Date post: | 12-Aug-2015 |
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Strategic Asset Management Inc. (SAMI), founded in 1996, spent many years researching the Performance Culture™
The Performance Culture model has since proven to have a remarkable capacity to: Identify obstructive issues Implement sustainable improvements, and Provide significant financial returns for those companies that utilize it
This presentation will discuss the financial return of the Performance Culture
Financial Return of the Performance Culture™
The Performance Culture
A proprietary series of models, tools and methodologies launched in 2012 that provides a unique approach to organizational improvement
The specific path to Performance Culture varies for each company but typically includes:
Organizational alignment initiatives Personnel development Efficiency enhancements Optimized cost structures Increased production volumes
Benefits of a Performance Culture include: Enhanced productivity A motivated workforce Higher employee satisfaction Improved asset reliability Reduced waste Increased efficiencies A safer work environment
…and an excellent Financial Return
Performance CultureDomains Purpose, People , Predictability , Performance Enabling domains (Purpose and People) focus on
leadership and organizational development Benefit domains (Predictability and Performance)
focus on elements which drive the financial results of the enterprise
This presentation identifies:1. Key variables for implementing The Performance
Culture2. The investments necessary to achieve a higher
level of financial performance3. The interrelationships of the variables involved in
the process
The Performance Culture Model
Four Stable Cultural States Each element of the four domains combine to
establish a set of behaviors The behaviors can be evaluated to determine the
cultural state of an organization We recognize four stable cultural states that
correlate to the sustainability of financial performance:
• Reactive• Compliance (Planned)• Objective (Proactive)• Inspired
Every organization operates in one of these states To change these states, significant energy (i.e.
financial investment) must be injected into an organization over a period of time
The primary categories of investment to implement the Performance Culture are:
• Baseline Evaluation• Design and Definition• Behavioral Coaching• Information Management
Implementing the Performance Culture requires a mix of internal and external human resources to support the change process
The resource mix is typically dependent on the size of the organization
The Investments
Company Classifications
Classification Staff Size Revenue Size Number of Assets
Small <500 <$250 M <5
Medium <1000 <$1.0 B <10
Large >1000 >$1.0 B >10
To properly frame the range of investment and return of implementing the Performance Culture, organizations must be classified as small, medium or large.
Note: The characteristics used for classification can vary by industry.
Resources - Small vs. LargeSmall Organizations: Typically are resource-constrained in their ability to
support the process More dependent on external resources Not ideal from a change management perspective,
but necessary to support ongoing operations and the change initiative
Large Organizations: Typically have more flexibility to assign resources
to support the process Typically develop deeper ownership of the
proposed changes
Internal Resources: Due to high variability, internal resources are
excluded from the investments described
Baseline Evaluation Purpose - to understand the magnitude of
the financial opportunity and the specific gaps
Approach - data-driven evaluation performed to focus on the current execution of business processes, supporting behaviors, and overall performance
Outcomes - definition of the stable cultural state and resulting levels of performance
Time Investment: 1 – 2 MonthsFinancial Investment: $125,000 - $500,000
Design & Definition Purpose - design detailed business processes
and define the supporting behaviors required to sustain a new level of performance
Approach – engage the organization to develop ownership of the changes
Outcomes enhanced business processes recognition of functional interdependencies defined measurement and reporting understanding of new behaviors, and recognition that new performance levels are
achievable
Time Investment: 2 – 3 MonthsFinancial Investment: $200,000 - $500,000
Behavioral Coaching Investment tradeoffs regarding:
ratios of internal versus external resources time versus number of resources the number and sequence of assets, and the organizational level of coaching
The journey to sustainable behavioral change is largely a function of time and discipline
Purpose – embed the new processes and behaviors
Approach - coaching begins with specific and detailed training on the new behaviors and the respective business processes
Outcomes – new levels of sustainable performance
Time Investment: 12 – 24 MonthsFinancial Investment: $1,500,000 - $10,000,000
Information Management Large organizations need comprehensive
information management systems to understand performance variations
Smaller ones can suffice with rudimentary information management systems
Purpose – install adequate information management systems
Approach – define processes and behaviors and configure supporting IM accordingly
Outcomes – timely information available to manage continuous improvement
Critical aspect of implementation - measurement of behaviors and sustainability gaps
Time Investment: 1 – 6 MonthsFinancial Investment: $50,000 - $1,000,000
Organizations can expect substantial returns over the short term
Most organizations will ramp up to near steady state benefits in three years
The primary sources of return are:
• Production Volume• Operating Expense
The Returns
Higher Production Volumes Higher production volumes are achieved by:
decreasing variability increasing asset availability
The returns cited below are achieved in the absence of significant capital investment and are the result of functional process improvement supported by behavioral modifications
Volume Increase: 2 – 5 PercentFinancial Return: $5,000,000 - $50,000,000
Note: Market conditions must be favorable (sold out, price stability, distribution capacity, etc.) for the organization to convert the additional volume into revenues
Lower Operating Expenses Lower operating expenses are achieved by:
increasing efficiency increased staff productivity reduced contracted services reduced levels of material consumption reduced logistics fees
Conservatively assuming the operating expense of the company represents twenty percent of revenues, the following returns have been achieved:
Expense Decrease: 10 – 20 PercentFinancial Return: $5,000,000 - $40,000,000
Existing or New Assets The scenario presented has been achieved in
existing (or brownfield) assets that have reached steady states of operation
The Performance Culture model is just as applicable to new (or greenfield) assets and the organizations supporting them
To reach steady state operations in the most efficient and expeditious manner, new organizations must define the desired cultural state
Economics and timing are different for greenfield assets and organizations
Returns can be just as substantial, largely based on cost and loss avoidance during the progression from startup to steady state
Summarizing the Financial Return on InvestmentAfter implementation the Performance Culture, Return On Investment over a 4-year window represents a value proposition much greater than alternative improvement initiatives..
Small Organization Large Organization
Investment Return Investment Return
Year 1 $1,500,000 $2,500,000 $4,900,000 $15,000,000
Year 2 $375,000 $6,250,000 $5,000,000 $52,500,000
Year 3 $0 $8,750,000 $2,100,000 $75,000,000
Year 4 $0 $10,000,000 $0 $90,000,000
Totals $1,875,000 $27,500,000 $12,000,000 $232,500,000
Financial ROI 14.7 : 1 19.4 : 1
Implementing the Performance Culture represents one of the most compelling business cases for any organizational initiative
The challenges of implementing the Performance Culture are many and difficult, but the financial returns are worth the effort
Conclusion