Last month Paul Cook suggested chief executives need to look at more than numbers to find out if their businesses could be doing better. This month he explains how one business did so.
My experience of working with many lessors has led to the definition of about 50 key organisational capabilities which characterise successful leasing companies.
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Organisations need to be clear about what these capabilities are, and which ones they need to excel at to be successful
So just how do companies go about determining what they are, and what should they do about them?
Let’s get into the case study.
Last year I worked with a major UK leasing company which had emerged successfully from the post-2008 financial crisis, and was keen to push on and build on its success by constructing a longer-term, more challenging plan.
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By GlobalDataIt knew there was ‘headroom’ in its markets, but needed to know what to build, not just what numbers it might be capable of achieving.
To do that, its senior management team embarked on a five-step process:
Step 1: Understand the 50 capabilities best-in-class lessors have.
It’s important that these are not generic. They must be specific to asset finance, and simply would not be relevant to other industries.
These capabilities fall into both ‘horizontal’ categories, which span all of an organisation’s business units (strategic, business management, operational and infrastructural) and ‘vertical’ categories which are business unit-specific (sales and marketing, finance, risk and operations).
Companies need to understand how these capabilities fit together, why they matter in asset finance, and why they could be important, before they decide whether they actually are important.
Step 2: Restate the overall strategy.
The strategy needs to be expressed in straightforward terms, so each member of the senior team recognises it as representative and accurate (it can be surprising how many senior teams aren’t even in the same church, let alone singing from the same hymn sheet). Creating this common ground is vital, in order that disputes do not arise through the next part of the exercise.
Step 3: Undertake a self-assessment exercise.
With an agreed strategy in place the team then identified which capabilities were important by considering each one individually and asking two questions:
"Do I believe this capability is a prerequisite to the successful execution of our strategy?"
"If so, do we already possess it to the extent needed, and/or do I believe our existing change programme will deliver it?"
Where the answers were "yes" and "no" respectively, the capability became a target to create.
Within the senior team, this was an iterative and reasonably democratic process. After the senior team had answered individually and privately, the results were aggregated, and some refinements made via facilitated discussion to reach a final position.
In this case, 12 of the approximately 50 capabilities were identified as vital for further development.
Step 4: Take a more structured look at the organisation’s ongoing change programme and less formal business initiatives (which weren’t known about in all cases by all of the senior team), to establish whether, and to what extent, they would deliver the 12 key capabilities identified at the end of stage 3.
Step 5: With that knowledge, recalibrate the change programme and business initiatives accordingly.
Some needed to be stopped completely. Others needed to be grouped into programmes to deliver more targeted outcomes. And new ones needed to be kicked off, with terms of reference and investment cases created.
Trying to do better things
These steps look sequential and logical. The reality was, however, that the participating senior leaders were, at various times during the process: surprised, defensive, off-topic, enthusiastic (to name just some of their reactions) which made external facilitation vital to keep the process on track.
I think it’s worth tracing the progress of just one of the capabilities that this large lessor identified.
As part of step 3, the senior management team identified its 12 key "haven’t got, must have" capabilities.
The one which received the strongest endorsement was the following:
"establishing, executing and continuously improving the processes and procedures which will enable the achievement of key performance indicators".
This included the documentation of best practice processes, being clear about the distinguishing features of ‘flow’ and ‘non-flow’ business, and defining and working to service level agreements (SLAs).
During step 4 of the process, the senior management team discussed how an existing process redesign programme which was under way fitted with their ambition to create "best-in-class" processes.
The team realised the programme was a classic example of ‘trying to do things better’, rather than ‘trying to do better things’.
Specifically, they were attempting to reduce the number of hand-offs and procedural checks which were taking place in their phone-based sales operation.
Nothing wrong with that of course; a perfectly laudable aspiration. But they hadn’t posed the question: "How can we direct more of our more straightforward business to our phone channel?"
They weren’t questioning the business rules which were in place around what made a finance deal suitable for the lower-cost channel.
By doing so, and expanding its scope, they were able to harness much bigger operational cost savings than simply making an existing channel more efficient.
Consequently, the team examined the relevance and validity of the rules determining which channel sales were to be handled through.
Only those with genuine complexity required involvement by field-based sales teams, and that wasn’t necessarily determined by size – a £1m deal could be more straightforward than one for £250,000, and so benefit from the low-cost origination model.
This kind of example might seem obvious – of course that’s what their process redesign should try to achieve! – but the important point is that by going through this exercise, existing shortcomings became apparent in a way that was not previously appreciated, and the opportunity to redesign projects and initiate new ones was created.
Paul Cook is a consulting director with Challenge Consulting
