Turnover is vanity, profit is sanity, and of course, cash is reality. It all seems so obvious, but it never fails to surprise me how many directors, managers and business owners think they concentrate on profit but in fact they are sometimes FAR FROM BEING PROFIT FOCUSSED. Their ability to achieve profit appears constrained by want of a systematic approach to the work of today's business.
The task of profit achievement is really quite straightforward. There are three dimensions to consider; making the business more effective, identifying and realizing its potential and turning the business into a different business for the future. There are three simple truths to help us concentrate on these yardsticks for profit achievement and they are listed below:
1. Concentration is the key to real profit
Profitable results require managers to concentrate their efforts on the smallest number of products, product lines, services, customers, markets, distributive channels, end-uses, and so on, that will make money. Managers must concentrate on those products, customers and channels that both generate cash and are likely to generate future cash. Yet they are also to minimize the amount of attention and cash devoted to difficult products, customers and channels which primarily produce cost.
Simple issues, you might say, but many companies cannot accurately determine their profitable products, customers and channels - the key result areas of any business. To analyse changing results is not too difficult. But diagnosis is more demanding. In being able to anticipate and respond to change we need to monitor any significant deviation of performance from expectation and keep an eye on the life cycle of any product, customer and channel in order to delist problems and concentrate on today's and tomorrow's breakthroughs.
2. Concentrate on leadership
Leadership is not purely about numbers. The business with the largest market share may have leadership in one segment only and be behind in its profitability compared to smaller rivals. To obtain leadership a product must be best fitted for one, or more of the genuine wants of the customer - who must be willing to pay for it.
Ultimately profit is the result of differentiation. Differentiation may be based on price or on some 'quality' attribute such as reliability, appearance, style, design, customer recognition and acceptance, service, speedy delivery and technical excellence and so forth. But even then efforts to achieve productivity via economies of scale and scope should not be overlooked in order to pass on any savings to customers.
Nonetheless even in the presence of differentiation, the customers' willingness to pay for - and purchase - your products in preference to competitors' products are well-founded conditions of profit achievement. Why? Well simply stated if these factors cannot be clearly demonstrated, a product must be suspected of being - or becoming - marginal.
3. Concentrate on knowledge in the business
Knowledge is the business as much as the customer is the business. Business is a human organisation, made or broken by the quality of its people - from the top down to the bottom! Knowledge is a specifically human resource and only comes with the brains and skills of individuals in the business. But it is only effective through the contribution it makes to customers.
Let me add that to be able to do something as well as others is not enough; this does not provide the leadership position which a business requires to avert doom and demise. Only excellence earns a profit; the only genuine profit is that of the innovator, the source of differentiation, which offers a business the means of survival and growth, derived from a specific, distinct knowledge possessed by a group of individuals that make up the business.
And so it is that managers need to ask the right diagnostic questions; "How good is our knowledge?" "How effectively is it being used?" and "What are we missing?" The conclusions of knowledge analysis can then be fed into our marketing analysis to bring out market opportunities that might have been missed or underrated. And the conclusions of the market analysis used to bring out the needs for new or changed knowledge.
Concentrating on profit needs to be a key driver for any business - even more so in these tougher times. However, it's worth noting the words of Henry Ford who said: "A business that makes nothing but money is a poor business." How true. Even though profit is the driver it will never be achieved in a modern environment in the absence of actions to make a company perform, prosper and grow.
Turning Good Businesses Into Unique Businesses
Andrew Pearson is a management coach who works with directors, managers and business owners of established and new businesses helping them to develop strategies to generate more growth for their companies.
Article Source: [Link]
0 comments:
Post a Comment