Five Generations of Profit Improvement

Five Generations of Profit Improvement: Corporate Intellectual Growth

This is the dream of immortality. We want our companies and our jobs to outlive us.

Humans are driven inexorably by a biological clock from cradle to grave. Immortality is but a dream. Companies, however, may exist to serve generations of people and thus can reasonably dream of immortality. They are, however, no less fragile than humans and can suffer many ills in the hands of mortals.

Companies experience five stages of intellectual growth. Given the promise of immortality, I prefer to call them generations rather than stages. The five generational names speak to the focus of the effort of that generation: 1) work, 2) sell, 3) cut, 4) buy, and 5 think. Companies experience elements of each of these generations at all times but are defined by their primary focus at the time. They are not static and can not only grow from generation to generation, but can also regress as their actions, inactions, or the changing environments make a generation obsolete. The table gives a snap shot of each generation and illustrates that a company at of any generation includes a piece of the others within it.

Life is dynamic and so are the companies that populate its commercial world. As individuals grow and mature so do companies. But like people, companies do not always fit in every situation. Sometimes they must change and adapt to survive and prosper. I am often called in to help companies who are either seeking to grow to the next generation or recover a generation they have lost. The measure of success or failure is often seen in the bottom line profitability as a primary measure of long-term corporate value.

Here is a road to success through five generations of profit improvement and corporate intellectual growth.

This table shows the five generations of 1) work, 2) sell, 3) cut, 4) buy and 5) think. Five Generations of Corporate Intellectual Growth

stages of corporate intellectual growth
Five Generations of Corporate Intellectual Growth

Generation 1 – Work:

Struggling start-ups that may be months or even years old are still locked in to the dreamer’s dream that everything will be all right as long as “We keep our eyes on my dream and work hard.” This is the empire of dreamers and the dream counts more than execution. Leaders at this stage don’t even think about efficiency because that’ll come later. “All we need is a good value proposition and we’ll attract the capital to succeed.” The interesting thing is that in this Dot.Com world, many millionaires are made at this stage even if the company later folds. In the cold reality outside that world, tens of thousands of mundane companies go belly-up under the back-breaking labor of trying to make it work. The interesting thing is that without dreamers the company would not even exist. A failure to grow beyond the dream generation, however, is a sentence of death.

Generation 2 – Sell:

Capital may be getting scarce, investors may be impatient with losses, or the planned growth just isn’t there. Volume is the salvation. This is the domain of the salesman and the marketer. Now it’s time to get out there and sell. “All we need is enough sales to cover the fixed costs and we’ll be rolling in dough.” I’ve heard this from companies in their infancy as well as those that are decades old. The infants never knew any better but the older companies somehow lost their way. Dreamers may still be dreaming but the marketers and tacticians are now playing a bigger role.

Generation 3 – Cut:

The company may be on the verge of success having grown to this point or may have fallen from grace and is now in trouble for lack of satisfactory profits. Capital may have dried up or the stock market may have demoted the stock value. The obvious and immediate way to fix the situation is to improve margins. This is where the operators rationalize the company with rules and systems that impose efficiency. If the situation is dire, they will first cut the fat. They may have no choice but to slash and burn large pieces of the company. Waste, perquisites, products, business units, and, all too often, people may be shed. For companies that see change as a natural part of the ongoing process of evolution, this stage will not be traumatic while the operators work with architects to design a smoothly running machine. For others, that find themselves in trouble, this may be a painful and bloody process. This is where cost reduction projects are often born and dreamers are asked to step aside. Cost reduction more often sets the company back than it helps to move it forward and companies, even those on the Fortune lists find themselves cycling back and forth – stuck in a cutting mentality.

Generation 4 –Buy:

This is the stage when the builders and strategists are creating the company in the current image of the architects and the future image of the strategists. These should be good times. The company is buying machines, systems, and maybe even other companies to create an efficient and effective organization with a strong position in its markets. They will be engineering, bench-marking, and copying the best in class to become the best themselves. For those who continue on to the next stage, life is good. For those who rest on their laurels, life may run them over. The dynamic forces of the rapidly changing world can make a product, strategy, system, or company obsolete in the blink of an eye. Acquisitions can, and often do, fail to deliver on the strategists’ dreams. Companies may find themselves in a position where they are forced back a generation, to cut to survive. The opportunity is to think.

