The Research behind Profit Environment
The PROFIT ENVIRONMENT CALCULATOR FUNCTIONS shown on dashboards and dollar value/ cost reports are developed (with permission) from the survey items used by Maister (2001), whose sample sources are described below. PROFIT ENVIRONMENT survey items are also informed by studies by Gallop (Buckingham & Coffman, 1999), Shea & Olsen (2004) and various others.
The research shows that the ratings by staff of the quality of product-and-service experienced by clients is the most direct and powerful Human Factors predictor of future financial results. This makes sense because this is the only aspect of the 'Profit Environment' of an organization that a customer directly experiences. It is also interesting because it reveals that staff do have a valid perception of the quality of products and service that their customers actually get.
It also shows that great client service is itself a product of other things. It is delivered by people who have already been energised to deliver it by the skills and behaviour of direct supervisors. The research shows that financial success is not a property of firms (the systems of the business as a whole) so much as a product of the personal behaviours and relationships of the individual manager within each operating unit.
Maister reports that the most financially successful operations "share a number of characteristics":
Management is seen as operating in accordance with the firm's overall philosophy and values. They practice what they preach, and there are no disconnects between the walk and the talk.
Management is trusted by those they manage. Individual managers act in the interests of their group, not just to advance the manager's personal interests.
People's personal potential is being fulfilled and realized, according to the people being managed.
There is a high degree of loyalty and commitment, again driven by individual managers.
Compensation systems are equitably managed.
Firms do not compromise their standards in hiring simply to meet a capacity need. People quality is seen as high.
FPI Calculation and Structural Equation Modeling (Causal Modeling):
Four measures of financial performance were obtained from each of the offices studied (Column 1 below). These were combined through factor analysis into a single financial performance score (FPI).
|Elements of the|
Financial Performance Index (FPI)
% variation in FPI that can be|
explained by each factor (R-squared)
|Two-year percentage growth in revenues|| ||.27|
|Two-year percentage growth in profit|| ||.81|
|Profit margin|| ||.24|
|Profit per employee|| ||.53|
All FPI correlations are significant at the 0.01 level, as are the Goodness of Fit Index, Normed Fit Index and Comparative Fit Index in the causal model. This is the most rigorous significance level used by statisticians, indicating a less-than-1% chance that the findings are the result of chance.
Structural Equation Modeling (also called ‘Causal Modeling’) is a method for testing whether variables have causal (rather than merely correlating) relationships. A computer program (AMOS) tests the degree to which the proposed path diagram is supported by the actual data. In this case the causal model is displayed by the interrelated movements of the dials on the PROFIT ENVIRONMENT dashboard.
SAMPLE GROUP DIVERSITY
- The data came from a 74 item survey of 5,589 respondents in 139 offices in 29 firms in 15 countries.
- 68% of offices were in United States; the remaining 32% included Belgium, Brazil, Canada, China, England, France, Germany, Hong Kong, Ireland, Italy, Japan, Mexico, Netherlands, Scotland and Spain.
- The range of firm sizes was from one office to twenty-four offices. The individual offices ranged in size from 10 to 351 employees. The average number of employees in any given office was 43.
- The ‘employee’ in this survey included everyone working in the firm, from top to bottom, from top managers to mailroom clerks. No distinctions were made between partners and non-partners, owners and employees, managers and staff, nor between fee-earning staff and those in support roles.
- There were a total of 5,589 individual respondents (a 55 percent response rate), after eliminating offices with fewer than ten people and all employees earning less than U.S.$25,000 per year.
- The businesses covered in this study include advertising, public relations, brand identity consulting, health-care consulting, direct mail, internet (web) marketing, promotion, public affairs consulting, employee communications and many others.
- Businesses ranged from premium-fee consulting operations to low-fee, high-volume execution-intensive businesses. Some had immensely high leverage and some were staffed almost entirely with senior-level counsellors. Some businesses dealt only with the client's executive suite, and others worked through purchasing directors.
- Some had ongoing relationships that lasted for decades, while others had to compete every time for every individual project. Some are large, global operations while others are tiny, regional operations working far from major financial centres or other big cities. Related firms had significant autonomy, and every office was free to choose its own management style.
- Many national and cultural differences are covered in the database.