Hiding behind top-line numbers are interesting best practices that make companies leaders in other crucial aspects of performance.

This year’s (2007) TOP 101 Companies survey included additional questions in four areas traditionally associated with the balanced score card. The data, as analyzed by David Wicks, dean of the Sobey School of Business at Saint Mary’s University, reveal deep insights into the strengths and weaknesses of the region’s organizational practices.

Over the past 14 years, Progress’s annual TOP 101 Companies survey and ranking has been focused mainly on revenues, top-line growth, and employee growth, plain and simple. But hiding behind top-line numbers are interesting best practices that make companies leaders in other crucial aspects of performance.

This year’s broader analysis of the survey is modelled on a modified balanced score card approach. It is well known that non-financial measures can explain anywhere between 50% and 80% of a company’s value. Why is this so? Because financial measures tell the results of actions already taken by an organization. What they do not show are the drivers of future performance. Several operational measures have been shown to identify exactly this.

Customer orientation
Most organizations have a mission or a vision that focuses on the customer, but beyond these statements, what are organizations doing that will enable them to do the sorts of things that really matter to customers?

Internal practices
What do companies do internally to meet customer expectations? Internal practices involve the processes, decisions, and actions that are taken to develop and market products and services. The management of human resources is key to these practices, often having significant impact on customer satisfaction.

Innovation and learning
In increasingly competitive industries, and with globalization changing the nature of competition, traditional bases of competitive advantage are no longer reliable. Organizations need the ability to innovate and learn in ways that create more value for customers, which creates value for shareholders and owners.

The balanced score card as it was conceived stops here. But since it was developed in 1992, considerably more attention has been paid to issues of sustainability and social responsibility. By 1998 the idea of a triple bottom line was developed as a new way to measure organizational success by economic, social, and environmental concerns. More than ever, companies are viewed more favourably by employees, investors, shareholders, and community stakeholders when they act as responsible corporate citizens.

Social responsibility and governance
Good governance ensures that a company’s actions are being conducted in ways that will improve long-term performance. Publicly traded companies are required to have boards of directors, but privately held firms often have a similar group that oversees top management and provides input on strategic decisions. Social responsibility arises when companies balance their commitments to certain groups and individuals in their environment.

With these four broad categories of performance in mind, we set out to look at the TOP 101 companies to see how they measure up. Who are the leading companies in each area, and what are they doing that constitutes a best practice?

A customer perspective
Customers are a top priority for any business, but some companies do a better job than others at doing the things that really matter to customers. Customer care typically involves qualitative measures such as time (in responding to inquiries, filling orders, speed to market); quality (product performance, ability to create value for customers); and service (in both pre- and post-sales interactions). Price also matters, but many customers see price as only one of many important components of dealing with a business.

A core function behind these aspects of customer satisfaction is marketing—delivering value to the customer over time and maintaining customer satisfaction throughout buyer-seller relations. Companies that excel in these areas equip themselves with the knowledge they need to develop products and processes to provide what customers want.

Of the 85 fully completed surveys analyzed, an impressive 20% show companies with very strong customer orientations. These companies measure customer satisfaction regularly, conduct frequent market research, and demonstrate a commitment to service excellence. As a predictor of future performance, these firms should be very well positioned to capture market opportunities and be alert to trends that will impact future sales. Research shows that companies displaying this type of customer focus will experience revenue growth more than double of those that do not. The majority of responding companies (70%) displayed medium to strong customer orientations, while 10% appeared to lag in this area.

Among companies with strong customer orientations, market research was the most commonly used technique for understanding customer. In fact, even companies with low scores in customer orientation tended to use market research more than anything else, which is an encouraging sign.

An internal perspective
A strong customer orientation needs to be backed by activities and people doing the sorts of things that meet customer expectations. Companies that excel in developing and managing human resources, the key ingredient in developing quality products and delivering excellent customer service, will be well-positioned for future growth and better able to capture new market opportunities.

More than ever, companies are facing challenges in attracting, developing, and retaining top talent. The ways in which they respond to this challenge include developing succession plans, investing in the training and development of their employees, and developing formal retention strategies. In these ways, they will be better positioned for the future—to increase productivity, respond to change, innovate, and develop leaders.

From an internal perspective, responding organizations show very some positive signs of effective HR-management practices. Most noteworthy is that 78% of companies report having bonuses tied to performance, one of the most effective means of enhancing employee motivation and aligning individual efforts with organizational goals.

