In Pursuit of  Growth and Profits
Applying the Eight Business Basics of Profitable Growth
by William H. Gaw

In today’s competitive business environment, it takes more than quick fixes, outsourcing and downsizing for companies to consistently achieve their growth and profit objectives. While these options may yield temporary financial relief, they will not lead the way to long-term business success. For businesses to grow and consistently exceed profit expectations, they need to fully understand and effectively execute the eight business basics of profitable growth. While many elements of these basics have been documented and presented in hundreds of management articles, books, video presentations and seminars, their fundamental relationship and synergistic importance to achieving growth and healthy profits has not been effectively defined and communicated.

During my 30-year business career as a supervisor, manager, director and chief executive, I participated in four successful “financial turnarounds”. At Solar Turbines we grew the business from $50 to $500 million while turning losses into profits in the first year of a four-year run. At Pagaso, a Spanish truck company, we turned a $100 million annual loss into an annual profit – achieving our three-year turnaround target. Leading Eaton Leonard out of bankruptcy, we turned a profit in the first-year of reorganization. At Palomar Systems, over a period of four years, we increased our gross profit margin from 34% to 55% while growing the company from $17 to $42 million. Throughout these experiences, I continuously researched and tested business ideas, practices, processes and systems relative to their growth and profit margin contribution. As the years passed, it became clear to me that there were a number of tools, techniques and processes that were crucial to establishing a solid foundation for growth and profits. Because of their importance, I now write, teach and consult relative to the development and implementation of the eight business basics of profitable growth.

Over the past 30 years, we were led to believe that computerized systems would provide the solution to all of our growth and profit problems. In manufacturing and distribution, systems sophistication was to provide the tools for getting the right material in the right quantity to the right place at the right time. In engineering, Computer Aided Design (CAD) systems were to be the high-tech innovation for improving engineering design and speeding the time-to-market process. In sales/service, Microsoft Office was to provide the missing link in effective business communications while the Internet was to improve order sales capture rates and order processing speed. 

In their efforts to draw closer to customers, many business management teams have lost focus on what should be a company’s primary success factor – profitable growth. They have pursued Total Quality Management (TQM), Enterprise Resource Planning  (MRP/ERP), Business Process Reengineering (BPR), ISO-9000, and Six Sigma with each respective guru reassuring them that if they followed their program the bottom-line would take care of itself. Well it hasn’t happened! Like most perceived panaceas, each of these programs received a lot of hype, produced a few success stories but in general, contributed little towards helping companies identify and achieve their full potential.

For a measure of their shortcomings, one needs only to spend some time in a manufacturing facility – especially during the last weeks of the final financial quarter. In a typical company, you’ll find that converting the quarterly financial forecast into reality still requires overtime, internal/external expediting, last minute “on-the-run” product changes and even a little “smoke and mirrors”. Results are scrap, rework and warrantee costs that negatively impact profitability and quality and shipment problems that deliver less than acceptable customer satisfaction.  Companies have spent many thousands of dollars pursuing MRP/ERP and ISO-9000 certification, only to see their business decline due to uncontrolled operating costs that produced non-competitive pricing.  Other companies have won the Malcolm Baldrige Award for Quality and Business Excellence and subsequently fell far short of achieving growth and earnings expectations.

So, after introducing all these computer systems and more, why is it that most businesses are still struggling to sustain profitable growth and are no where close to achieving their full growth and profit potentials?  The first reason is simple – the results achieved by any computer system are only as good as the people at the controls and the integrity of the data they provide. The second is complex – most business managers facing major day-to-day problems and constraints adopt a totally reactive management style. Consequently, their time is consumed with “band-aiding” and/or finding ways to work around system and process problems – leaving them little or no time to analyze and eliminate the root causes of ineffective systems and processes. How does one turnaround such a classic “cart before the horse” syndrome? What’s required is first a company-wide, in-depth understanding of the fundamental importance of business basics and then a total commitment to the consistent and tenacious execution of the eight business basics of profitable growth.

