Return, result, performance: or differentiating the terms of the activity

PERFORMANCE

Performance is expressed as the difference, primarily but not exclusively in quantitative terms, between a starting level (or state) and an ending level (or state) of the organization's activity. Performance can be positive or negative. It adds to, or subtracts from, as the case may be, the starting magnitude (or value) of the activity under consideration. The return cannot be zero (a 'no deviation' is in itself nonsense). In the absence of any activity, just as in the absence of productivity even if there was an activity, there will be no return, and not a 'null-return' since return expresses a difference in the condition of the organization. We will then say that there has been an absence of return, and not a null-return (a 'non-divergence' does not express a difference between two states of being).

Return implies an interval, a differential, a variation, a distance between the level (or state) of arrival and the level (or state) of departure of the organization's activity. Return can be lower (minimal), average (normal), or higher (optimal). Minimal, it satisfies the condition of positive expression of the organization's exercise result through its operations. Optimal, it corresponds to the higher level of result that can be achieved through the use of resources, taking into account the organization's management policies and product offerings. Normal, it places the activity within a range of results comparable to the level obtained by the average of other organizations in the same sector of activity. In sum, return, which expresses an economic value, must be qualified through the market, based on a weighted comparison of factors with all competing organizations in the same sector of activity.

Typically, an organization cannot consistently sustain an optimal level of return without risking unnecessarily depleting all the resources it will have to compete. More generally, the organization will aim for an optimal rate of return on the use of its acquired resources, which will not be limited, although it will sometimes, and even often, exceed the average return on the activity carried out by the other players in its sector of activity. The majority of organizations have a normal (average) return. As for the maximum return, it is in principle impossible, since it would presuppose that the organization has reached an impassable level of productivity ('perfect' by definition).

There is no known ceiling to the return of organizations, simply because there is no known limit to the possible improvement in the management of the organization's affairs. All organizations are perfectible, on every one of their operating dimensions, unless they exceed the physical, technological, or human resources available to them at the budgeting stage of their activity. In this case, they will be in deficit at the end of the financial year, without this having emptied the question of their possible reform in terms of modes, methods, and practices of activity and business management.

THE READING

The result is an end-of-period status reading on the organization's activity. It is limited to one fiscal year and can be positive or negative. The result cannot be non-existent. It exists, whatever happens. If the result did not change the previous level (or state) of achievement of the organization, it will be said that there was no return, and not that there was a null return for the year (a 'nil-return', not to be confused with a lack of return, is illogical). But the absence of a return, even if it does not express a difference of state in the organization's situation, does not in any way obliterate the existence of a result (reading) at the end of the fiscal year. Because the activity will have taken place, the operating result may be nil, without this absence of return being qualified as a "nil-return". There will have been an absence of deviation (return) on the condition of the organization, but there will still have been an exercise result (status reading).

The result is quantifiable and qualifiable. The result will be large or small. However, there can be no 'nil result' over any period, even if there was no commercial activity during the period in question. Because the organization's available resources will have been legally exploitable, then the result will be said to have been zero. Even if an organization is inactive (unproductive), commercially speaking, it will present a result (status reading) each year. Its resources, having remained stationary (unexploited) for whatever reason, did not have to constitute inoperative assets concerning the organization's mission. The organization's mission remains a business imperative for it, and only the legally extinguished (dissolved) organization no longer carries any obligation in this regard, in the eyes of its (former) owners.

The result, at least its level, about the starting point of the measure, will be insufficient, sufficient, or exceptional. If insufficient, it will be lower than the expected level of progress on the activity. Sufficient, it will reach, or even slightly exceed, the expected level of deviation from the starting point of the activity. Exceptional, it will be higher than the expectations formulated at the beginning of the activity. Any productive organization usually aims to achieve at least a higher result than its competitors in its reference markets. It thus wants to ensure that its usefulness to its main customers will generate sufficient positive spin-offs to enable it to continue its activity on a more sustainable basis. However, the level of return is never guaranteed by the target set for the business at the beginning of the fiscal year. It is a consequence of the quality of the organization's business management, in the space and time it will have available to better add value to its activity.

It is through the learning curve, that the organization will show its progress on its activity result. And the more it recovers, the more the organization will be able to remain sustainably competitive in its market. The organization's results generally fluctuate from one fiscal year to the next. They can be positive and marked by significant variances if the organization has better learned how to usefully manage its business modes, methods and practices. This should include the organization's capacities, potentialities, and opportunities. All this is in the wake of the vision it will pursue, the mission it will want to accomplish, and the values it will want to live by and promote favorably in its market.

