I met a CEO of a large publicly traded company a few years ago who asserted that top management in a large company’s responsibility is to ‘balance the needs of shareholders, customers, employees and suppliers’ – what we collectively call stakeholders.
I disagreed. I said that I thought the function of senior leadership is to maximise performance capability – not “Balance” anything. Their single focus should be to maximize performance.
We only need to theorize about how to define performance capability and results in a large enterprise when we don’t understand it’s function – which is to maximise the performance capability of its people and products. The role of senior leaders is to maximise capability output by defining the context and ensuring others understand it. This is the single and only consideration in maximising shareholder value.
No stakeholder cares about the size of the company, it’s layers of management or it’s morphology. Only what the company is actually good a doing. This is Performance Capability. Ask yourself this question; ‘what are we actually good at doing?’
Though all companies manage differently, we should define performance capability in the same way. How, then, do the institutional owners define performance and results?
Consider this truth, most companies want Performance i.e. output, productivity revenue and results. However, what most enterprises lack is Capability. Capability is what defines and drives Performance. Capability precedes Performance. Building capability should be a single focus in our corporations today. In effect, Performance is what companies want but Capability is what they actually need. Thinking Performance before Capability effectively positions the cart before the horse.
It is this objective that integrates short-term and long-term results and that ties the operational dimensions of business performance – market standing, innovation, productivity, and people and their development. It is also this objective on which all the constituencies- whether shareholders, customers, or employees- depend for the satisfaction of their expectations and objectives.
If your enterprise is balancing between short and long-term performance variables- market standing, innovation, productivity, and people development–and short-term profitability. Decide whether these trade-offs are healthy for the enterprise.
Great companies maximize the performance capability producing capacity of the enterprise. This is its single and only function in creating superior value in the marketplace.
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© Ben Benson
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