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

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Change Is Constant – Get Used To It!

Most of us don’t like change.  In fact, my guess is that the word itself makes you uncomfortable.  So maybe we should call it something else – how about Shift? or Transition? or Adjustment?

Why do we “fear” change?  Generally because we’re comfortable in our present situation and maintaining the status quo, and things seem to be working just fine.  Some of the comments I hear most often include:

  • “If it ain’t broke, don’t fix it”.
  • “This is how we’ve always done it”
  • “It’s working fine, why change it?”

In these uncertain times, however, these approaches, and doing nothing, may actually risk the future survival of your business.

When you really think about it, most of the issues and challenges that you face, or objectives that you want to achieve in your business, require a change.  Call it whatever you like, “Strategy Development”, “Revenue Growth”, “Performance Improvement”, “Cost Reduction”,etc. etc., it is still a change from what you are doing now.

The fact is that the pace of business today, and the uncertainty of the current environment requires continuous adjustment for a business to grow, remain competitive and relevant to their markets and customers, and ultimately, achieve sustainable success.

Why do we need to constantly make these adjustments?

  • Market and customer requirements are continuously moving
  • Customer expectations keep increasing
  • Costs are rising
  • Prices are under constant pressure
  • Technology continues to change the way we do business

Sailors know the need for continuous adjustment better than anyone else.  On a sailing vessel, the wind is constantly changing velocity and direction, and the sails must be adjusted consistently to maintain course and reach the destination.

Change is inevitable and required to keep pace with the changing conditions.  Organizations must constantly review, evaluate, and adjust their business and operations to new conditions in order to grow and be successful.  They need to be prepared to learn new skills, take advantage of new trends, and adapt to unforeseen circumstances.

While it may be uncomfortable, those organizations that choose to make these adjustments will be successful.  Those who choose not to will be left behind.

“We cannot direct the wind, but we can adjust the sails.”  –Bertha Calloway