PERFORMANCE

Performance, which many people confuse with results, is a judgment about the trajectory of improvement described by the organization's successive results of activity. If there is always an exercise result, even in the absence of an operation (of an exploited activity), there is not an automatic performance for the organization. Performance can only express progress, and therefore a positive value, on the comparative condition of the organization. The opposite is called a counter-performance (a 'setback'), not a 'negative performance' (a 'backward gain' makes no sense).

The performance will be weak or strong. Weak performance will indicate a malaise in the overall resource management framework of the organization. This will prevent the organization, over the cumulative (life cycle) of its operating results, from achieving a competitive position in its market. Strong performance will place the organization in the leading group of competitors in its market, or even in pole position in its sector of activity. There is no such thing as a nil-performance because there exists no such thing as a "non-value" (a "non-improvement" of state makes no sense). Performance will be absent if no added value exists on the organization's cumulative results curve (life cycle). In other words, there can be no progress in a regression (setback), just as there can be no progress in the absence of improvement (advance).

Furthermore, performance must be understood as a measure that emerges from a longitudinal analysis of the organization's activity. This will include the succession of all exercise results (entire life cycle) of the organization. As for exercise results, they are all inferred, one after the other, from a static analysis of the activity, and are therefore assessed over a single period (exercise) of the organization's activity at a time.

THE TRAJECTORY

Performance must be demonstrated from the progress trajectory described in succession by the results achieved by the organization. But this is not the end of the performance consideration. A high-performing organization is one that, after a fair comparison in its reference markets, ranks in the first decile of its sector. Compared to oneself, the organization cannot deduce any valid progress on its capacities, potentialities, and market opportunities. It must take into account what was possible in this respect, at each stage of its evolution, by comparing its performance (its evolutionary trajectory) to the first-in-class organization in its sector of activity.

By measuring itself against the best organization in its niche, once the weighting factors have been applied to avoid false comparisons, the organization will know how well it has performed or underperformed over its life cycle. By limiting the comparison of its performance to itself, it will only have to underestimate its operating objectives to lighten its business management load for part or all its exercises. In doing so, it will be able to under-utilize (i.e. under-exploit, and therefore under-profit) its capacities, potentialities, and opportunities, and present a better-than-expected result for each period concerned, since the ratio of results/objectives will inevitably reach a level of near perfection (or even exceed 100%).

Research shows that even the best-performing organizations only very exceptionally achieve customer satisfaction scores above 85 percent. The level of customer satisfaction is the most significant measure in terms of purchase intentions and thus the renewal (revival) of customer demand. And it is the satisfied demand that dictates the result, at the end of the operations, in the organization, whatever it may be.

Conventional measurement of the results/objectives ratio not only fails to meet a criterion of fair measurement of the usefulness in the economic exploitation of an activity, but it distorts the notion of performance as an instrument for qualifying the activity in the efficient organization. This notion (performance) must be in line with an optimization of the capacities, potentialities and opportunities of the organization. The obligation of results (and not that of means), implicit in the organization's mission, requires the organization to generate the best possible added value from the use of all of its available resources, and not to reduce its operational effort to facilitate the achievement of less demanding objectives (which it will have set) to look better.

The level of requirements to be met is that imposed by competition in the market. This is the result of a more attentive, more competitive management of its resources by every one of the competitors dominating the market of the organization in question. And the best-performing organization of all the organizations in each sector of activity will have optimized the return on its activity, more reliably and more often than the others, hence the 'first-in-class' position that it will have earned in the market.

The first-in-class is performing well since nothing will transpire from the market, which will indicate that one could have done more than it did in terms of overall return on the management of its activity. This does not imply that only the first-in-class was successful. As a general rule, it is estimated that more or less 9 percent of organizations in a given industry sector are performing well. This implies that more or less 91 percent of the organizations are not performing. Although there is no universally accepted criterion for application, to determine the absolute performance threshold of an organization, ranking among the top decile of organizations in its sector of activity will be considered to satisfy the condition of demonstrated performance if, and only if, the accumulated returns on activity have been largely positive in total.

It would not be consistent to consider as performing, globally speaking (i.e. on average), an organization that, over its entire life cycle, would present a record of accumulated results superior to almost all other organizations because one, two, or three exceptional years would have enabled it to cancel completely an impressive number of other loss-making years.

Comparing oneself to the competitor organization with the highest rate of performance in one's sector of activity means that the organization being evaluated has the only yardstick for optimizing the return on committed resources. No one needs an overall ranking, which would group, in descending order of performance levels on the activity carried out, all the organizations, without exception, in the same sector of activity. Moreover, the inventory would be expensive to complete, and this type of classification would bring absolutely nothing really useful in terms of additional savings for the future of the organizations thus considered.

