Providing a basis for resilience- or recovery
By:Tommy M.Onich BBA, CTP
Tom is a specialist in interim and crisis management with 20 years of senior management experience in financial, operational and statutory restructuring. He has served as Chief Restructuring Officer, Chief Executive Officer, and Chief Financial Officer in a wide range of business sectors including health care, structural steel, garment manufacturing, yacht building, die cast, railroad repair and food processing. He is recognized for his achievements in the following areas: statutory restructuring; cash flow management, creditor negotiations, management assessment, performance management, corporate strategy or business planning, organizational assessment, and corporate due diligence. Tom has successfully restructured organizations through informal arrangements with creditors and by statute. He is one of the few turnaround professionals experienced with the insolvency regimes of both Canada and the United States. Prior to his work in corporate renewal, he was engaged in corporate lending with a major Canadian Bank winning several awards for innovative solutions tailored to client’s needs.
Small Business is the backbone of our economy. This group is responsible for much of the drive and work that provides the impetus for national growth and productivity.
Small Business is largely driven and fueled by brave and under-resourced entrepreneurs who are some of the most hardworking and dedicated people in our country. In addition to their extraordinary drive and effort they also take enormous personal financial risks in the normal course of business.
Today these owners are still reeling from the effects of COVID and attendant government policies.
Unfortunately, their situation has become even worse. We are facing the most difficult political and economic conditions in decades. Rampant inflation, rising interest rates, tremendous geo-political disruption, incompetent Governments, and a broad European war is imminent.
An increasing number of businesses will require a metamorphosis or turnaround in this environment. Metamorphosis can be described as a planned change. This need is driven by a lack of corporate resilience which permits an organization to adapt and change as necessary. An actual turnaround is a metamorphosis tragically delayed. It occurs when the organization has moved farther upon the continuum between health and distress.
At its core, the culture of Performance Management provides both a steel spine of resilience and the foundation for recovery. It is useful to examine some of the symptoms of a lack of Performance Management and then create a positive construct.
Typically symptoms include:
- A lack of rigour surrounding the cash management process
- Poor or even non-existent controls for manufacturing, planning and procurement
- A disconnect between financial measurements and key performance drivers
- A lack of accountability within management ranks
These symptoms indicate a lack of critical thinking, slack corporate discipline and negative or even destructive behaviour. In this environment, corporate denial can become pervasive and entrenched.
One of the most salient symptoms of a corporate malaise has been prevalent in almost all the dozens of cases that I have seen. This concerns the quality of data. Almost always a company facing difficulty is reporting numbers that are just wrong. This means, missing, incorrect, misleading, or even false.
Effective Performance management requires relevant, reliable, timely, and accurate data. This is because an effective Performance culture exists when employees use practical management tools to set targets, measure performance and implement concrete plans.
If data is unreliable, strategy and initiatives are not linked; even when they are, they are rarely aligned to targets that drive the core engines of the business.
Action planning is rare to non-existent, as is the ability to predict or meet a crisis head-on.
Core Elements of Performance Management
Companies that have adopted and sustained a Performance Management Culture have three core elements.
Leadership: Leadership is paramount. The leader’s purpose is to generate clarity around strategy and provide focus on the critical priorities and activities needed for success.
Without quality leadership, it is unlikely that a Performance Management Culture can exist, or a turnaround succeed.
Above all, leaders must “walk the walk and talk the talk”. In other words, the best way to lead is by example.The effective leader will also create an environment that fosters transparency and open communication, creating fertile ground for information flow.
Accountability: A true culture of performance management cannot exist unless all employees are held accountable. Ownership of results belongs to everybody. This requires two main activities. First individuals set specific goals and targets for their specific areas. The focus of which is strategic objectives. Second, the same employees are empowered to take meaningful action that can directly influence the targets they set
Capability: Capability refers to the workforce’s ability to solve issues that evolve daily by applying functional knowledge. Without an adequate base of skills, employees will be unable to solve issues that evolve daily by applying functional knowledge.
They will not be able to resolve business issues as they emerge in a performance management culture. A simple example would be marketing employees not understanding segmentation or value proposition or salespeople not understanding contribution margin.
Performance Management-Implementation
The very essence of Performance management begins with a clearly articulated strategy which provides a vision of what the company is or is not going to focus upon.
Companies need to develop and implement a well-thought-out and tightly knit strategy before any work on implementation.
Following this, it is necessary to identify core drivers and indicators. Typical examples could include production output, margins, and sales.
Once these have been identified, management assesses these parameters to identify their effectiveness. This requires a hands-on approach, exploring different departments and areas of operation. A revealing question is “how do you know you are doing a good job? “Any less than a clear answer points to a lack of accountability.
Within this process, huge disconnects between what the company needs to execute and what it is focused upon should be readily apparent.
The core drivers that were selected must meet the following criteria.
1/ The performance driver must be measurable and quantifiable.
2/ It must be controllable by a person or group within the company.
3/ It must be relevant and linked to the key business objectives identified in the strategy.
With the core drivers established, the next step is to set specific targets. I often see these established based on historical data, devoid of any meaningful analysis. They also tend to be set by management and have limited front-line ownership. They may even be developed from budgets with little view of reality. Setting targets requires that goals are attainable, driven from the bottom up and require ownership of all stakeholders.
The last stage is implementation. Success will happen when the right information is in the hands of the right people, and it requires that the relevant information is visible and timely. It is used in an effective reporting system to track performance.
The last step provides a formal review mechanism that ties the performance management system together and makes a performance management culture attainable. This review provides a template for correction, change of course, or recovery. Importantly, this information is provided as soon as possible during difficult times.
Organizations with a Performance Management culture embrace core values and principles. The core values are leadership, accountability, and capability.
The principles are: to identify salient performance drivers, set targets, execute and review.
A culture of performance management and the tempered steel of the resilient organization lay at the nexus of these core values and principal.
