Home Blogs Business tips Four tips to optimize profits

Four tips to optimize profits

| Print |  Email
Business tips
Wednesday, July 24, 2013

07.25.13 Blog AndrewBielatBY ANDREW BIELAT | BUSINESS TIPS CONTRIBUTOR

A few years ago, Rocky Mountain Steel Mills (RMSM) faced a dilemma: Despite the booming natural gas industry and mounting demand for seamless steel pipe, RMSM’s management team was uncertain about the profitability of restarting production. They enlisted my help to develop a market/production strategy for re-entering the seamless pipe market with minimal risk and optimal profitability.

RMSM, a subsidiary of Oregon Steel Mills at the time, found that its traditional analytical resources couldn’t determine the impact of such a decision on corporate profits. Each complex trade-off created a new dilemma to analyze, further complicating attempts to identify the most profitable path forward.

Using software developed specifically for situations like this, I developed a model to account for market pricing conditions, start-up assumptions, operational considerations, distribution expenses and key factors, such as staff training and capital investment. The software enabled RMSM to conduct “what’s-best” analyses and understand the profit implications of each decision in near real time.

With a comprehensive understanding of its options, RMSM elected to wait until market conditions changed in its favor. When the time was right, they went for it – successfully.  The analytical process helped prevent a potential $34 million loss that would have been incurred had they decided to produce seamless pipe when it originally appeared to be profitable.

In my career as a business adviser, I have helped dozens of other firms with strategic planning issues. In my experience, four characteristics typify the successful quest for profitability:  

Get an early start

Business leaders often tell me that they want to make more profit, and that they will do whatever it takes, within professional standards, to make it happen. Yet in the next breath I hear, “But, I’m not sure we’re ready for the technology.”  What they usually mean is: “I don’t believe I have all the data I need to form opinions and to decide how my team should proceed.”

My experience? Waiting will only make it more difficult. Now is the time to act.

Measure the right things with the right tools

Even if all critical business functions are part of an organization’s data capture system, its leaders will still need more. Why? Most organizations use simple, standardized approaches like spreadsheet analysis, average costing or standard costing – primarily fiscal tools. These work at an accounting level, conform to generally accepted accounting principles (GAAP), meet all reporting requirements and are important for reporting a company’s profitability, but there is much more to profit-related decision making.

I own a company that writes software for businesses to “quantify” not only the monetary but also the material, human and market resources affecting their performance.

The technology most leaders need is larger than the numbers they can churn out. They need a profit optimization system – one designed to help achieve the best possible results given their current circumstances. The best of these systems include market conditions and physical-, regulatory- and policy-driven internal constraints.

Be inclusive, not exclusive

Most enterprises still use standardized approaches to decision-making because most accounting personnel, all the way to the CFO, accept the practice as sufficient. Meanwhile, strategic and tactical decisions based upon partially analyzed, incomplete information can constrain profits. A “holistic,” strategic approach always involves key people from several disciplines within an organization.

Listen to yourself when discussing new opportunities. Listen to your team. Have you sent them messages to “protect” your position, or are you encouraging everyone to keep moving confidently, creatively and progressively toward the prize? When was the last time you changed a policy or revised a long-standing practice in a way that increased your profit opportunities? When was the last time you publicly recognized an associate who identified a solution for a flawed process that was costing the company profits?

Lead with your best offense

Who hasn’t watched a football team with a late-game lead go into “prevent defense”? Many now refer to this approach as the “prevent-a-win defense” because the team with the lead often cedes ground while its opponents become more creative and “offensive,” and are now giving it everything they’ve got. It’s common to hear fans for the offensive-minded team cry out in frustration, “Where was that during the rest of the game!?”

Consider this analogy when looking for growth and profitability.

Being an offense-based leader who seeks out and develops a like-minded team will make a big difference. Every time you catch yourself going into defensive mode, be sure it is for the right reasons. And, once the crisis is resolved, challenge yourself to break out as quickly as you can.

Profit optimization software is a separate and different class of business tools that involves both the art and the science of leadership. Leaders who commit to this new approach will immediately be a step ahead of their peers.

Andrew Bielat is the owner of Profit Hawk, an Oregon-based profit optimization software company and Pilot Advisors, a business process consultancy. He recently co-authored a book, "The BestPossible Enterprise: A Comprehensive Guide to Optimal Profits."

 

More Articles

Spreading the wealth

March 2014
Tuesday, February 25, 2014
HiResBY PAIGE PARKER

A money management firm broadens its reach. 


Read more...

The 2014 List: The Top 34 Medium Companies to Work, For in Oregon

March 2014
Thursday, February 27, 2014

100best14logoWebOur 100 Best Companies project turned 21 this year, so pop open the Champagne. Our latest survey gives us plenty to cheer.

 


Read more...

Q & A with Chuck Eggert

News
Thursday, March 06, 2014
03.06.14 thumb pacfoodsBY HANNAH WALLACE | OB BLOGGER

The founder of Pacific Foods talks about why his company has flown under the radar in Oregon, how saving a family-run chicken hatchery has helped his bottom line and why he thinks organic food is anything but elitist.


Read more...

Video: Kickstarting Oregon business

News
Thursday, March 27, 2014
02.04.14 Thumbnail VideoBY JESSICA RIDGWAY | OB WEB EDITOR

Watch this OB Original Video about three Oregon companies and how crowd-funding "kickstarted" their business ideas.


Read more...

The solution to youth unemployment

News
Thursday, February 27, 2014
02.27.14 Thumbnail TeenworkBY ERIC FRUITS

Because they have little chance of working for someone else, today’s teens need to be entrepreneurs. But, first, we must teach our teens that entrepreneurship starts small.


Read more...

Car ignition recalls and lean product design

Contributed Blogs
Friday, April 11, 2014
04.11.14 thumb gm-gettyTOM COX | OB BLOGGER

The auto industry is starting to share more costs across manufacturers for complex and challenging design work, like new transmission design, and certain new engine technologies. What we’re not yet seeing is wholesale outsourcing of “unavoidable waste” components to specialist companies.


Read more...

Banishing oil burners reaps benefits for schools

News
Tuesday, April 01, 2014
04.02.14 thumb co2schoolsBY APRIL STREETER | OB CONTRIBUTOR

Three years ago, PPS set out to begin to convert the 1930s-era boilers from diesel/bunker fuel to cleaner-burning natural gas. Oregon’s largest school district has realized impressive carbon dioxide emissions reductions, setting an example for public and private institutions.


Read more...
Oregon Business magazinetitle-sponsored-links-02
SPONSORED LINKS