Budget or Plan? Which One Do You Use?

In our last post, we discussed the annual planning ritual, and a three step process for more effective and useful planning.  After thinking further about this issue, we thought it would be helpful to define the difference between Planning and Budgeting, as the terms tend to be used interchangeably in many organizations.

As defined by Webster’s, there is a very clear difference between these terms:

  • A Budget is a plan for the amount of money that can be spent, and how it will be spent.
  • A Plan is a detailed formulation of a program of action to achieve something.

Most budgets are simple plans that are generally prepared by businesses that have not yet developed a formal Vision and Strategy for their future.  While budgets are generally relatively easy to prepare, most do not necessarily consider longer term strategic objectives or actions, or the full extent of potential changes in the business environment.

The basic Budget is developed using the current year’s results to date, which are then projected for the year, and applying a percentage increase to each line item, to calculate projected revenues and expenses for the new year.  Monthly financial projections may then be calculated for use in reporting and evaluating the operating results during the year.

An Annual Operating Plan, on the other hand, will utilize the results of the Vision and Strategy process, to develop a comprehensive plan (read chart or map) to help the business execute the actions required to achieve the strategic objectives, and navigate through the year.  These plans are generally very detailed, and typically include the following:

  • Monthly financial projections
  • Specific tactical programs, actions, and milestones required to meet/exceed those projections
  • Key metrics to evaluate and measure performance to keep the business on track.

Which would you prefer, a spending plan, or a detailed chart to navigate and guide the business for the year?

Regardless of what process you choose, it is critical to have a plan to manage the business.


“A goal without a plan is just a wish.” ― Antoine de Saint-Exupéry

“By failing to prepare, you are preparing to fail.” ― Benjamin Franklin

“We have to build the framework in which we will execute the tasks.” ― LTG Christianson

It’s Back – The Annual Planning Ritual!

If you look at the calendar, there are now less than 12 work weeks until the beginning of 2015.  If your business is similar to those that I’ve worked for, we’re now in the Annual Business Planning Cycle, where the business performance so far this year is evaluated and projected, in order to peer into the future to identify objectives and potential changes that may be required, not only for 2015, but also several years out.

In my former lives, I’ve participated in, and led, this annual ritual in different roles, from Staff Accountant to President and CEO.  However, the prescribed process and schedule was always the same;  Review and evaluate the results so far this year, consider and set objectives for the next three years, and define the changes that may be required to achieve those objectives.  Once this is done, update the current Strategic Plan, and develop the Operating Plan to match Year 1 of the “new” Strategic Plan.   In many instances, however, this process doesn’t include an objective, critical review, or discussion of the Vision for the business in the future, and how it will be achieved.  Generally, it’s just a rehash of last year’s plan, updated for new conditions and goals, with a new Year 3, and placed on the shelf until next year.

Over the years of using this process, I noticed that most businesses very rarely, if ever, get to Years 2 and 3 of the Strategic Plan.  Most of the management effort, and reviews, focus on next year (Year 1), and then on Year 3, assuming if the right things are done in Years 1 and 2, Year 3 will be the culmination of all of those efforts, and won’t it be great when we get there!  However, Year 3 never comes – it’s always pushed out another year.

This year, I’ll challenge you to develop a clear Vision, and prepare Strategic and Operating Plans that will actually be used to manage, control, and guide the direction and decision making of the business over the next three years, with the ultimate goal of achieving Year 3, with only minor adjustments.  Yes, I know it’s three years out, and conditions change.  However, if you’ve done this properly, and have the right Vision and Plans, shouldn’t you be able to get there?

I recommend the following three step process for effective, and useful planning:

1. Define the Vision  

What will the business achieve, and look like in the future, say three years out?  This step is the most critical part of the process, providing clarity about the objectives for the future, and the framework for the rest of the planning process.  The Vision should be clear, written, and communicated to all stakeholders, before proceeding further, to ensure that the entire organization understands the objectives for the future.

If the business doesn’t currently have a Vision, it should take the time to develop one as the first step.  Size doesn’t matter, every business should have a Vision of its future.  If there is already a Vision in place, is it still relevant, or should it be revised and updated?

