Profit margin magic using op efficiency to drive profitability v2

1. OPERATIONS EATS SALES FOR BREAKFAST! Dirty little start-up secret #7 http://www.flickr.com/photos/matthew_norris/

2. too many entrepreneurs get hypnotized by growth (volume or revenue)

3. when what really matters is margin

4. a million in revenue for a million units sold doesn’t look so sexy now, does it?

5. so how do we maximize margin

6. well it starts with some very basic math

7. let's start with the formula for profit margin

8. profit profit margin = revenue

9. now let's do some simple algebraic substitution

10. Expand out profit to (r - c) profit margin = revenue revenue – cost Expand out revenue to (v x p) = revenue (volume x price) – cost = Expand out cost to (v x c) volume x price (volume x price) – (volume x unit cost) = volume x price

11. (volume x price) – (volume x unit cost) margin = volume x price From the last slide volume x (price – unit cost) = volume x price price – unit cost Simplify! = price price unit cost = - price price

12. price unit cost margin = - price price From last slide unit cost 1 - = price holy cr@p!

13. unit cost profit margin =~ 1 - price

14. in other words

15. selling more units (volume), does not in itself mean your business is healthier

16. what moves the dial is… • raise price • lower costs

17. but….

18. in most competitive markets, raising price (especially significantly) is not an option

19. which means that

20. the magic of margin

21. is all done with cost per unit

22. that’s why sales & marketing is basically illusion and hypnosis

23. while operational management is the dirty little secret of success

24. so how do you reduce unit cost?

25. simple

26. process excellence

27. and how do you get excellent with your processes?

28. you map out where your processes are weak or inefficient

29. and you fix them

30. one at a time

31. i’d now like to share with you a tool that would be used by you and your management team

32. to identify areas to target

33. but

34. due to the limitations of slideshare, you must download this deck to make the tool work

35. please download and then view the next two slides in native power point. it’s free.

36. here is a tiny version of what you’ll find on the next slide WARNING: you must manually use the scroll bars in order to use it

