The organizational or business diagnosis is a management tool that serves to analyze the company as a whole to evaluate which are the areas that have a better organization and performance and where there is a need to make improvements. This analysis should be unbiased and practical, providing detailed information that will help in determining priorities and which sectors need more attention.
There are 3 main results that are expected from a organizational diagnostic tool:
- Degree of maturity of the company
- Maturity level of business areas / sectors
- Action plan program (prognosis of what should be done)
Why find the Degree of Maturity?
When we talk about people, maturity is associated with the knowledge obtained and how that person turns it into results. In an objective way, the maturation process means a continuous evolution. If we take the vision of maturity to companies, the concept will remain similar, since the degree of business maturity is linked to how the main processes of the organization are executed and managed.
Every organization should seek to improve at all times, whether to provide more profit for its shareholders, to provide better conditions for its employees, or even to have better products that will serve its customers more fully. So knowing what your degree of maturity with an organizational diagnosis is the first step to evolve.
How to calculate the degree of maturity?
First you need to understand that the degree of maturity is a result of a larger process of organizational diagnosis. To carry out the business diagnosis there will be several methodologies and indications, but in my opinion what makes the most sense is to follow a simple path:
- Identify the main areas and sectors of the company
- List the main processes that each of these areas needs to perform
- Define your maturity level for each of these processes. There are different methodologies, I particularly like working with 4 levels:
- Do not do
- Perform at an early stage
- Manages and dominates the process
- Implements improvements
- Define weights for areas and processes
- Create punctuation criteria for each of the analyzed items
This will generate a grade according to the importance of these processes and areas, forming a maturity level by area and a degree of maturity of your company as a whole.
Let's see what this would be like in practice?
Practical Example of Organizational Diagnosis
I'll use the company diagnostic worksheet from LUZ for our example and in the end I will show you a step by step that can be applied to our case or to any other reality.
In it, instead of using processes, to facilitate the fulfillment and understanding, we create questions for the 5 main areas of management of any company (Strategy, Finance, Marketing, Operations and Personnel Management). All that needs to be done is to answer each of the questions with one of the possible 4 answers we've already created:
As you can see, each answer represents a level of maturity in relation to the question, which in this case is linked to the process of strategy formulation. At the end of the day, we created between 12 and 16 questions by company area, separated into subgroups of 4 questions.
For example, for the company strategy area we have sub groups of short, medium and long term strategies. In the case of finance, we have sub groups of indicators, control and financial planning and so on. See the example of the strategy area:
All these answers are already generating scores automatically (this is because we have developed a methodology of points criteria). The cool thing is always to evaluate your current score with the minimum recommended score for each item (according to the weights and importance you have set) and with the score you wanted for a given sub group.
In our example below, even though we had a good score (88%) in short-term strategies and were above the recommended minimum score (81%), it was not a good enough score since we wanted 100% and this is an urgent item to improve in the company.
Anyway, all the scores are relative. There is no right or wrong, there is always a cold and critical analysis to know where you are and where you want to go.
However, by putting all the scores together and weighted average with the weights assigned to each item, you find a percentage (ranging from 0% to 100%) for each of the analyzed management areas and also finds the degree of maturity of organizational diagnosis.
We divided the result of the organizational diagnosis into 5 levels of maturity:
- Maturity Level 1 Level - Between 0% and 20% - There are no management processes applied to the business and the results are obtained through unstructured initiatives.
- Maturity Level 2 Level - Between 20,1% and 40% - There are no formal management processes, but some management areas already have routines to generate the expected results.
- Maturity Level 3 Level - Between 40,1% and 60% - There are formal management processes, however they are applied in an uncoordinated way to generate the expected results.
- Maturity Level 4 Level - Between 60,1% and 80% - There are formal management processes and they are applied in a coordinated manner to achieve the expected results in tactical planning.
- Maturity Level 5 Level - Between 80,1% and 100% - Congratulations! Management processes are standard business practices. They are monitored, affect the business and are continuously improved.
How to Calculate Degree of Maturity in Organizational Diagnosis
Showing the ready example may seem simple to do these calculations but the truth is that it takes great care to really analyze issues that are important to your business and also not to skew the results.
Sometimes it may be interesting to hire a consultant to do this work or to do the process separately and then in a meeting analyze the results to get in common denominator among the participants.
In general, I believe that these are the main steps that should be used:
- Step 1 - Define what you will evaluate
- Areas or sectors (if you wish you can diagnose a single area)
- Questions or processes (it is often easier to identify processes that need to be executed)
The idea here is to separate a group x of items for each chosen area. The ideal is to always have a number of equal items between areas, so benchmarking is easier. But if you do not have that possibility, you can make an 3 rule later to have all areas always adding 100%.
- Step 2 - Define the levels of gradation used
- 3 levels (bad, fair, good)
- 4 levels (does not, does wrong, does, does and optimizes)
- 5 levels (poor, bad, fair, good, excellent)
There is no right and wrong, but it is important to understand that the more levels, more detail will be possible and differentiation from one item to another. On the other hand, it can generate a higher level of complexity of the organizational diagnosis.
- Step 3 - Set weight by importance
If you have a software company, probably the area of support and development will have a greater weight than the customer relationship area. Similarly, within an area, one process may be more important than others.
The weight is nothing more than a multiplier of the note that will be assigned in the evaluation. If you take 1 and 2 for example, you can understand that whenever the weight is 1, the note stays the same and when the weight is 2, it doubles the value of the note, amplifying its result and importance within a pre-set criterion.
- Step 4 - Make the organizational diagnosis
For each question or process you have to do, give an answer or note to the reality that you have. I'll make an example for 2 areas with 3 processes each. Note that I'm going to adopt a note system between 1 and 4 and 1 or 2 weight.
- Controls cash flow: 1 weight, note 3 (controls and knows accounts payable and receivable)
- Carries out financial planning: 2 weight, 2 note (performs but does not control the realized compared to the planned)
- Has contribution margin for products: weight 1, note 1 (does not calculate contribution margin)
Final grade = 3 + 4 + 1 = 8 16 = 50%
- Monitors customer satisfaction: weight 2, score 1 (does nothing about it)
- Performs marketing actions: weight 1, grade 3 (has adwords campaigns and active content marketing)
- Know your customer profile: weight 1, note 1 (never did a survey and not sure who the customer segment is)
Final grade = 2 + 3 + 1 = 6 16 = 37,5%
- Step 5 - Analyze the worst areas
If you have filled in all that you could and you already have your final grades by area, you are already able to tell what your worst areas are. (In our example the marketing needs more efforts to improve). In addition, you can also see what you are not doing well (in the example controlling contribution margin, customer satisfaction and customer understanding have the worst notes)
- Step 6 - Establish an improvement plan
From this analysis of the organizational diagnosis establish an improvement plan for each of the areas. Do not forget to involve those responsible throughout the process. The work of analyzing the diagnosis and degree of maturity need to involve the most interested people if it can not be just a tool stored in a computer or drawer at the end of the day.
If you have any doubts about the methodology, know that you do not have to break your mind to organize yours, in LUZ we have a diagnostic worksheet ready. This may be one of the first steps development of a complete strategy of your company.
If you perform or have already performed an organizational diagnosis, please comment in the comments what you believe is the most important. If you have not done so, but have some questions, just talk here too.