Generation 5 –Think:

Thinking is the key to immortality. A visionary leader knows that change and growth must be integral parts of the corporate culture and operating structure. The power here is the collective intellectual capital of the organization melded together toward a common vision of the future. People are working smart and they work together. Everything they do is tested against the questions of whether or not it fits the strategic plans and is a good investment of the resources involved. All of the energies of the dreamers, marketers, tacticians, operators, architects, builders, and strategists are focused on doing the right things for the corporation. They use all of their vital resources (financial, materials, space, time, knowledge, energy, and people) in a cost-effective manner. They are the Cost-Effective Organizations of the world. They have ongoing continuous improvement programs such as quality processes and the Profit Improvement Process. They prosper through change.

Summary:

Corporate immortality comes to those who harness their intellectual capital to embrace change though continuous improvement. The promise is to think sooner and move more quickly through the generations with diminished trauma and maximum success.

No matter what generation you are in at this moment, you must think of the future and aspire to Generation 5 today to achieve immortality tomorrow. A Profit Improvement Process accelerates intellectual growth. The mindset is vital.

Steven C. Martin
President & C.E.O.
Business Solutions –The Positive Way

Listen to my discussion on this topic with Jim Blasingame, The Small Business Advocate


Seven Easy Steps to Failure

Normalization of Deviance: How to Lose Your Business

Failure is insidious even for the smartest and brightest entrepreneurs. It sneaks up wearing a cloak of invisibility woven from the gradual acceptance of what used to be unacceptable. That is the normalization of deviance. Here are seven examples from society and business. It has never been easier to destroy your business so why wait? Here are seven easy steps and one bonus suggestion.

  1. Remove performance standards & Incentivize lassitude. Yes, it has been difficult with over two years of government lockdowns. A virtual workforce based at home has been a winner for some businesses but others are suffering from employees who have essentially retired on the job with quiet quitting. Every low performer you tolerate sets a new low standard for everyone to emulate. Each now low becomes the benchmark to follow; straight to failure. Poor performers can drag down ten peers.  A non-performing employee will change your business culture whether you like it or not.

    Suggestions: Measure performance and clean house. Eliminate mediocrity as quickly as possible. It is sometimes easier to change people than it is to change people. Reconfigure your staff. Hire slow and fire fast. Adjust your people, process, equipment, product and/or hours to handle vacancies. Consider hiring older people or others you might not have included in the past. They just might surprise you with their work ethic and knowledge.


  2. Spend, spend; spend like there is no tomorrow. Cash is fuel for every business. You are out of business when you run out of cash. Now is the time to be careful with your cash and your debt. The business may be past saving if you get to the point where those online offers for easy loans look attractive. Easy money can quickly become a bottomless pit of interest and fees.

    Suggestions: Listen to the pessimists in your organization and the market to help you to understand the risk environment and pivot your spending. Listening does not mandate agreement but it will give you new information for better decisions. Listen to what the sales data is telling you to see how your customers are adjusting to this troubled economy.

  3. Deny the facts in favor of the loudest voices. Be an informed consumer of the news. There are highly skilled propagandists out there with big megaphones. Repeating a lie does not make it true. Changing definitions does not change the facts. Listen to both sides with an open mind. Make considered judgments. Be careful of listening to only your own voice.

    Suggestions: It helps to talk to trusted advisors and mentors. Be deliberate about checking your position and pivoting if needed. Run SWOT and PEST analyses as tools to help visualize the situation.

  4. Risk it all. Just do it. Business has always been risky. Smart entrepreneurs analyze and manage risk.

    Suggestions: Redo your market research and understand your business economics. Develop options and test the riskiest elements of your plan before you bet the ranch on them.

  5. Deny that the rule of law is fundamental to life, families and civilization. It is a fact that civilization and freedom do not exist when the criminals rule the streets. Businesses cannot exist in chaos. Do you really want to live where those in power want to defund civilization?

