Whenever I have a discussion with clients about transformational change, one of the first questions I often ask is, “When was the last time you did a performance appraisal for your business?”

The reaction I most commonly get is, “What do you mean? Like a performance review for employees, but for the whole business?” The answer from me is always an absolute, “Yes!” It should be exactly like a performance review for employees, with similar criteria, time frames and scoring scales. We will discuss this in more detail in another article, but for now let’s focus on why this reaction is so common.

After lots of research, talking to countless clients and interviewing a wide range of CEOs on the subject, I found that the answer is quite simple. There is an implied belief among most business leaders that we don’t need a detailed system and criteria to evaluate a company’s performance. We tend to over simplify and determine success by the answer to one question: “Is the company making money or not?” In other words, we mainly seem to judge a company’s entire performance solely by its financial performance, and a lot of the time we are not really interested in breaking it down further than that.

So why should you conduct a regular appraisal of your organization’s overall performance, just like we do for employees? Because sometimes profits are not a direct result of carefully engineered business. What I mean by this is that there are a lot of instances where good financial performance is driven by other factors. A good example of this is an organization’s external environment (i.e. a booming economy or a growing market). A situation like this can mask critical underlying issues which often come to the surface as soon as one or more external environmental factors are removed from the organization’s equation.

The resulting effect is performance cycles. Something which can, for the most part, be entirely avoided and some of the most successful organizations in the world do this. As an example, let’s take the cyclical nature of the mining industry. The organizations which operate in these environments always manage to turn a profit and survive even when the price of their commodities plummet. This is, of course, after a period of adapting. What happens here is called complacency. If profits are good why change anything, right? Why bother to dive deep into key areas and criteria for success?

The answer here is it avoids huge swings in performance. In other words, the maintenance should be preventative and proactive, even during the good times. Reactive transformational change is all too common. Something like this can be entirely avoided by simply implementing a detailed performance evaluation system every quarter, every year, for any organization.

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