Build a Strong Strategy, Go Beyond Numbers!

“I need to improve the profitability of my division!” I often receive this request from customers who want to improve the results of their organizations. However, doing that is more complicated than it seems.

Beyond Numbers
Using a simplistic view of how business works, you may decide to focus solely on numbers to improve the profitability of your company. You may argue that there are only a few ways to improve the numbers. You can increase revenues (sell more), decrease expenses (cut costs), or operate more efficiently (get a better bang for the buck). However, this may not be the whole story. To truly have a winning strategy, you have to dig a bit further and understand the underlying drivers of profitability.

Beyond Customers
You can improve profitability by looking externally to find sources of growth and better manage your current accounts. In many situations, your frontend employees will have insightful information about the state of the market and where your competition is at. You may realize that, with your current product offering, you can invest as much as possible in sales only to find that there is no market for what you are trying to sell. Examining how your product is promoted and distributed may indicate whether you’re really adding value to your customers. Brief conversations with a few long standing customers may help you gather insights and out-of-the-box solutions. Then, you can go beyond just selling something to selling the right products to the right customers.

Beyond Processes
From an internal perspective, the company can operate more efficiently by innovating and streamlining processes. Selling more doesn’t mean making more money. Once in my career, I witnessed a company folding before its management’s eyes because they started to sell too much. In that case, their internal processes were so complicated that the costs of scaling up production created a perfect storm and suddenly the company ran out of capital and – bang! – they were out of business. Beyond controlling costs, you need to understand the structure of your costs and the scalability of your internal processes.

Looking internally for sources of innovation, you may be able to find new ways to do business, thereby, positioning yourself as a trendsetter in your industry. A Forrester report I was recently reading reminded me that companies are not spending enough time in innovation, but spend most of their budgets maintaining existing products and systems. If you can find ways to increase efficiency, you can spend less effort maintaining what you have, and, suddenly, you will have more time for innovating.

Beyond Numbers, Again
Instead of looking at your total headcount, look after your people. Consider investing in a better team and overcoming internal communication barriers. Investing in team collaboration pays off big time. I know a few companies that have taken the time to reduce internal bureaucracy and integrate similar areas. They were extremely successful. Note that investing in people does not necessarily mean sending them to expensive retreats in Cancun; it means having real conversations with your staff and empowering them to resolve issues.

Results, not Numbers, are Important
Finally, manage expectations by aligning your profitability goals with your strategy. Use numbers to verify that you’re achieving the expected results and use them wisely. The business world is more complex than that complex spreadsheet model sitting on your desktop. Remember, Excel is just one of the tools you have at your disposal. Think wide and get better results!