysis. 
  • High performers can be more confident about increasing prices because they understand their customers. 
  • Finding the right balance: They know the difference between eliminating waste and simply cutting cost. Low costs do not automatically translate into high profits. The best-performing companies not only understand what drives cost but, more importantly, understand how that spending creates value.
  • On price: Profit starts with pricing. The market may “set” the market price, but it doesn’t determine how much value is created or captured by individual companies.
  • Maximizing efficiencies effectively, high performers take a more strategic view and focus more on efficiency than reducing headcount. High performers also place more emphasis on customer segmentation and market analysis, management attitudes clearly vary between the two groups. Low performers have been far more active in headcount reduction — 43% versus 26%

4. Stakeholder confidence

High performers engage more with stakeholders and unleash their talent, to inform, to explain and to engage: Business is not just about numbers. The way a company communicates its story to its stakeholders has become ever more important. High performers seek to make the value they create visible to their external stakeholders and have significantly increased both the scope and frequency of reporting. In addition, two areas of particular importance relate to sustainability and human capital. Both are complex areas where we might perhaps have expected to see a growing demand for meaningful information.

  • On external: Making the value visible. Companies today are operating under two opposing pressures. On the one hand, there is much greater scrutiny than ever before. Enhanced governance processes, strengthened regulatory regimes and increasingly demanding shareholders and stakeholders require higher levels of disclosure and compliance than in previous years. Yet, on the other hand, the world of business has never been more complex, as companies compete or collaborate as partners across ever-changing value chains to serve disparate and dynamic market segments. Success comes to those who can bring the value that they create to the attention of their stakeholders.
  • On internal: Unleashing your talents. The research since the start of the downturn has shown that one of the biggest drivers of differential performance relates to how companies develop and deploy talent. Some 42% of respondents identified talent management as the second most challenging function to manage globally.
    1. High performers are 60% more likely to identify talent as one of the critical factors for determining future competitiveness.
    2. High performers are 50% more likely to see access to talent as a reason to enter rapid-growth markets.
    3. High performers are 43% more likely to be achieving flexibility through devolving decision-making and 30% more likely to be seeking to improve their workforce skills as a result.
    4. Consequently, high performers are 16% more likely to have a concern about labor cost pressure. 
  • On leadership: The two most critical areas of difference concern the ability to lead effectively in an international business environment, where high performers gave a 10% higher weighting, and decisiveness. High-performing organizations are complex and challenging and consequently, call for greater skill in their leadership.
  • Our results, Supplemental research, and interviews show that companies understand where they need to be in terms of talent, but are struggling to get there. For example, they realize the importance of a global mindset but are unable to implement effective mobility or diversity strategies. And although they recognize the need to obtain the best talent, very few are investing adequately in this effort.
In conclusion: Fundamentally, what distinguishes high performers from others is the recognition that focus, innovation, cost and execution are no longer distinct choices for competitive advantage, but must all co-exist as critical elements when seeking the optimal balance of competitive success. That recognition is based on having a deeper understanding of the drivers of value in their specific markets, the imagination to think differently and the courage to translate those thoughts into action.

The message the report also conveys is that to fill the talent expectations gap, companies will need to change and flatten traditional organizational structures, allow for diversity of cultures and backgrounds, and adopt new and more inclusive leadership styles


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