Everyone Has a Role in Profitable Business Growth
For a business to grow successfully, it must as an organization understand that every person in the organization is taking part in the growth process. The ability to grow and the ability to do so profitably are determined by how all individuals in the organization perform their roles. Financial performance is a reflection of the decisions and activities undertaken (or not). The importance of clarity to all individuals within a business on where the profits are made and where money is being lost cannot be understated.
Because a business is composed of individuals engaged in activities performed to deliver the product to a customer, every activity—from the customer making purchases of the product from the sales department, to contact from the accounting department, shipping, customer service, technical support, and marketing—must be captured in the financial statements. From top-line revenues to bottom-line profits, the drivers of revenue and costs need to be clearly understood. It isn’t sufficient to understand the numbers in aggregate and say “the business is profitable.” You must know where profits are generated and how they are generated, as well as what may be increasing costs or consuming profits.
The Numbers—Making Them Meaningful
The “numbers” (financial measurements of performance) too often become something for the organization’s accountants and financial types to argue over, or they become metrics that drive short-term decisions. Actual financial performance is the reporting of what has already happened; it gives us an opportunity to compare what we thought would happen with what did in a particular time period. It is our assumptions versus our reality and allows the business to determine what worked and what didn’t work. For numbers to be meaningful, they must be connected to the reality of the business and used as one source of information that is put into a larger equation for the business.
That reflection and analysis of what worked and what didn’t is necessary. We need to be accountable for results. We need to improve our ability to perform in the future. Financial analysis and performance metrics are about learning how good we are at planning, analysis, and developing our strategies, marketing, and customer-oriented activities. It is about how good we are at managing our projects, our costs, and our business. It is about learning and applying what we learned. It is about improving our management of the business in the NEXT time period.
Change Future Performance
The numbers are meaningful when they enable us to change our behavior to improve future performance. Examining the numbers requires us to understand what is occurring when decisions are made: at customer levels, in business units, with marketing strategies. The numbers give you information on whether your pricing is working; are you covering your costs, reaching capacity levels, driving volume up, or simply leaving profits on the table? How are costs moving? What about resource availability? Are your marketing programs working? How are external factors having an impact?
Actual performance must be compared against past performance and planned performance to have any real meaning. Actual performance must also be analyzed to understand the causal factors of external and internal variances between the actual and the comparator. Variances that are external and that have had an impact on everyone in an industry, country, or worldwide are very different performance issues than those that come from poor decision-making, failed marketing efforts, quality issues, or any number of internal managerial or operational issues.
Controllable or Uncontrollable
Frequently, when businesses first transition to everyone being viewed as part of the profitability equation from the more compartmentalized (or function based) view of business (e.g., sales teams measured solely by sales metrics, or the production group measured by production metrics), many in the organization begin pointing out that they have no control over various components of cost. Sales, for instance, doesn’t make decisions on manufacturing equipment. Manufacturing doesn’t have input on sales incentives or marketing campaigns. Capital expansion projects (buildings, improvements, major expansions) are made by upper management. It may be true that in most cases many of the costs of a business are not directly attributable to a particular department or functional area, nor are the decisions made by all groups. However, if everyone in the organization is operating under the same objective—maximize the long-term profitability and growth of the business—then the decision making will align for the business. Furthermore, the culture of the business will become one that holds each person in the organization accountable to ensure that the best decisions are being made and ultimately things will be “controllable” through the alignment of objectives through the performance criteria and cultural norms.
Everyone has a role in controlling the costs within their sphere of influence. They influence each other in how decisions are made, which activities are undertaken, how efficiently things are done, and in other small ways on a continuous basis. Those small ways make big impacts across the business and in the ownership of the company’s profitability.
Customers Belong to Everyone
The profitability of the business is also everyone’s responsibility: the customer belongs to everyone in the business, from the person that answers the phone to provide customer or technical service to accounts receivable answering a question about an invoice. The ability to service the customer and provide a level of value beyond the product’s intrinsic value contributes to the business’ ability to generate a profit and to sustain profitability year after year. Ownership of the profitability of the business equates to accountability for the customer relationship and the sustainability of the business. Everyone is in business and everyone is in marketing. Profitability and growth are natural outcomes of a business where everyone knows how they contribute to the bottom line for the long term.