What organizations are looking for, in terms of comparison, is to know whether they are more or less efficient than those that most directly affect them in their immediate market, or even those that risk cutting them off from significant market shares in the future development of their activities. Knowing that they will do better than their competitors will be enough to comfort their shareholders, partners, or staff. Better still, if they can rank among the 9 percent most efficient in their sector, they will be able to consider themselves, more often than not, highly competitive in their home market. Finally, the first-in-class company will know that it is in a position of domination over all the other players in its market.

OPTIMIZATION

The benchmark of performance, in order to conclude to the optimization of the effort rendered on the activity, can only come from the first-in-class organization, in the same sector. This one will have been able to optimize its resources, processes, and projects. What will distinguish the first-in-class organization from other organizations in its sector is the optimal return it will have been able to generate in the long term from its capacities, potentialities, and market opportunities, and this at the rate of management modes, methods, and practices superior to the others. The comparison should be made on a weighting basis of all the variables that determine overall performance. This will include those variables that will require adjustment (weighting) to restore equity, to the extent practiced, between the organizations being compared.

The performance of the first-in-class organization will be superior because its exercise results will be superior overall to other organizations in the industry. Its governance and management will be superior. Even better, its vision, mission, and values will support it, as its market strategies and demand response structures will be better aligned with customer expectations. Its people and management will be better. Its decisions and systems of coordination, communication, and compensation, such as its benefits participation plan and feedback system, will be better. It will have a fairer and more challenging system for evaluating the work of staff. The management of its acquired knowledge and communities of practice will be better. In short, its work culture and climate will be superior. Entrepreneurship, leadership, and change will be factors that will characterize its activity at all levels of her employment. In total, nothing will have been left to chance in its management approach, even though everything could not be done at the same time... neither at home nor with any of its market competitors.

THE DISCIPLINE OF DIFFERENTIATION

All too often, in organizational management, people use undifferentiated terms, as if everything or almost everything about them were interchangeable, without risking damaging the intelligence of things in the expression of their reality. However, this confuses the understanding relating to their constitution, management, and evaluation, and does nothing to help improve their return ... expressed in terms of performance.

With this article, I wanted to make a difference between the two types of return on the organization's activity: i) the result, the product, of a given year; ii) the performance, the judgment made on the overall management of the organization's affairs, assessed over its entire life cycle. The experts will not have learned anything new, no doubt, but the eternal students of organizational business improvement may have learned something useful, if only of the importance of distinguishing more clearly between result and performance as an indicator of return on the activity carried out.

At present, virtually all organizations, productive or not, regardless of their actual level of return on the activity (the resource being exploited), boast of being eminently performing. However, a quick ranking of organizations, in a randomly chosen sector of activity, will show that this is not the case. And if it is enough to declare anything to confirm an organization's 'business performance', then let's call organizations that are in deficit, but less so than expected about their objectives at the beginning of the fiscal year, 'performing' because they have met or even exceeded their performance forecasts for the activity during the period under review.

If we are to succumb to simplistic terminology, then let us follow the lead of economists who, over the past few decades, have come to view downward revisions to spending forecasts announced by governments as an actual reduction in spending. In short, to spend less than expected, in this "logic of economic intelligence", would be to save money, even if the expenditure subsequently confirmed is actually higher than that of the previous year. In short, through this accounting sleight of hand on the revised forecast of public spending, economists have come to turn a misunderstanding of the financial system into a deduction from public revenue. A veritable travesty of national budgeting.

Either words have real meaning, and we would all do well to pay more attention to them, or they don’t and each one of us understands each other better being vague and misleading. Or else, let's simply close the books on functional discussion... and declare communicational opacity, in terms of organizational management, a paragon of linguistic performance. In a way, a linguistic feat, without any effort on the content of the exchange, that would allow us to transcend any requirement for intelligence between the parties, so that communication is heard perfectly.

If everything can be understood properly, without having to explain oneself, then why would we want to communicate at all? In short, why on earth do we all strive to choose our words and turns of phrase to translate, through our constructions of meaning, the reality of our organizations? No doubt because communicative exchanges between men and women are not as easy as we think. And no doubt that the reality of organizations deserves that we try to understand it better, to explain it better... to make them perform better.

The goal of business management in organizations is not so much to practice verbal or written communications, but to achieve the required level of performance. However, the fact remains that no one will succeed if no one understands what is at the beginning of the explanations of the organizations' activities. One (communication) is not the other (performance), but one (performance) goes through the other (communication).