Profit Counts and Profit Improvement Counts More!

“You must measure it before you can manage it.”
G.E.McKenna, Jr. & Others

During our three decades of “hands on” Business Survival Consulting assignments we would constantly push to improve Client profitability. Profit Improvement in one form or another is, of course, the foundation of a successful turnaround.

During this process we clarified and expanded upon three Axioms, that to a greater or lesser degree, are generally unknown and/or certainly under utilized in the quest to improve corporate profitability in American Business. These three Axioms are:
AXIOM ONE: “Key People Know”

Who knows a company better than its’ Key People? Nobody does…from a collective perspective this group knows the “nuts and bolts” of what it takes to keep the company running.

These Key People are Key because it is their individual intention to do a good job. They intend to be good at what they do within the corporate structure. However, over the years it has been Mr. McKenna’s observation that while Key Personnel intend to do their jobs at an exceptional level and succeed in so doing, they are not generally focused on profit improvement.

The trick then is to expand this powerful Key Personnel Group to think about Profit Improvement as an integral part of their respective job intention. They must expand their job intention to not only perform their assigned tasks but also to intend to improve profitability and thereby improve job security.

By explaining and presenting the “Ten Early Warning Signals” (See Axiom Three) Key Personnel are given a matrix to assist in the expansion of their “power of intention”.

The collective knowledge of Key Personnel, if properly focused and channeled, can be an omnipotent Profit Improvement source for Top Management in their ongoing Profit Improvement efforts.

AXIOM TWO: “Crisis Avoidance and/or Crisis Correction” 

This statement constitutes the basic operating environment of most “for profit” companies.

In its most simple approximation, 20% of Businesses are generally crisis free. The next 60% of Businesses are involved in a series of minor and/or serious crises most of the time. The remaining 20% of Businesses are generally moving from one survival crisis to another survival crisis all of the time.

Crisis control is an on going integral component in the operation of a business. Whether it is crisis management before or after a crisis, it is usually a minor to critical crisis factor that must be considered and overcome to achieve profit improvement. To rapidly test this AXIOM simply read the Wall Street Journal tomorrow or any other day.

Also, attempt to objectively look at your company. Is it totally crisis free, usually involved in minor to serious crises or struggling from one survival crisis to another all of the time?

This slope is a slippery slope indeed! 

Area 1) is a good place and it has traction. It’s relatively easy to stay in Area 1). Companies in this Area constantly strive to improve profitability. They have the time and strength to focus on Profit Improvement as the preferred method of crisis avoidance.

Area 2) becomes more of a slippery slope the closer the company gets to Area 3). Companies in Area 2) above the fulcrum try to improve profitability while attempting to resolve mostly minor and some serious crises which are time consuming and distracting. Companies below the fulcrum invest most of their time and strength in attempting to resolve mostly serious and some minor crises which are distracting to the point of limiting Profit Improvement activity.

Area 3) is home to very slippery footing. There is precious little tolerance for error. Most of the time and strength of Area 3) companies is devoted to business survival crisis. Profit Improvement activity in area 3) companies is basically non-existent.

AXIOM THREE: “The Ten Early Warning Signals”
Over the years we repeatedly observed that the problems encountered by our clientele generally consisted of interrelated combinations of ten basic factors.

These interrelated combinations varied with each client company in structure and intensity. However, rarely would our analysis indicate problems of crisis proportions which fell outside of this ten point matrix. Therefore in 1983, we eventually concluded that most business crisis situations are preceded by actions or events which are actually definable “Early Warning Signals.”

A brief/working definition of each Early Warning Signal is as follows:

#1 – PERSONAL PRESSURE – Business is loaded with personal pressure…sometimes mild, sometimes severe. Mr. McKenna lost his first business during the early 1960’s. The pressure was extreme. During his 30-year Crisis Management Consulting career Personal Pressure was usually obvious at the upper management level of his clientele. It usually manifested itself in unrealistic denial of situational severity and resulted in a functional inability to focus on Profit Improvement.

#2 – FINANCIAL CONFUSION – Sometimes it occurs innocently. But it regularly occurs as evidenced by Worldcom, Enron, Computer Associates, Long Term Capital Management, Penn Central Railroad, General Motors, Ford, etc. Financial Confusion is omnipresent in American Business. This fact negatively impacts profits and inhibits measurable profit improvement. Surprisingly, the corrective process required to negate Financial Confusion is very easy to initiate.