2. Develop the Long Term Strategy and Plan 

The Strategy and related Plan will provide the course and direction that the business must follow to make the Vision a reality.  The strategy and high level plan will clearly define specific actions and programs, including resource requirements, performance goals, organizational structure, and any other actions necessary to achieve the Vision.  It will be the framework to guide decision making over this period, and keep the business moving in the right direction.

3. Prepare the Operating Plan

This will be the detailed plan to execute the Strategy for Year 1, including specific tactical actions and programs, and monthly operational targets to measure progress throughout the year.  The Operating Plan is used to manage and control the business, and guide decision making in the short term, and to allow for regular reporting, performance evaluation, and identify potential course corrections, during the year, to achieve the strategic objectives.

This process, done properly, does take a great deal of time and thought to be useful, and in my experience, is well worth the effort it.  By the end of the process, the business and organization know the course and direction, and have the “charts” necessary to control and manage the business, make the right decisions, and measure progress to achieve the Vision, and that elusive Year Three!


The winds and the waves are always on the side of the ablest navigators.” – Edward Gibbon

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” – Jack Welch

Great Leaders Delegate!

As a leader, regardless of what level, one of the most important skills necessary for success is delegating authority and responsibility to your team.  Done properly, this will improve your effectiveness and performance and that of your team, allow more time to focus on your key responsibilities and objectives, and increase employee participation and accountability.

Many years ago, after being appointed to my first leadership role, I learned, the hard way, the importance of this skill in becoming an effective leader and manager.  In reading the many books and articles about this subject, I found a very simple and straightforward tool that has worked well, both individually, and within organizations – The Decision Tree.  This tool was described in Susan Scott’s book, Fierce Conversations, and has been used in many organizations, including General Electric, to improve managerial effectiveness, performance, and employee engagement.

The Decision Tree provides clear authority and responsibility for decisions and actions in the organization.  To use this tool, first think of the organization as a growing tree that bears fruit.  In order to ensure its long-term health, there are many decisions that need to be made on a daily, weekly, and monthly basis.

With this scenario in mind, there are four levels of decision making and action.  The specific level is dependent on the degree of potential harm or good to the organization that will result from the decision and action.  These four levels are as follows:

  • Leaf Level – Make the decision, and act on it.  No report is required. 
  • Branch Level – Make the decision, act on it, and report after the fact, on a daily, weekly, or monthly basis, depending on the action.
  • Trunk Level – Make the decision, but do not take action until reported, and approved.
  • Root Level – Make the decision, with input from others.  These are the decisions that, if poorly made and implemented, could cause major harm and damage to the organization.

The benefits of the Decision Tree tool are as follows:

  • Clearly defines the level of authority and responsibility for decisions and actions, at all levels of the organization.  Each team members knows exactly where they have the authority to make certain decisions and take action.
  • Provides team members with a clear path of professional development.  Progress is made as decisions are moved to the next level – from Root, to Trunk, Branch, and Leaf.  As employees demonstrate good decision making at the Root level, their decision level can, and should be, moved up to the next level.
  • Develops leadership and decision making skills at lower levels in the organization, freeing up leaders and manager to take on the more challenging and important responsibilities themselves.
  • Increases personal accountability, allowing employees to identify and recommend solutions outside of the supervisor’s personal reach.
  • Develops future leaders.

In summary, the Decision Tree provides leaders and teams with very clear guidelines for decision making and action, improved effectiveness and efficiency at all levels, professional and leadership development opportunities, and increased employee engagement, accountability, and participation.

Since you can’t do everything yourself, I highly recommend using this tool to reduce your To Do list, increase focus on key responsibilities and objectives, get your team involved, and help your organization grow and be successful.


“The first rule of management is delegation. Don’t try and do everything yourself because you can’t.” – Anthea Turner

People and organizations don’t grow much without delegation and completed staff work because they are confined to the capacities of the boss and reflect both personal strengths and weaknesses.– Stephen Covey

What Business Stage Are You In? – Part 3

We’ve come to the last installment of our series on the “7 Stages of Every Growing Business”, as defined by Les McKeown, President and CEO of Predictable Success.  Parts 1 and 2 summarized the first four stages, from Early Struggle through Fun, and on to White Water and Predictable Success.  In this last segment, we’ll cover the final three stages of Treadmill, Big Rut, and finally, Death Rattle.

