Becoming a High Performance Company

How should we define business success?  Well, according to researchers from Accenture as described in Going the Distance: How the World’s Best Companies Achieve High Performance, the answer is not simply their reputation and stature among influential business executives.  Instead, they argue that business success must be defined both qualitatively and quantitatively.  And, just what measures of performance should be used?  They suggest looking at the following five key dimensions over a seven-year period, all of which must be compared against a carefully set of competitors:

  • Growth, as measured by expansion of revenues over the measurement period;
  • Profitability, as measured by the different between the company’s return on capital and its cost of capital;
  • Positioning for the future, as represented by what the researchers refer to as “future value”–the portion of the company’s share price that cannot be explained by its current earnings–and by the portion of the industry total that each company’s future value represents;
  • Longevity, as measured by the duration of out-performance in total return to shareholders; and
  • Consistency, as measured by the number of years during the measurement period that the company exceeded the median level of profitability, growth and positioning for the future within its group of competitors.

The researchers acknowledged that the relative importance of the five high performance measures might vary from industry-to-industry and that care should be taken before attempting to make comparisons between firms that are not part of the same peer group of competitors.  Nonetheless, they felt it was also possible to identify the following three drivers of performance, or “competitive essence,” that applied across industry boundaries:

  • Market focus and position, which means knowing “where and how to compete” and successfully scaling the business by adroitly exiting mature markets and consistently identifying new markets and entering them on a timely basis;
  • Distinctive capabilities, which includes the unique set of business processes and resources that cost-effectively serve the specific needs of customers (referred to by the researchers as “differentiation on the outside and simplification on the inside”); and
  • Performance anatomy, which begins with a set of stable values developed by the leaders of the company and continues with the constant use and communication of those values to create a shared mindset within the company regarding critical organizational elements such as the balance between strategy and execution; the cultivation of talent; the strategic importance of information technology; the need to measure performance selectively; and the drive for continuous innovation and renewal.

Also interesting was the observation that an apparent condition for aspiring to become a high-performance business (although not a guarantee that the level of performance will actually be achieved) is world-class excellence across the whole range of key functional areas and cross-functional activities (e.g., Supply Chain Management; Human Performance; Customer Relationship Management; Finance & Performance Management; Strategy; and Information Technology).

Food for Thought . . .

As with much of the research in this area, Accenture focused on large companies and thus the applicability of the conclusions to emerging companies is not completely clear but for the fact that emerging companies, almost by definition, aspire to become world leaders at some point in the future.  Four concepts do, however, strike me as interesting for founders and senior executives of emerging companies . . . creating “future value,” mastering market focus and position; identifying and cultivating one or more distinctive capabilities; and laying the foundation for a strong performance anatomy.  By appreciating the ultimate importance of these activities at an early stage, the leaders of an emerging company can consciously invest their time and company resources in pursuit of the goals that will pay the largest dividends in the future.  This means, for example, establishing a solid infrastructure for evaluating market trends and customer needs and fostering a culture that encourages personal development and growth and innovation.

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