    Suggestions: Talk to the people in power and vote wisely and with your feet if necessary. Consider if it is time to move to a safer location.

  6. Ignore inflation. The truth is that inflation is a killer. It wipes out businesses, jobs and bankrupts families. It destroys dreams and drives people to the bread lines. You are seeing the impact now at home and in your business. Know that this impact will not go away!

    Suggestions: Raise your prices faster than your costs. Fire unprofitable products and customers. Apply the principles of profit improvement and look at every aspect of your business.

  7. Cook your books like Enron and Congress. Clever bookkeeping can hide a lot of sins. Resist the temptation to keep massaging your business plans and forecasts until you get the numbers that you want. Reality wins.

    Suggestions: Start with a blank piece of paper to create a new business plan.

  8. BONUS: Deny that the American Constitutional Federal Republic and Capitalism work for society by creating jobs that raise us all up. Your job and your business depend on this as the very foundation of freedom.

    Suggestions: Celebrate this great nation and work every day to make America great. Save your business and the jobs of the people who depend on you to continue to do the right things for the greater good.

Thank you to the work that you are doing to create and sustain jobs; even your own.

References:

JK Pinto – International journal of project management, 2014 – Elsevier

https://tinyurl.com/2p89x6pz

J Albright – Business & commercial aviation, 2017 – code7700.com

https://code7700.com/pdfs/bca/bca_normalization_of_deviance_2017-01.pdf

 

MG Everson, BA Wilbanks, RR Boust – AANA journal, 2020 – researchgate.net

https://tinyurl.com/4hdyrh36

K DavisJK Pinto – IEEE Transactions on Engineering …, 2022 – ieeexplore.ieee.org

https://dspace.lib.cranfield.ac.uk/bitstream/handle/1826/18178/corruption_of_project_governance-2022.pdf?sequence=1&isAllowed=y

 

S SCOTT – 2021 – starlingtrust.com

https://starlingtrust.com/couch/uploads/file/the-normalization-of-deviance-starling.pdf

False Savings: How Improvement Program Expectations Lead to Disappointment

The current complaint with Six-Sigma Programs, Lean and other cost reduction and business improvement programs is that after a while the increased profits and reduced costs that were promised have either not materialized or have disappeared.  A group of business improvement champions for a major global business recently told me that after ten years of effort they realized that the cost reductions and profit improvements predicted by Six Sigma projects were not sustainable.  They gave a number of reasons given including a lack of hourly worker involvement and a lack of buy-in and their new corporate initiative goes a long way toward addressing those problems.  These are probably true but I think there is much more to it.

One of the fundamental problems behind improvement programs of any kind is the inherent need to exaggerate the size of the anticipated improvement.  I submit to you that this need to exaggerate is not only personal but corporate.  The following sequence leads inevitably to backsliding down the slipper slope of reality.

Consider, for example, a Six-Sigma black belt.  The company pays up to $60,000 to get the black belt trained and then tells them quite clearly that they have 12 months to generate $1 million in improvements to justify the investment.  That becomes the objective against which their job performance will be measured.  Pressure.

Now consider a department manager or business unit manager who has several black belts working for them.  Yes, they now have several million dollars of improvements as part of their job performance criteria.

And so it goes up the ladder from the lowest to the highest levels of the company.  Having spent hundreds of thousands of dollars to millions of dollars to implement this improvement program, progress against these goals is a constant item at the board meeting.  “Don’t disappoint us now” is the top management mantra.  Every bonus in the company rides, in part, on program success.

So, perhaps insidiously at first, the temptation to exaggerate creeps into the improvement estimates.  The best of the forecasts are given and the downsides are brushed under the rug.  Pressure is applied for success and even the round peg will fit into a square hole for a while.  At some point some people just “game the system” to make the numbers.

The net result is that some projects succeed phenomenally, others succeed a bit, others fail a bit and still others fail phenomenally.  The improvement program becomes a huge waste of resources and delivers ever-disappointing results.

