Five Secrets of High Performing Organizations

How the Best Differ From All the Rest

Part No. 11061009

Five Secrets of High Performing Organizations
How the Best Differ From All the Rest

ABSTRACT The best performing small businesses have five factors in common: a strong leadership team the ability to attract and retain quality people a disciplined approach to their business the ability to strategically use technology the wise use of trusted outside providers Top-performing organizations rate not just a little better in these five areas -- but at least 100% better.

INTRODUCTION “In 1989 my former business, Solomon Software, was 9 years old, but we were on the brink of failure,” said Gary Harpst, Founder of Six Disciplines. “I was working long days but my business had stalled. I started questioning my own abilities. I sought out another business owner in whom I had confidence. I’ll never forget what he told me. He said, ‘Gary you have to get a handle on expenses or you won’t be in business for long.’ I knew I had to take action. But mostly my actions were trial and error. It took many mistakes to learn how to consistently be successful.” Fast forward 11 years later. Solomon Software Inc. under Gary’s leadership went on to achieve revenues of $60 million. The company was sold to a top rival for $142 million and eventually became part of Microsoft. Gary resolved to help other independent business owners and executives learn the principles it took him years and countless mistakes to learn. He engaged a research firm to conduct research to identify those factors that the highest performing organizations have in common. He also founded Six Disciplines Corporation to distill that research and other information into a practical methodology for small business leaders.

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This paper looks at the results of the research. It identifies five factors that the top 25% of businesses have in common. We will examine each of those five factors. We not only will identify the five factors, but we will show you how to use them to your advantage in your business.

WHAT SEPARATES THE BEST FROM ALL THE REST: A QUEST FOR THE ANSWER Our research set out to find the answer to one question: Which factors have the biggest impact on success in a small business? What we learned surprised even us. Before we get to the answer, let’s first take a look at the background research and what prompted it. General advice about how to run your business is relatively easy to find today -- on the Web, in newspapers and magazines -- even on TV. What is far harder is to identify exactly what makes the difference between the most successful businesses … and all the rest. It is even harder to quantify and rank the factors that the most successful businesses have in common, in order of importance: first, second, and so on. We wanted to know not only which factors successful businesses had in common, but which ones were the most important. And we wanted to back it up with research. To answer the question, we engaged the services of the market research firm Research for Action to survey more than 300 businesses. Each of the businesses we surveyed had between 10 and 100 employees. The industries represented in the sample group included a range of service, construction, manufacturing, finance and other companies. All participants to the survey were owners or senior leaders in their organizations. We asked the survey participants to rate their businesses on different areas of performance. For this analysis, we evaluated organizations based on two combined factors: growth and profitability. (For more on the survey analysis and the detailed findings, see the Appendix.) We thoroughly analyzed the results and looked for areas where the lowest- and highestperforming organizations were the most different. We found several areas where the contrasts were significant – even dramatic.

FIVE FACTORS MAKE ORGANIZATIONS TWICE AS LIKELY TO BE SUCCESSFUL Five factors stood out as those that the most successful businesses had in common. In fact, high performing organizations scored at least 100% better on these five factors than their competitors.

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This chart outlines the most highly rated factors in their success.

What surprised us was how clearly the five factors stood out and distinguished the most successful organizations from all the rest. While some other factors were identified as having an impact, these five had the highest ratings. Let’s review the top five success factors, in order of importance. 1. Develop a Strong Leadership Team If you were to focus on just one area to get the largest boost to your business performance, developing a strong leadership team would be it. In our research, the top factor setting apart the highest performing organizations was the strength of the leadership team. The leadership teams of top-performing organizations rated 155% higher than the lower performers. Two primary factors went into this rating. The first was the ability of leadership to define a clear vision for the company. To be effective, the vision needs to be well-defined and explained in a way so people connect with it and are motivated by it. The second major factor was appropriate involvement of leadership in leading and supporting projects that are strategic to the organization. People in organizations (and

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everywhere, for that matter) read the actions of leadership to determine what’s important and what’s valued. Strategy statements and posters by themselves are ineffective. One business owner expressed it this way: “People go in the direction leadership is walking, not pointing.” The research suggests that the leadership of high-performing organizations know where they want the organization to go, make sure everyone else understands the direction, and are visibly engaged in helping the organization move in that direction. Hints and Tips Make sure that your leadership team has a clear understanding of the mission of your organization. The simpler your mission is stated the better. The most powerful ideas can be expressed simply with plain words and with few of them, e.g., “bringing happiness to millions.” Be visibly engaged. People need to see their leaders working hard to make sure the rest of the team members achieve the goals. Put your energy into communicating what the mission means and living it, as opposed to trying to get the perfect set of words or slogans. The best people aren’t looking to work for a company that has a mission statement; they want to give their life to an organization that is on a mission. Rely on a mixture of group presentations and one-on-one reinforcement when communicating goals. Talking about the goals one-on-one shows respect for the individual. It allows interaction with less intimidation. Interaction moves people from compliance to commitment. Agree what to stop doing. A key piece of strategy is deciding what not to do. Think of your company resources as being divided among three categories: critical, discretionary, and available for reassignment. The job of leadership is to stop doing that which is of a discretionary nature and reallocate as much resources as possible to critical priorities.