When we left the business last week, it had achieved Predictable Success, that stage where the business is growing, profitable and stable.  Now the question is – How long can the business remain in this stage?   

The answer is – It depends.  As long as the business continues to evolve and adjust to meet the changing market expectations, and maintains its focus on its vision, strategy, and customer base, it can stay in the Predictable Success stage for a long time.

However, there will be those businesses that will be too successful over time, believing that they have all the answers.   These businesses will stop progressing and adjusting, become complacent, bloated and bureaucratic, and lose focus on those key areas that originally made them successful.  As this happens, the business will eventually fall through one, or all, of the last three stages.

Stage 5 – Treadmill
The business has been successful, and performing well for a period of time.  But, complacency is setting in, and it is losing focus on its vision, strategy, direction, and customers.  The bureaucracy is managing the business, and needs to justify its existence by requiring more systems, processes and procedures.  This, in turn, is making the business more complex, rigid, and slower to react to changes.  With the business now more focused on internal activities and tasks, it will eventually stop evolving.

While this stage may be good for fixing specific issues and/or problems, the business must find its way back to Predictable Success to survive long-term.  This will require a critical, objective self evaluation of the entire business, and possibly drastic action, to get back on track.

The strategy here is to Simplify What’s Workingand get back to Predictable Success.

However, if the business stays in Treadmill too long, it will eventually lose its objectivity, and the ability to critically evaluate and fix the business, falling into the Big Rut.

Stage 6 – Big Rut
The business is now complacent and insular, the bureaucracy has taken over, it has lost all objectivity, and its all about maintaining the status quo.  It has lost touch with market requirements and customer expectations, and has stopped evolving.  Without a significant course change, and major restructuring (and maybe not even then), the business will not be able to make it back to Predictable Success.

In this stage, however, the business may still be a going concern, in terms of revenue and profitability, and have enough cash to just drift and decline over time.  A primary example of this is Kodak, which was able to operate very profitably for years, ignoring what was really happening to its core business, until it was too late.

If nothing changes, or if the course changes and restructuring programs are not successful, the business will enter the last and final stage, Death Rattle.

Stage 7 – Death Rattle
After being in Big Rut for some time, revenues are declining, losses are mounting, the cash is gone, and customers are defecting.  At this point, the business is not in a position to make the required changes to survive.  It has now entered Death Rattle, and the business, as it is currently known and operated, disappears through closing, filing bankruptcy and reorganizing, or being acquired.  This is the end of the line.

Now that you know about these 7 Stages, let me ask:

  • What Stage Is Your Business In Now?
  • What is your Strategy for the Future?  

Consider these questions carefully. The future of the business will depend on the answers!


 

“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.” – Jack Welch

“Whenever an individual or a business decides that success has been attained, progress stops.” – Thomas J. Watson

“Any business today that embraces the status quo as an operating principle is going to be on a death march.” –  Howard Schultz

What Business Stage Are You In? – Part 2

Here’s the second part of our series on the “7 Stages of Every Growing Business”  that Les McKeown, President and CEO of Predictable Success, described in his Inc. Live presentation last October.  Part 1 summarized the first two stages, Early Struggle and Fun.  In this part, we move on to the next two important stages, White Water and Predictable Success.

As we left the business last week, it was in the latter part of the Fun stage.  It’s grown rapidly, become more and more complex, and the team is having difficulty managing it effectively, and losing control.  At this point, the business now has a critical decision to make about its future.

There are only two real choices;  1) Stay small and continue in the Fun stage for as long as it can survive, or  2) Take the actions necessary to move forward, and grow the business for the future.   The business can’t have it both ways, it must choose one of these directions.
If it decides to grow, it will need to enter, and successfully pass through the next stage, White Water, to scale for future growth.  A businesses cannot scale from Fun to Predictable Success without going through this stage.

Stage 3 – White Water

The decision and commitment have been made to scale up for growth, and the business is now in the water.  However, it is now much more complex, with more products and services, customers, people, and management.

