When we think about performance in business, our minds typically turn to profit. Profit is the catch-all indicator of business performance. But it’s a poor indicator and actually doesn’t help us grow our business nor its profit.
Active Knowledge Question:
If you had to select one indicator for business performance, what would that be?
Looking At Profit Doesn’t Give You More Profit
I’m not sure why profit seems to be the go-to measure of performance. It is often the first, and sometimes the only, indicator considered by boards and management when discussing how the business is performing.
Hopefully, it’s just not greed or self-interest. And even it was, profit is an outcome and lag indicator, and a poor indicator of likely future success. When it comes to performance, profit tells you very little as to how well the business performed, and why.
Of course, profit is critical to the future viability of any business but looking at it won’t allow you to grow it.
We have our balanced scorecards that come in many shapes and sizes which seek to step outside profit and look at the broader dynamics in a business. But even our balanced scorecards are trying to provide an insight into why we earned the profit we made.
The focus on profit, its dissection and the manipulation of its various components through cost reduction programs and alike, forecasting, modelling, data analysis – none of this activity gets to the heart of business performance.
The Big ‘P’ In Business
When we turn our minds to performance, ‘profit’ is what I refer to as the small ‘p’ and the big ‘P’ is what l describe as ‘presence’. And yes, the big ‘P’ is far more important as it produces the profit.
The competitive strength of your business is the sum of the talent and effort of all the people who work within and with your business. Are they really ‘present’ and working for the success of your business or are they by-standers, not engaged, not motivated and contributing only what they must?
Their presence is the Achilles of performance in your business. Their presence is reflected in their participation and contribution to the business.
If you connect with your team well and build trust and engagement, then performance, and profit will follow. But if you fail to establish this relationship, then performance will always be elusive.
Within your business, within every business, there is a competitive engine that sets the floor and ceiling to the performance, the success, of your business. It is operating 24/7-365 whether you are aware of its existence or not. This competitive engine determines the extent of the presence of everyone who works within and with your business. Your performance goal should always be to lift the ceiling to your success and narrow the gap to its floor.
If you are focused on presence, if you are focused on your competitive engine, then you are focused on the performance of your business, which will result in optimising all outcomes, including profit.
I believe performance should be viewed as enduring and compounding, so each year, the results are stronger and healthier. And you must always be focused on the catalysts of performance by asking, what is it that enables me to do this? And you keep peeling the onion back, digging deeper to ensure you are seeking to influence the catalysts of performance and not the outcomes.
Your Competitive Engine
Here is a snapshot of the competitive engine that exists in your business. The engine consists of three interdependent segments – core, focus and fuel – which comprise ten elements. When considering each of the elements, it is essential that you not just recognise their names but that you understand their true character, impact, and how to influence them.
I think of the core as like your core physical strength. If this is strong, then all else builds around it. Your focus is your attention to the value you deliver against your customers’ needs. And the fuel is the effectiveness of the energy you are able to generate in your business.
- It all starts with the founding purpose, a purpose which may be considered ‘righteous’, one which seeds the right motive, and is unifying, in your business.
- Only worthy leaders, as defined by their personal character traits, can bring the harmony into your business that will set the optimal scene.
- Where the relationships, with those who work within and with the business, are founded in trust and lead to engagement.
- Allowing a vision to be created for the business that is its quest. A quest that all will join in.
- Underpinned by a culture that enables everyone to contribute at their fullest.
- Out of purpose comes the ‘customer need’ that your business seeks to fulfil.
- Which is guided by and guiding capability.
- To deliver a customer value that outcompetes all others.
- Rewards are the fuel which are available equally to all.
- And all barriers to performance are removed.
The strength of your competitive engine will set the level of competitive fitness of your business. It will set the upper and lower levels of its performance and from which your profits will be derived.
If you want to influence your profit, focus on your competitive engine. Keep your eye on how competitively fit your business is and how ‘present’ everyone working within and with the business are. And that equation will produce your profit result.
An entirely new level of performance.
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All the best in the success of your business,