Leveraging Operational Excellence For Higher Profits
Submitted by Todd J. Anderson, Managing Partner of 10,000 Foot View
The Responsibility of Sales
When it comes to revenue growth and profit, most often the spotlight of attention is focused on internal sales processes as well as the actions of individual salespeople. In many respects, this seems perfectly logical. After all, it is the responsibility of Sales to seek out new customers and drive revenue, right?
When you fuse this thinking along with the enormous pressure exuded by senior management for the organization to be financially sound, the aftereffect when things go wrong can produce feelings of resentment between Sales and the operational parts of the business. When revenue targets are missed, salespeople are thought to be lazy, unaccountable or undisciplined in their approach. On the other hand, when salespeople actually DO make a sale, they may be branded as being rogue. Management often rewards the attitudes of what they perceive as high achieving salespeople in that they encourage risk taking and pushing the envelope. Winning new business is a badge of honor for Sales. Unfortunately, salespeople are sometimes accused of overpromising for the sake of getting the sale – not adhering to capacity constraints and the physical realities of the rest of the organization. For their part, Operations is accused by Sales as being inflexible, inefficient and not customer centric. This tension may be exacerbated by downward price pressure demanded by savvy buyers in a competitive landscape.
Another troubling aspect is the difficulty of producing predictable results within an inherently unpredictable system. Business processes, especially Sales, are inherently unpredictable and rife with variability for a number of reasons. The business climate in which we operate is prone to unprecedented change. Markets are fleeting. Our political and global platforms are becoming less stable and less predictable. In short, unpredictable change is becoming the new normal.
Because of uncertainty, organizations need to be more interconnected, more collaborative and more synchronized than any time in the past. Fundamentally, the effort put forth by the sales organization is often insufficient because their strategies are executed too independent of other critical business processes. They do not generate the desired success because their efforts are not properly aligned with the organization’s operational strategies and strengths. The sales organization will often put pressure on operations to deliver faster, better and cheaper; but will seldom foster a climate of co-developing new, different and valuable. The later will lead to greater customer value and potentially higher profitability, but requires a sustained intentional effort that will in the short term consume many resources and induce many sleepless nights.
When it comes to operational excellence, historically we reward managers for driving down costs, delivering on time, and creating standard operating procedures that ensure high quality and repeatable results. This is done in the spirit of satisfying our customers. Creative thinking in this arena is allowed, as long as it results in cost reductions, reduced headcount, less variability, and so on. However, there are greater rewards to be had. Putting Operations at the center of value creation is paramount to Sales being successful in generating revenue and winning new business.
Unfortunately, value creation within Operations invokes a dilemma. How does the organization drive down costs and variability while at the same time create new opportunities for growth? Historically, the main responsibility of Operations is to deliver quality work within prescribed cost considerations. One aspect of cost containment is repeatability and standardization. Paradoxically, if we are successful in standardization, nothing new will be created; by definition. Moreover, as any process or product becomes increasingly standardized, there is a tendency for the competition to replicate and exploit the same learnings and gains. Rapid commoditization takes place as best practices move from one organization to another as quickly as employees and information move from one to another. Notwithstanding patents and other legally protected intellectual property, our competitive advantages and company secrets essentially travel at the speed of the internet. Even so, our intellectual property is also prone to corruption especially by businesses operating on foreign soil.
Rethinking Operations for the Sake of Sales
To combat the ill-effects of commoditization, businesses more than ever must create a culture of cooperation, innovation and renewal. New product and service offerings no longer reside in the domain of any single part of the organization. Profitability can no longer be narrowly viewed as a snapshot in time measuring “total sales minus total costs.” By contrast, profitability must be understood within a context of velocity, momentum and inertia. Some may refer to this as Throughput Thinking, as partially described within Eli Goldratt’s Theory of Constraints model1. However, Throughput Thinking is much more than a method for understanding and executing organizational complexity. It is a philosophy that empowers the entire organization to answer the question of not only where they make the most money, but also where they make the best money.
The term Best Money is inherently qualitative. Best Money is the profit produced by working with customers on meaningful programs. The essence of this effort is derived by passion and an unwavering commitment to make a difference. Best Money is the resultant of Sales and Operations collectively understanding the essence of customer value. Customers are compelled to work with organizations that authentically foster relationships of mutual respect, mutual benefit and mutual transparency. When customers perceive seamless intentions between their suppliers’ Sales and Operations team, they migrate to a natural state of calm and trust.
Be Some Things to Some People
Unless you want to compete within an Amazon and Wal-Mart business model, trying to become a one-stop-shop or all-things-to-all-people is a disastrous approach for making Best Money. Unfortunately, the ability to resist being pulled down this path is not as easy as one might think. As markets shrink and buyers become more demanding, there is a tendency to keep old offerings while at the same time add new ones that provide only commodity value. The logic being, “these customers have been with me a long time but they aren’t buying as many blue widgets as they used to and the margins are shrinking. Since we already have their trust, and we know they are buying pink gadgets from our competitors, let’s offer this as well in order to recapture some of our lost revenue.” This effort usually increases inventory, dilutes your brand and pulls your resources and thinking away from New and Valuable and towards one-stop-shop.
A better approach is to become more narrowly focused on being better for fewer. Best Money follows passionate value creation. This means providing the best offerings to your best customers. This means becoming intentionally focused on investing in meaningfully different offerings. This means abandoning old dying offerings in favor of new and relevant ones. This means having the courage to risk investment in ideas where you believe the markets are heading rather than hoping that old ones will remain.
As you establish new value to existing customers, you will clearly see pathways to present new value to new customers. Stay focused on Best Money and your revenue success will follow suit.
Here are steps you can take immediately to implement a Best Money strategy:
- Create a product strategy group that includes people from Operations, Production, Finance, Sales and Marketing. Utilize this group to evaluate new opportunities and keep in mind that new offerings will surface a result of keeping this group engaged over time.
- Revise your “best customer” checklist to include more elements that describe your customer’s vision, core values and philosophy of doing business. Customers that are focused on getting the best price might find themselves at the bottom of your revised list.
- Prioritize your customers with respect to Best Money. You will have a lot more passion and interest in working with people that want the value that you provide.
- Create a list of things you are not good at or have no passion for. You might be better off killing obsolete offerings rather than waiting for the market to commoditize them for you.
- Train your salespeople to define, present and PUSH the value that your organization offers. If your salespeople would rather have customers discover the value on their own and PULL it from your organization, then carefully consider whether or not you need salespeople. Perhaps a good order taker or website will suffice (e.g. Amazon).
1 Eliyahu Moshe Goldratt (March 31, 1947 – June 11, 2011) was an Israeli physicist who became a business management guru.He was the originator of the Optimized Production Technique, the Theory of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project Management (CCPM) and other TOC derived tools. He authored several business novels and non-fiction works, mainly on the application of the theory of constraints to various manufacturing, engineering, and other business processes. (source: Wikipedia http://en.wikipedia.org/wiki/Eliyahu_M._Goldratt)
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Todd J. Anderson is the Managing Partner of 10,000 Foot View. He works with leaders to Align, Simplify and Execute their growth strategies. For information on his speaking and services, call 763-522-6365 or email firstname.lastname@example.org.