National Business Improvement Study Results

www.ceoonline.com.au, July 2006.

In today’s corporate environment, along with the responsibility for running a business, there is a relentless pressure for continually improving performance. Year in and year out - be it through increasing profits, reducing costs, increasing production or increasing sales. Most managers readily recognise that there will always be opportunities to improve on current performance. The real challenge is to translate that potential into implemented dollar results.

To this end, New Focus was commissioned by Partners in Performance to conduct an independent national business improvement study among large Australian corporations, to understand the challenges faced.

The study was conducted among senior managers who had direct profit responsibility for organisations with sales greater than $250m, and was conducted “unbranded” to maintain its independence.

Key Findings:

• 46% of respondents estimate that their organisation could increase profit by more than 15% if they were able to realise the full potential of the business improvement opportunities available to them, yet 50% of them achieve less than half of the amount identified above (failure to execute).
• Of the savings that are actually implemented, greater than two-thirds of the CEOs were uncertain if these implemented changes would stick and be in place in 5 years time. This represents a huge drop-off in potential profits from identified improvements, through implemented improvements, and then to sustained improvements.
• The biggest challenge facing big business today, in the area of business improvement in the CEOs eyes, is the perceived lack, or inadequacy of, execution/implementation skills among managers and staff. Concerningly, few in the survey felt they had a solution to this problem.

Objective
The national business study primarily sought to understand the major impediments that faced managers in the areas of business improvements. The research also sought to understand the:

• Approach businesses take to identify business improvement opportunities,
• Success rate of implementing lasting business improvement changes,
• Potential impact on profitability of opportunities that are not fully realised, and
• Experience of business using external resources to assist with business improvement opportunities.

Understanding the respondents
The research was conducted with representatives from more than 50 of Australia’s top businesses. These representatives had profit responsibilities for their organisation.

The majority of respondents were:

• General Managers (31%)
• CEOs/CFOs (20%)
• Directors/Managing Directors (20%)

Nine in ten (90%) respondents described their organisation’s approach to business improvement as an integral part of the day-to-day running of the business.

Business improvement potential
Three in ten respondents (30%) estimate that their organisation could increase profit by more than 20% if they were able to realise the full potential of the business improvement opportunities available to them. Almost two-thirds (64%) estimate they could increase profit by more than 10%.

Only 3 businesses felt that an improvement of 5% or less would be gained by realising the full potential of business improvement opportunities.

Common impediments to realising the full potential of business improvement opportunities
The research suggests that the biggest challenge facing big business today in the area of business improvement is the perceived lack or inadequacy of skills among managers and staff to effectively implement change.

The lack of skills may be due to:

• Skilled labour shortages in a particular industry,
• Staff turnover, and
• Poor knowledge of what is best practice.

These points are highlighted by the following typical comments, provided by respondents when asked what restricted their organisation achieving its full potential:

“General lack of available skilled labour in the base metal/mechanical trades”

“Lack of professionals in country able to attain the potential”

“There is a fair amount of staff turnover, which means training is required and an acclimatisation period before opportunities can be identified and exploited.”

“A lack of best practice understanding and customer service culture development”

These impediments are common to both businesses that have higher success (greater than 50% of opportunity realised on average), and those who have relatively lower success (less than 50% of opportunity realised on average).

Realising business improvement potential and making lasting organisational changes
To overcome impediments in realising the full potential of business improvement opportunities, nine in ten respondents (90%) report that their typical approach was to develop internal initiatives to overcome impediments. Only 10% sought external assistance.

Fifty-percent of businesses reported achieving no more than 50% of the originally identified opportunities.

Less than 15% of businesses were highly confident (score of 9 or 10 out of 10), that changes that are implemented today will be “locked in” to the businesses and result in lasting change. The majority of businesses showed some hesitancy, with 52% rating their level of confidence as 7 or 8 out of 10.

Employing external assistance
Over four in five (82%) respondents indicated that their organisation had engaged external help to assist with business improvement in the last five years.

With previous results suggesting that the biggest challenge facing big business today, in the area of business improvement, is the perceived lack or inadequacy of skills among managers and staff to effectively implement change, it is not surprising that the most commonly engaged external assistance is in the area of building business improvement skills in the organisation (90%).

However, it was respondents who indicated that they had employed external assistance with implementing opportunities in the last five years, who recorded a marginally higher success rate in realising the potential of those business improvement opportunities (58% compared with an average of 50%)

Author: Partners in Performance (PIP) is an international business consultancy which delivers fully implemented results in the areas of cost reduction, procurement, de-bottlenecking, sales force effectiveness, maintenance, contractor management and general business improvement. For further information, please visit the PIP web site: www.pipint.com

Source: www.ceoonline.com.au, July 2006.
PIP is a regular contributor to CEO Online

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