20/08/10
By Andrew Lester, Managing Partner of Carr-Michael Consulting
There is the well known mantra: “revenue is vanity, profit is sanity, cash is reality”. Too many businesses have fallen foul of the cash trap. As such a substantial amount of leadership needs to be spent on making sure that the organisation knows how to drive the cash through the business. Operational leadership is by definition designed to manage the very best return from the current business. Operational leadership drives the fundamentals of the current business: it is wearing the “bowler hat”, today’s commercial reality.
For owners and directors of businesses of all shapes and sizes, the focus for Operational leadership is to ensure you are measuring and improving on the core activities that add customer value in your organisation.
For manufacturing this is a focus on production efficiencies, quality improvements, variable cost reduction and ease of manufacture. For logistics this includes a focus on stock cost per revenue stream, faster turn, reduced obsolescence, efficient distribution and availability at point of request. In sales, operational leadership involves increasing spend per customer, increasing conversion rates, longer term customer relationships, repeat purchasing and increasing customer lifetime value. The list can go on.
But the key to all these Operational leadership roles is in knowing what drives the cash on both costs and revenues. It is also about knowing how the drivers of cost and revenue in one area of the business impact cash in other areas of the business. There is no point in “improving” cash in manufacturing by efficiency savings if the knock on effect is lower revenues through Sales. Simply put Operational leadership is about joining the dots through the company on how customer value is added at each stage: R&D, purchasing, production, distribution, marketing and sales, administration and finance.
A significant amount of support is available to deliver excellent leadership on company operations. Lean thinking, value chain mapping, six sigma, and a host of other principles help drive operational efficiency. The highly competitive nature of many markets and the increasingly fickle nature of customer value have driven most businesses to continually drive efficiency to remain price competitive and profitable. The relentless push of “powerful” big customers in many markets (supermarkets, global product manufacturers, major retailers, buying co-operatives) has driven down sales revenues year on year throughout their supply chains. A large proportion of Operational leadership has therefore focused on efficiency gains year on year. Incremental improvements that taken together help keep the cash flowing and the business in business.
The major problem with this substantial focus on efficiency is that because it works on what the business does best, it can all too easily make the whole business too focused on internal priorities. Consequently Operational leadership needs to be balanced with Growth leadership, which provides new opportunities to make money as the existing operations reach maturity where disproportionate effort is needed for decreasing gain.
Please feel free to comment by contacting me: andrewlester@carr-michael.com
Fresh Business Thinking and Carr-Michael Consulting have teamed up to deliver an engaging set of three seminars for business owners and directors of small to medium sized businesses - to take away with them the leadership keys to sustainable, profitable growth.
Andrew Lester will use his engaging style and deep experience to outline how to recognise your own core leadership style and how to produce a Two Hats approach: leading management of the Urgent and the Important side by side.
