Measuring the High Performance Enterprise
How Does Your Organization Measure Up?
Blackerby Associates helps any organization transform into a high-performance enterprise. A high-performance enterprise is...
What do these terms mean, operationally? How will you know if you are a high-performance enterprise?
Profit: High-performance companies make money for their owners. Measure profit with operating earnings (ΠO) or EBITDA: earnings before interest, taxes, depreciation and amortization, as a percentage of net sales. A high-performance enterprise usually earns operating profits of at least 10% of net sales:
Growth: High-performance companies gain market share, enter new markets and create new products and services. The dynamism of growth is a key to high performance. Measure growth (Γ) by the percentage change in net sales. Growth should always be positive, though any company can have one slow year, so calculate the average growth rate over two years, from two years earlier (Y-2) to last year (Y0):
Productivity: High-performance organizations create more value with fewer resources than their competitors. Measure productivity as value added per employee (VA/FTE): sales less purchases, divided by employees. This measure is comparable across most industries and business models. High-performance enterprises produce at least $90,000 VA/FTE per year; the top 10% achieve $120,000:
VA = Value Added: Net Sales minus Purchases
FTE = Number of Full-Time-Equivalent employees; one half-time employee is 0.5 FTE
COGSPURCH = Cost of Goods Sold, purchased parts and materials and non-payroll labor portions
SG&APURCH = Selling, General and Administrative costs, purchased portions, such as advertising, outside legal counsel, outside auditor, etc
Improvement: High-performance organizations continually learn, change and improve. If you’re standing still, you’re falling behind! Measure improvement as the change in productivity (ΔVA/FTE), year over year. Productivity growth should always be positive, but it may not be a smooth curve, so calculate the average improvement rate over two years, from two years earlier (Y-2) to last year (Y0). The highest-performing enterprises achieve improvement rates up to 2% per month:
Is your organization ready to transform?
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Updated January, 2021