Tips from the Top
Improving performance by function
Getting the marketing right
As indicated on pages 4 and 5, marketing accounted for more CEO-led KPEs than any other discipline. The barchart below shows how CEOs focused their marketing-related efforts.
As can be seen, the CEOs’ greatest focus in this area was not on market or customer development but rather on enhancing the company’s product or service offering. In fact, 81% of the CEOs surveyed regarded the commercial success of their new product development (NPD) activities as one of their core achievements in office.
For many of these CEOs, the following were key elements in their product development success:
- an absolute emphasis on ensuring customer relevance (“where’s the value-add?”) and achieving fast speed-to-market
- a willingness to establish strategic partnerships to share know-how and defray cost
- an integrated resource (eg in the form of a Centre for Innovation) bringing together the key functions such as manufacturing (where appropriate), operations, finance, marketing and even external suppliers
- a focus on developing the service offering (eg after-market) to secure greater customer lock-in and, where possible, to move up the supply chain.
Above all though, rigorous management of the NPD process was fundamental to success. One CEO put it this way:
“You’ve got to be ruthless about keeping the customer front of mind, managing cost and keeping to a tight schedule. Successful product development can be as much about knowing when to say no as when to say yes.”
Or as another said:
“Successful innovation is about 3% creativity and 97% implementation.”
However, while for most the emphasis was on expanding the product or service offering, for 22% of those surveyed the aim was to rationalise the product range. In some instances this was simply to save cost but mostly it was about focusing on higher growth and higher margin products and services in order to enhance longer-term profitability.
Away from the area of product development the most common marketing-related KPEs (23% of the total) as cited by 60% of CEOs came under the heading of new market development. Perhaps surprisingly KPEs focused on developing new markets were highlighted almost twice as much as those which were aimed at existing customers (14%). This is perhaps due to the fact that the CEOs surveyed generally saw themselves as having greater impact in taking the business into new areas rather than in focusing on the existing customer base.
As one commented:
“The main issue for any CEO should be about ‘where next?’ Of course you need to make sure that all your processes are up to speed. But to generate real shareholder returns your focus should be on growing revenue by building new products and markets.”
Of the new markets successfully developed 71% were sector related (with the emphasis again being on those which offered high growth and margins) while the balance was geographical in nature. The message here is that, when developing new markets, CEOs seem to enjoy greater success pursuing new sector niches rather than targeting new regions or countries outside their domain.
As the piechart above shows, where CEOs saw their involvement with current customers as being a KPE for the business (42% of cases), most attributed this success to their personal role in:
- rationalising the customer base in order to focus on those offering the greatest potential profitability
- negotiating and winning major contracts
- championing customer relationship management programmes and directly leading key relationships.
Even those who had led the largest operations reviewed in the survey were able to demonstrate their active role in these customer-related activities:
“It doesn’t matter how big the organisation – you remove yourself from your customers at your peril.”
Other less important but still significant areas of activity for the CEOs surveyed were pricing, distribution and brand development. Of the sample, 25% involved themselves in key pricing decisions in order to seek performance improvement (although these decisions only accounted for 8% of all marketing KPEs). Inevitably perhaps significant rises almost always resulted from this focus on pricing.
Various techniques were employed to deliver these increases including:
- upgrading the product/service offering (see earlier)
- providing ancillary benefits for minimal cost (eg storage space in under-utilised warehouses)
- warming customers up through an extensive communication and relationship development programme involving the CEO
- moving from “cost plus” to value selling (and equipping the salesforce with the requisite skills to manage this shift successfully)
- conducting detailed investigations into price elasticity
- simply being utterly robust about defending the increases
In relation to the latter point, the following sentiment as expressed by one CEO was echoed by many:
“If they don’t want to pay, tell ’em to go away. Where pricing is concerned, it is vital to establish a reputation for holding the line. If compromises need to be made, they can be made in other areas.”
A quarter of the sample also saw their focus on establishing alternate channels to market as being a significant KPE but intriguingly only 7% singled out the impact of e-commerce, online ordering, and such. The following was a consistent theme:
“The web should simply be regarded as another route to market. No more, no less. Too much effort has been wasted trying to make it something that it isn’t.”
As regards their efforts in developing the brand, 17% saw this as being a KPE, though it only accounted for 6% of all marketing activity. Those CEOs who focused on the brand highlighted the positive impact not only on prospective customers but also on existing purchasers, potential recruits and members of the investment community.
Improving people management
Just short of a third of all KPEs recorded were people-related. While, in turn, 36% of these measures were “hire and fire” in nature, perhaps surprisingly the majority were not.
Of those that were of the “hire and fire” type, most (56%) were focused on the CEO’s management team with Sales & Marketing and Finance being the functions where most senior changes in personnel were made.
When it came to implementing these changes, the following was a typical attitude:
“When changing people, it is important not only to be fair but to be seen to be fair. However, never delay the inevitable. If a change needs to be made, make it quickly and cleanly.”
Another CEO had a more controversial view:
“Everyone has a natural cycle of effectiveness. After four to five years in a role people start to coast. It’s better to move them on or out before this happens. This is particularly true at a senior level.”
