OPERATIONS

Any private-company CEO can quantify his operational results from basic numbers: profit and loss, cash flow, assets, liabilities, and equity. Many have skilled CFOs and a financial team to produce these numbers.

But what do these numbers really tell you? Sure, you know your top line revenue, your profit, and your assets. But do these numbers truly measure the value your operations are generating?

Private-company CEOs don’t have public markets to measure how well they’re doing and what their company is worth. The unfortunately reality is that the standard numbers most small to mid-market CEOs rely upon quantify only past operational performance and provide little intelligence about:

• How much value they’re creating
• How well they’re performing against their competition and peers
• How their FUTURE operational results will be affected by decisions they’re making today

How to Develop Operational Leadership

Fortune 500 CEOs understand this. Their financial teams produce the standard numbers required for public markets. But most use an even deeper set of numbers to truly understand their strengths and weaknesses, their past performance, and the consequences of their future operational decisions. These include numbers like TBR, CFROI, RONA and ROCE.

Few private-company CEOs in businesses below the $100 million mark have access to these types of numbers. By viewing numbers hidden within standard financial statements in a different format, CEOs can understand — in real time — how operational changes will affect future performance resulting from:

• Pricing changes
• Volume changes
• Operational changes that affect direct and indirect costs
• Changes to receivables, payables, and inventory
• Changes to fixed assets
• Strategic investments

By changing the way you use numbers to confirm or disprove operational decisions, you are able to:

• Determine whether your “gut feeling” or “intuition” is correct
• Create an effective framework and decision process that answers two key questions for any operational decision:
  • Should we do this?
  • Can we do this?

Operational Results Quantify Value Created

The only way to ensure that you’ve truly mastered your foundation, your market, and your people is to carefully measure the results of your operations. It’s vital to gaining complete control of any business.

By defining, utilizing, and measuring all the components of these quadrants, you gain tangible evidence of your true company value and, ultimately, your competitive advantage.