Having a highly motivated workforce is only half the battle; it also needs to be matched with practices aimed at increasing employees’ abilities so that quality products and services can be developed and delivered. According to the Conference Board of Canada, companies that invest in learning tend to produce workers who are more innovative and competitive, yet Canadian organizations spend much less on training and development than most other developed countries, including the United States. In our sample, this investment ranged between 0% and 25% of revenues, with an average of 2.5%. This factor was weighted fairly heavily in our ranking, because in times of increasing competition and lagging productivity in Canada, building a skilled workforce is more important than ever.

Less optimistic in the survey results is that almost half of respondents report having no formal succession plan. This finding is particularly worrisome, as learning becomes an increasingly important source of competitive advantage as shortages of skilled labour and experienced managers continue to be forecasted.

An innovation perspective
Indicators of customer responsiveness and internal processes identify what companies are doing in order to be successful in their current operations. But being successful in the future is a different story; increasing competition, changing technologies, and globalization all require that companies improve existing products and processes, as well as develop the capabilities to develop new products and introduce them to the market quickly.

The ability to innovate and to learn are inextricably tied to a company’s competitiveness and value, whether it takes the form of launching new products, improving operating efficiencies, or creating more value for customers. To measure this, we looked at the volume of new product introductions, investment in research and development, and productivity increases associated with adopting innovative processes or technology. These factors point to the companies that are most innovative today, a strong predictor of future success.

Just more than half of the reporting companies introduced new products or services they developed themselves over the last year. This is fundamentally a good sign of the outcome of innovative practices, which is new products and services. Underlying these new products and services is often investment in research and development. Average investments were more in the range of 2%, which can be partly explained by the wide range of industries represented in the sample. The most R&D-intensive companies responding to our survey report an average spending in excess of TK% of revenues on this activity.

Process innovation is an area where companies in any industry can benefit, and here we see a major difference between the leading firms that have achieved significant productivity gains and the lagging firms that have achieved none at all. It is in this area where many of the top companies still have room for improvement; only about 12% of the responding organizations experienced productivity gains associated with the adoption of an innovative process or new technology. The business press regularly reports on the deterioration of productivity in Canada, a factor that lurks beneath overall economic performance. Our survey results also show warning signs in this regard, with fairly low innovation scores for many large Atlantic Canadian companies.

Social responsibility and governance perspective Consumer surveys suggest that the general public believes that business has become too concerned with profits, and that companies should sacrifice some profit for the sake of improving the lives of their workers and contributing to the communities in which they operate. In response to this, many organizations are positioning themselves as responsible corporate citizens, especially in the minds of consumers. Some companies do this for moral reasons and others because it often makes good business sense to do so. In ideal situations, doing the right thing actually leads to greater profitability.

Research shows that companies with statements concerning the environment or sustainability in their mission are more likely to incorporate these concerns into all aspects of operations. Only 28% of responding companies reported this type of public commitment to the environment. On the surface, this is a very poor indicator of social responsibility, but the incidence of introducing progressive environmental or workplace-safety practices was much higher, at almost 70%. This statistic shows that an overwhelming majority of Atlantic Canadian companies are acting in ways that create strong relationships between themselves and their communities, both internal and external. Making efforts to conduct business in an environmentally friendly manner and investing in workplace-safety programs are encouraging signs of the importance being placed on social responsibility.

Good governance also plays a part in our assessment of social responsibility, to the extent that it reflects the mechanisms put in place to ensure a company is well managed and that the interest of its various stakeholders are being well-served by executive leadership. The board of directors is the traditional safeguard against improper management. Boards are responsible for appointing a sound management team and providing incentives to ensure organizational goals are being achieved. In addition to providing a type of strategic control system, formal governance systems have been shown to directly influence a company’s ability to raise money from venture capitalists, lenders, and equity investors.

More than 70% of responding companies report having a board of directors, about what we would expect looking at the size of the largest Atlantic Canadian companies.

Generally speaking, a majority of directors should be “outside directors,” those who do not own a substantial part of the company, are not members of the management team, and do not own or manage a related company. Of the companies with boards of directors in Atlantic Canada, on average, only 40% of board members are outsiders. Almost half of the boards contain a majority of outside directors, and 40% have none at all. Having inside directors has its benefits; they bring knowledge and experience of a company’s history and operations that an outsider wouldn’t have. But there seems to be room for improvement in the proportion of outside directors, a key indicator of good governance.

So what makes a balanced organization? One that that invests wholeheartedly in drivers of future performance and acts in a socially responsible manner. The most balanced TOP 101 companies are exemplary case studies in this regard, in their own ways creating a strong foundation for future growth and increased competitiveness. These short-listed companies generally show strong results across all four dimensions of our scorecard, and reveal to us some of the world-class practices being developed and employed in this region. Yet while these top companies exemplify what is being done well, according to many surveys it appears that there is still work to be done to prepare our region’s businesses for the increasingly competitive times ahead.