The business activity has outstripped its capacity, capabilities and resources, and it’s out of control, losing focus on its direction, and customer requirements and expectations.  As a result, customer problems and complaints are piling up, in terms of service, quality, and delivery, etc., operational issues are increasing costs, and customers are beginning to defect to competition.

The first tendency is to try to sell more to prop up the business, but this strategy will only make matters worse, as the problems and issues continue to increase with the level of activity.

To survive and make it through this stage, formal Systems, Processes, Structure, must be developed and implemented, the Culture may need to change, and an expanded Management Team put in place to effectively manage, stabilize, and get the business back under control.   In most instances, however, the initial team and programs won’t work out, and the business will remain unstable for a period of time.  In fact, it may take several years and attempts, and different team members, to finally get through this stage.

Also, during this stage, the business may go back and forth between Fun and White Water several times, and it will be a very painful process, fraught with challenges and opportunities.  But, successfully navigating through this stage is absolutely necessary for future scale and growth.

The strategy is to develop and implement formal Processes, Systems, and Structure, Change the Culture (as needed), and to recruit the proper Management Team to effectively manage and control the business to provide long-term growth.

Once the business has successfully passed through this stage, it is now positioned for ….


Stage 4 – Predictable Success

The business has finally made it through the White Water stage, after several attempts.  The Systems, Processes, Structure, Culture, and Team, are all in place and working well, and it is stable, growing, and profitable.  Life is good for now.

Growing and maintaining the business in this stage, will require an ongoing, dynamic process of evolution and adjustment to consistently meet the changing expectations of the market, customers, and other stakeholders over time.  As long as the business continues to do this, and maintain its focus on its vision, strategy, and customer base, it can remain in this stage for a long time.

The strategy is Keep Doing It, Evolve as Needed, and Grow the Business.  

With long-term success, however, there is a danger is that, over time, the business may become too successful and stop evolving, resulting in complacency, a bloated and bureaucratic organization, and a loss of focus on vision, direction, and most importantly, its customers.  Once this happens, the business may eventually fall forward through one, or all, of the last three stages, including Treadmill, Big Rut, and finally, Death Rattle.

What will happen next?  Will the business survive?

We’ll find out in Part 3, next week!

“The great thing in this world is not so much where we are, but in what direction we are moving.” – Oliver Wendell Holmes

 “Making an enduring company was both harder and more important than making a great product.” –  Steve Jobs

What Business Stage Are You In? – Part 1

In an Inc. Live presentation last October, Les McKeown, President and CEO of Predictable Success, described his “7 Stages of Every Growing Business”.  These stages can help to define why some businesses grow and succeed, while others stall and/or fail.

In keeping with our recent posts on Business Growth and Strategy, we thought it would be helpful to provide an overview of each stage, and the related strategy and actions necessary to move a business forward.  Obviously, there are a great many factors, management skills, and organizational requirements that are required at each stage to make it through to the next one.  The complete series is at www.inc.com/les-mckeown/7-growth-stages-of-every-business.

As McKeown noted, all businesses will eventually pass through some, or all of these stages in their lifetime.  Each stage brings with it a different strategy, organizational culture and requirements, and a set of challenges that must be met to grow the business.  It is critical that a business understands these stages, what stage they are in at the moment, and hopefully avoid some of the hard lessons that other businesses have experienced.

The 7 stages include the following, in order:

   1. Early Struggle
   2. Fun
   3. White Water
   4. Predictable Success
   5. Treadmill
   6. Big Rut
   7. Death Rattle

As noted, a particular business may not pass through all of these stages, but as it grows, it will move through the stages in this order.  While there is no set duration for each stage, it is critical that the business make decisions about where it wants to go, to survive, and move on to the next one.

In this post, we’ll discuss the first two stages, and the strategy required to move to the next level.  The balance will be covered in our next posts.

Stage 1 – Early Struggle

This is the beginning stage for every business, the struggle to get, and keep it, going, and finding the Profitable, Sustainable Market (or PSM) for the long-term success.  It’s a race against time, and the most dangerous stage, with 80% of businesses failing in the first 3 – 5 years.

