The correlation between your organization’s operational maturity and financial performance is strong.
Most competitive organizations understand process improvement can increase quality, reduce costs, and provide a competitive advantage. Still, they may not be as successful as they would like. The primary reason these organizations struggle is they lack sufficient standards, policies, and processes for I.T. The organization’s profitability is directly impacted by the maturity of the processes and the consistency following those processes. Combined, those processes and the company’s adherence to them are its operational maturity level (OML).
There is a direct link between high operational maturity and profitability.
Typically, organizations at the 1 or 2 operational maturity level are generating below average profitability. Those at OML 3 are generating average profitability. Those at OML 4 or 5 are achieving best in class financial performance.
Companies with higher operational maturity consistently deliver EBITDA percentage (earnings before interest, taxes, depreciation, and amortization) about three times higher than those with a median OML. Meanwhile, the companies with the lowest levels of maturity regularly operate at almost no profit or worse—at least until they improve toward median, cease to exist, or sell.
- Companies at OML 1 or 2 deliver EBITDA percentages in the bottom third of their industry.
- Companies at OML 3 most often deliver at or near median financial performance, which is roughly the middle of their peers for adjusted EBITDA.
- Companies at OML 4 or 5 most often deliver top financial performance, which is in the top third of adjusted EBITDA.
The top quartile generally has been at about this operational maturity level for five years or longer.
It is common to assume that larger companies must be higher in operational maturity. After all, it takes more management skill to grow and manage a bigger company. The truth, though, is that OML has nothing to do with company size.
It is entirely possible, and not even uncommon, to find large companies—up to billions in revenue—that don’t generate profit and struggle to consistently deliver products and/or solutions. Conversely, it’s possible to find a $1 million company operating at OML 4 or 5 and achieving remarkably positive results.
