With each new year comes an opportunity to sharpen your profitability plan.
One more year is almost in the books and a new, dauntingly long one about to commence. You are either thankful the year is about to end, or wish it never would. Each annum brings its share of good and bad. Optimally we learn from each experience so as to, over time, reduce the bad and increase the good. The wild card is that which we can’t control or plan for. Planning, after all, is taking what we know and have experienced and using our judgment to map a route to a successful outcome. As simple as that may sound, it sure isn’t easy!
Business, in its most elementary form, is about profitable growth. To accomplish that singular objective requires two (obvious) feats: increasing sales volume while improving margins. If it were simple, would so many miss this annual objective?
While most are pretty good at applying their best judgment based on what they know, we make too many assumptions, especially when dealing with what is not known or experienced. Sometimes we forget tomorrow may not be exactly the same as yesterday. Planning requires astutely looking at what is obvious as if it were unknown, and considering what is familiar may in reality be new!
To profitably grow we need only to increase sales and optimize margin. However, what impacts that simple formula usually boils down to three obvious and familiar things: customers, employees and capital. Regrettably, it is just those three that must be viewed as unknown and new.
The customer comes first; therefore, first, it’s the customer. We all have them. We value our relationship with our customers far more than they value their relationship with us. That mistake is made too often: taking customers for granted. It happens not because we forget how important they are; rather, we forget to stay in touch with how they are changing, growing, adapting to new technologies, markets and competitive challenges. Viewed as static, customers quickly become unknown to you and, more important, you to them. Losing sync with existing or prospective customers leads only to bad things, most notably lower sales and eroding profitability.
Employees are also valued relationships that in any business, regardless of industry, location or size, are where the rubber meets the road. It is easy to think about your employees in that comfortable, familiar way. They are people you know and work with day in and out. As familiar as each employee may appear, especially when working side by side day in and out, the demands of the job at hand – and each and every specific job – require we take a new look at them while planning for the new year. Listen to what they say, as well as what they do not.
What training is needed so each employee is skilled for the competitive challenges planned? Are the right people in the right spots to increase sales and profitability? Too often we assume all is well just as it has been, only to find out the hard way the unknown is new skills and a new approach. Listen astutely to what employees say, and you will understand where the skill gaps are. The same can be said for how we treat longstanding employees and hire and develop new ones. We cannot assume what worked for some in the past will continue to provide the same results with others in the future.
Finally there is capital, which while also highly valued may be the most elusive of all to plan. Managing working capital requires knowing when you need to spend money to satisfy your customer and when that customer will pay. It’s a simple concept but not so easy if you assume your customer will pay as in the past. The same can be said for capital investment. Spending those renegade dollars on new and exciting equipment is one thing. Invest in the wrong equipment, however, and what was intended to enhance profits will do anything but.
Capital can’t talk and does not listen, which makes it too easy to assume all is well. Capital grows or goes strictly based on the actions of your customers and employees. If both operate in the familiar and obvious ways of the past, you can plan. If not – if timing and demands change – your capital could be stretched to the breaking point, making it impossible to maintain inventory levels or purchase the equipment necessary to provide what customers require.
So as simple as it should be to profitably grow, “stuff” happens that too often leads to unacceptable results. Possibly a bottom-up approach should be considered when looking at the business planning process. After all, our industry is made up of companies that provide a product or service where it is how well they react, innovate and deliver in a timely way that defines success.
In our industry customers seek suppliers that can and will muster their employees and capital to provide ever higher levels of service. Employees and capital must be best used to satisfy customers to profitably grow. The astute eye realizes unknown and new ways will be required. Employees and capital need to be an integral part of any plan, so when planning for the new year, spend less time focusing on the obvious and familiar and instead concentrate on those resources needed to accomplish that.
Start your business planning by engaging customers. Place a priority on communicating the right way, with the right people at each and every customer so they never feel taken for granted. This most certainly will require considering new and unknown methods to ensure you are in sync with their current needs and future directions.
Engage employees early in the planning process. Rethink what you need your employees to do so the company can profitably grow. Communicate those needs so all employees understand that in a dynamic world their skills cannot become stagnant. Help them rethink their skill sets and capabilities and then help them grow and stretch so they are focused on the future, not just the familiar past. Breaking from the familiar and comfortable is needed, especially when involved in such ever-changing and new technologies.
Finally, be astutely aware that, like working capital, what is assumed and not watched will most assuredly vanish. Customers, employees and success require constant effort, an astute eye toward the changing future and the determination not to allow the obvious to become too familiar.
is president and CEO of IMI (imipcb.com);