Is Too Much Focus on the Bottom Line Damaging Your Wealth?

We are all familiar with the phrase “Cash is King”, and let’s face it, the primary goal of most, if not all businesses, is to make money. Surely then, the propensity to focus on the bottom-line is the right thing to do? Or maybe not… I have encountered many situations over the years where too much attention to the bottom line has been damaging to individuals and businesses alike. 

Speculate to accumulate??

Another popular cliché in business, but it exists because it’s true. It is common knowledge that if you want your business to grow, you often have to invest money to make this happen. However, focussing on the short-term profit often gets in the way of this investment. I have met many a frustrated supply chain professional sit in front of me citing a desire to leave their current business, because they are being prevented from making decisions to invest. The Project Manager who has a robust business case for new capital equipment which will see a return on investment in less than 12 months, and then a profit, whose idea is rejected based on bottom-line cost today.  The Procurement Manager who is snowed under with work and needs a Buyer to assist them, which would increase savings over and above the cost of the new individual’s salary, but is rejected on the basis that the extra salary is viewed as a perceived cost to the bottom-line.

The short-term view of profitability is an obstacle to long-term growth and wealth.

I feel passionately about this topic because I think it affects one part of business which is close to my heart – people. Hyper-focus on making profit, makes for miserable employees. Here’s why:

·        Micro-management. This applies in particular to commercial/sales departments in a profit-focussed business. Sales is viewed as the department which has a direct impact on profitability. What then tends to happen is sales professionals are given reams of KPI’s, and are monitored within an inch of their lives to ensure maximum output for maximum sales. This does not make happy sales people. Yes, commercial professionals tend to be target-driven. However, they are usually highly creative and enjoy autonomy. Two things that cannot happily co-exist with a micro-management philosophy.

·        Poor Benefits Packages. Quite often in cash-focused businesses, particularly those managed by some Venture Capitalists, salaries and benefits packages tend to be at the lower end of the scale. Always mindful of the end goal to sell the company, shareholders expect their staff to give maximum output for minimum return.

·        Unnecessary cuts and redundancies. This is one of my biggest frustrations. In sales-focussed businesses looking to make profit, the very people who could actually contribute to the bottom line through savings and improving efficiencies, are let go. The procurement and supply chain professionals of this world who can make a real impact through cutting costs, implementing continuous improvement strategies, and improving over-all efficiencies are either restricted as to the improvements they can make, or are made redundant whilst businesses actively seek to recruit more sales people. This is sheer madness in my eyes and so very short-sighted. The best, most forward thinking businesses are starting to give supply chain and procurement departments their own P&L, recognising the value they add. Lack of understanding of the value of these professions is in my opinion, the reason why so many smaller businesses fail.

·        Lack of autonomy.  The need to make cash quick often goes hand in hand with a need to control. I have spoken with many professionals who have been offered roles in VC backed businesses, who have been told their reason for employment is to make changes and improvements, but in reality once they start their new job, are given very little autonomy to do this by the powers that be.  There are a number of reasons for this – a reticence to give up control for fear that this could cause the business to slump, or maybe a lack of understanding of the benefits a robust supply chain strategy can have on profitability, either way this need to control only engenders frustration in the new employee, and causes resentment and negativity.

The result of these behaviours is very tangible – a high turn-over of staff. Those businesses who are constantly hiring for the same positions?  Their culture probably resembles the above.

The frustrating thing is, that cost of replacing and retraining multiple staff members is far more of a blocker to profitability than investing in capital equipment or the like.  However, as this is an intangible cost, it is often overlooked.

So, what is the solution?

To my mind, it’s pretty simple. Take the focus away from profit and turn it towards your people. Give them accountability and autonomy, support and development. Listen to their ideas and collaborate to implement them. Turn “no” into “yes”. And watch them flourish. Then watch your profits flourish with them. It’s not rocket science but so many businesses still get it wrong. If you want your business to succeed, empower your people to succeed. The two go hand in hand.

For more of my articles please visit www.jps-supplychain.co.uk/blog