You finally feel as if all your hard work over the years is paying off, your management team finally seems to be able to do things on their own and the far right bar on the last sales graph is trending upwards. Finally the increased sales volumes justify the margins and you feel like you don’t have to hide from the bank manager any more. You just manage to relax into your chair when the HR manager knocks on the door and places the union’s letter for a wage increase on your desk. Incredulously you storm out of your office – what is wrong with this company, you think to yourself.
Is it possible that you might have fallen for one of the most dangerous assumptions as a manager – “Our people understand their role in making profit?”
As managers we spend years fine-tuning our understanding of the relationship between sales, operational performance and profit. We get to know the margins well, we understand the graphs intimately and drive down costs at every opportunity. Why is it then that our people do not have the same attitude towards driving down costs, even when every one of them might share in the profit of the company? Could it be that we have assumed that profit is easily understood by everyone in the company?
Having trained many Blue-chip companies in South Africa over the past 25 years it still surprises me to see how many managers have taken the concept of how to make a profit for granted. When asked the question about the link between profit and sales, invariably it is assumed that the one will naturally lead to the other.
Rarely does a discussion about margins ever make its way out of the Exco boardroom. Somehow we have asked the financial manager to be the custodian of the secret formula that is kept hidden for the annual review. Until then, as managers, it is our job to make sure that everyone should work a lot harder and sell a lot more.
“Our people understand their role in making profit.” – The most dangerous managerial assumption.
Having discussions about profit margins on the shop floor seems like a foreign concept. There are, however, those rare managers who are able to bring these concepts across and by doing so are empowering their employees with one of the most powerful tools to grow the company. Are your people aware of the relationship between what they do and the profit margins? Have you tested this assumption?