In today’s turbulent economy, many companies have taken difficult measures such as eliminating product lines and positions in order to cut costs. But there is a more practical method of increasing efficiency, and therefore, improving financial results.
A comprehensive profit improvement program can positively impact a business’ bottom line by improving productivity while decreasing costs. The program is designed to help a company make sound, informed decisions by identifying its operational and financial drivers.
Key steps to adopting a successful profit improvement plan include:
- Start at the top. Companies should revisit their strategic plan to ensure that it is feasible in the current economy.
- Undergo a situational analysis. The economic downturn has led to many consequences, including likely altering business initiatives, re-examining customers’ needs, and looking at current business threats.
- Create a cost-conscious culture. Develop and adopt a framework focused on cost savings and margin improvement.
- Form teams to help analyze each facet of the business. Identify cost and profit drivers across the organization.
Each individual profit improvement team has a specific set of processes and goals. Teams and their approach include:
- Cash flow. A focus on improving the cash conversion cycle to provide increased cash flow for operations and strategic capital investment.
- Revenue and margin management. A focus on improving revenue and margin at a customer, product or service line level.
- Spend management. A focus on lowering enterprise third-party or supplier spend by performing a robust review—often saving five to 20 percent of all spend. The spend management team will perform category-level analytics, identify potential spend opportunities (sourceable spend) and develop strategies around those opportunities to drive down costs.
- Operations. A focus on increasing throughput in processes, sizing processes appropriately for demand, eliminating waste and transforming operations into a performance-based organization. Doing so will increase efficiency and reduce costs, yielding a high ROI.
- Infrastructure. A focus on enterprise-wide policies and procedures; indirect and often shared functions, such as training, marketing, human resources and information technology; and the general operating model of the company.
The breakout of the teams in this manner allows for focused effort on areas within businesses that can generally be affected to yield impactful bottom-line change.
In difficult economic times, many companies are under immense pressure to adapt their operations in order to improve their bottom lines. However, companies that make significant decisions without first building the necessary strategic foundation and structured, disciplined approach may do more harm than good. By carefully evaluating the impactful financial and operational drivers of the company and implementing a programmatic approach to achieving improved financial results, organizations can benefit from a thoughtful and sound profit improvement program that yields a vastly improved bottom line to achieve both near-term and longer-term strategic financial goals. iBi