The last 18 months have been a corporate wake-up call: uncertainty, scandal, stock market meltdown, business failure, losses, new regulations, excess capacity, double dip, triple dip, stagnation, recovery, recession, depression, deflation, inflation. Too many senior executives allowed their operations to become fat, happy, and lazy through the bubble cycle, losing sight of true performance management in the shadow of performance manipulation. It was too easy to let basic business disciplines become lax. Confronted with dramatic market, economic, and socio-political change coupled with unprecedented competitive pressures, the survival of business and individual careers hinge on adaptation and rapid strategic renewal.

Survivors in today's corporate wasteland have solid balance

sheets, reliable and consistent cash flows, demonstrable competitive advantage or differentiation, effective customer relationship management, determined cost management, and a capacity for well-directed change implementation. "Optics" and other camouflage for chronic management inertia or incompetence will no longer

suffice. Winners are positioned for effective rapid response in both offense and defense.

Business management needs a return to fundamentals, self-discipline, and a renewed understanding of (1) what is really done in the business; (2) why it is done; (3) how it is done; and (4) how well it is done. Whether among the survivors or the thrivers, it's never too late to discover the perennial values of "Management 101": effectiveness and efficiency.

The effectiveness and efficiency focused tools of performance management (strategic alignment, process inventorying, key process relationship analysis, process impact analysis, performance loops, process ownership and measures) help determine corporate vital signs, identify weakness, and stimulate curative action to restore good health. Used in conjunction with a solid understanding of actual costs and how they are driven by human spending behaviors, a comprehensive performance architecture can be developed as a template for companies that are at risk and in need of strategic renewal.

Back-to-basics practices usually involve deliberate renewal efforts. To renew an understanding of (1) what the business does, (2) why it does what it does, (3) how the business operates, and (4) how well the business operates, people who have worked together for years must learn a more comprehensive view of their work interrelationships than is possible over the chit chat of daily coffee breaks or lunch. Although many people work for the same organization for many years, without a deliberate periodic perspective check, most people lose sight of how the business evolves and how its many components work holistically.

A balanced agenda that combines process mapping and team-based presentations and participation will give most employees the first truly "end-to-end" perspective they have ever had on the business and the processes that form the basis of (1) what the business does, (2) why it does what it does, (3) how the business operates, and (4) how well the business operates. Process mapping demonstrates the flows, the interrelationships, and the disconnects across the organization. After walking through the activities and issues associated with typical throughputs, each department head and operating manager presents their own section of business operations to their peers. Subsequent questions in the context of total participation sharpen their awareness of process interrelationships.

The team then uses their new intelligence and perspective to identify ways to dramatically improve quality and productivity and to drive significant cycle time out

of operations. While some improvements are detailed and implemented over time, people usually commit to many new improvements immediately upon leaving the meeting room. Surprisingly, major benefits accrue from the simple expedients of improving communications and doing things right first time.

Defined as both "a restoration to an original state" and "a new beginning," renewal efforts present two quite different aspects, each of vital interest to today's managers. While the competitive landscape may demand new strategy formulation and implementation (a new beginning), what if the real problem is the effectiveness and efficiency of the organization itself?

The need for strategic repositioning is often clear without having to apply any checklists or special tests, but rose-colored glasses can distort the image. For example, given the obsolescence of most of the recently popular telecommunications strategies and an increasingly hostile, competitive, and demanding market, many have not internalized the unpleasant current realities in their operating divisions; they continue to patch and paper over the old strategies and objectives with more of the same. Similarly, the finance sector is discovering that its immediate well-being is threatened as bubbles burst, the global economy tanks, deflation looms, defaults increase,

and both corporate and consumer credit enthusiasm wanes.

From the perspective of day-to-day practical operational effectiveness and efficiency of business basics, the signs of dysfunction and of subpar performance are usually obvious in ailing organizations—when you know where to look. Management simply misses or misreads the signals. Just listening to the "noise" around the business (shareholder behavior, regulator pronouncements, customer comments, vendors input, employee chat, and other stakeholder feedback) or surrogate operational statistics (complaints, returns, rework, rejects, absenteeism, breakdowns, grievances, and competitive comparisons) yields a lot of useful information. However, if a sharper approach is needed, several tools can quickly diagnose symptoms at the level of the business.

Starting with an examination of performance against measures is a logical, but often unproductive, starting point. Unfortunately, effective, integrated, operational performance measurement continues to be perhaps the weakest link in corporate management. If the measures are flawed—not rigorously deployed and integrated horizontally and vertically, or not actually linked to drivers of performance—they do not provide useful managerial information. An effective alternative is to conduct a comparative financial analysis to industry or competitive norms, with close attention paid to balance sheet, profit and loss, and cash flow statement elements,

conscientiously stripped of distortions such as employee stock option accounting (or lack of it), aggressive pension assumptions, and off-balance sheet manipulations.

