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Rx FOR FALLING CORPORATE PROFITS
"Corporate Profits Fell 43% in 1st Quarter" proclaimed the 15 May
2001, Wall Street Journal headline. The article went on to say
that: "The nation's (1700) largest corporations posted one of the
worst profit performances in at least 10 years in the first quarter,
suggesting companies may further cut spending to stem the tide ...
technology has made companies more reliant than ever on volume to
keep unit costs down. As volume has slowed, unit costs have risen
and eroded profitability."
Once again the squeeze is on and many companies are looking at
massive cost cutting as the means to scramble back to profitability
in an uncertain economy. The problem with this classic approach is
that it sends the clear message to your brightest and best talent
that no matter how well they perform, today there is no job
security. Not only does such a move have a serious impact on morale,
but with most of the country still in a very tight labor market, what
happens if the economy improves later this year or early in 2002. It
will be next to impossible to replace laid-off workers and worse yet,
your current work force, especially those brightest and best, may
well decide that it is time to move on to greener and possibly more
secure pastures before the next downturn hits. Is there a better
approach than cutting off your nose today and spite your face
tomorrow? Absolutely!
The way for any organization to beat this cycle, especially in an
economy that may well in this decade experience several see-saw
periods of growth and contraction, is to adopt synergistic innovation
as its model for continuous expansion despite short term economic
declines. Most corporate leaders know that productivity increases
provide the best way to increase profits quickly without increasing
prices. What is less well understood is that continuous innovation
is the most effective means to improving productivity over the long
term. Internally generated innovation in products, services,
processes and methods provides an endless series of new opportunities
to make rapid productivity increases for both the organization and
its customers an on-going reality.
Innovation channels the creativity of the organization's greatest
asset, its people and puts it to work in practical ways that
are "real world market" driven and directed. Far too often we
immediately look outside of our organization for "new solutions",
when instead we should rather be looking within, especially in times
of economic downturn. New ventures and other outside opportunities,
while potentially
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profitable for the long term future, typically take
a significant period of time and frequently much additional capital
to bring them to the point of being substantial profit contributors.
Meanwhile opportunities often abound internally to enhance our market
offerings, streamline our operations and save money through creative
approaches and best of all, these capabilities exist today within the
minds and hearts of our present employees. If we will endeavor to
unlock these potent assets rather than choose the typical knee-jerk
reactions of cost cutting and down-sizing as our first response, we
will find our people willing and capable to respond in frequently
unimagined ways to grow our productivity and profitability. Later,
when the economy rebounds, we will not need to replace down-sized
workers and will find we have built a deeper allegiance and sense of
ownership within our people.
Once we have initiated a culture of innovation, then it is the
primary responsibility of the leadership to ensure synergistic
outcomes. The power of synergy, although simple in concept, is the
most overlooked responsibility of today's senior executive corporate
leaders. Large organizations are like campfires that periodically
burn down until mainly embers remain. The initial fuel is mostly
spent and therefore the first reaction is that we need new fuel, new
resources, new investment, acquisitions, etc. to build the fire back
up. Yet when out camping and the fire burns down, the first thing we
do is stoke the existing fire and mound up the glowing embers.
Almost immediately the flame erupts again without adding new fuel.
All we needed to do to go from dying embers to a raging campfire was
to integrate the existing embers so that rather than each burning
alone, they burned synergistically, combining their individual heat.
So too, the careful integration of all of our products, services,
processes and methodologies, in short, everything the organization is
and does to achieve the greatest bang for the buck is no more than
the organizational form of stoking the fire. Unlike adding new wood
to the fire, the synergistic result of stoking is virtually immediate
and without the need to invest capital in additional resources.
Synergy is the ultimate multiplier, as it opens the door to
exponential results again and again!
About the Author
John Di Frances is the Managing Partner of DI FRANCES & ASSOCIATES,
LLC founded in 1983. Phone:1-262-968-9850
Fax:1-262-968-9854
208 E Oak Crest Drive
Wales, WI 53183
www.difrances.com
synergy@difrances.com
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