I recently met with the leaders of a company that, for the past three years, have been working to improve its operating profit margins. The leader was very proud of its 14% improvement over that three year period, going from 8.0% to 9.1%.
When I asked to understand the details, the leader reviewed with me a large spreadsheet which summarized over 40 different initiatives, each with a leader named and a description of the opportunity, the idea being pursed, target savings, target completion dates, and current progress assessment. I asked what the goal was for 2013, and was told it was a margin of 9.5%. I then asked about the operating margins of the top two competitors. After much back peddling and fidgeting, was told they were consistently in the 20-22% range.
There is a very famous quote by Peter Drucker that is relevant here:
“There is nothing so useless as doing efficiently that which should not be done at all.”
While this company is doing some good thing to beat down cost, the real issue is: what is it that competition is doing that is significantly different and having a huge positive impact versus what this company is doing? This was not being addressed and instead, the entire company is super busy doing a bunch of small things, each of which is admirable, but collectively causing the company to continue to have weak operating margins versus its competition.
So…what are the lessons here?
1.) What is the Big Idea – What is competition doing? Find out why you are behind and fix the outage. Most importantly, what are the one or two big things we can do to get out in front of them? You should be on top of these questions all the time.
2.) Organize to Achieve Success – Isolate those one or two big things, assign top talent full time to get them done, and give those leaders the authority to make decision and execute with speed and efficiency. Very simply, get something of big significance done!
It is amazing how satisfied people can become when they are busy doing a bunch of things that if viewed objectively, are of small impact and are blocking the organization from realizing they are mediocre.