The Economic Profit/Economic Value Added (EP) approach can help in this regard, and it will become increasingly common as a performance evaluation template.

If a company's Net Operating Profit After Tax is not consistently returning an excess over its cost of capital, it is dissipating, not creating, wealth and is a candidate for strategic renewal.

However, if technical aspects of cost of capital, capital weighting, time effects, projections, assumptions, and static versus dynamic assessments are intimidating, the well-known Altman Z-Score Formula, "The Bankruptcy Predictor," is an excellent, comprehensive, and easily applied tool for this purpose (see Exhibit I).1 Its benchmarks are well understood. Scores under a certain level almost certainly indicate imminent or short-term bankruptcy. Scores tilting towards these levels represent

a call for action. As an indicator of the need for strategic renewal, this quantitative tool stimulates constructive corporate action looking at score level and trend. Action plans can be strategic or tactical, but they would focus on producing positive movement of the factors in the formula, which, in the absence of a formal strategic measurement framework, would constitute a temporary surrogate for strategic improvement. Organizations can apply a formal Strategic Renewal Checklist when they need more qualitative information to support the quantitative information during their strategic renewal process. The abbreviated example in Exhibit 2 should be expanded to include questions that address Finance, Information Systems, Human Resources, and other key stakeholders.

There are many excellent approaches available for strategy formulation, calibration, or updating. However, any comprehensive and consistent model will assess the current and future strategic landscape, identify critical success factors, set strategic goals, uncover critical business issues and plan actions

to implement strategic thrusts and achieve strategic objectives. In doing so, corporate strategy will concisely answer the 13 key questions."

1. What values are going to guide our business?

2. How far down the road are we going to look?

3. What assumptions about the external environment (regulations, the economy, resource availability, technology, competition, the market, etc.) underpin our strategy?

4. What existing and new products and services will we be offering (and not offering)?

5. What criteria will we use to evaluate a new product or service opportunity?

6. What existing and new customer groups will we be serving (and not serving)?

7. What criteria will we use to evaluate a new market opportunity?

8. What factors (price and/or the various dimensions of quality, service, etc.) are meaningful to our customers?

9. Which of these factors will represent our competitive advantage (s)?

10. In which of our current product or market areas will we be placing the greatest emphasis (resources and attention)?

11. In what new product or market areas will we be placing the greatest emphasis?

12. What financial and non-financial measures will we use to assess the viability of the strategy?

13. How does our strategy implementation plan ensure that:

 Department goals, design, and management support the strategy?

 Process goals, design, and management support the strategy?

 Position/people goals, design, and management support the strategy?

As Alan Brache put it, "The 'dollars to shareholders' component of the business is a measure of how well the organization has addressed these thirteen questions."3

Another researcher, Ben Tregoe, defines strategy as, "The framework which guides those choices that determine the nature and direction of an organization."4 The strategic decision-making framework should penetrate and instruct every decision-making point in the operation. As a practical test, an organization's personnel at all levels can answer these thirteen questions clearly, unambiguously, and unaided. They can demonstrate how they are influenced by their answers in their day-to-day activities and decisions. If they cannot do so, some important aspect of strategic implementation or its management

is deficient and strategic renewal is indicated.

Obviously, the answers will be incomplete or deficient without a firm understanding of costs. Weak cost intelligence undermines management decision making, and consequently, priorities and resource allocation also become weak or distorted. If so, incorporate some fundamental cost research, such as Activity-Based Costing or Resource Consumption Accounting, into your strategic renewal evaluation and change effort.

To illustrate, in one ABC initiative, a consumer goods manufacturer discovered that: (1) 80 percent of their revenues came from 20 percent of their customers; (2) 20 percent of their customers generated 300 percent of their profits; and therefore (3) the other 80 percent of their customers lose 200 percent! With the potential to triple its profitability by being more selective, this company immediately became much more discriminating in its marketing and sales. Sometimes a "new strategic beginning" is as easy as that.

These assessment and formulation methodologies mesh with popular strategic and tactical practices such as those described in Zook and Allen's "Profit from the Core," Kaplan and Norton's "Balanced Scorecard," Tregoe and Zimmerman's "Top Management Strategy," and with vital strategic

support methodologies such as Activity-Based Costing/Management, Customer/Stakeholder Value Added, Performance Management, EVA/EP, and Process Re-engineering.

Larry Bossidy, talking about his turn around success at Honeywell, pointed out; "Execution is a discipline and must be built into a company's strategy, its goals, and its culture. And the leader of the organization must be deeply engaged in it."5 Renewal in the form of "a new beginning" requires reformulation of strategy. This may involve a major change or a series of less dramatic modifications to key elements. Restoration renewal requires back-to-basics, hard-nosed Management 101. The implementation and sustaining of strategic change requires the same tough, deliberate follow-through that epitomizes business basics.