Like Vince Lombardi, who achieved success by having his teams focus on the mastery of football basics – we need to have our business teams focus on the mastery of the business basics. Each of the eight basics requires proactive planning and tenacious execution that demands leadership above and beyond just satisfying “day-to-day” accountabilities. Some managers can’t envision the benefits of mastering business basics, other simply can’t find the time. Like practicing blocking and tackling in football, it’s not exciting, and like most football heroes, managers prefer to run with the ball. But without the tenacious and flawless execution of business basics, companies will seldom achieve their full growth and profit potentials. Delineated below are the eight basics of profitable growth: 

Information Integrity
We call it Infotegrity – the ability to communicate data and documentation completely, accurately and in a timely manner. Acceptable financial results cannot be achieved when inaccurate data and untimely, uncontrolled documentation drive computerized systems. Infotegrity is crucial to the analysis and improvement of all business systems and processes. 

Performance Measurement
How do we get to where we want to go if we don’t know where we are? Without performance measurement there is no control and little hope for achieving tactical objectives. A motivational performance measurement process provides a road map to success and keeps us on the path to growth and profits. 

Continuous Improvement
A continuous improvement process is crucial to growth and profitability. Achieving business success requires a specific management style that focuses on proactive problem solving, rather than “fire-fighting”. In this process, management takes on a coaching role, brings all their people into the process and supports them in their efforts to identify, prioritize and solve problems that inhibit day-to-day performance. 

Team Dynamics
As companies struggle to remain competitive in the next millennium, one of the strategies by which gains in growth and profitability can be achieved is the forming of  teams of employees to focus on optimizing a company’s critical success factors – such as speed, quality and costs. A key to successful team dynamics is the development of mutual trust through the elimination of communication barriers.

Strategic Planning
Without  a sound strategic planning process, a company has as much chance at achieving its full growth and profit potentials as a ship has at reaching its target destination by steering a course based on watching its wake. Developing a strategic plan is not enough – to promote short and long term growth and profitability, a company’s strategic objectives and key success factors must have company-wide buy-in and commitment. Finally, people commitment must be transformed into tactical plans and enthusiastic execution. 

Resource Management
One of the major challenges in business today is the timely “rightsizing” of operations. Profit margins can be eroded by not taking timely “balancing” actions. Market opportunities can be missed by not upsizing resources in an adequate and timely manner. These actions demand a resource management process that supports difficult and timely decisions that are crucial to optimizing growth and profit margins. 

Supply Chain Development
It took a long time for us to realize that there was much more to increasing a supplier’s contribution to our growth and profitability than simply placing purchase orders with the lowest price bidder. Outsourcing and supplier management that center on optimizing product design, quality, price and delivery performance must replace “beating-up” on suppliers for price reduction alone. Effective supply chain development is crucial to a company’s pursuit of growth and schedule flexibility. And, when suppliers control over 50% of the cost of products, it is imperative that they are effectively integrated into the profitability process. 

Customer Satisfaction
Sales price and cost of goods sold determine gross profit margins. Raising our sales price is not in the best interest of strategic growth. Healthy sales prices must be earned to a large degree by achieving and sustaining customer satisfaction. This process can yield favorable pricing and ensure profitable growth. 

While many business gurus have identified one or more of these business basics as important to the successful pursuit of business excellence, the fundamental importance of these eight business basics has been lost in the proliferation of buzz words and the mania of systems sophistication. We say it is time for companies to put a hold on sophisticated systems development that cause self-inflicted, day-to-day chaos. In its place, they should immediately initiate an action learning program for gaining a company-wide understanding and acceptance of the importance of the eight basics of profitable growth. Once buy-in and commitment have been achieved, aggressive planning and tenacious implementation must follow. In short, let’s put the “horse before the cart” – such a program will build a solid foundation for redefining and revitalizing a company’s pursuit of growth and profits.


William H. Gaw is president of Business Basics, LLC a business consulting firm that helps clients identify and achieve their full potential. He is a graduate of Milwaukee School of Engineering and the General Motors Institute (BS ME). Both the American Production and Inventory Control Society and the Society of Manufacturing Engineers have certified him as a professional. He has written articles and presented executive seminars on the Malcolm Baldrige Award and World Class Manufacturing and has spoken internationally on the subject, “Demand Based Manufacturing”. As a past president of APICS San Diego Chapter he was responsible for the initial development and successful launch of San Diego State University, “Operations Management Certificate Program”. Contact William Gaw by email:  BBasicsLLC@aol.com .

Many more articles in Competitive Strategy in The CEO Refresher Archives


   


Copyright 1999 by William H. Gaw. All rights reserved.

Current Issue - Archives - CEO Links - News - Conferences - Recommended Reading