“How can we do better?”
It’s a simple but fundamental business question. Ultimately, every organization’s survival depends on how well its leaders respond to that question. But the answer can be tricky.
Defining Our Terms
First, let’s look at what we mean when we say “doing better” in an organizational context. Are we talking about performance improvement? That term implies that we’re doing better, but it’s not clear enough. “Doing better” can apply to many aspects of business, for example:
- Accomplishing more with less (efficiency)
- Increasing revenue (growth)
- Reducing costs (profitability)
- Improving processes (quality)
- Challenging existing thinking (innovation)
- Outperforming others (competitive advantage).
Business leaders are responsible for improving performance across all of these metrics. Typically, they address issues in one or both of the following ways:
1) The “5 Whys”
This technique involves asking “why” after successive problem statements to uncover the root cause of a business issue. For example, imagine that product defects are on the rise. You start by asking, “Why are defects increasing?” In this case, new manufacturing processes were recently adopted. You ask “why” repeatedly until you reveal core issues — and then you invest proportionally to resolve each level. The “5 Whys” are particularly effective at revealing human drivers (such as inconsistent values or behaviors) beneath operational problems.
2) Financial Analysis
Like a moth to a flame, senior leaders favor this methodology because their compensation correlates with financial results. But relying only on financial analysis to improve business performance is biased, because financial results are lagging indicators. In other words, these metrics reflect the symptoms of performance gaps — not the actual cause. What’s more, financial fluctuations can spark impulsive reactions. Also, they rarely reveal a need to improve employee skills or knowledge — which is often the root cause of business performance issues. Bottom line: Financial results, alone, are inadequate, because leaders may myopically fix “around the edges,” instead of dealing with core issues.
Bringing It Together: A 2-Pronged Strategy
So, what’s the best way to improve employee performance, with an eye toward improving financial performance? It’s wise to leverage both of the tools we’ve described — quantitative financial analysis, followed by a qualitative “5 whys” assessment. When used together, they provide a more balanced and unbiased result. Here’s how to make it work:
1) Financial Literacy (Or Familiarity)
If you’re responsible for the learning function or managing a learning initiative, developing your financial vocabulary is essential. This builds credibility for you, as well as for the role of learning in your organization.
Financial concepts may seem intimidating — that’s understandable. People who are unfamiliar with financial analysis tend to avoid it. However, these are the tools leaders rely upon to understand business performance. If you want managerial support for workforce improvement, you’ll use financial analysis to isolate performance objectives and communicate with leaders in a common language.
You don’t need to be financially fluent, but it is important to familiarize yourself with reporting fundamentals — such as how to benchmark reported performance (financial statements) against expected results (budgets and forecasts). For example, if recent financial reports show that production expenses increased by 15% over budget, you can identify a production performance issue that may require a learning intervention.
It’s also useful to learn the differences between relevant capital investments and operational expenses. Business leaders typically view training programs as operational line expenses, while e-learning technology expenditures may be considered capital investments. Recognizing and interpreting these differences is essential to gain support for the learning function or learning initiatives.
Author Ajay Pangarkar explains why it’s vital to link business performance and learning in this hangout video with The eLearning Guild Events Program Director, David Kelly:
2) People Literacy
Although it’s natural for business leaders to equate performance measurement with financial results, qualitative factors must also be considered. After all, organizational performance depends on human expertise and effort — especially in knowledge and service industries.
Reconciling financial results with employee performance is challenging, even for the best organizations. And aligning individual performance with organizational expectations is even more difficult. However, performance management frameworks like the “balanced scorecard” approach make it easier to tackle these “people” challenges.
This kind of framework helps leaders put organizational dynamics into perspective, so they can mobilize the workforce around a common purpose, align employee effort, and reinforce effective behaviors. A balanced scorecard framework also benefits the corporate learning function, because qualitative factors can be linked directly to learning strategies that support relevant performance improvement needs.
Bringing Strategy to Life: A 3-Step Process
Recognizing what, who and how to improve is as important as the performance improvement process, itself. These three steps will help you develop a viable action plan:
Step 1: Focus First on Financial Results
Although this is counter-intuitive to the advice of many performance improvement specialists, be prepared to communicate performance improvement in financial terms. This empowers you to gain and retain the attention of business leaders, and clearly demonstrate effectiveness.
First, obtain relevant financial forecasts and reported statements for the appropriate department or business unit. Next, identify capital and operational expenditures tied to management’s specific performance expectations. Then compare, or benchmark, reported performance with forecasted expectations.
For example, a market-leading product company may focus on R&D, quality and marketing, with relevant capital equipment investment and related operational expenditures. Product returns have increased over several quarters, above the historical average. Concerned senior managers want to know why. They will expect performance improvement solutions that remedy issues and support the company’s product leadership objectives.
Step 2: Focus on Relevant Tasks and Responsibilities
All organizational expenditures correlate with specific tasks and responsibilities. Identify relevant spending targets for tasks that fit management’s focus, and align with the organization’s mission. This is where the “5 Whys” method plays a significant role.
Put on your consultant’s hat and conduct a vertical investigation. First, identify a financial discrepancy (as outlined in the “product returns” example in Step 1). Next, ask those who are responsible a clear, direct investigative question. For example, “Why are product returns increasing above our historical average?” If returns are defective ask, “Why is the product defective?” Continue drilling down with “why” questions until you reach the root cause.
Step 3: Focus on “People” Performance
Successful companies always leverage employee skills, knowledge and growth. And performance frameworks reflect this by integrating “people” elements — employees, customers and society. So, continuing with the case of the product defect, you should ask, “What aspect of the process is causing this defect issue?”
Too often, performance problems stem from a lack of employee involvement, awareness and/or training. Although these issues may not be easy to spot at first, once you begin to sense that a learning intervention may be required, this where your ability to conduct a needs assessment will help define the true cause. You will want to gather sufficient insights from a combination of drill-down conversations, documentation and observation.
Unfortunately, many leaders and consultants still focus on process, rather than people. They may prefer fixing and managing an impersonal “process,” rather than leading and improving people. But process, technology and structure are only part of the performance equation. Unless leaders focus on the human side of performance improvement, results cannot be optimized or sustained.
Bottom Line Benefits
Many learning professionals and performance improvement specialists still avoid financial analysis like the plague.
But ignoring financial outcomes isn’t the answer. Qualitative factors represent only part of the story — and leaders expect more.
A holistic “balanced scorecard” approach leverages your organization’s financial results to identify qualitative improvement opportunities with the most promising business impact. Ultimately, when applied on a continuous basis, this approach can help organizations that react only to poor performance transform into proactive cultures that foster ongoing improvement.
About The Authors: Thanks to our guest contributors, Ajay M. Pangarkar CTDP, CPA, CMA, and Teresa Kirkwood CTDP, founders of CentralKnowledge and LearningSource AMS. They are employee performance management experts, award-wining learning assessment development specialists, and three-time authors who most recently published The Trainer’s Balanced Scorecard: A Complete Resource for Linking Learning to Organizational Strategy. To read more of their insights on learning strategies for today’s business environment, follow their Workforce Revolution blog. Also, you can connect with Ajay on Twitter, on LinkedIn, or by email.
Photo credits: FreeImages