Exemplary execution is the key to sustainable change and a critical success factor for survival, whether an organization is implementing reformulated strategy or just tightening up all of its operations and processes. Assuming the organization in renewal has worked out its future-oriented answers to the 13 strategic questions or has completed an equivalent strategy formulation exercise, a strategic change agenda must be identified and its effective implementation planned. The strategic change agenda is the set of changes necessary to move the organization from where it is now to where it wants to be. Every change element or change cluster in the agenda must be planned and implemented.

Excellence in execution is not possible without an acute understanding of and sensitivity to the way the business really works— the performance architecture that diagrams how business activities are wired together and how material and information flow to support them. Organizations can determine their performance architectures by answering these straightforward questions:

 How do things happen here?

 What triggers them?

 How are we really performing now?

 How do the parts fit together?

 Where are the decision points?

 Are we organized and operating as effectively and efficiently as possible?

 What assumptions are we making and what constraints are we accepting?

 How do these assumptions and constraints affect our performance and are they valid now?

 How will our future assumption and constraint set affect us?

 Where are the leverage points for performance management?

 Where are the opportunities for improvement?

 What should our priorities and resource allocation criteria be?

 How can we make change happen?

Performance architecture then becomes a tool that can be used to clarify what is or what should be, to identify the gaps that constitute the corporate change agenda,

to stimulate and plan change, and to organize to produce results in a complex internal space and a competitive external market place.

Specifically, a company's performance architecture is basically a model of the way its major activities link together that thereby clarifies drivers, leverage points, potential hot spots, and integration mechanics. Based on the principle that whatever is done in an organization is done via its processes, it is a simple, easily established picture that captures the company's major processes and demonstrates input-output interrelationships.

A logical starting point for elucidating performance architecture is to compile a Process Inventory at an appropriate level of detail and then to use it to create a map. Because it is output-focused, this graphic depiction of performance architecture channels attention to the results levers (leverage points) and/or potential problem areas (hot spots) in the business. It encourages the development of, and provides an ideal platform for, a set of business-focused measures that can be deployed rigorously right into the heart of operations. Real performance-oriented measures are a rarity below the whole-enterprise level of the corporation. Meaningful customer- and corporate-oriented measures often lose their way as points of action between employees and the processes they support.

Performance architecture models can be used to create a consistent, clear, two-way line of sight from on-the-job measures to corporate strategic goals by showing employees their role

in the service of customers, shareholders, and other stakeholders. It allows them to make better independent, empowered decisions at critical points where the processes they oversee affect customers and profits.

Because they are designed to be comprehensive, performance architecture models can be used for analyses, improvement or redesign, training, education, communication, and interdepartmental or cross-functional management. Once the current performance framework has been mapped it can easily be probed for weak points, problems, and performance opportunities. It can also be used as a design template for directing strategic change by modifying it to reflect the demands of new strategy, thereby creating a revised model to serve as a guide to implementation.

Executives and senior managers can use performance architecture models to decompose existing or projected strategic plans so that appropriately aligned strategic performance measurements can be matched to key processes and activities. This entails the detailed examination of the constituents of each corporate level measure, looking at the performance variables that frame or underlie the measure. As they are resolved into their most basic elements, these variables can ultimately be linked to the processes that affect them most directly.

Every business measure can be easily broken down into its component parts. A classic example in the financial measures arena is the Dupont Return on Investment Model shown in Exhibit 3, originally developed by E Donaldson Brown of Dupont in the 1920s and employed as the dominant form of financial analysis into the 1970s. It demonstrates possible

linkages to key processes needing attention because key financial factor variables in the ROI hierarchy are hypothetically deficient. For example, if along the "operating assets" segment some deficiency is isolated in the Accounts Receivable component of Current Assets, it can be linked directly to the Billing and Receiving Process and prioritized for improvement.

EP factor analysis or their derivatives will ultimately become the standard for a more surgically precise examination of performance change agenda options in strategic renewal and improvement planning. However, the first couple of layers of its decomposition hierarchy, regardless of which equation elements are chosen for breakdown, consist of surface variables dependent on potentially controversial aspects of weighting, timing, assumptions, and dynamics. Alternatively, Customer Value Analysis (CVA) might supplant EP factor analysis if its analytical framework

can be more practically extended across operations than at present.

When using formulaic focusing tools like EP or the Altman Z-Score, reversing negative trends and/or remedying weak scores must address individual formula components to identify the principal points of weakness and finding opportunities in operations to get performance back on track. If key contributing processes and subprocesses cannot be intuitively linked to formula variables, these variables should also be decomposed.

