Picture2Some time back, while driving a business turn-around, I had an “Aha! moment” worth sharing.  Having had the opportunity to form a new executive team as a part of the turn-around effort, each function of the organization had new energy, new focus, and, of course, new leadership. And, with a new team, there was a considerable amount of excitement to drive change and improve our overall business results.

The truly interesting observation was the compounding effect of all functional organizations improving at once, and the impact this can have on the bottom line.  While almost all strategic planning would try to drive this through key performance indicators or the like, truly “hitting on all cylinders” and driving improvements in engineering efficiency, cost of product, quality, and customer / channel management simultaneously can have a truly amazing effect.  Avoiding the details of the particular business I was managing, consider the following hypothetical case:

  • 50% gross margins on $50M revenue, marginal operational profit
  • 35% customer close rate
  • Product quality returns “acceptable” at 2%
  • Engineering “velocity” & cost – moderate and expensive, respectively
  • Acceptable, but not remarkable portfolio differentiation
  • Moderate efficiency in SG&A

Now, imagine the impact of the following transformations over an 18 month period:

  • Product cost reduced by 8% through negotiations and new product introductions
  • 12% increase in customer close rate (better sales processes, training, quality, differentiation)
  • Product quality improvements to .35% returns (Pareto analysis and problem resolution)
  • Addition of low-cost (off shore) engineering to improve velocity and cost structure
  • Launch of differentiating products, sharpening the focus of the overall portfolio
  • Improvements in SG&A cost structures, efficiency, and use of BI tools

Plug hypothetical numbers into a spreadsheet to look at the potential impact, and you will quickly see what I mean regarding the value of “hitting on all cylinders”.  With each functional organization improving their contribution – and all organizations moving together toward a more focused strategy – very dramatic business improvements take place, and the shareholder value transformation is huge.  With the example above, the $50M / 50% GM marginally profitable business can quickly become a $75M / 65% GM business, generating lots of cash for re-investment or distribution.

While this should be obvious, it seems that we too often settle for less in business operations.  Often, this is the result of inadequate strategy management / strategy deployment focus.  But, with the right GM focus, processes and strong leadership in all functions it is possible to be “hitting on all cylinders” and drive explosive value creation.