In reviewing their management teams, those CEOs who made changes were mostly concerned with replacing existing resource, though in larger organisations there was some
evidence of layers of management being removed as well. For the most part, however, redundancy programmes were restricted to the workforce below managerial level and on average embraced the staggering total of one-third of the employees. In virtually all such instances, the rationale was simply one of cost reduction. Given that 30% of all CEOs surveyed implemented a programme of this type (and by definition improved the business in so doing), it is clear that a sizeable proportion of industry has seen a significant increase in productivity in recent years.
One CEO explained:
“We have been too labour-intensive simply because of a reluctance to invest in automation. Now that’s all changing. Greater efficiencies are arising and costs have come down but inevitably jobs have been lost too.”
Despite these job losses, when it comes to improving performance by better management of people, it is worth reiterating that 64% of all KPEs falling under this heading were not of the “hire and fire” variety. Indeed, two-thirds of all those surveyed found that they were able to improve their organisation’s approach to managing people in at least one key respect. The chart below shows how CEOs prioritised their efforts in this area:
Most steps taken here were to do with introducing more rigorous performance measures and related improvements in remuneration. For example, much attention was paid to establishing innovative incentive schemes to reward individual as well as corporate performance. As one CEO pointed out:
“As many staff as possible should benefit from the improved results of the company in a way that reflects their own contribution.”
Other KPEs were related to:
- investing in training and development to establish best practice, reduce staff turnover, aid succession planning and create the desired culture overall
- radically improving internal communication, particularly of financial performance and results, by the CEO making personal presentations and encouraging and acting
on feedback - overhauling the structure of the organisation to facilitate more cross-team working, encourage more local accountability and so create a more customer-oriented, entrepreneurial environment
- upgrading working conditions to build morale, increase motivation and “provide real evidence that the business is on the way up”
As was frequently observed, the relative cost of such initiatives need not be great, especially when compared with the gains:
“It’s amazing how you can transform the mood in a business by simply getting out and about and making a few tangible changes to show colleagues that you appreciate them and what they do.”
Sorting out the operations
Intriguingly only 14% of all KPEs were directly involved with the operations of the business. However, these were driven through by 56% of all CEOs surveyed.
As the chart above shows, the major initiatives taken by CEOs in this area were concerned with:
- site rationalisation, particularly in manufacturing and distribution
- increasing efficiency (eg through a shift to lean manufacturing), eliminating wastage and reducing time to market
- outsourcing, both of production to cheaper facilities (typically in Asia or Eastern Europe) and non-core activities (eg IT, finance), to more cost effective suppliers
- improving purchasing, in particular by rationalising the supplier base, reducing supply lead times and securing discount by offering prompt payment.
The main rationale behind these initiatives was, of course, one of reducing cost. As one CEO pointed out though:
“The real challenge is not deciding what to cut but choosing how to re-invest what you save.”
Improving financial management
While only 9% of all KPEs recorded were concerned with improving the financial management of the organisation, 64% of all those surveyed found at least one significant
improvement that they were able to make in this area.
Of these improvements, 63% were related to upgrading the management information systems in order to tighten up the accuracy and timeliness of reporting and controls. The specific items typically targeted were expenditure, cash flow and inventory. As one CEO commented:
“We all know that cash is king. But you’d never believe it from what I’ve seen. The trick is to create a system whereby everyone is as mean with corporate spending as they would be with their own.”
Another said:
“For me it’s all about when the information is produced. I’d much rather have a pretty good idea of how we stand in real-time rather than the perfect picture a month late.”
Other key areas of focus were margins, forecasting and introducing a more rigorous approach to assessing the potential value and risks associated with prospective clients and contracts. Consistent with the drive highlighted earlier to create a more customer-led ethos, there was also a high degree of attention given to tightening up systems to measure customer feedback, attrition and service delivery.
But with all this effort on improving the metrics in the business there were some words of warning:
“Whatever systems are introduced, make sure they are a stimulus to improve performance. Too often they can act as a straitjacket because they generate bureaucracy and provide too much information too slowly.”
Under the heading of improving financial discipline, the other big win was in the area of working capital management.
Here almost a quarter of CEOs reported making substantial savings (typically worth many ¤millions) by reducing debtor days, improving stock control and renegotiating payment terms.
Acquisitions, disposals and alliances
In the context of all their other performance-enhancing activities, it is perhaps not surprising that acquisitions and disposals accounted for only 5% of all KPEs identified by the CEOs in the survey. That said, as many as one-in-three of the sample were able to cite their purchase or sale of a business as being a KPE.
In most of these cases, the CEOs had been on the acquisition trail, their reasons being to access new geographical markets, add intellectual property, broaden the product range and/or expand the customer base. In several instances, the aim was simply to maximise barriers to entry. In others, it was to achieve critical mass and so increase attractiveness to a prospective acquirer if being acquired was the best means of generating shareholder value.
For those CEOs who did pursue the acquisition process, the key was to be clear about objectives and then to drive the integration process promptly, decisively and systematically. However, expansion by acquisition also presented its own challenges:
“It is vital to secure the support of those involved. While speed is generally of the essence, one can move too fast and leave key managers behind. Without their
commitment, any acquisition will struggle.”
Where acquisitions were not an option, 18% of those surveyed pursued a less formal alliance or joint venture strategy. This proved to be particularly successful in facilitating product development (see page 6) or where there was a need to develop the supplier or distributor base.
With this focus on improvement by acquisition or alliance, only 11% of those surveyed saw the disposal route as being a KPE. Where it was the option used, the main driver was to generate cash and release management time by ridding the organisation of non-core assets.