This requires an intense focus on identifying that PSM.  However, keep in mind that one large customer is not the PSM.  While that one customer may be profitable, at least in the short term, the customer base must be diversified, over time, to be truly sustainable.

Finally, this stage is also all about cash flow, and the ability of the business to fund itself, in any way possible, to survive and move to the next stage.

The strategy is to Find the PSM, Stop Being a Start Up, and get out of this stage as soon as possible!

 

Stage 2 – Fun 

The business has managed to survive, found its PSM, and can now mine it for growth, which can be dramatic.  In this stage, it can now have some Fun, grow, and build the myths and legends of the business.  The mantra is “do whatever it takes to grow the business and please customers.”

Sales and Profits are increasing, and there is usually a simple organizational structure, infrastructure, and processes in place to run the business.  The team is pulling together, improvising, and tap dancing every day, to make things happen and take care of their customers.

The strategy is “Sell More, and Grow!”.

As the growth continues over time, the complexity of the business will increase to the point that the management team cannot effectively manage, or control it.  The business is falling forward into Stage 3 – White Water.

It has a decision to make for the future – what will it be?

Stay tuned!

 “Think big, start small, then scale or fail fast.” – Mats Lederhausen

What Is Your Sales Strategy?

In a recent Inc. post, Geoffrey James quoted a statement by Gerhard Gschwandtner, publisher of Selling Power magazine, “that within 10 years, as much as 80 percent of the sales situations, currently handled by salespeople, will be handled automatically”. However, he also believes that there will continue to be a need for salespeople in specific situations, where the customer may not be able to identify his own problem, a solution, or an ROI for a purchase.

This means that for the remaining 20%, customers will be looking to their suppliers and sales representatives as resources to assist in providing solutions to help their business vs. just showing up to peddle their wares.  This will require salespeople that can understand their customers’ business issues and objectives, have the ability to be problem solvers, and the capability to build long term, personal relationships that bring value.

While this will be bad news for stereotypical, schmoozing, glad handing salespeople, it will create opportunities for businesses to differentiate themselves in their markets, and generate more profitable revenue.

As technology continues to automate and streamline the purchasing process, and time constraints increase with the pace of business today, there is less and less time for customers interact with salespeople that are “ just visiting”.   In fact, many organizations set specific limits on sales appointments, and only those salespeople that can help solve problems and bring value to the relationship, are invited and welcomed to participate as a partner.

This environment creates the opportunity for businesses to strategically differentiate themselves from the competition.  In many industries, the table stakes of the “game” are price, service, and quality and it is assumed that the majority of competitors in a given space, all have same relative levels of each.

As a result, without differentiation and value creation, the product or service eventually becomes viewed as a commodity, and the primary focus becomes price.  When this happens, price levels and profitability deteriorate, larger competitors take advantage of their economies of scale, and smaller competitors get squeezed out of the market.  A primary example of this evolution is the commercial printing industry which is now considered a commodity, and has become dominated by larger and larger organizations.

Those businesses that are able to differentiate themselves as solution providers, and can bring value to their customer relationships, will separate themselves from the competition, and as a result, create the opportunity to maintain, and possibly increase, their prices, profitability, and market share on the basis of that value.

Is your business considered a Solution Provider you your customers?  If not, now is the time to review your sales strategy and direction, training, and market message, and make the evolution from product peddler to a valued solution provider to protect and grow your business for the future.

If you have any questions, or would like to discuss your organization’s specific issues, please call us at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.
“A strategy delineates a territory in which a company seeks to be unique.” – Michael Porter

A satisfied customer is the best business strategy of all. – Michael LeBoeuf

Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different. – Michael Porter

Trying to do what your competitors are doing but basically a little bit better is probably not going to be the winning strategy. The problem is finding what your competitors wouldn’t even consider doing. – Jamais Cascio

Are You Ready for Growth?

What would happen if your business suddenly experienced rapid and significant growth?  My guess is that many of you are thinking that this would be great news.  But – don’t be so fast to welcome it.  

  • Would you and your organization be prepared, and have a plan? 
  • Could you manage that growth effectively and profitably?
  • Do you have enough cash to support and fund it?

