Updates
CRISIS – STABILIZE – GROW
We have recently been working with two service organizations that for very different reasons were and are in crisis.
From the data we saw and discussions with owners and directors it was our understanding that serious issues existed concerning their performance to include –
- Poor operating results
- High debt
- Resulting cash flow issues
- Lack of understandable financials
- Multiple compensation methods not directly tied to company performance
- Employees lack of knowledge and focus on what drives corporate success
- Need of a concrete plan to focus and drive improvement
During our meetings with management we described our EquiShare system as going directly at these issues and summarized our approach in this way -
- Define the essence of performance...of profitability. Vince Lombardi once said that running, passing, blocking and tackling were the essence of winning a football game. Defining the four most critical factors in your business is critical. The definition must be clear, concise, powerful, and universally understood. We call this the EquiShare Formula.
- Measure - frequently, continually, everywhere, utilizing visual workplace techniques.
- Pursue - a focused, tactical, visible plan and effort to achieve gains. Deploying employee education, awareness, state of the art tools, methods, and team communications.
- Connect - every employee's pay to achievement, on a monthly basis, in a manner that is proven to favorably affect the behavior and performance of associates.
In the course of our financial assessment for these clients, we demonstrated the effect of arranging four key financial line items into specific ratios or relationships as a means to define, measure and pursue organizational performance. Our EquiShare Metrics had a correlation to operating profit exceeding 96%. Meaning that the interaction of four key financial metrics accounted for 96% of all changes in operating profit. This enabled us to use these Equishare Metrics as a centerpiece for their operating strategy…that is, to have employees know, focus, pursue and ultimately be rewarded for improvements in it; without getting everyone involved in the complexity of the entire P&L.
Although Vince Lombardi never read the Harvard or U.S. Marine Corp studies regarding how many objectives a human is capable of managing simultaneously (Harvard says four, the Marines say three). He was spot on when he identified four critical factors in winning a football game. Two are not enough, and six are too many. You need to define and measure your performance with no more then four key metrics. When properly applied, this will result in significant improvement in operating results.
You may be questioning whether there are four factors in your business that will account for 90% or more of your profitability. After having performed over 500 analyses of client companies, we can say with confidence the answer is YES! The key is not only which ones, but how they are arranged to interact with one another.
In summary, our approach is to:
- Proactively put key financial ratios on the front of the business
- Give them universal, real time visibility and focus via the EquiShare Scoreboard,
- Hold the organization accountable to drive towards them.
- Provide appropriate and timely rewards for meeting objectives.
Win or lose, succeed or fail – outcomes need to be known, understood, discussed and felt by all employees in a systematic, disciplined way. This is an operating strategy, not a compensation methodology.
These principles have been applied in over 500 businesses, with every issue, problem, challenge and opportunity known to man. Equishare incorporates fundamental leadership, human and business disciplines into a systematic approach that allows all associates to see, understand, affect and financially participate in the success of the enterprise. Borrowing a term from Yanklevich, we are encouraging and fostering “discretionary effort” in the pursuit of incremental gains, whereby everyone wins.
Applying these principles will allow the two organizations to move from their current crisis mode to a stabilization mode. In short they will focus the entire organization on four tactical objectives, enabling them to gain control of key outcomes and costs, thereby putting a firm foundation under the business. As they gain control, engage employees, and improve profits, they can begin to consider future opportunities. Their future will be much brighter with all employees pulling together for the collective success.
Please contact me if you would like addition information on our Equishare strategy for driving business performance.
Karl F. Muller, President