The Soft Stuff: Closing the Gap on Business Performance
Lackluster performance is something many companies struggle with at some point in their lifecycle. A performance issue could be enterprise wide or divisional and cut across market segments or product lines. The problems eventually bubble to the surface masked as revenue or earnings issues. Some companies dive in and figure it out quickly by diagnosing the problem and turning things around. But it’s not always that easy to solve these challenges, so for others, the problem lingers on and the company settles for mediocre performance or, in some cases, faces a far worse outcome. In addition to impacting performance, these lingering problems can also represent lost opportunity for an enterprise. Without the right data, insights and certainty about how to fill the gaps, leaders are often left frustrated after fueled attempts fail to produce the cure.
“Companies on average deliver only 63% of the financial performance their strategies promise.”
Michael Mankis, Bain & Company (via Harvard Business Review)
When almost 40% of the financial performance of a company’s strategy is left on the table, how does a business close the gap? Typically, leaders start by triaging the financials because those metrics are the easiest to see and traditionally define the health of the business. But this “known data” – the P&L, margins, cash flow, sales goals and other operating metrics – paint a picture of the past, which is why they are known as “lagging indicators”. Making decisions based on this data alone is incomplete and can often trip-up businesses trying to diagnose the exact problems to get to solutions.
Mankis says, “Even worse, the causes of this strategy-to-performance gap are all but invisible to top management. Leaders then pull the wrong levers in their attempts to turn around performance—pressing for better execution when they actually need a better strategy, or opting to change direction when they really should focus the organization on execution. The result: wasted energy, lost time, and continued underperformance.”
What’s most frustrating in all of this is that Mankis wrote this article in 2005 and, over a decade later, we’re still wrestling with this problem. Knowing what’s hiding behind greater enterprise business performance is the key to closing the gap. Companies spend countless hours analyzing the traditional levers to unstick the complexities holding back bigger business value. It’s our observation that many businesses have honed and extracted nearly all of the value out of their core operating systems like ERP, supply chain and CRM, and still can’t solve the problems. What’s missing is the other half of the data – the “soft stuff” – which completes the picture and tells a holistic story. Measuring the soft stuff and coupling it with the known data, offers new insights that can turn business performance around and help the enterprise deliver the value promised in the business strategy.
It’s time to tackle performance challenges with new data, perspective and insight. Here at Leaderscape, we see measuring the soft stuff as the new frontier of business performance. Coupling new data that quantifies the leading indicators (the inner circle pictured here) with the existing data that measures lagging indicators (the outer circle) delivers rich new analytics, uncovering a holistic view of performance. At the end of the day, it’s impossible to manage what you don’t measure (thanks to Drucker for that famous quote) and measuring the soft stuff – people, leadership, culture and communication – creates new opportunities for businesses to solve performance gaps and grow enterprise value. Measuring the soft stuff is the giant leap forward in driving greater performance and value.
In the race to keep up, move ahead and close the gaps that hold back better business performance, companies that synchronize both the lagging and leading metrics are in the driver’s seat of greater enterprise business value. Measuring the soft stuff is the new competitive advantage. Once a business can see the holistic picture fueled by data, they can see how the soft stuff lines up against their business strategy – or how it doesn’t. Do you have the right data to solve your business’ performance challenges?