Identifying the High Performance Areas

Jonathan L.S. Byrnes in his recent book “Islands of Profit in a Sea of Red Ink”, makes the important point that most companies have an unnecessarily high level of embedded unprofitability within them. This is because the measurement of many key tasks and functions use aggregated statistics, be they operational or cost in nature, to manage their performance. Hence, much of management’s activity is focused on maintaining satisfactory “average” performance.

Ideally, we should be identifying the high performance areas in the company, and raising the level of performance of the lower areas, including the “average” ones, to that of the high performance elements. More often than not, this does not require huge investment or total restructuring of the business. Rather it requires support and leadership which are already in existence within the company!

He attributes these phenomena to two primary causes, namely:

1.     The environment for most businesses has changed from one of mass production/mass marketing (i.e. economies of scale driven) to one of precision production/precision marketing (i.e. customer service driven). This is analogist to the swing from a “push” to “pull” market. Hence, the identification of “real” customer needs, and the provision of the appropriate goods and service to satisfy these needs is fundamental to success

2.     Nobody in the organization is really managing profitability effectively! Whilst most managers may dispute this, as they all feel that they are contributing to profitability by managing their particular portfolio of responsibilities to the best of their abilities, no single person is bringing all the complexity of the organization together to manage the profitability of each product, customer, job, process, region, etc. on an on-going basis. This is where much of the embedded unprofitability is buried

His underlying message is to move away from the myth that “Revenues are good; Costs are bad” by focusing in on profitability more. The key to greater profitability in many organizations is not as difficult to find as one would think, it is just well hidden!

Contributed by: Mike Johnston, Managing Director, Logistics Management