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Profit Building

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IMPROVING PROFIT is the number one objective of business leaders, yet most do not truly understand how to move beyond the basics when it comes to cost reduction for profit improvement. Typically, a company's response to reducing cost is to reduce the workforce. People are laid off in large numbers and dollars are saved-or so it seems. This is a mistake, a short-term solution. Profit Building provides a better approach, one that focuses on profit improvement as a stand-alone process, demonstrating how an organization can achieve its goals to improve profitability and reduce cost through a proven method based on team innovation management.
Perry J. Ludy offers a hands-on guide that shows managers how to move profit-and-loss financial reviews beyond the basics to creative solutions and genuine action plans. Using the author's four-step Profit Building Process (PBP), Profit Building shows how to organize teams with the specific purpose of improving profit-while providing an opportunity for employees to participate in developing cost reduction strategies so that profit improvement is perpetual.
A system of step-by-step activities designed to produce immediate and continuous results, the PBP shows managers how to apply concepts from prior learning-such as teams, innovation management, and performance improvement planning-to create tailor-made strategies for any organization. And it introduces "Questions Brainstorming," a new twist to traditional brainstorming that fosters avid group participation resulting in better solutions.
In order to achieve success beyond today, business leaders must leverage all resources available within the organization to improve profit, reduce cost, and create a better place to work. Profit Building is an executive handbook and a quick desk reference for managers that shows how to do just that.

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1 What Managers Need to Know About Cutting Costs and Improving Profits



What Managers Need to

Know About Cutting Costs and Improving Profits

Ah, to build, to build!

That is the noblest art of all the arts.


In our businesses, we are continually challenged to reshape our organizations in order to utilize and preserve the resources that fuel profitability. We have put organizations in place, and continue to operate them, in accordance with the philosophy that control, compliance, structure, procedures, and policies lead to a profitable organization. Most of today’s business books emphasize similar organizational structure and departments (marketing, human resources, finance, and so on). Remarkably, however, there is one key area where we continue to miss the mark. We do not view profit generation as an organizational function, and as a result, it is not managed as a process. Organizations need to view profit building as a process similar to the processes that drive marketing, human resources, and finance. Wouldn’t it be refreshing if, on your next business trip, the person seated next to you introduced herself as the director of profit building for XYZ Corporation.


2 Improving Profits: Better Ways Than Layoffs



Improving Profits: Better

Ways Than Layoffs

Business must be profitable if it is to continue to succeed, but the glory of business is to make it so successful that it may do things that are great chiefly because they ought to be done.


One of the first times I witnessed the power of a team in action was in 1975, when I was a manager at Procter & Gamble.

It was approximately two years after the Charmin paper plant in

Oxnard, California had opened, and sales had failed to meet our projections. It was a typical scenario: All managers were called into a meeting and told about the shortfall in revenue. Because sales had slipped, we were instructed to come up with a plan to cut costs by

10% in each of our departments.

I was among 20 managers in this meeting. Each of us had a team of employees who had been hired over the last year. When we reconvened to present our plans, 19 out of 20 of us proposed to cut costs through layoffs. Thanks to my team, my plan was different.

When I had taken the problem to my team to solve, the scope and variety of their answers had amazed me. Through brainstorming and teamwork, we had developed an action plan that significantly cut costs without cutting jobs. The plan we came up with included the following recommendations:


3 The Profit Building Process



The Profit Building Process

True creativity is characterized by a succession of acts each dependent on the one before and suggesting the one after.

—EDWIN H. LAND, Inventor and founder of the

—Polaroid Corporation

While I was president of a national auto glass company, we were faced with what must be an ongoing battle within many organizations that have a widespread sales force: how to reduce sales force costs while continuing to address customer needs, establish customer relationships, and develop new prospects. My initial approach seemed logical but ended in disaster. I pulled a report on the past three years of revenue generation and associated expenses. I then chose a cross section of the sales force and asked them to meet with their supervisor and me. Can you imagine inviting 11 sales professionals to a meeting to discuss why they should reduce their costs? In their view, their budgets were already too tight. After the first hour, I had to end the meeting for fear that they would convince me to authorize increasing the level of spending to hold on to the customers we had! I quickly realized that there was no way I was going to obtain compliance without demoralizing them. I had to take a different approach.


4 Choosing and Managing the Profit Building Team



Choosing and Managing the Profit Building Team

What prodigious power a body of people can put forth when they all work at the same process, but the process differentiates and improves in their hands. Each gains skill and dexterity. They learn from each other, and the product is multiplied.


Presently, the use of teams specifically to improve profit and loss is uncommon, despite management’s widespread acquaintance with teams and what they can accomplish. The Profit Building approach shows managers how to select the right team members, organize meetings, and set concrete goals for optimal results in profit and loss management.

When applied in proper sequence with the other steps to be discussed later in this book, the Profit Building Team (PBT) becomes the engine that drives profit building forward and perpetuates it.

When the right team is put into place, its creativity will impress you. The following is a small sample of some of the many creative questions generated by a team I worked with in 1994. A more inclusive list appears in Chapter 6.


5 Preparing Your Team and the Organization



Preparing Your Team and the Organization

Make thy Model before thou buildest; and go not too far in it without due preparation.


In 1987, I accepted a position with Imperial Savings, a

100-branch savings and loan organization. My title was senior vice president, branch banking. I was responsible for making this 100branch network more profitable.

Before I accepted this position, I had been with Pizza Hut, Inc., where I was responsible for more than 1000 company-owned and franchise-operated restaurants. Taking on Imperial’s 100 bank branches should have been a piece of cake. After all, these branches were large facilities, made of marble, glass, and brass and fully staffed by tellers who spent a third of their time serving customers.

