News & Blogs
Is your business ‘ready’ to improve its profits? - Part 1
How many business owners, MDs or CEOs do you know who wouldn’t want to improve profits in their business if they could? Not many I’m sure. Yet experience shows that no matter how much we might want to make our business more profitable, it mightn’t be ‘ready’, yet.
Not every business has what it takes, right now, to handle what making a significant improvement to its profits might entail. And to push-ahead with a project - when the business isn’t ready for it - is effectively setting-it-up to fail. At least that’s my experience.
That’s why, today, when an owner or manager talks to me about helping them with a project, one of the first things I do is to help them to make as honest an assessment as they can of their business’s ‘READINESS’ for the project. MORE>>
‘More efficient’ doesn’t always mean ‘more profitable’
At a Business Improvement event I attended recently, one of the speakers, the MD of a small manufacturing business, explained a ‘Lean’ project that’s currently running in his company.
Enthusiastically, he described one of its early successes.
With help from a Lean expert, his team had reduced the set-up time for a particular repetitive order, from two-hours to 15 minutes.
Now driving an 87% time saving in setting-up a job is quite an achievement – whatever the technique used. So I understood his enthusiasm.
Yet I couldn’t help but notice that he was describing his team’s ‘success’ in terms of the operational improvement – rather than profit improvement. And to someone like me that’s always a bit of a worry.d?. MORE>>
4 reasons why ‘New Year’s resolutions’ and profit improvement forecasts fail
At the start of each year, many of us make at least one ‘New Year’s resolution’. The most popular ones are self improvement goals. Things like ‘lose weight’, ‘stop smoking’, ‘get fit’, ‘spend less’.
But year after year, most of us fail to achieve what we set-out to. According to one survey I read recently, five out of six of us quits or fails to achieve what we resolved we would, first time around.
Why the 80/20 Rule doesn't apply to profits
What do you get when you combine ‘proof by assertion’ with ‘truth by association’? You get a fallacy that gains credibility both from the number of times it’s repeated and its close association with something that’s already believed.
A good example of this is “80% of your profits come from 20% of your customers”. The claim meets all three criteria. It’s a fallacy many business owners and managers believe, not just because they’ve heard it repeated often, but also because it’s so closely associated with something they already accept to be true: the ’80/20 Rule’. MORE>>
Sixty years on - it's still about avoiding loss
Some people have the ability to sum-up, in a simple sentence, quite profound thoughts. Peter Drucker was one of those people. As early as 1939, Winston Churchill described him as a writer who "...not only has a mind of his own, but has the gift of starting other minds along a stimulating line of thought." And so it proved to be.
In 'The Practice of Management', first published in 1954, Drucker wrote "The guiding principle of business economics... is not the maximisation of profits; it is the avoidance of loss".
I first read those words sometime during the 1970s. But it was a full 20 years later, by that stage in a different setting and with a lot more experience under my belt, that I read them again and started thinking of them in the broader context I do today.MORE>>
When does ‘size’ matter?
I’d had a nagging suspicion our smaller quantity sales orders were at best ‘treading water’ in terms of profitability. But I needed to understand why so many were now showing as ‘loss-making’.
Turn the clock back a number of years. We were using ‘Customer Profitability Analysis’ (CPA) in our business for the first time. And we’d used ‘Activity-Based Costing’ (ABC) methodologies to help assign our ‘overhead cost’ to individual customers, products and transactions.
Compared to this detailed exercise, any attempts I’d made in the past to query the profitability of individual customers or products had been rough and ready. They’d always involved lots of arbitrary allocation and apportionment of overheads, and lots of ‘averaging’.MORE>>
Be careful what you measure - you might just get it.
If we’re not to end up with some unwanted consequences, deciding on the performance measures we’re going to use requires clear thought and careful definition.
On occasions, a former colleague of mine would have used the adage ‘Be careful what you wish for - you might just get it’. He’d listen carefully as one or another of our colleagues described a contract they were trying to ‘land’, a large customer they were attempting to recruit or some negotiation they were hoping to ‘pull-off’.
He’d listen as they explained what they thought they’d need do to clinch the deal, and once successful, what they’d need to do to cope with it. A wry smile would spread across his face as he impishly said “Be careful what you wish for”. He didn’t need finish the sentence. We all knew the ending.
Those few words remind us that often what looks attractive when we don’t have it; what looks as if it will help solve our problems, doesn’t turn out to be what we need. Worse still, it might bring us fresh problems we hadn’t even considered. MORE>>
Why didn’t you explain it like that in the first place?.
Finding and fixing the ‘profit leaks’ in a business is often one of the quickest and surest ways of improving its bottom-line. However, the notion of ‘profit leaks’ is new to many. So, often the first task for someone like me is to explain to a business owner or manager what ‘Profit Leaks’ are and how they come about.
Analogies help. And thanks to ‘Jim’ and his question, I added another one - crazy as it might initially seem - to my list, that evening. MORE>>
It's not (just) what they do - it's the way that they do it.
We can get some real surprises the first time we carry-out a Customer Profitability Analysis (CPA) on our business. I know I certainly did.
One of the first things I learnt was that a gross margin that allows us to make a profit with one customer may not be enough to cover the costs of serving another.
I learnt just how much the ‘cost to serve’ customers can differ - even when, over time, they buy similar volumes of the same products. And I learnt that that ‘difference’ can be the deciding factor as to whether they’re ‘profitable’ or ‘loss-making’ for our business. MORE>>
What businesses can learn about profits from Blackburn Rovers.
For the last couple of years I’ve used English football’s ‘Barclay’s Premier League’ table in my ‘profit improvement’ workshops – to help illustrate a point. I focus on the statistics of one of the bottom three teams; one of the ‘relegated’ teams.
With the 2011-12 season now behind us, this year I’m using Blackburn Rovers. Last year it was Blackpool.
So what can businesses learn about their profits from Blackburn Rovers? MORE>>
Is your New Year's resolution for your business – 'to be more profitable in 2012'?
Many of us will have made a New Year's resolution for our business to be more profitable in 2012 than it was in the year that has just ended. But it may be that - as with some of our other resolutions – it's what we want to happen, it's what we hope to make happen – but we're really not sure how we're going to do it. MORE>>