The bottom line is that yes, you can have fatal structural flaws in your improvement programs such as a failure to engage and involve key people but in the end, no matter how well your program is designed, if you set unreasonable expectations, offer unreasonable rewards or penalties and do not scrutinize proposals with a very critical eye toward reality, you will end up creating a disappointment.

Do not fall into that trap. Make sure that every project you undertake for profit improvement is thoroughly analyzed by your accounting team to insure that the projected savings are real. Test your savings IQ with this short quiz

Who is Stealing Your Profits

The question for you is not “if” your profits are being stolen but the only question is “Who is stealing how much?”

The estimate of embezzlement for the US alone in 2018 was almost $50 billion. This included robbery, cargo theft, larceny and burglary. The top incidents were organized retail crime, employee theft, fraud, burglary, counterfeiting and robbery. Note that employee theft far exceeded the losses due to robbery. In a 2017 survey by Hiscox* the median dollar amount for small or mid-sized businesses (under 500 employees) was $289,864. The median loss for companies with over 500 employees was estimated to be $452,025.

Hiscok provides the following common characteristics to look out for:

  1. Intelligent and curious – eager to know how everything in the office works
  2. Extravagant – often flaunt their wealth
  3. Egotistical risk-taker – rule breaker on and off the job
  4. Diligent and ambitious – beware of the person who does not take vacations
  5. Disgruntled – feel treated unfairly and may want to even the score

I’ll add one more from experience: They are the manager, accountant, controller, bookkeeper or clerk who just can’t get the reports straight and on time. They love disorder in which to hide their own dealings.

According to the National Retail Federation retail goods shrinkage of $48.9 billion is due to four major sources: employee theft (30%), shoplifting (36.5%), administrative error (21.3%), vendor fraud/error (5.4%) and unknown loss (6.8%).**

None of these figures include the billions of dollars lost to employee time that is deliberately wasted, time card falsification, inflated expense accounts, office supplies that end up at home and countless other ways in which employees waste company time and money. Excuse me while I check my FB account…

A number of years ago a senior sales executive (over 25 years with the company) warned me not to make him work from home because he assured me that he would extract the “cost” from the company in any number of ways that the company could never detect. I was no longer with that company when that move was finally made to save money so I don’t know how much, if any, this long-term employee extracted in “payment.”  I often wondered which of his supervisors allowed him to harbor such a terrible attitude.

Just within this year two priests in my city have been indicted for embezzling hundreds of thousands of dollars from their churches. Prevention is a wise thing to do and don’t forget to help keep your employees honest with good systems and audits while you are locking the front door. Embezzlement and shrinkage is just two aspects of the element of Loss which is part of the Profit Equation.

How much of your hard-earned profits can you afford to allow the thieves within and outside your business to take?

Contact us if you would like to learn how to reduce your Losses now.

References:

*THE 2017 HISCOX Embezzlement Study

** 2017 National Retail Security Survey

Why Suggestion Programs do Not Work

Why don’t suggestion programs work?

The typical suggestion program or suggestion box is an open ended and unstructured solicitation of ideas. They will typically end up:

  • As a place to put “nice to have ideas” rather than improvement projects
  • As a venue to complain
  • An expense rather than a savings
  • A disappointment for all
  • Annoying and disengaging participants
  • Wasting a lot of time and money

This happens because:

  • Suggestions that are submitted drop into a “black hole” or
  • Some suggestions are implemented and others are ignored
  • Goals are unclear
  • They lack adequate structure
  • The participants and not adequately trained
  • Expectations are not set and guided
  • The criteria are muddy or missing
  • There is little or no reward for participation

If you want ideas from your employees, use world-class methods such as Lean, TQM, ISO, Six-Sigma or the Business Solutions: The Positive Way Profit Improvement Process.

One organization with tens of thousands of employees gave up after less than 36 months when they found out that they were not only NOT saving money but they were increasing costs and reducing morale. Painting the ladies bathrooms pink was just one of the suggestions that was rejected because there was no clear ROI. That rejection and others did not go over well at all.

If you are serious about improving your financial situation and sustainability, you need to get serious about having a structured program that engages your team and leadership from the top. We know the ways to do this well and will be happy to review them with you.