How efficient is your Enterprise Management?
Managing a company is a multidisciplinary challenge for professional managers as well as company owners who are active in this process. Good strategy is only the first step to success, but it is the execution that demands far more effort, resources and time. On the other hand, as change has become a norm today, strategies tend to live shorter and, in the same time, elevate in-house strategy renewal process to top priority.
Therefore managing a company can be described as simultaneous effort between managing a current strategy execution on one hand and creating conditions for its reinvention on the other. Based on a success of this process a company yields current results (sales, profit, returns) as well as its future path (growth, innovation, sustainability). This is why it is highly important to identify from the very beginning critical areas of management that contribute the most to enterprise efficiency and understand their interdependencies in order to create an organisation which can provide for maximum efficiency.
Based on three decades of my hands-on experience as a manager including consulting work on management inefficiency diagnostics as well as desk research of business strategy I found that the following structure best describes Enterprise Management Efficiency dynamics.
I recognise eight critical areas of Enterprise Management Efficiency which appear in two groups: Strategy Execution and Strategy Creation. The common area shared by both groups is the degree of implementation and development of new technologies.
- Success of Strategy Execution is driven by (a) Operational Decision Making which defines basics and dynamics of other five areas in this group and they are: (b) Team and Individual Management, (c) efficiency of production and business Processes, (d) Productivity, (e) efficiency of Budget Management i.e. income and expenditure control, and (f) the degree of implementation and development of New Technologies in all areas.
- Besides a shared area of (f) New Technologies, the creation and development of new strategies is decided by creativity and innovativeness of human resources. I recognise two areas here: (g) individual Professional Development, and (h) the degree of Loyalty and Commitment of employees.
We see that people and technologies actively define efficiencies for both strategy execution and its new creation. As individual and team contributions are important for efficient execution of strategic plans so are continuing professional development and employee loyalty important for firm’s innovation and successful strategy (re)creation. In the same time, already installed technologies increase the efficiency of production and business processes while enabling timely collection of precise data for ERP, production management and risk control among other what all contribute to strategy execution. On the other hand, besides being boosted by own creativity and loyalty, people also need installed technologies to create new products, services, strategies as well as even newer technologies.
In order to test my proposed structure I designed and launched a survey among my LinkedIn contacts in Serbia. Based on my previous experience with local enterprises I compiled lists of most frequently used practices for each Enterprise Management Efficiency area and asked participants to pick one practice per area which best (or most closely) describes the specific situation in one’s organisation. Each pick carried a certain score.
Survey results reveal slightly higher efficiency when managing strategy execution (63%) compared with strategy creation (61%) although neither figure looks impressive. It could mean that management activities focus more on delivering good short-term results than on innovation and creation of new products, services and strategies. It also appears that most pressure is on employees as the perception about Team and Individual Management efficiency leads with 75%. The least efficient are Processes and Professional Development, both at 55%. Management efficiency percentages for each area can be found in red circles in the above graphics.
Three quarters of respondents with the least dispersion of answers think that their companies have “average” process efficiency compared with their direct competitors – they perceive that the amount of deficiencies in their processes such as bottlenecks, redundancies and silos are “tolerable”. This opinion is understandable as we also learn how, on average, operating decisions are being made. Majority of respondents (63%) say that decisions are not made based on timely and relevant operating performance indicators which don’t exist anyway but a responsible manager (or “the boss”) makes decisions almost exclusively based on financial indicators with or without consulting co-workers.
Productivity management scored “average” as two thirds of respondents voted for it. This doesn’t come as a surprise as less than half of companies (44%) use individual and/or team performance targets when managing people. Even these targets exist at remaining 56% it doesn’t necessarily lead to better productivity as they are not used for short interval control (where appropriate) or at least daily review/ corrective action. In the same time budget get prepared at the directors’ level (isolated) without consultation with middle management in more than half of companies (63%).
45% of companies have employees drown into local culture of executing orders down the hierarchy line without any encouragement to present own ideas or proposals. On the other hand I am encouraged to learn that still one third of companies attract candidates with opportunity to promote own ideas.
44% of companies don’t get involved in professional development or further education of employees but they encourage and selectively reimburse these activities. Yet another 23% do organise and finance these activities based on own plans developed in HR offices but only remaining 23% engage in a dialogue with each employee about mutual requirements and career plans before the plans are drawn.
Although 21% of companies don’t even look for information about new technological developments (at least not in a systemic way) I found that 45% of them do that and even work on development of new technologies in house or in partnership with other organisations. One must also keep in mind that my sample included ~15% IT companies who may have technology development as their prime activity. It is worth noticing that answers to this question show highest dispersion.
Based on collected information I compiled a typical Enterprise Management Efficiency situation in Serbia which is displayed above. It is easy to spot obvious deficiencies both in strategy execution and strategy creation. Furthermore a management team who is performing with just above 60% efficiency can hardly expect to upgrade a business and, in a very competitive environment may even fall behind.
If you are a company manager you may use described situations and schematics from this text to spot some gaps in your company’s practices and decide to try a quick fix. However if you seek systemic and sustainable improvement you should first perform thorough assessment of current situation in order to compare own practices and efficiencies with the latest “best practice” in each area of enterprise management. Only with this comprehensive report on hand you can successfully start designing and implementing improvement projects.
Before moving into project phase get your Enterprise Management Efficiency improvement planning in line with your strategy, vision and mission. You may have to decide and prioritise between projects as time and resources are limited. For example, if you are running behind your performance targets for quite some time you may want to prioritise strategy execution areas. But if you worry that the cash cow and other sources of profit may be exhausted at some point in future without having reliable replacements you may want to prioritise strategy creation to boost creativity output. In both cases keep in mind that the success in enterprise management always spin around people and technologies.
Alex Milovanovich, business strategy adviser