A Formula for Better Business Execution - II

Winning is about being different and better than your competition.

However, there is increasingly less that differentiates companies. Decades of efficiency improvements across entire industries have driven productivity gains that have had the effect of levelling out competitive differentiators. It's simply the evolution of industry. Supply chain, manufacturing, distribution, enterprise resource planning systems - what's left to improve?

That leads us to human capital. How you align, arm and motivate your employees arguably matters more than anything else you can do. The economy, like the weather, is impossible for an individual to change. You simply have to adapt. However, putting the right people in the right positions and "gaining visibility" that enables tracking and management of performance are things you definitely can and should do something about.

Lever No 2: People performance - making the most of what you've got

In 1997, McKinsey & Company published a now-famous study entitled "The war for talent". This phrase has reverberated throughout the business world ever since. Having great managerial talent has always been important, but now it is critical. In today's competitive knowledge-based world, the calibre of a company's talent increasingly determines success in the marketplace. At the same time, attracting and retaining great talent is becoming more difficult, as demand for highly skilled people outstrips supply. In Thailand, this "war for talent" will become even more challenging as we approach 2015 and the implementation of the Asean Economic Community's free movement of skilled labour provisions.

However, in this "war for talent", smart leaders must pick the right battles. Not every employee is equally important in driving your business. Different jobs contribute differently to both top and bottom line, and the performance of individuals differentially contributes even more. Few companies have a good understanding of this. Often, it isn't even clear to them what people are working on, how well they are doing, or when they will be done.

These are pretty basic questions, but tremendously important and often hard to answer. The art of management and the science of metrics are really about making what is relevant measurable and hence manageable, not vice versa.

McKinsey's study concluded that there is an approximate 1.5x to 3x performance differential between high and low performers. Others such as Peter Cappelli (from Wharton Business School) have estimated that in some cases the contribution difference is more on the order of 5x between strong and weak performers in any given role.

Big improvement opportunities can be achieved

The Berggren study found repeatedly that having strong talent in key positions creates huge improvements in performance. For instance, in a manufacturing company, best plant managers grew profits 130 per cent while the lowest-performing managers achieved no improvement. In an industrial services company, the best centre-managers grew profits 80 per cent while the lowest performers achieved no improvement. And our study of portfolio managers in a financial services institution showed that top performers grew revenues by nearly 50 per cent while average performers' portfolios remained flat.

Every company has a distribution curve of their individuals' performance levels, but it's a question of how well you can see it and how accurately the picture describes the reality. If you want to improve performance, few things are more effective than getting a firm grip on the variance. If companies can increase the number of high performers, reduce the number of low performers, move the bell curve to the right, they can realise huge gains in productivity.

What you can do - invest to drive alignment and people performance

Many companies have extensive tools and measures to analyse and track their business results, but very few have systems and business processes that provide detailed insight into understanding and influencing how employees drive these results. Few leaders can truly say "I have tools that tell me what everyone is working on and how well they are performing." This lack of insight into people performance is amazing considering that people are the company's largest cost and have the greatest influence on company performance.

Companies that reduce the gap between strategy and execution even by a small percentage goes right to the bottom line turning shareholders into satisfied investors and executives into winners. Critical investments these companies are making include:

_ They invest in their ability to execute through effective management of their human capital. No matter what their starting point, they can always drive bottom line improvement. Even incremental improvements will have real financial impact as the result of increased productivity and competitiveness.

_ They invest in process and technology that provides visibility and alignment of strategy and talent, such as business execution software that provides a comprehensive, global picture of their people, their performance, and their alignment and progress, in real time, to executing strategy

_ They invest in systems that provide consistent, trustworthy data on the quality, actions and level of talent engagement of their people. Not only does the data provide competitive value today, but it acts somewhat as a crystal ball into the future. Anticipating where you have performance gaps and a lack of alignment gives you an opportunity to address those issues before they are implicitly shown in weaker than necessary results; leading indicators as to where you might lose your best people if you don't manage it.

The collective skills, experience, and efforts of your people are what transform your strategy from words to numbers. Your human capital produces output in order to create financial capital. You hire people to create value for your customers that you can capitalise on. That is the simple logic of any business. This is why investments in your human capital are so critical - you're investing in your company's ability to execute

This ends a two-part series on "A Formula for Better Business Execution". John DiDominic is executive director of Client Solutions at the APMGroup. Write to him at john_d@apm.co.th