Sometimes it helps to take a high-level view of your business rather than the close-up view. I offer in this column a new way to think about your business and what it takes to be successful.
Here are four key foundations that underpin long-term success:
Serve the customer
Sustain the enterprise
Of course, they are simple on the surface, but each one encompasses numerous activities, processes and measurements. Lets take a look at each of these.
Serving the customer is where you start. If you dont do that well, you wont be in business very long. Take a look at a top-20 chart of your customers by volume and by profit for 2019, and compare it to the prior year. Make sure you understand the individual trends and have a handle on your 2020 plan for each of these customers, not only in terms of the volume and profit expected but also the top five goals for your organization to carry out with respect to these customers.
If you have a sophisticated overall customer segmentation, take a similar look at each customer segment with respect to volume and profitability trends and 2020 plans. It is also important to review your overall customer satisfaction metrics for 2019 and examine how these compare to the prior year. These should include the more obvious metrics, such as on-time delivery and customer complaints and resolution, as well as more subtle metrics such as the results of an annual customer survey and any customer ratings or feedback.
You can serve the customer very well but not make money, so next, you must ensure that your business is profitable and becoming more so. You have probably by now reviewed in some detail your 2019 performance versus 2018 in terms of overall volume and profitability. I would suggest you also review your individual product profitability.
Are you carrying some products with low unit profitability? If so, consider how to improve those situations either by raising price or reducing cost, or some combination of the two. Review your profitability by package type to see if there are any actions you may need to take in 2020. Make sure that you are not leaking profitability in transportation to your customer. You may also want to look at profitability by customer. Do you have some customers that are low-profitability but high-cost to serve? You may wish to correct such situations by working with the customer to provide more cost-effective services or by focusing on new sales opportunities with higher margin potential.
Of course, you should also review your overall business fixed cost outcomes for 2019 versus your budget, as well as inflation. Make sure that you have a 2020 fixed cost plan that is achievable and well understood by your organization. Finally, take a look at a Pareto chart of your variable costs for 2019 and projections for 2020, and ensure your procurement organization has plans for improving them.
You may feel that if you serve customers well and are growing profitability, you can stop there and feel good. However, you need to focus on making positive change, or you will eventually fall behind your competitors, and this will affect your bottom line. What are your key change targets for 2020? These can be at an overall business level or at a divisional or group level. If you are looking for some guidance on where to focus your change targets, here are a few ideas:
Focus on increasing your competitive advantage in your chosen value discipline, for example, customer intimacy, product leadership or operational excellence. Investing in what you are already great at doing will result in a long-term, sustainable competitive advantage.
Focus on some aspect of your company culture that you believe needs change. Employee satisfaction surveys can be a good source of such information, as can employee focus groups and the like.
Invest in improving your company information systems. Data that is actionable and available should allow you to do more with fewer resources. You may also want to invest in systems to improve customer satisfaction and partner more closely with customers and suppliers. Such linkages can also increase the staying power of customer partnerships over time.
Finally, you may wish to close a competitive gap, if it is one that your customers frequently cite and that you believe is affecting your ability to maintain customers or gain new ones.
The final key business step is sustaining the enterprise. This step has to do with broadening your view and thinking about all of your business stakeholders-including the community in which you operate, your board of directors, owners or stockholders-as well as thinking about a longer time horizon. You may wish to start with a recent business strategy document and build on that by extending the timeline to 20 years. I know that is hard to do, but the extension of the timeline that far out will force you to confront real threats and opportunities that face your business.
Try to answer these types of questions:
What are the top three threats to the business in 20 years? What can we do now to address them? How do we monitor them?
What are the top three 20-year business opportunities? What can we do now to evaluate them?
What are the top three changes we can expect in each of our stakeholders (customers, suppliers, owners or board, employees, community) over the next 20 years? Which of these changes should we try to influence or prepare for?
What governmental or legislative changes could happen over the next 20 years that would affect our business?
In the lubricants industry, some key things to think about are the potential impact of electric and self-driving vehicles; the growth in environmental, social and governance investing; solar and wind power trends; sea level changes for coastal communities; original equipment manufacturer or other industry consolidation; etc. Remember that change creates real opportunity if you are ahead of the pack!
I hope that taking the high-level view of your business in 2020 leads to a higher level of insight!
Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Email her at email@example.com or phone (908) 400-5210.