The renowned German-American satirist H. L. Mencken had a point when he famously declared, “For every complex problem there is an answer that is clear, simple… and wrong!” You could say that about businesses as well– all enterprises are driven by the imperative need to make profit, the more staggering, the better, but the problem is this: how do we get there?
Everyone seems to have ideas about how to fatten the bottom line, but somehow, many of them don’t work in practice. Enterprises have to reconcile to the fact that there are no quick-fix solutions to creating a healthy and sustainable profit growth. It is a time-consuming process, and one that needs careful consideration and thought.
1. Strategic choices for staggering profit
Before a company sets out to make profit, it has to make certain strategic choices. To begin with, a clear understanding of who you are, what you seek to be, and how you plan to get there is essential. Then, it is a matter of well thought out choices. Businesses, particularly SMEs and startups, need to prepare a blueprint, listing various crucial points that can determine the measure of success they will achieve. How to create differentiated value for target customers, how to set themselves apart from competitors, whether to be a cost leader or a product differentiator, what type of an internal structure to go for, what kind of people processes to create in order to support strategic choices: these are fundamental questions that each enterprise has to be clear about in order to notch above-average profits on a sustainable basis.
2. Creating value for customers
Understanding customer behavior and having an intimate knowledge of their expectations is one of the most crucial aspects of creating a healthy bottom line. A company needs to delve deeply into customer psyche and find out what they value in a product. It is not all about the quality of a product– it could be something as simple as packaging, color, positioning, even the brand name. In order to deliver value offerings, a company needs to invest itself with the right kind of capabilities. In fact, it needs to cultivate core areas and functions that are difficult to duplicate. And by creating value offerings for customers, a company gains a competitive advantage, which could be a cost advantage or a differentiation advantage. In the long run, a company has to make a strategic decision: whether to focus on cost or differentiation, as it may not be possible to deliver both.
3. Aligning and linking processes
When a company has strong linkages within its organization, it has a firm grip on its activities. A smooth flow of information up and down the organization, seamless work processes, and authoritative management processes lead to connected activities. And this means no nasty surprises. Have you clearly demarcated roles and responsibilities of all your business units? Do your regional heads know what rights they have? Have you mapped both the vertical processes and lateral processes of your company? Your vertical processes tell you how budgets are set and how funds are allocated, whereas your lateral processes encompass process flow, linkages and handoffs.
The next thing is alignment. While having an open structure, where department heads can have their way, is commendable, there has to be a clear flowchart of where authority rests. If an organization is not aligned, departments will pull in different directions. Chaos and divergence of opinion within a company should not be confused with a democratic setup. In order to be agile, a company needs alignment of processes and decision-making capabilities. Create a matrix within your enterprise that demonstrates linkages clearly. When you know what is expected of you, it is easy to focus on just your area of work.
4. Honing people processes
It is not enough for a company to have a talented workforce; what is equally important, if not more, is to nurture talent, and engage human resources in a way that makes them want to give their best. When human resources are poorly managed, talent goes to waste. Motivating your employees, recognizing their talent, rewarding their effort, having personal interactions with them, giving them leeway in case they are facing problems– all these steps go a long way in improving employee performance, which, ultimately, leads to profit for the company. Research has shown that companies that repeatedly post healthy profits have sound HR practices, and employee-recognition and reward programs in place. The importance of the human element in posting a healthy bottom-line cannot be over-emphasized.
In the end, there is no easy way out for making staggering profits. The only thing to do is to painstakingly research the market, understand consumer behavior, and invest in internal human resources. Profit stems from making well-informed and smart choices- repeatedly.