#3 – ADMINISTRATIVE CONTROL – When corporate leaders are not in control who is in control? Sometimes no one is in control! Management theoretically confers with and executes in accordance with the direction of the Board of Directors. Lots of profit disruptive potential exists within this structure. So, who controls a company if the Administrative (Management & The Board) doesn’t? Key and mid-Management people…that’s who! These Key people usually have the answers to Profit Improvement if properly channeled and focused.

#4 – MARKET CHANGES – Markets can change significantly almost without warning. Profits can be decimated and worse, companies can simply disappear. Management must be constantly attuned to subtle Market Changes which might be the precursor to major market shifting.

#5 – “THE PETER PRINCIPLE” – This Early Warning Signal is not self explanatory on its face. “The Peter Principle” was presented in a book, written by Dr. Laurence J. Peter and Raymond Hull. The main point of this book is that “good people eventually rise or are promoted to their respective level of incompetence.” Dr. Peter and Mr. Hull have a powerful point with their theory. When in play, this situation is a definite profit blocker.

#6 – SALES FAILURE – Nothing in business starts until something is sold. Enough sales to operate profitably is a basic component of most business models. Insufficient sales opens the door to corporate crisis due to lack of profitability. As sales go – so goes the profit, all things being equal.

#7 – INTERNAL POWER CONFLICTS – Accounting Vs Sales, Distribution Vs Finance, Management Personalities Vs Management Personalities, Partners Vs Partners, Directors Vs Management etc…are the equivalent of profit cancer. Internal Power Conflicts are self created anti-profit improvement events!

#8 – HOSTAGE SYNDROME – The first time this Early Warning Signal hit Mr. McKenna for what it was, occurred in St. Johnsville, NY. His Client was hostage to a Bank that insisted that a full time CPA be hired to complete audited, monthly financial statements. This same Client was also hostage to a customer who accounted for 50% of gross sales. Between the perpetual audits and a slow paying major customer, profits evaporated and so did his Client. The Hostage Syndrome can definitely impede or eliminate profit improvement…to the point of business extinction.

#9 – MANAGEMENT PERSONALITY – What is the Management Personality of your company? It can be hard charging, hyper analytical, slow to react, impulsive, weak willed, strong willed, kind, brutal, profit motivated etc. A Corporate Management Personality will set the tone for profit or loss, survival or failure. What is the Management Personality of your company? Is it Profit Improvement oriented?

# 10 – RAPID GROWTH – Ironically the success and rapid growth of a company can be the precursor of failure. Rapid Growth controlled and managed is a great and coveted event for profit oriented companies. But be careful that rapid growth does not become uncontrollable or worse times could be just around the corner. Some companies focus on growth to the exclusion of Profit Improvement and pay a huge price.

NOTE: For an in-depth explanation of the individual “Early Warning Signals” download the “Crisis Management Before The Management Crisis?” book and/or books or any Case Study.

We then gradually developed and perfected a formal and quantifiable system of rapidly evaluating the strengths, weaknesses and Profit Improvement potential of client companies based on this major Axiom. The “Ten Early Warning Signal” AXIOM is the unique glue that solidifies our Profit Improvement concept. Then, through our “Business Health Check-Up” program, the individual and combination factor impact of these Early Warning Signals is computed and analyzed.

The synchronizing of these three Axioms provides for the creation of one powerful and unique Profit Improvement program. We now feel that we have perfected our program to the extent that it is actually a “profit certain” product for our Client Companies. Essentially – if a Client’s Key Personnel, using our program, can not recommend first year profit improvement and/or expense reductions in their “Business Health Check-Up” Report, which exceed $100,000 then the basic program fee of $25,000 will be completely waived. It’s just that simple!  (For fee details see the "Business Health Check-Up Proposal & Agreement" Article #4 at this Web Site).
  • We have named this super program “A Business Health Check- Up.” 
  • It is an efficient, hard dollar focused program.
  • It has uniquely evolved from the rough business world of Crisis Management & Business Survival.
  • It is completed on site with no travel, lodging or meal expense.
  • It is fast and absorbs minimal Key Personnel and Top Management time.
  • It is absolutely "fee" risk free and basically profit/value certain.
  • It is controlled by the Client’s Key Personnel – they are the value determination entity. Their results are the results.
  • It offers a simple Profit Improvement system that your Key Personnel will use to your benefit long after the Business Health Check-Up has become history.
  • It empowers your Key Personnel to measure profit improvement potential and manage it from their subjective perspective into tangible profit improvement in year one and beyond.
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