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Value Creation Blog

Why Good and Bad are Irrelevant

Posted by Josh Patrick

value creationI speak with many business owners.  Sometimes they are ecstatic because they’re getting better performance than they expected.  On other times they’re depressed because their performance is less than expected.  Most of the time neither of these emotions is justified.  In our coaching relationships we find elation and depression based on metrics are unjustified.

We all have variance in the processes in our business.  Sometimes the variances are better and other times they’re worse.  These differences have nothing to do with your people.  The variances do have a lot to do with being in statistical control of processes in your business.

For example, if your sales are $100,000 per month, you might see that some months your production is $130,000 and some months it’s $70,000.  We’re happy when production is $130,000 and we’re looking for someone to blame when it falls to $70,000.  In reality, both are expected because they are in statistical control.

Variance in a result is expected.  Most of the time we don’t accept variance in performance as a normal result in our companies.  We reward those who do better than the norm and punish those that do less, and most of the time the variances aren’t because of the work of any individual or groups of people.

When we reward or blame people for expected performance we concentrate on the wrong thing.  When we’re in statistical control people aren’t going to make things better or worse.  It’s the system that will determine whether our performance improves or gets worse.  There are times we have the wrong people in the company, but I first suggest looking at your systems before starting to blame people for poor performance.  Most people I see want to do a good job and are frustrated that their company doesn’t provide support: systems to do the job correctly.

First we need to make sure we’re in statistical control.  Being in control of our processes means that we are within three standard deviations of our norm.  If we’re either above or below that number we first need to figure out why.  We might find an outlier at that level, someone who has figured out a way to get extraordinary results, but if we’re within statistical control it’s time to start looking in a different direction.

It’s usually all about the system and not about the individual.  I’ve found that the vast majority of improvements we’ve made in any organization revolve around the systems we use and not the people who do the job.  It’s not that people aren’t important, they are, but when it comes to improving performance concentrating on systems is much more important.

In our example above, if our production plunged to $30,000 or rose to $200,000 we would want to examine what happened.  That’s not what we normally see.  We usually see a variance that’s expected from a statistical nature.  Understanding what normal performance in your company is the first step you should take.  Fix the outliers if there are any and then start concentrating on changing systems in your company that will move the needle in a direction you think important.

If you follow these three simple activities your company’s value will likely increase and everyone will be happier.

We’ve put together a report on a simplified budgeting process that might help in keeping your company in control.  To find out more about this report, click on the button below.

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Topics: systems, mission vision values and goals, value creation, strategic planning

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