2. Attract and Retain Quality People Get the right people in the right spots with a clear understanding of their priorities. If you have the right people, you will move faster and accomplish more in the same amount of time. In our research, top-performing organizations were rated 142% stronger at attracting and retaining high-quality people than the lowest performers. Finding people, motivating them, compensating them, keeping them focused, and keeping them satisfied are always hot topics in focus group research and in conversations we have with business owners. This is one of the most dynamic challenges for all businesses. The best small businesses have figured out that success in this area starts with recruiting.

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It’s very hard to overcome a hiring mistake, and excellent businesses leave nothing to chance in making their hires. In addition, the top small businesses use the strength of their leadership teams, their stability, their sense of purpose and the quality of people around them to retain people once they’re on board. Hints and Tips Put great emphasis on values when recruiting people. Make sure new recruits are excited about the company’s values before you hire. Doing this means that, as you grow, the entire team’s commitment to your values will increase, instead of being diluted. Invest as much in making a hiring decision as you would if you were buying a $1 million piece of equipment. Over a 15- to 20-year period, the cost of an average employee, including salary, benefits and training, will be well in excess of that amount. Establish a rigorous hiring process. It should include the following elements: a clear definition of position; the use of assessments to evaluate whether a person has the basic suitability to perform in the position and the skills to be successful at it; and very thorough interviews by people above, below and at the same level as the person. Don’t look for the ideal long-term organizational structure. No such thing exists. Every structure has its strengths and weaknesses. Be willing to change structure periodically to fit your current priorities, and to keep the weaknesses of the current structure from getting too ingrained. Once your top priorities for process improvements and technology investments are identified make sure people are well trained. A common error is to invest heavily to acquire a new technology, and then under-invest in learning how to use it.

3. Adopt a Disciplined Approach to Business Learn how to work on your business, not just in it. This involves planning and, more importantly, aligning your people to execute your business’s plan. For some people, the old-fashioned idea of being “disciplined” is a turn-off. But that’s not so for the top performers. They’re rated 114 % stronger than the lowest performers when it comes to taking a disciplined approach to business. Instead of “shooting from the hip,” top performing small businesses take the time to plan well in advance for changes that are likely to affect their organizations. They do so because the people in the higher-performing organizations truly believe that planning is a critical factor in achieving company success, as opposed to just being a “high overhead exercise.”

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However, top performers are also very practical, in that they value planning more than voluminous planning documents. Former President and famed General Dwight Eisenhower said it this way: “In preparing for battle I have always found that plans are useless, but planning is indispensable.” High-performing small businesses work at being realistic; they “sweat the details.” They’re careful about not forming or setting their expectations until they’ve learned enough about the situation at hand to know whether or not those expectations are reasonable. They have a culture where people don’t go off “half-cocked.” They’re disciplined about the commitments they make. Hints and Tips Get your team members to take as much responsibility as possible in defining and setting goals for your company. This helps them grow professionally and learn to plan. Goals should describe deliverables produced, not the activity that produces the deliverable. For example, “redesign the sales process” describes an activity, whereas “first draft of sales process reviewed by Tom” describes a deliverable. Get in the habit of writing down commitments every time in the same place. A notebook, laptop or PDA -- it doesn’t matter. Find something that works and stick with it. Prioritize daily, allocating enough time to achieve quarterly goals and sustaining responsibilities. There will always be more on that list than you can do, so you have to choose which are the most important. Adopt a simple ranking system like A for “critical today,” B for “important,” and C for “can wait.” Establish measurements. Measurement promotes empowerment. People have a clearer understanding of what’s expected and are encouraged to self manage in pursuit of those expectations.

4. Make Strategic Use of Technology Do not throw technology at a problem before you understand what you really need – otherwise it is a waste of time and resources. Once you know what you want, getting a technology aligned with it can be a major effort requiring sustained management focus. However once alignment is achieved the payoff can be enormous. High-performing organizations give more emphasis than lower performing companies to use technology to impact the business in strategic ways (109% more, according to our analysis). Underlying this rating is the greater use of long-term technology plans aimed at delivering competitive advantage.

