Preview: Is Financial Performance a Core Culture?

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The following is an excerpt from an article by CEO Advantage advisor Ellen Bryson.  The full article is scheduled to appear in the upcoming 4th edition of The CEO Advantage Journal. 

While there is no “right” purpose, I suspect there is a wrong one: financial performance.  When growth becomes your purpose, trouble is not far away.  McDonald’s discovered this in the late 1990s when they shifted their focus from “QSCV” (quality, service, cleanliness, and value) to building more restaurants.  By early 2000, McDonald’s had more than 28,000 restaurants with annual revenues in excess of $15 billion.  Two years later, they experienced their first quarterly loss since 1954. 

Starbucks had a similar experience.  In Onward: How Starbucks Fought for Its Life without Losing Its Soul, Howard Schultz shares how Starbucks lost its focus.  In effect, growth became their purpose.  Schultz says that financial growth is not a strategy; it’s a tactic.  He admits that when Starbucks began pursuing undisciplined growth as a strategy, their culture crumbled and they lost their way.  Ironically, the financial performance they were pursuing eluded them when it became their chief focus. 

 …In their book The Discipline of Market Leaders, Michael Treacy and Fred Wiersema talk about three distinct operational models: customer intimacy, innovation, and operational excellence.  In my experience as an advisor to CEOs and executive teams, I have seen each of these manifested as the driving force of culture.  I have never seen a thriving company with a culture centered on its own financial performance ahead of serving the customer.  Is financial performance important?  Of course!  But it is the result, not the cause, of serving customers well.

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2 Responses to “Preview: Is Financial Performance a Core Culture?”

  1. Ellen, I hope you receive the comment below in the spirit of good will in which it is offered:

    Unless you are a non-profit, or are in business to make friends, your core purpose is financial performance.
    Satisfying a customer group’s demand is the core business path to financial performance.
    If you have shareholders, it is a legal obligation that value creation be your goal.
    However it is a result, not a strategy.
    You seem to be using “financial performance” and “growth” interchangeably. It is muddling.
    I agree that growth as a strategic intent has been often abused in the name of presumed and often fictitious market-share advantages.
    But as McDonald’s and Starbucks found out, not all growth is value creating growth.
    As an adviser, you should be able to help CEOs distinguish between value-creating alternatives, some of which will involve growth and some of which might involve contraction. Value results from the combination of financial results and prospects that not only include growth rates, but rates of return on investment.
    As for “culture”, I think I agree with your assessment that promoting financial performance as the goal held out for the rank and file employees is encouraging them to take their eye off the ball (that being meeting customer demand efficiently), but if the culture at the CEO level and in the Board room is anything other than value creation, that company has a problem brewing.

    Michael Choniski
    Corporate Value Services
    Verdant Value

  2. Ellen Bryson says:

    Hi Michael,

    Thank you for your comment. I do not feel we are far apart in our views. Financial performance is essential in any successful business, even in a non-profit. We also agree that not all growth is value creating. I think our views differ mainly over the definition of “purpose” and how it impacts a company’s culture.

    When working with clients to define their purpose, we ask them to answer this question: “Why do you exist beyond making money”? This questions helps them get to their passion and provides the emotional connection with the employees and customers that is essential in creating long-term value and sustainabiity. It is the guide that motivates and inspires employees to continually create and provide the highest value to customers which in turn drives financial performance. This is a foundational element of a company’s strategy. Jim Collin’s book, Built to Last, is a great resource for more information on developing a company’s core purpose. It’s a great read with lots of insight.

    Ellen Bryson
    CEO Advantage Advisor
    Bryson Trails Consulting

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