One of the graphics in a slide deck I use for a financial management lecture I regularly deliver, shows the activity of a business as an upside down triangle, where the Sales are “poured” into the top of the funnel and through a series of filters for Supply, Direct Costs and Overheads, the Profit is produced at the bottom of the funnel. What’s most striking about this graphic is how small the profit figure is relative the general scale of a business operation. In a lot of organisations we work all year, with quite a lot of resources employed, for modest returns.
Nothing can be taken for granted in business – sales need to be achieved and businesses operated, to deliver the profit at the end of the year. There can however be a sense that driving after the “everyday activity” sometimes comes at the cost of not concentrating on improving the business result in the first place. Who has the time for launching strategic root-cause / remediation exercises? What if there was a simpler objective?
The answer is in the triangle! Given that we deliver a lot of sales and employ a lot of resources to achieve the profit figure, relatively small adjustments in big numbers can have surprisingly large impacts on smaller numbers.
Improvements of as little as 1% can dramatically increase profits:
The impact on Profit of these small achievements in the “big numbers” can be huge: ?20%!
Look at this simple example of a “trading company”:
Very small improvements add 19% to the bottom line!
I call this the “Power of 1%” – the dramatic increase in profits arising from very minor 1% improvements in other business metrics. The Power comes from everyone’s understanding that 1% of anything is very easy to achieve. This is an almost zero-obstacle ambition.
There isn’t a business anywhere that can’t improve itself by 1%. In fact, when viewed from the perspective of what’s achievable, I’ve often worked with teams that can improve key metrics by 3, 4 or 5%. Guess what that would do to profitability!
Implementation: Tomorrow, go to work and say “I’m going to make something 1% better”.
John Eager is Principal of WinAbu Consulting. He has worked on many successful turnaround and business improvement projects, mentors several MDs, and lectures internationally. Visit www.WinAbu.com
John is a member of the Chartered Accountant Interim Manager group in Ireland.
Article first published in LinkedIn on 10th May 2016.
Written by: Winabu
Date: July 24, 2017