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Such organizations have developed a culture that figures out ways to deploy technology, not for technology’s sake, but to better serve their strategy. They’re also willing and able to invest to make it happen. This investment includes not just the technology itself, but the training to make sure they maximize the utilization of the technology. Hints and Tips Select technologies that help you measure the effectiveness of key business processes. Examples of the types of things you might like to measure include: time it takes to close a sales lead; employee turnover trends and average duration of projects. Trade feature depth for technologies that work together so processes and information flow smoothly and flexibly. The ability for technologies to work together well is more important than having the deepest feature set in some particular area. Leverage the Internet. Information technologies should leverage the Internet so your people can work anywhere and get easy access. This will ultimately enable you to streamline communication with your customers and suppliers. The biggest payoff for using the Internet for most small businesses isn’t selling over the Internet; it’s using the Internet to be better at execution. Don’t underestimate the investment required to get value out of technology. More is usually invested in the ongoing cost of maintaining and using technology than in the initial cost of acquiring it. Build lasting relationships with technology experts, so that over time they come to know and understand your priorities. They can provide advice without having to come up to speed on your business. Like all professional advice, the more the advisor understands about the background and context of your business, the better the advice will be. 5. Develop Relationships with Trusted Outside Providers To have a healthy business, you need a systematic way of gathering and periodically analyzing vital information about your business. Outside providers whom you trust can be invaluable to performing this kind of review of your business. Our research found that another area where high-performing organizations stand out is their ability to utilize the expertise of outside providers. In this area, top performers were rated more than 100 percent stronger than the lowerperforming organizations. Because of their size, small businesses have more generalists than specialists in their organizations and, as a result, can make decisions quickly, while keeping overhead costs lower. High-performing small businesses have learned to supplement their internal expertise

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by building trusted relationships with the right providers. This allows them to cost-effectively buy the amount of expertise they need when they need it. One example from our research indicated that high-performing organizations rate their satisfaction with the business advice they get from their external CPA much higher than lowperforming organizations. We believe there are three primary reasons why such organizations are more effective using outside expertise. High-performing organizations: Are stronger financially and can afford to hire the best. In addition, they can afford to make contractor selection mistakes and learn from them. Some of the toughest learning experiences in business are related to picking the right (or “wrong”) advisors. Have a clearer picture of where they want to go. They have a clear vision and strong leadership, and are disciplined in their approach to business. All these factors make it easier to focus a consultant or advisor on something specific. Ill-defined projects are a guaranteed formula for failure. Have stronger learning cultures that allow them to do a better job of listening to and applying expert advice. This feeds on itself: the more they listen and learn, the better they perform, and the better they perform, the better advisors they can hire. All these factors together give top-performing small businesses the great advantage of being able to utilize outside talent when needed. Other Factors Hints and Tips Learn how to develop and effectively use the advice of outside experts. You will probably need advisors in the areas of accounting, finance, technology, legal, risk/insurance and business improvement methodology. Select outside advisors who have the ability to understand your long-term goals, and who can help you take short term steps that fit into a long-term plan. In other words, they have to have a strategic focus, but yet be capable of delivering tactical results. Once a year do a thorough internal review of your business. Include a review of your financial condition and controls; information technology; risk and insurance; legal issues; and business processes. You will likely need outside experts to assist with these reviews of your internal operations. If you do not have a systematic way of gathering and periodically evaluating and analyzing vital information in these areas, you are “flying blind.”

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SUMMARY Other contributing factors to top performance turned up in our research: attitude, teamwork, commitment, quality-oriented culture, etc. They all play a part, but the five factors described in this paper highlight the areas of greatest difference. In short, by focusing on these five factors you will have the tools to grow your business larger, and achieve long-lasting excellence. And perform more than twice as well as your competitors.

