But the reality is that in the public and private sector, in business large or small, there are really only two ways to create and sustain superior performance over the long haul.
First, take exceptional care of your customers via superior quality and service. Secondly, constantly innovate.
Obviously, these two activities do not constitute all that is needed.
Sound and realistic financial performance analysis and planning controls are essential. Structured, informed and commercially aware planning is not a luxury but a necessity.
Look at this case:
SITUATION: A well-established, 40-year old company operates in a relatively mature and competitive market, experiencing 2% to 3% average annual growth. Management seeks to achieve a 10% annual growth rate by increasing revenue, gross profit and cash flow.
ACTION: The company decides to embark on an aggressive marketing and sales campaign, offering modest discounts [and we saw what effect they can have on volume expectations last month] and more attractive payment terms to attract additional customers and increase volume. Backup stock to service this campaign was estimated.
RESULT: The company does meet its 10% growth target, but delivers an annual operating loss. Worse yet, the company’s cash position is significantly eroded.
And the problem? The cost to obtain the additional volume (and hopefully market share) was more than the gross profits generated by the increased sales. And, by offering more favorable payment terms, debtors increased putting a strain on cash flow.
Had management spent more time preparing and understanding financial projections for volume and gross profit gains, and the additional marketing expenditure - versus knowing the increased volume needed to cover any discounts offered, plus projecting the rate of debtor growth, which of course has to be funded from cash flow, the potential outcome of this strategy may have been different.
This story is not uncommon. Many businesses, regardless of size and years of operation, become commercially sluggish while operating in mature markets, where growth is minimal and competitors are suffering the same dilemma.
In market conditions such as these, companies require more “lateral-thinking by management”, considering different strategies for more challenging economic conditions and market dynamics – i.e. new competitors and/or products!
Competitors change direction and consumers change their expectations – both requiring constant re-evaluation of business practices and objectives.
Strategic or tactical changes brought on by the above conditions also require the right financial astuteness and capacity to effectively and profitably take advantage of opportunities that arise – like a competitor ceasing business or a new consumer product arriving on the scene, e.g. the i-pod in portable music.
The need to grow revenues and the customer base may not be supported by management’s understanding of the financial platform and cash depth [i.e. the P & L and balance sheet status] to support growth targets. Risk is always a ‘silent’ partner in any new strategy.
Projecting the positive financial outcome of any strategy, over a range of possible commercial variables, is the job of management.
Timing is critical – consideration of both market and economic conditions must be factored into the best ‘launch’ date for the new initiative. Many new campaigns go off the rails because the timing is off – e.g. just after an increase in mortgage rates, or during a holiday period when discretionary income is targeted elsewhere by consumers.
Growth for the sake of growth is not enough – to be successful your company’s overall objective must be to either generate cash or generate growth. Very few companies can to both at the same time - simply because growth usually requires the use of cash!
The secret lies in your company’s financial ability to control the balance between growth and liquidity.
Finally, is it always important to identify and quantify the key drivers of results [i.e. your key performance indicators].
What has the greatest impact on your bottom line – selling price, sales volume or product cost?
How does advertising affect volume versus the expense impact?
What else suffers if you have increase advertising?
Which of these elements do you have most control and knowledge of?
Do you know how changing one element affects others, financially?
Ask yourself these questions:
Where are we now? - and why are we here?
Where to we want to go, and why?
How do we get there?
How much will it cost?
Can we afford it now? - When?
Who/what do we need to help us?
And once underway –
Are we moving in the right direction? How is this measured?
How far have we come? How is this measured?
Do we need to change ANYTHING?
Planning for Success - To learn more about this author, visit Sue 's Website.
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Leanne Hoagland-Smith
Are your sales where you want them to be? Will you be one of the few who achieves sales success or one of the many who have failed to change? So what are you doing to change those results? Let’s be honest, with companies moving globally and at lightening speeds, the traditional business solutions are outdated and dead. My approach moves your business out of its comfort zone and secures your competitive advantage now. If you are seeking to increase sales, build customer loyalty, create a culture of great attitudes or just achieve some sleep filled nights, then we should talk because my clients have experienced exactly those types of results. Learn more about customer loyalty at http://www.processspecialist.com/customer-loyalty.htm Give me a call at 219.759.5601 for a free strategy session. P.S. If you are seeking a motivational speaker, sales trainer or small business expert that will leave your audience smiling and remembering, please feel free to contact me at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Sue
(Visit Sue's Website)
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