Why Current Approaches Fall Short in Creating a Profitable Future (Mar 6, 2006)

Why Current Approaches Fall Short in Creating a Profitable Future (Mar 6, 2006)

The chairman of a mid-size manufacturer recently confided in us the essence of his company’s cost and operational performance improvement mindset. For us, “The process is not dictated by the present. It is dictated by the needs of the future.” He went on to explain how “continuous improvement” does not provide enough competitive bang for the buck; he is most interested in “breakthrough improvements” that provide customer and profit returns that sustain the company’s success.

Such breakthroughs can come from manufacturing advancements, product design, process re-design, and so on. Regardless of the source of the innovation, the innovation must be converted into a profitable customer focused operation. Otherwise, the business cannot survive over the long term.

Today, most companies try to create their future by looking into their past and extrapolating what they find into some sort of concocted view of the environment of the future. Unfortunately, such approaches are inadequate for the task because they (1) do not account for the different conditions of the future, (2) rely on steady-state analytical approaches that incorrectly assume that the business and operational environment does not exhibit variability (3) rely on standard costing, which does not work well for understanding the past (as it has to be corrected by variance analysis), and is therefore even less effective for understanding the future, and (4) lack a systematic implementation methodology that connects specific management actions to achieving the business objectives.

Profit Mapping is a proven management decision tool that overcomes these shortcomings. It:

  • Integrates advanced functional (domain) analysis within current constraints
  • Emphasizes process dynamics over steady state approaches
  • Uses activities-based resources and financials instead of standard costing and variance analysis
  • Looks into the future rather than data-mining the past
  • Connects controllable actions to strategic objectives
  • Constructs a roadmap to achieve the strategic goals

Profit mapping virtually eliminates decisions that have adverse effects on your business. It helps you correct your situation immediately and guides you to where you want to go, like a GPS navigation system.

Adam Garfein and Anil Menawat