There are three key challenges that come with growth, including Management, Cash, and Operations.  All must be planned and managed properly, so that the business can continue to operate profitably through this period, and reap the reward.   Each area is briefly described below, including some questions that you may want to consider in planning for your next growth phase.

Management 
As a business grows, the activity levels and complexity increase significantly, and need to be managed and controlled properly.

  • How much activity and complexity can your current Management team handle effectively, without losing control of the business?
  • At what point will your organizations’ internal capabilities,capacity, and resources become overwhelmed with the increased pace, resulting in the operational issues described below?
  • Is your organization’s team, capabilities, capacity, and culture, capable of absorbing the increased activity and complexity, and to what level?

Cash
Growing businesses require more cash, especially in the early stages, to fund and support the higher business level, as receivables and inventory rise, and the cost of doing business increases over time. 

  • How much cash will be required, and will the business have the ability to generate these requirements?
  • If not, will the business be able to qualify for additional funding to meet these requirements?
    •  Note: If the business is not able to obtain additional cash, it will need to make a decision regarding how much additional growth, if any, it can take on without experiencing ongoing cash “crunches”.
  • What investments and costs will be required to support the increased business and activity, and service customers efficiently and effectively? 

Operations
 The higher activity level, and complexity, will normally require increased capacity and capabilities, and more effective, streamlined processes.  If these are not in place, the business will experience increasing customer, service and quality issues, and higher costs.

  • Can your existing systems and processes handle the increased activity?
    • Note: In many instances, these systems and processes have grown with the organization over time, and may have a number of “band-aids” in place.  As the operation is stressed, these “band aids” will start to pop off, one by one, leading to further breakdowns in service and quality.
  • Will you need more staff?  How many, and with what capabilities and experience?  How will you train them.and how long will it take for them to become effective?
    • Note: In many situations, hiring is reactive and after the fact, leading to poor decisions, high turnover, and increased operational issues early on.

Those businesses that have planned properly, and prepared, will take the growth in stride, and continue to grow profitably.

The businesses that are unprepared will find themselves drowning in activity, out of control, and unable to cope with the requirements, demand, and complexity of the business.  As service and quality problems increase, customers will be disappointed and leave, revenues and cash flow decline, costs increase, and profitability disappears.  If corrective actions are not taken quickly, the business could enter a death spiral downward, and eventually close.

Be careful of what you wish for, and plan now for your next phase of profitable growth. 

If you have any questions, or would like to discuss your organization’s specific issues, please call us at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.

“Whatever made you successful in the past won’t in the future.”  –  Lew Platt, CEO, Hewlett-Packard
“You can’t have a better tomorrow if you are thinking about yesterday all the time.”  –  Charles Kettering
“Failing to plan is planning to fail.”  – Alan Lakein

Organizations Need Metrics

Let me ask you a few questions about the performance of your organization so far this year.

  • Is it Performing To Your Expectations?
  • Do You Know Where You Are (after 4 months of the year)?
  • Are You Making Progress Toward Your Objectives? 

If you can’t answer these questions quickly, without having to read a bunch of reports, then I’m willing to bet that you really don’t know how your organization is really performing, and if you’re on course.

As we’ve noted in the past, successful organizations have a formal business plan, and a budget to achieve that plan.  The business plan provides the overall direction and key objectives for the organization, and their budget is the chart to help plot the course, identify the current position, and measure progress toward the objectives.

There is, however, a third component that all organizations should have in place to quickly evaluate their performance – a set of Key Performance Indicators, or KPI’s.  KPI’s are specific, quantifiable targets to measure the critical factors that are essential to the organization reaching its objectives, and can provide information about its performance in those key areas. Every organization will have their own individual set of KPI’s to measure their performance and progress, and identify actions required to improve that performance over time.

In order to set effective KPI’s, an organization must establish its objectives in the business plan and related budget, and then choose those KPIs that best reflect the objectives that are essential to the organization’s success, and can be measured.  Think of them as a dashboard that will tell you the performance in key areas of the organization at a glance.

