So within a few months at most, incomingCEOs and general managers must identify ways to boost profitability, increase market share, and overtake competitors – whatever the key tasks may be. But they cannot map out specific objectives and initiatives until they know where they are starting from. Every organization, after all, has its distinctive strengths and weaknesses and faces a unique combination of threats and opportunities.Accurately assessing all these is the only way to determine what goals are reasonable and where a management team should focus its performance improvement efforts.
Embarking on this kind of diagnosis, however, can be daunting because there are countless possible points of entry. Your company’s operations may span the globe and involve many thousands of employees and customers. Should you start bytalking to those employees and customers or by examining your processes? Should you focus on the effectiveness of your procurement or analyze your product lines? Managers often begin with whatever they know best – customer segments, for example, or the supply chain. But that approach is not likely to produce either the thoroughness or the accuracy that the management team and the business situationrequire. What is needed instead is a systematic diagnostic template that can be tailored as necessary to an individual business’s situation. Such a template has to meet at least three criteria: It must reflect an understanding of the fundamentals of business performance – the basic constraints under which any company must operate. The template must be both comprehensive and focused – covering all thecritical bases of the business, but only those bases, without requiring any waste of time or resources on less important matters. And it should lend itself to easy communication and action. This article presents a template that we think meets these criteria. It is built on four widely accepted principles that define any successful performance-improvement program. First, costs and prices almostalways decline; second, your competitive position determines your options; third, customers and profit pools do not stand still; and fourth, simplicity gets results. Along with each principle, we offer question sets and analytic tools to help you determine your position and future actions.
We developed and refined this template over our combined 50-plus years of working with clients, nearly all ofwhom have needed to perform an accurate diagnosis quickly. We have recently used it both with large corporations and with private equity firms evaluating the potential of their portfolio companies. We tested it through a series of research studies and interviews that we conducted in preparation for writing the book from which this article is adapted. Our experience and research convinced us thatthe template is a powerful tool. Its four principles cover the critical bases of virtually every business, providing managers with the minimum information required for a comprehensive diagnosis. Of course each manager will have to decide which elements of the template to emphasize (or de-emphasize) based on his or her business situation.
A word of caution: As the article makes clear, you will...