ABOUT SIX DISCIPLINES Six Disciplines brings “big company” process improvement to a select group of smaller organizations. More than 60-man years of R&D and $10 million have been invested to develop the Six Disciplines program. Not every business is qualified for the Six Disciplines approach. Businesses with multiple layers of management, that are well established and led by mature, passionate alreadysuccessful leaders who seek excellence in their business and know they can’t do it on their own, tend to be the best candidates. Think of Six Disciplines as a long-term 'business fitness program' -- not a fad diet. And like a fitness program, it requires a routine, the right tools and equipment, and a coach: METHOD: The Six Disciplines method is repeatable and can be used regularly by everyone in your organization to make business-building systematic. As the leader you will be able to get everyone on your team on the same page, working toward consistent company goals. TOOLS: Six Disciplines offers intuitive, easily accessible Web-based software tools designed to be used regularly by everyone in your organization. These include accounting software, performance management tools, goal setting, and much more. COACH: A local Six Disciplines leadership center and a well-trained coach is there to provide professional coaching and advisory services to help you keep your entire organization on track and accountable. By integrating the practical elements of strategy, planning, measurement, execution, learning and leadership, Six Disciplines can help your business ‘get fit’ and in the best shape of its life. For free downloadable resources, visit our online information center at http://www.SixDisciplines.com

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ABOUT SIX DISCIPLINES FOUNDER GARY HARPST Six Disciplines Corporation is the brainchild of Gary Harpst. A product of a Midwestern farm upbringing, Gary Harpst has been called1 a “dynamic entrepreneur” who pioneered revolutionary new products in his former company, Solomon Software. Upon graduating from Ohio State University in 1972 with a major in computer science, Gary began his career in the city of Findlay, Ohio working with mainframe computers at Marathon Oil Company. He soon grew fascinated with the new personal computers that were coming on the market. Gary also had the vision to see the opportunity in accounting software, which at the time was a limited field. In 1980, he and two men he met at a church Bible study group decided to form their own company, which became Solomon Software. Under Gary’s leadership, Solomon Software Inc. installed more than 60,000 systems in small and midsize businesses around the world, and eventually grew to be a $60 million a year company. The company was sold in 2000 to a top accounting software rival for $142 million and soon thereafter became part of Microsoft. Gary has been named four times to the "Top 100 Most Influential People in Accounting" by Accounting Today magazine, and holds an honorary Doctorate from the University of Findlay. He is the author of "Six Disciplines For Excellence: Building Small Businesses That Learn, Lead and Last," available at Amazon.com. Following the sale of his former company, Gary spent almost a year talking with small business owners and other experts. He discovered that few organized resources existed to help established small businesses that had already reached a certain size, grow larger and achieve more than just brief periods of success. To meet this need, Gary started Six Disciplines Corporation and developed the Six Disciplines program.

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“Unlikely titan of software,” by Jon Chavez, Toledo Blade, September 26, 2004

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APPENDIX The following contains relevant portions of the survey research data that is the subject of this paper. A total of 314 businesses completed the survey. Each business had between 10 and 100 employees. All participants to the survey were owners or senior leaders in their organizations. I. Analysis and Results After the initial survey data was collected, the following analysis was performed: • The 314 respondents were divided into four groups based on how they rated themselves when compared to their competition: – The “High Group” gave themselves scores that ranged between 76-93 total points – The “Med/High Group” gave themselves scores that ranged between 69-75 total points – The “Med/Low Group” gave themselves scores that ranged between 60-68 points – The “Low Group” gave themselves scores that ranged between 35-59 points The respondents were asked to rate themselves against the competition on: – Utilize Written Plans – Plan For Changes – Planning Is Critical – Quality People – Learning 1st/Expectations 2nd – Manage Expectations – Up-to-date Technology Low High Rating – Management’s Clear Vision Rating 24% – Technology is a Competitive 27% Advantage – Financial Stability
Med/Low Rating 26% Med/High Rating 23%

For the most part, respondents spread across the four groups in an equal manner: – 27% of the respondents gave themselves high scores – 23% of the respondents gave themselves med/high scores – 26% of the respondents gave themselves med/low scores – 24% of the respondents gave themselves low scores

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II. Characteristics of Highest Performing Businesses The respondents and/or businesses, who gave themselves high ratings when compared to their competitors, have the following characteristics in common.

They are: – More likely to be a President, CEO, or Founder of the company – More likely to own over 50% of the company – Most likely to have a preferred supplier for their PCs – On average growing the fastest; 12.1% growth – On average plan to grow the fastest; 12.9% growth – Interested in becoming a company known for EXCELLENCE and has a desire to want to CONTINUALLY IMPROVE – More willing to take a long-term approach to improve business effectiveness – Financially solid, profitable, and have adequate cash – More satisfied with their CPA firm – Planning & Tracking is of high importance – More likely to make upgrades to their systems annually

High 27%

They have the: – Highest average annual revenue – Highest revenue per employee – Highest number of PCs per employee – Highest spend on CURRENT business and accounting systems per employee – Highest spend on IT Services per employee

© 2006, Six Disciplines Corporation. All rights reserved.

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Six Disciplines Corporation 1000 East Main Cross Suite 200 Findlay, OH 45840 www.SixDisciplines.com

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