At times it appears organizations are in the business of reducing costs. Task forces are formed for the sole purpose of finding ways to cut costs. Pay programs are reviewed. Vendors are squeezed to continually lower costs. While we could go on with examples - let us begin by saying in and of themselves, these are not bad activities. In fact, cost reduction is and should be a way of life as businesses move towards the next millenium.

The problem however is when the desire or need to reduce costs, forces individuals within organizations, or worse, entire organizations to lose sight of the real purpose of business. If you think back to Business 101, your professor proclaimed every business has a primary purpose, and that purpose is to create profit. Again, the purpose of business is to create profit.

All too often however, cost reduction, myopically is used as the key, or only method, of driving profit. This can become a serious problem for business today.

While there are literally thousands of ways in which a company can drive profits - it is universally agreed there are just three key drivers of profit. In no particular order, these are:

Cost ReductionImproved ProductivityIncreased Sales

The challenge for business today is to view these profit drivers as the legs of a three legged stool. Obviously if the only leg connected to the stool is cost reduction - that piece of furniture is not as steady as it could be and more importantly - the profits for the organization will only be a fraction of the potential.

Management is charged with the responsibility of insuring all three legs are firmly screwed into the stool. That is, management must insure all day to day activities and initiatives do not myopically impact one of the profit drivers at the expense of the others. A global perspective is needed when a manager wants to improve the profitability of the department, division, or company.

From our experiences with literally thousands of organizations and tens of thousands of managers attempting to improve the profitability of the manufacturing facility, we have learned several key ingredients which separate the successful from the not so successful.

1. The successful managers are very attuned to the corporation's overall mission, strategy, and goals. Everything they do must and is tied directly into this global perspective.
   
   
2. Successful managers analyze their department to determine what are the key initiatives that will enable their department and help the company achieve its mission. Importantly, they never lose sight of all three legs of the stool.
   
   
   
   
3. Successful managers have learned they must stick to their core competency and partner with others who can help identify specific, results oriented tasks, and/or projects, which will meet the goals of the stated initiatives and thus help move the company closer towards its mission.
   
   
4. When selecting partners, the best managers have concluded that no supplier will ever again, long term, have a competitive advantage in product or price. Accordingly, these managers will evaluate potential partners not only on their product offering and pricing structure but, very importantly will assess creativity, commitment, empathy, expertise, problem solving abilities, and a host of other criteria.
   
   
5. Once specific, results oriented tasks and/or projects have been identified - the two partnering organizations will then together prioritize the tasks and develop a multi-phase, usually multi-year critical path outlining projected dates, results, and responsibilities.

The key to the entire process is to never lose sight of the real objective. Of course, we must reduce costs, but only if it globally contributes to the overall objective of our businesses - to drive profits.

This article is provided by The Beveridge Consulting Group www.beveridgeinc.com™