37. Execute Interviews and Surveys Define clear roles and responsibilities (job descriptions) Define organizational structure required to execute firm-wide strategy Structuring Execute Primary Research Execute Observational Research Define & execute sourcing channel strategy Perform Market Research Execute Secondary Research Execute Experimentation Compose & release openings externally & internally CV Screen Define Research Methodology Approach & Strategy Define & Execute Core Competency Plan Ideation Screening Prototyping Commercialization Define & Execute Lock-in Strategy (consumer & distributor) Interviews Screen Candidates Sourcing Define & Execute Segment Strategy Perform Segmentation Analysis (size, growth, value, buying process, accessibility, & needs) Define Market Positioning aligned to firm-wide strategy Background checks Negotiate Employment Terms Manage Marketing Strategy Define & Execute Product Mix Strategy Define & Execute Product Innovation (disruptive & incremental) Strategy Define & Manage Product Lifecycle for each product / service Write and Update Marketing Plan Perform Competitor Analysis Prototyping (wireframes and design concepts) Copy Production Content Strategy Development Quality Control System Architecture Handover Deployment Hiring Set SMART performance objectives Perform PEST analysis Induction Manage Packaging & Labeling Sustainability, Cost, Distribution & and Segmentation Analysis Define and execute Learning Plan Set development objectives Analytics / Objectives Design & Review Primary & Secondary Research Analysis Manage Client Expectations Manage Client Expectations Scoping Workshop Business / Product Design Roadmap, Strategy & Tactics Performance Management Define & execute Career Development Plan Manage Campaigns & Copy Succession Planning Line Management Project Reporting Kickoff and Closeouts Project Administration Client Management Define & execute Advertising Plan Execute Reviews Exit Management (termination, retrenchment, voluntary) Manage Media Mix Define Brand Promise (value to customer) Define & execute Inward-facing & external-facing Communications Plan Define Sourcing Strategy Manage Suppliers & Supplier integration (network optimization) Production Planning & Demand forecasting Procurement Product Design Coordination Discovery Strategy & Content Project Management Build Evolve Manage Brand Select & Manage Agencies Leave Administration Manage Communications Plan & messaging Capacity Planning & Management Manage externally-controlled Channels Manage Press Perform Customer Perceived Value Analysis Capabilities Planning & Management People Strategy Manage Supply Manufacture After-sales Support Manage Product Strategy Manage ERP Manage Delivery Partners Manage External Social Media Perform Market Price (competitors) Comparisons Manage Internally-controlled Channels Define & Execute Compensation Strategy & Controls Manage Pricing Strategy Cost Analysis & Strategy Blog Management Drive internal mobility People Define & Execute Price objectives & Strategy Manage External Websites Define & Communicate Values Define & Execute Promotion / Discount Strategy Identify Potential Channel partners Produce Whitepapers Engagement Activities Define Channel Partner Strategy Culture Select Channel Partners Manage Sales Channels Speak at Conferences Non Monetary Recognition Produce Sales Channel Reporting Co-Pipeline Planning Manage Channel Partners Corporate Social Responsibility Sit in industry forums Operational Activities are defined as a set of business processes required to execute business strategy. Not all firms will have the same activities but they probably all have the same core of 4 and most start-ups and small companies will not be all that far off. As a small company, you won’t have time to fix everything, but you should 1) know where you stand in terms of operational maturity (by mapping out processes as is the case here, and assigning maturity ratings) and 2) have a plan as to what things you will invest in improving. For example, you might target the “red” items in the map. Or you might find that you’ll get better ROI by focusing on 4 of the yellow processes. Whatever the case, this is an example map (scroll left, right, up and down to explore) of operational processes that seem generic enough to me that they might be useful as a baseline for whatever company you are running. Market Review ongoing service levels and alignment Manage Sales Collateral Execute Client Relationship comms, events, and engagement Needs Assessment Scroll to see processes! Manage Client Relationship Management Retire Sales Channel Partners Select (re) Evaluate client / product mix & prioritization Design Facilities Management Fit out Identify opportunities in New Accounts Upkeep / cleaning Produce Product / Service Define Prospecting Strategy. metrics, and plan in line with production capacity, revenue expectations, and sales life cycle Re-evaluate needs and execute move Identify opportunities in Existing Accounts Cultivate Productive Assets Distribute Product / Service Identify opportunities (funnel) Prospect Health, safety & compliance GEBiz Management & Administration Administrate Firm Manage Funnel Qualify opportunities (profit, strategic, fun?) Environmental sustainability Manufacturing Platform Proactively help prospective customers author RFPs Monitor funnel size against targets Needs Assessment Sell Scroll to see more! Activities mature and working smoothly Systems Procurement (Email, Databases, CRM, SCM, printers, Knowledge Mgmt (Intranet), etc) Perform needs assessments and set expectations Activities are being performed, but there are opportunities to improve efficiency and/or effectiveness Equipment Activities are not being performed, but should be Execute Pre-Sales Execute First-Contact Pitch work Activities are not being performed, but are not relevant for our business at this time System Administration (passwords, IT support, account management, etc) Perform Research Perform Solutioning Propose Propose Prototype Execute Pitch work Write & Negotiate Proposals Ensure compliance to Internal pricing, timeline, terms controls Execute and store Post-mortems Perform Sales Management Perform Pipeline Management & Reporting Risk Management Financial Management Legal Strategy & Leadership Control CRM usage and administration Negotiation Close Signing Ensure Regulatory Compliance Operational Risk Management Emerging Risk Management Budgeting Collect Payments Benefits Administration Issue Payments Financial Reporting Manage Corporate Treasury Bookkeeping / Accounting Ensure Corporate Governance & Secretarial Compliance Administrate Employee Stock Option Plan Compose, Validate, Approve, & store legal documents (contracts, NDA, Agreements, etc) Manage Intellectual Property Define & Manage firm-wide Operational Strategy Define Growth Strategy Define & Drive Exit Strategy Board Planning, Management, Administration, Reporting & Support Handover to Delivery, Account Management, Finance, & Legal Direct Marketing Identify Risk Implement Controls to mitigate risk Track Residual Risk Identify Risk Implement Controls to mitigate risk Track Residual Risk Invoicing Track & Manage Accounts Receivable Manage Credit Terms & Strategy Process Claims Salary Payments Management Reporting Board Reporting Manage Working Capital Manage Financial Risk (Market & Credit) Manage Bank Accounts Employee Client Supplier Distributor Delivery Partner Ensure departmental alignment Ensure individual goal alignment Communicate Strategy IPO Program Trade Sale Program Define Channel Structure Define Channel Strategy Internal External Define, Manage & Monitor metrics Manage Delivery Channels Execute Partner Selection & Management Manage Channel Conflict Define & Implement Logistics Strategy Deliver Perform Transpiration Management Manage Storage, Transport & Logistics Perform Inventory Management Perform Returns Management Select Locations Manage Point-of-sales (Place) Execute fit-out

38. what you need to do now

39. is duplicate this map with processes specific to your business (I bet I nailed 86% of them though) 

40. and, as a management group activity, use color post-it notes

41. to map out your own maturity levels

42. then, start actioning change

43. but remember…

44. focus on change that moves the dial on cost per unit

45. don’t geek out on every opportunity….

46. good luck!

47. and make it fun!

48. SHARE THIS DECK & FOLLOW ME (please-oh-please-oh-please-oh-please) stay up to date with my future slideshare posts http://www.slideshare.net/selenasol/presentations https://twitter.com/eric_tachibana http://www.linkedin.com/pub/eric-tachibana/0/33/b53

49. CLICK HERE FOR MORE!!!!