FitzGerald Associateswww.ManagementConsultants.com

University of ChicagoGSB

Consultants Roundtable

Corporate Profitability

Performance Prediction

FitzGerald Associateswww.ManagementConsultants.com

Objective I

To Identify

The Root Causes

The Drivers of Performance

Objective II

To identify 3 Critical Functions which,

if improved by 20%,

will increase profits by 40%

Objective III

To identify 3 Generators that

positively effect the

Critical Functions

Objective IV

To identify 3 key factors

that BLOCK the Critical Functions

(Blockers)

Objective V

To learn how to quantify the

Drivers of Performance

Critical Functions

Generators

Blockers

Sells no Papers

Good News

The (20 year)

Decline and Fall of

Guernsey Dell

The Long GoodbyeA True Story

Meet

Tom Horne

Year Observables

1- 9 Internal Symptoms Only (Drivers)10 Delivery Problems (KPI)11 Customer Complaints (KPI)12 First Signs of Financial Trouble15 Mkt. Share Drops by 33%17 Bank Involvement20 Guernsey Dell Sold

Time Line

A Little Theory

The Phases and Measures of Corporate Decline

(More bad News)

From the Specific to the General……and Back

Phases Measures

I Hidden DriversII Subtle KPI’s + DriversIII Overt Financials + KPI’s + Drivers

Phases and Measures Summary

The Organizational and Human Factors that Underlie, Drive, and Impel Performance

The Root Causes of PerformanceThe Predictors of Performance

Drivers of Performance

Entirely controlled by management

They can be measured / quantified

They Can Be Changed

Drivers of Performance

Critical Functions ~ 6

Generators ~ 9

(Now for the bad news)

Blockers > 100

Drivers of PerformanceConsist of

Where the least change

exerts

the greatest result

Critical Functions(A Definition)

The Accelerator on a Car

The Brake on a Locomotive

Analogy

Function (Guernsey)

Performance Management(Virtually None)

Talent Management(Virtually None)

Cost Containment(Lip Service)

Three Critical Functions

Goal Setting

Rigorous Follow Up

Rewards Based on Performance

+ ?????

Performance Management

Purposeful Recruitment

Serious Management Development

Purposeful Turnover

+????

Talent Management

OK - You Know!

Cost Containment

A 20% improvement

In the three Critical Functions

Generates

A 40% improvement in the bottom line

LSE/McKinsey Study

Take-Away

Performance Management

Talent Management

Cost Containment

Three Critical Functions

All Companies Have These Functions

Their Effectiveness Is the Question

(Their Volatility Is the Issue)

Critical Functions

A POSITIVE function (ƒ) of Generators

A NEGATIVE function (ƒ) of the Blockers

Effectiveness of

Critical Functions

Corporate Decisiveness

Acknowledgement of Work

Accountability

Examples

Three Generators

Complacency

Need for Consensus

Distrust

Examples

Three Blockers

DriversBlockers GeneratorsCritical Functions

KPI’s

Financials

Linkage

Complacency(Blocker)

Acknowledgement of Work (Generator)

Poor Cost Containment (Critical Function)

Loss of Clients (KPI)

Reduced Revenues/Profits (Financial)

Linkage ExampleI

Distrust(Blocker)

Reduced Decisiveness (Generator)

Poor Performance Mgmt. (Critical Function)

Loss of Quality (KPI)

Reduced Profits (Financial)

Linkage ExampleII

A Single Number analogous to the Bottom Line

for the current state of the

Operating Dynamic

(As that is today – so goes tomorrow’s financials )

The Critical Functions Provide

A Single Number

for the Trajectory of Operating Dynamic

The Generators Provide

The Reasons WHY

And the HOW to correct them

The Blockers Provide

For All DriversPerception is Reality

Objective Reality (if any) is Unimportant

Reliability of Drivers

Use a questionnaire (Anonymity)

Get responses of management (by team)

From CEO to Supervisors (key staff too)

Measurement of Drivers

A Critical Function “Question”

We attract and retain the best peopleSr. Team:(5)

(4)

(3)                                

Neutral

(2)              

(1)      

4 2 1 2 1 2 2 1

A Generator “Question”

Our managers hold each other accountableSr. Team:(5)

(4)

(3)                                

Neutral

(2)              

(1)    

4 2 1 2 2 2 1 2

A Blocker “Question”

Our managers are reluctant to speak their minds

Sr. Team:

2 4 4 4 5 4 2 5

(5)    

(4)            

(3)                                

Neutral

(2)    

(1)

Results in Knowledge of: What to Fix,

What to AugmentWhat to Transform

And, Incidentally, a Profile of the Operating Dynamic of the Company

and Each of its Units (if surveyed)

Measurement of Drivers

Where Does the 40% Profit Improvement

Come From?

Q & A

Wrap Up

DriversBlockers Generators Critical Functions

KPI’s

Financials

Wrap Up I

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

Wrap Up II

Long before Disaster strikes. . . the signs appear:

First in the Drivers(The smart CEO/CFO knows to look)

Last in the Financials

Wrap Up III

Long before Success shows. . .the signs are there:

First in the Drivers(The smart investor knows to look)

Wrap Up IV

Year Observables

1- 9 Internal Symptoms Only (Drivers)10 Delivery Problems (KPI)11 Customer Complaints (KPI)12 First Signs of Financial Trouble15 Mkt. Share Drops by 33%17 Bank Involvement20 Guernsey Dell Sold

Time Line

The Cost of Full Restoration

Increases Exponentially

With the Depth of Decline

Wrap Up V

Measuring Drivers is quick

The cost is low

The ROI is GREAT

Wrap Up VI

An improvement of 20% in three Critical Functions

results in

a 40% increase in financial returns (LSE/McKinsey)

Wrap Up VII

You don’t have to be in trouble

to get your 40%

Wrap Up VIII

What would it mean. . .

If your company. . .

Increased profits by ONLY 20%?

QUESTION

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