But instead of my new job being easy, I found I had many obstacles to overcome.

The branches were managed by vice presidents who had years of experience and tenure in the industry. I quickly learned that years of experience and tenure do not necessarily translate into ease of transition or ready adoption of new ideas.


6 Generating Creative Solutions by Asking All the Questions



Generating Creative

Solutions by Asking the Questions

When we arrived at the question, the answer is already near.


In 1983 I became a vice president at Pizza Hut, Inc., a division of PepsiCo, Inc. This was an exciting and eventful achievement for me that included company stock, financial rewards, and recognition. One of the perks I received was an opportunity to go to the corporate office for a three-day management program the vice presidents referred to as “finishing school.” Although I did not know it at the time, this experience was to make an impression on me that would help shape both my career and the thinking that came to underlie the Profit Building Process (PBP).

The highlight of this program was a high-powered meeting with the CEO and a few top members of his staff. In this meeting, vice presidents from various divisions across the country jockeyed for position, each hoping to make a positive impression on the CEO and his team. The format was a sort of oral exam; the CEO would ask a vice president a variety of questions, and one’s answers could result in either personal glory or public humiliation. The atmosphere was tense, the competition so thick you could cut it with a jackhammer.


7 Taking Action and Documenting Results



Taking Action and

Documenting Results

Some people have ideas. A few carry them into the world of action and make them happen. These are the innovators.


I have often tried to explain the synergy that takes place when a plan is constructed. Perhaps it is the chemistry of the team’s collective “pull” that this commitment emphasizes, or maybe it is the psychology associated with vision, measurement, responsibility, and follow-up that leads, more times than not, to a successful conclusion.

Without falling into the trap of trying to explain why performance improvement planning works, let’s just say that

Performance improvement planning works remarkably well when used as the administrative step of the Profit Building

Process (PBP).

This chapter is about turning your ideas into innovations.

Your performance improvement plan is the vehicle that gets you there. As you may know from your own experience, a poorly conceived plan can have you chasing after unrelated ideas without making any real progress. Taking action and documenting the results is the step of the PBP that moves you forward toward successful implementation of your ideas.


8 Reviewing Progress and Following-Up



Reviewing Progress and Following Up

Progress has not followed a straight ascending line, but a spiral with rhythms of progress and regression, of evolution and dissolution.


As stated throughout this book, PBP is a dynamic, continuous process. Its management concepts, when systematically applied, result in continuity of profit improvement and cost reduction. Reviewing and following up is the essential last step that keeps the process going. Its critical role is to create a perpetual improvement process, while keeping innovations current with today’s business needs and ensuring longevity.

In many organizations, management has the habit of dropping a change or innovation from its agenda once the action steps are under way. Managers are so sure of their success and so eager to move on to the next item that they forget to follow up on their latest innovation. Consequently, the organization forgets, too, and the innovation fails.

Other management teams adopt the opposite approach.

They work so hard on developing a change or innovation that they can’t let go. They try to force it through the organization, ignoring any feedback that suggests the action steps they developed no longer apply. Once again, the innovation is doomed.


9 Fifty Action Steps for Immediate Profit Improvement



Fifty Action Steps for

Immediate Profit


Various fresh ideas gained acceptance . . . when they could be presented not as something radically new, but as the revival in modern terms of a time-honored principle or practice that had been forgotten.


Creativity will usually find a home in the more innovative aspects of business. In most companies, activities like marketing new products, locating retail sites, and building out facilities are zealously attacked with a barrage of inventive action plans. But when it comes to cost cutting and profit improvement, a lack of ingenuity, a dull, mindless repetition of what was done before often prevails. Yet, as I have stated throughout this book, profitability is one of the main purposes of business and should be approached with the same creative energy and enthusiasm as the more tangible aspects of business. As you will discover for yourself, a little ingenuity can lead to big savings and profit improvement.

One of the best examples of the need for applying creative thinking to cost reduction came up while I was Senior Vice President of


10 Sixty Further Steps to Cut Costs in All Areas of Your Business



Sixty Further Steps to Cut Costs in All Areas of Your Business

This chapter will address cost-cutting approaches to this remaining 60%—those areas that are waiting to be discovered but are often ignored.

The need for uncovering these hidden profits became apparent to me during an extended business trip in 1997. I was fortunate to be one of three executives who helped to sell our corporation via a strategic initiative in the capital market. The process was the most challenging that I have been a part of to-date in my career. We stayed at the Grand Hyatt New York for about three months until the transaction was complete.

It was during this time that I first began to consider writing this book. We presented for numerous hours to arguably some of the best deal-makers on Wall Street. Yet they continued to probe deeper, searching for some silver bullet to account for our dramatic cash-flow improvement that occurred in just over a twoyear period. It was then that I realized that Profit Building is a unique process. There was no silver bullet, only the process that


11 How and Where to Get Started



How and Where to Get Started

What we call the beginning is often the end.

And to make an end is to make a beginning.

The end is where we start from.


Congratulations! You now have a new perspective on what I believe will be the next wave to sweep over the business world. But unlike the many passing management fads we have seen come and go in the last decade, Profit Building is here to stay. It is the vital piece that has been missing from organizational design—a continuous process for profit improvement and cost reduction that should be a part of every business.

Now that you have finished reading the chapters on Profit

Building, you are ready to begin. You are about to find out just how quickly one person can start to make a difference in an organization. The beauty of the PBP is that it can be applied to any organization, large or small. International organizations, large corporations, small businesses, individual departments, and franchises are all awaiting its arrival. Getting the process started will be an easy sell. The most difficult part will be overcoming the organization’s resistance to this new approach.


Appendix: Profit Building Process Forms




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