It's Not Enough To Be Busy . . . Or Even Productive
The new economy requires good commercial instincts. You need a nose for business. Competition has gotten so stiff, and markets shift so fast, that everyone should become more sharply focused on financial performance.
Put on your economic glasses and take a critical look at what your group is doing. Since the most popular new measuring stick for companies is value creation, that’s how you need to keep score. Some 65 percent of all the large companies in the U.S. claim they have adopted “shareholder value” as a primary goal. But do you know how your outfit stacks up against today’s standards?
To sort that out, let’s start with a couple of questions. What does it cost in hard dollars to run your work group’s operation for a year? And what is the organization as a whole getting in return for that particular investment?
The payoff had better be more than the interest income the company would earn if the money were invested in a bank instead of in supporting your work unit. In other words, you need to beat the cost of capital. If you don’t you’re a bad deal. And the money should be spent somewhere else.
It’s not enough for you and your people to be busy. Or even productive. The key issue is the value that your efforts produce. You can be a good soldier, and your people can bust their tails. but that doesn’t necessarily add to any earnings growth. Some things simply may not be worth doing.
The question is, what can you do in your work unit that will contribute to cash flow? And what activities can be justified from a value creation standpoint?
You need to identify the “value drivers” in your organization. These are the factors that most powerfully affect the outcome of the business in terms of being created...or lost. Let’s face it—some of the stuff people work on only drives costs. Maybe a lot of that activity can be eliminated, freeing up resources you then could aim toward building value.
Get your people engaged as business people. Make them responsible and accountable—in the strict financial sense—for running the business. Be sure everybody understands how the organization makes and spends its money.
Going forward, we’ve got to become more discriminating in how we tackle our work. Our mindset must be more attuned to return on investment. And value creation should be woven into our daily routines until it becomes a core feature of the corporate culture.
"Never do card tricks for the group you play poker with." —Steven Wright
THE REAL WINNERS INSIDE CORPORATIONS, THOSE THAT RISE TO THE TOP, WILL BE INCREASINGLY THOSE THAT UNDERSTAND HOW VALUE IS DRIVEN AND HOW THEY CAN INFLUENCE IT. MANAGERS WHO FAIL TO UNDERSTAND THE DRIVERS OF VALUE IN THEIR COMPANY WILL CONTINUE TO BEAR THE BRUNT OF THE REDUCTION OF NONPRODUCTIVE FUNCTIONS, WHETHER TERMED “DOWNSIZING,” “REENGINEERING,” “STRATEGIC REFOCUSING” OR SOME OTHER EPITHET. —Mark Scott, Value Drivers