It seems so obvious: Manufacturers that employ best practices tend to turn out the best financial performance.
But accepting the common-sense judgment wasn’t quite enough for Fred Rock.
Rock, director of the manufacturing services group at Alpern, Rosenthal & Co., wanted to gather data that would determine with some certainty that good business practices have some correlation to financial performance.
He joined forces with Bill Rupp, a Robert Morris College associate professor of management, to design a survey that would yield reliable data.
They used the balanced scorecard approach, a method that looks at a wider set of measures than simply financial data, to better understand what is occurring at a company. Rock explains that using financial data exclusively can tell how well a company has done in the past, but can be misleading.
A company can ignore its customers’ needs, overwork its employees and, as a result, turn in a good financial performance in the short term.
“It’ll eventually catch up with them,” says Rupp.
This study, on the other hand, looked at companies’ relationships with their customers and their employees, and internal systems and procedures, as well as finances.
Once the study was designed, Alpern, Rosenthal gave it a test run with 30 of its clients to check its validity and work out the bugs. The final iteration, which posed 73 questions, was sent to 1,500 Western Pennsylvania manufacturers with sales between $5 million and $50 million. About 200 were completed and returned.
The study revealed a number of characteristics and behaviors common among the high performing companies. For instance, high performers are more likely to use technology to link customers and employees, to have a formalized training program and to survey customers on a regular basis.
The study yielded statistically valid data, says Rupp, that can be used to make certain assumptions about how certain practices can affect outcomes. For Rock, the study gives him solid data to present to clients to back up his recommendations.
“We can identify those processes that are consistently applied by the good performers,” Rock says. “If owners of companies want to operate companies that grow and are profitable and they’re not performing these procedures, obviously they should give a lot of thought to doing them.”