Performance Improvement, A Primer

This introductory article is first in a Performance Improvement series. Subsequent articles will isolate and expound upon specific tools and techniques.

When companies experience some level of operational or financial decline, many will kick off or elevate the importance of internal performance improvement initiatives as the first step towards remediation. In cases where a company is in distress (e.g., significant performance deterioration, bank covenants tripped, liquidity constrained), performance improvement is usually a necessity  to a broader restructuring. While some companies are successful in their efforts at addressing the causes of declining performance, many companies struggle to identify the source of the problem. Others may know but have difficulty identifying or implementing effective solutions. Still others will not execute turnaround efforts with the necessary focus - falling into the trap of trying to do too much at one time.

Problem Identification

CR3’s first step is determining the catalyst(s) that contributed to the stressed state of the company. Part of the CR3 methodology is to understand what has changed. A company might be challenged by internal issues such as personnel, leadership, or organization changes; deteriorating financial controls; shifting product or customer mix; or inefficient operations. External or strategic issues could also have contributed to the distress, such as new product launches, acquisition integration, competitive expansions, supply chain dislocations, or product obsolescence. At some point the stressed company was in a position of strength. Identifying changes that occurred leading the organization from a healthy state to a stressed state often pinpoints functions within the company that require attention. Some issues may be affecting entire industries, while others will be unique to the company.

Quantitative analyses involving thorough performance data reviews and financial assessments combined with qualitative evaluations derived from discussions with management and examination of external factors, all work to identify performance improvement target areas. Data-driven analyses most often uncover discrete functions that can be addressed from a process perspective, while a qualitative look can reveal more nuanced impacts including human resource challenges, external market conditions, or other issues not readily apparent in the data.

For example, a recent manufacturing client was experiencing double-digit sales growth but was not achieving the expected profit growth. It was determined that the increased volume created a bottleneck in packaging that resulted in overtime, increased quality issues and rework, delayed shipments, and required expediting of product to meet customer deadlines. Understanding this situation was not possible solely from an analysis of the operating data but also relied on working with production management to understand the process handoffs and waste.

Finding the Right Solutions

Solutions often take the form of redesigned business processes or implementation of tools in one or more areas of an organization. The tools leveraged throughout an implementation vary, but nearly always contain subsets of those available within methodologies such as Lean Six Sigma. Initial data analyses might include Pareto charts, working capital trends, robust product costing, and ABC analyses of sales by SKUs or customers to identify the issues. Implementation of improvement opportunities might involve process mapping, Kaizen events, 5S layouts, production/delivery area reorganization, KPI development, and visual metrics installation. While the choices are extensive, identifying and applying the proper mix of tools is fundamental to success.

There may also be other factors to be resolved outside of a specific performance improvement methodology, such as shifting strategic priorities or addressing human resource issues.

Planning and Implementation

Once the solutions have been defined, an implementation plan is needed. An effective implementation plan will describe the tools, approaches and expected outcomes, identify the resources required (e.g., people, equipment, cost), and lay out the project timelines and important milestones. A successful performance improvement process relies on management involvement and leadership but cannot be accomplished without the staff, for example back office or production floor, being fully integrated into the process.

It is also important to prioritize the work. Limiting the number of active projects, focusing efforts, and seeing them to completion generate better, faster results. Too many initiatives at once will tax the organization, slow down completion times, and have the unintended consequence of stifling momentum, as project staff won’t quickly see the benefits of their efforts. Per Mike Juniper, a CR3 Partner, “Quick wins are a morale booster, even if the impacts are small.”

Communication

The best solutions will inevitably fail without the support and buy-in from management and employees. To ensure that support, a high level of coordination and communication must occur – this is a differentiating aspect of the CR3 approach to performance improvement.

An effective communications plan will include all stakeholders, including the CR3 engagement team, company management and staff, and capital providers or other third parties. Hallmarks of an effective plan begin with accessibility and transparency and include thorough and accurate information sharing. Stakeholders must be informed of the rationale supporting the implementation, provide feedback, be kept up to date regarding interim status, and informed of results.

John Gordon, a CR3 Partner, stated that “Our goal is for there to be nothing in our deliverables that has not already been seen – and vetted – by the client. At the start of an engagement, it is essential to establish a communication protocol, usually weekly, to check in with management and stakeholders. This regular review of the emerging solutions is essential to final buy-in and provides a chance to redirect ongoing engagement efforts to high-value opportunities. Once established, this type of feedback and communication process must continue throughout any implementation.”

CR3 always ensures that every implementation is executed in collaboration with company personnel. The work utilizes client teams to ensure all ideas and experience are leveraged, understanding and buy-in is achieved and execution is completed quickly resulting in permanent improvements. The engagement team must ensure successful knowledge transfer prior to completing the engagement.

Conclusion

Performance improvement methodologies have become increasingly sophisticated, and a host of factors can affect the efficacy of internal performance improvement efforts. Failure to properly assess, scope and plan improvement projects, and/or poor execution can lead to failure to achieve objectives or wasted time and resources.

At CR3 Partners, our unique and practical approach helps stressed companies accurately assess the situation, identify meaningful performance improvement projects, and carry out an implementation plan leveraging the proper resources, tools, and techniques. Further, we understand that a performance improvement engagement within a stressed environment requires results within tight timeframes; contributing factors must be quickly identified and priority established to rapidly improve income and cash flow.

Smart companies understand the inherent risks to successful performance improvement. CR3 understands that companies need a partner that can quickly and accurately identify the right issues and carry an engagement through to completion, while equipping the company with the tools and knowledge required for long-term success.

About CR3 Partners, LLC

CR3 Partners, LLC is a national turnaround and performance improvement firm that assists, guides, and collaborates with management teams and their constituents facing any sort of transition, stress, or distress. John Gordon and Mike Juniper are Partners in CR3’s Dallas office and Mike Caruso is a Director in the Boston office.