Forget Profits! Five keys to reaching your business goals in 2013
As a new year begins, many organizations are reviewing their strategies and setting goals for the next twelve months. We have identified five keys to setting and achieving goals that will lead to a successful year, while laying the foundation for sustained future success.
The Top Five Key Success Factors
- Focus on creating superior customer value, not profits.
- Identify your unique value story and use it to engage customers via social networks.
- Manage your culture to support learning and innovation, and to earn customers’ trust.
- Develop a business model that allows you to be profitable while delivering superior customer value.
- Commit to a simple strategy and goals process to accelerate learning and drive execution—even when the building is on fire.
We will discuss each of these issues over the next few weeks. Today’s post explores our top key success factor for sustainable success.
Key Success Factor 1: Don’t focus on profits. Focus on the “Three C’s” of customer value.
While profits are essential to sustainable success, the most successful organizations understand that profits are best thought of as outcomes—the result of nailing the “Three C’s”:
- Creating superior value for customers;
- Communicating that value effectively; and
- Capturing a portion of the value as profit, by having an effective business model and cost structure.
The Profit Trap
For most companies, there is little danger of not focusing enough on profits. It is much more likely that they will over-focus on profits, especially short-term profits. These companies fall into what we call the Profit Trap.
Why is it a trap to devote too much attention to profitability? There are two main reasons.
A narrow profit focus can destroy customer and employee loyalty
First, there are many ways to show an accounting profit for a given quarter. Many of them are bad for the customer. Many of them are demoralizing to the most engaged and valuable employees. Many of them are not in the long term interest of owners or investors.
For example, in order to increase revenue for the quarter, a computer services company might sell a project to a valued customer, even though the project is outside it’s core expertise. The customer is likely to be dissatisfied with the work, resulting in the loss of a valuable long-term relationship. The most valuable employees of the services company (those who are most passionate about delivering great solutions and great value for customers) will lose respect for management, and will be more easily recruited away.
A narrow profit focus can divert management from its real work
Second, the time, energy and bandwidth of the management team is the most scarce resource in any business. If too much of that resource is devoted to profitability—as an end in itself—there will be less available to focus on the difficult, but ultimately most critical, work of creating superior value for customers. For example:
- Understanding the macro changes (technology, demographics, regulation, industry dynamics) that are driving changes in customers’ priorities and pain points, thus creating new opportunities.
- Innovating with more efficient processes, new products, even new business models, to take advantage of the new opportunities.
- Building a culture that puts customer value at the center of everything the organization does. This requires that management model and reward behaviors that put the customer’s interests first. When employees act as the “agent of the customer,” they will not sell products or solutions that they would not buy if they were in the customer’s shoes. Over time, this earns deep customer loyalty, and leads to powerful word of mouth marketing.
ValueGroove Business Coaching and the ValueGroove management process from Paul O'Malley Associates focus on three areas:
1. Strategy: deciding what the organization should focus on, and communicating that focus both to employees and customers.
2. Execution: setting clear goals tied to specific action plans, and systematically reviewing results versus the plans.
3. Culture: reinforcing the values and “ways of doing things” that support sustained organizational success.
We understand that the management team’s time and bandwidth are the scarcest resources in small to mid-sized companies and non-profits. ValueGroove allows you to establish an effective management process with a minimum investment of time and focus, and at a cost that can be tailored to meet your budget.