Generally, most organizations will have up to five primary KPI’s, although each department may have a separate set of KPI’s that support to overall organization objectives.  More than five will dilute the organization’s focus, and be distracting vs. helpful.  In addition, most KPI’s are usually are long-term, so the definition of what they are, and how they are measured, should not change often, unless the organization’s objectives change, or it gets closer to achieving a particular objective.

Effective Key Performance Indicators will:

  • Reflect The Objectives of the Organization
  • Be Specific Factors That Are Critical to the Organization’s Success
  • Be Measurable, and Include Specific Performance Targets

Once you have the set of Key Performance Indicators that define your organization’s goals, and can be measured, use them as a performance management tool.  Effective KPIs will give your entire organization a clear picture of what is important, what actions are required, and insure that all activities are focused on meeting or exceeding them.

While it may be possible to manage without a plan, budget, and KPI’s in the short-term, I can guarantee that your organization will survive, and be much more successful, with all of these elements in place.

If you would like to discuss your organization’s particular issues, please give us a call at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.

“It is an immutable law in business that words are words, explanations are explanations, promises are promises but only performance is reality.” – Harold S Geneen

“Manage your destiny, or someone else will.” –  Jack Welch

“What’s measured improves.”Peter F. Drucker

“If you don’t drive your business, you will be driven out of business.”B. C. Forbes

 

Organizations Need Profitable Growth

There is a saying that “an organization can’t cut its way to profitability“, at least on a sustainable basis.  While this is certainly true over time, many organizations have implemented internal cost reduction programs over the past several years to improve profitability in the face of the poor economic and market conditions.  Although the majority of these programs were probably overdue, and have been effective, many organizations are finding that there is not much more that can be done internally without sacrificing service, efficiency, and quality.

As a result, organizations must now look outward, and improve their profits through profitable revenue growth.  However, this growth must be planned, managed, and controlled in order to make it sustainable over time, and generate the desired results.

One of the more popular, and potentially dangerous, strategies, is growth for growth’s sake, using the tactic of cutting prices, and hoping to “make it up on the volume” to improve profitability.  While there may be some special situations where this tactic may actually work (at least for a period of time), in most instances, the increased revenues will not be enough to offset the lower profit on each sale, reducing overall profitability over time.  In the worst case, some organizations will continue to cut prices, further reducing profits, eventually threatening its survival.

The dangers associated with this strategy include the following:

  • While the lower prices may, in fact, generate more revenue in the short term, this revenue may not be profitable for the organization due to the higher costs, and increased activity required to support it.
  • In many instances, cutting prices will result in an overall decline in market prices, setting the expectation of customers for those lower prices.  Once this happens, it generally takes a long time to get prices back up to reasonable levels.
  • Finally, if the growth occurs too rapidly, and is not profitable, the organization may find itself without the resources or financing required to support the growth, and unable to manage the activity properly.  This will lead to service and quality breakdowns, and the potential for future revenue declines.

Generally, no organization can be successful in the long term with this strategy.

Profitable, and sustainable, growth results from a strategy that is well designed, managed and controlled.  In order to accomplish these objectives, the  organization should ask itself several key questions:

  • Where will the new profitable business come from?
  • Do we know our real costs, and are they competitive?
  • What are the additional costs and resources that will be necessary to support the future growth?
  • What is the real profitability of our current customers, and/or market niches?
  • Who are our most profitable customers, and can we increase our share of their business?
    • Are there more potential customers like them in our market?
  • Can our existing processes and procedures handle the increased activity without a breakdown?
  • What differentiates us in the market, so we are not competing just on price?

The answers to these questions may lead to even more questions, all of which will assist you in defining your profitable growth strategy, the requirements of that growth, and how best to manage and control it over time.

Those organizations that can define and execute a clear strategy for profitable growth, and manage and support it properly, will sustainably improve their profitability.

If you have any questions, or would like to discuss your organization’s specific issues, please give us a call at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.

“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” – Benjamin Franklin

“Companies that grow for the sake of growth, or that expand into areas outside their core business strategy, often stumble. On the other hand, companies that build scale for the benefit of their customers and shareholders more often succeed over time.” – Jamie Dimon

“Growth is never by mere chance; it is the result of forces working together.” – James Cash Penney