Mastering the Art of Prioritisation: Spotting Potential, Not Just Remedying Weaknesses
Within a portfolio company, business leaders often face the challenge of determining where to focus their resources and energy. This task of prioritisation can be fraught with difficulty and often leads to missed opportunities, largely due to misguided strategies resulting from cognitive biases and anchoring.
Manufacturers managing multiple sites often focus on the site(s) yielding the smallest profit. This seems a reasonable approach: a struggling site is seen as a problem that needs to be solved. However, we must ask ourselves, are we always making the right call? Or are we missing the wood for the trees?
A common scenario unfolds in the boardroom: a site losing ￡1m per annum is deemed 'underperforming', and a wave of resources is directed to resuscitate it. The primary goal is pushing this site past the arbitrary breakeven line. But if this is the best possible outcome, are we genuinely maximising the potential of our portfolio?
Now consider another site, a site turning a reasonable profit of ￡1m. This site appears to be in good health and generating a decent profit, and thus, it is often overlooked for strategic change or significant investment. But what if this site, with the correct strategy and favourable conditions, could achieve a profit of ￡10m annually?
This does not suggest that loss-making sites should be left to flounder. All parts of the business must be maintained in a viable state. However, an undue fixation on sites performing poorly in absolute terms can distract from those with the most profit potential.
This situation often arises because of our perception of performance, which we tend to establish against an arbitrary line in the sand, i.e., the breakeven point, rather than appreciating the potential within each site.
Humans succumb to a cognitive bias called 'loss aversion'; we are psychologically wired to avoid losses more than acquire equivalent gains. This can lead to sub-optimal decision-making.
It's time to move our evaluation metrics from 'loss-focused' to 'potential-focused' and redefine how we measure 'performance' and 'value'.
Instead of merely aiming to bring a struggling site to the point of no loss, let's aspire to elevate a profitable site to exceptional gains.
Remember, a successful manufacturer is not only someone who can rectify a problem but also someone who can identify and seize an opportunity. It's high time we gave potential the attention it deserves, for it may be the key to unlocking unprecedented performance.