Life is getting tougher in many industries driven by increasing customer and consumer demands along with the pressures of increased competition and low cost sourcing.
However PDS, a Birmingham based strategy implementation consultancy, has found hidden gems amongst its client base. These companies buck the trends and increase profit and shareholder value by outperforming the majority of companies in their industries. They have figured out how to increase customer value and capture some of it for themselves.
Paul Sheedy, Director of PDS, explained "our research indicates that most companies only need to have two to three world class processes to become extraordinary performers" and continues "the remainder of the processes used are necessary for the business to function but do not require the resource and expense that many organisations expend trying to improve performance. They have good faith that working on all processes will deliver superior performance".
PDS found this approach is often misguided because resource is diluted, costs are increased and strategic focus is lost. Companies can become introspective and ultimately reduce the value creation essential for their customers. Organisations in this situation can capture value for a while from their current processes but ultimately have falling or low profits as their value creation processes fail.
In order to have a continuing cycle of value creation, PDS learnt that companies must be able to mutate their business processes to cope with changes in customer and consumer demands. And, if this value is to be captured, the organisation needs to be able to replicate the two to three key processes mentioned earlier. It is this link between value creation and capture and mutation and replication which drives extraordinary performance.
According to PDS the key to developing extraordinary performance is to understand which processes are key and then to focus at becoming excellent at them.
In industries where profits of zero to 6% are the norm, extraordinary performers have profits of 12% to 16%.
Startlingly, PDS found that around 25% of companies included in the research only needed to improve one of their processes to become performers of this magnitude.