Well-managed business basics are also the result of exemplary execution within the performance architecture of the business. Effective senior managers understand the key strategic and tactical processes in their operations and ensure that these are measured and managed. Process ownership and

accountability are important assignments, each made at the activity-based level within the corporate hierarchy. The organization encourages fact-based, consistent decision making, focuses employee empowerment at key points of action with a "do the right things right," and rewards a mindset of automatic rapid response, troubleshooting, and continuous improvement.

A key action plan deliverable should be a set of results-focused measures with an associated performance framework that clearly indicates how corporate measures or scorecards should be deployed throughout the organization to specific points of action and responsibility. Executives often resist output-oriented, results-focused measures and accountability because they focus too directly on identifiable and attributable performance responsibilities and accountabilities. They

would rather maintain the relatively diffuse, easily fudged and hard to attribute accountabilities common under traditional functional, budget- and allocation-driven measurement schemes.

Regardless of the tool used to source and scope the change agenda, good execution in implementation requires planning and attention to detail, especially on the people side. It is not just disciplined project management. Together with the people items raised in Phase Four, measures, accountability, management, commitment, and communications remain the foundation of business basics.

In the context of change management, the most constructive way to systematically reflect, manage, and exploit the

organization's character is to recognize its inherent, underlying structure together with key business performance loops—the various spheres of separate but integrated performance influence embedded within the business (see Exhibit 4.) Any entity, including government agencies and not-for-proflts, should be driven by a clear strategy. Ideally, the organization's structure and its process structure should align and be linked to a performance system that enables and promotes the achievement of strategic goals. Similarly, its functional substructure of strategic business units, divisions, departments, operational entities, support units, and process inventory will be aligned with the overall organization structure and system to maximize corporate performance. And on the human side, the jobs of individual employees, supervisors, and managers must be

aligned with the objectives of their units and with the requirements of the processes to which they contribute.

Detailed in the bottom half of Exhibit 4, these three spheres of leverage are (1) the Strategic Loop, (2) the Management Loop, and (3) the Activity Loop respectively. Together, the three performance loops vertically link the horizontal components of the business' performance architecture. The diagram in the top half of the exhibit shows how measures are set, how they flow, and how they are collected down the system/process/activity aspect of the organization as a system and how they are managed and consolidated back up the job/function/organization aspect of the organization.

To implement effective, lasting, and sustainable change, each of these loops must be addressed in a

fully integrated framework in any strategic renewal action plan. The people side (job/function/organi-zation) must be sensitively managed, considering the natural resistance to change, as people are engaged to create and sustain change in the systems side (system/process/activity) where they intersect with the processes and information systems of the business and vice versa.

To the degree that new strategy addresses management basics (measures, accountability, management, commitment, and communications), it will inevitably include changes in business direction, management methodologies, policies, measures, and accountability, including process ownership assignments. These are addressed, planned, and executed in the Strategic Loop. Modifications in function and process management, re-prioritization, and resource reallocation occur in the Management Loop. Execution and spot and continuous improvement must be planned where human beings intersect with processes in the Activity Loop.

Successful managers have discovered an easier and more effective mechanism to raise the probability of change implementations. Using performance management tools and templates, they proac-tively build contingent and preventive action plans into their programs to recognize and offset the natural (and healthy) resistance their employees and managers manifest to change while addressing their own past deficiencies in handling major change initiatives.

Effective implementation and follow through are impossible without well-thought-out and extensively deployed measures. Just as corporate strategic and tactical leverage points and priorities cannot be determined in the absence of pertinent performance criteria, how can anyone know when implementation is finished or how to manage in follow-through if measures and associated accountabilities are nonexistent, weak, or inappropriate.

Looking beyond the shadow of 2002, strategic renewal is a deliberate four-step process.

1. Diagnosis and Prognosis

2. Revisiting Strategy

3. Renewal Action Planning

4. Implementation and Follow Through

The first three steps can be completed in less than three months by any organization willing to commit itself to the task. The duration of the fourth step obviously varies according to the nature and degree of change required, but can be planned in practical stages. In the hands of competent management, implementation start-up usually produces immediate performance improvement results, often simply because senior management clarifies just what they expect and how they will support their expectations.

Follow through is a life's work. As Thomas Jefferson said two hundred years ago, "The price of liberty is eternal vigilance"; in business, "The price of successful growth and profitability is the continuous maintenance of dynamic strategy and the laser-like focus on business fundamentals." Back-to-basics management is never simplistic. There is no shame in defaulting to the proven fundamentals. In fact, any close examination of current management fads will show that they are rooted in or derived from essentially the same long-standing core set of principles.

Understanding and applying performance architecture to provide a visual template on which to overlay both systems and methodologies in proper alignment will facilitate their constructive integration into full support of strategic and tactical objectives. •