Sustainable Profit Growth Framework

Sustainable Profit Growth (SPG) has replaced Profit Maximization as desirable business objective during last couple of years. For perpetuation of business it is essential that business models constantly generate growth in profits while managing risks associated with business. SPG Goal also ensures Maximization of gains for all stakeholders of business – Shareholders, Employees, Customers, Government and Society as a whole. This goal also ensures synergy with Environment and global climate.

Sustainable Profit Growth Framework (SPGF) consists of three major components –  Revenue Maximization , Cost Minimization and Risk Management . Further the success of any such framework requires Dynamic Planning, Effective Execution and Precise Review System. Such system should have ability to predict upcoming risks and opportunities in Macro Environment and take effective steps to adjust the business model. Key activities to develop SPG Framework are as below:

  1. Strategic  Planning Framework : Business Planning at Macro and Micro levels have to be dynamic and adjusted to changing national and global business environment. This requires a Dynamic Macro Environment Analysis which involves framework to forecast changes in factors affecting business.
  2. Risk Management Framework : Risk Management is integral part of SPG Framework. Best of business models redundant , unless they have a high level of alertness for Risks associated with business.
  3. Consumer & Product Integration Framework : Aligning of Products to Consumer needs is key to SPG Framework. Business must integrate with consumer needs in a better and better way. To do this it needs to introduce new products as well as improving or exiting from existing products.
  4. Social & National Integration Framework : To sustain a business on a perpetual basis , it is essential that business views itself as vehicle to service vital social & national purpose. Companies which are integrated with Society and treats as important stakeholder are likely to achieve Sustain Profit Growth for longer future.
  5. Revenue Maximization Framework : Maximization of Revenue is key component to Sustainable Profit Growth Framework. This includes setting effective Sales & Marketing Strategies including Market Communication, Channel Development, Pricing, Segmentation, Customer orientation etc. Top Line Sales has also to be matched with effective Receivable Management System.
  6. Cost Minimization Framework : Cost Minimization is another component to SPG framework. An effective Cost Minimization Framework ensures that every rupee spent is productive. It involves combination of different tools such as Zero Based Budgeting, Innovation , Incentives etc.
  7. People Performance Optimization : Developing a Dynamic & Creative Manpower with right skill set and performing at optimum level is integral component of Sustainable Profit Growth Framework. This involves appropriate HR policies and Performance Optimization Framework involving Target Setting, Work Measurement, Creativity and Incentive System.
  8. Financial  Value & Capital Adequacy Framework : Capital Adequacy and Financial Value Creation ensures that adequate funds are available for business growth and Financial Value is created for stakeholders on consistent basis.
  9. Operations Improvement Framework : Business serves its customers through Providing Products and Services. To serve its customer better , business should keep improving its orientation with customers. This requires framework for consistent improvement of its operations and tuned to needs of customers.
  10. Strategic Management Information System  ( SMIS ) : A dynamic MIS ensures that Internal & External information is available for effective decision making. Dynamic MIS ensures Right Information at Right Time to Right Persons in Right Form.
  11. Strategic Auditing Framework : A dynamic Audit framework ensures that business works with in its policy framework and anything going wrong is highlighted at right time. This should also be used along  with Strategic MIS and a Whistle Blower System.
  12. Systems Design & Automation : Business runs on Systems and for a dynamic organization it is important that Systems are regularly evaluated and improved. Further Automation of Systems is integral part of this activity.
  13. Knowledge & Creativity Framework :  Sustainable Profit Growth requires that a business cultivates its Knowledge Edge. It also needs to develop a framework for Creativity & Innovation which is directed towards critical problems of industry and society
  14.  Regulatory Environment Management : Effective handling of Transactions Processing and Regulatory Environment ensures that business hygiene is maintained and helps its focus on Profit Growth.
  • Sustainable Profit Growth Framework is a constant process. It includes a combination of System Frameworks which ensure that Profit Growth is on a consistent basis while Risks are managed and corrective actions taken. These frameworks work at same time in synergy with each other. Success of a business depends upon its ability to design and implement above System Frameworks.

Lockdown Lessons – 1

India is on Lockdown for couple of weeks as a response to tackle Corona disease. Looking back at how the events unfolded , it can be said with certainty that immense effort has been put at leadership and society level. It was refreshing to note that most of people contributed in positive way barring a small segment which continued with its negativity discourse. Yet there were some glaring short comings which need to be analysed and highlighted. To analyse this let us look at some key Landmark Events :

  • News of dreaded disease in Wuhan, China and images and videos on how it was controlled by strict lock downs.
  • Indian Government taking steps to bring back its nationals from Wuhan.
  • Gradual restrictions on International Flights leading to Janta Curfiew and Total Lockdown for 21 Days.
  • Mass exodus of Migrant Labour in Delhi NCR and other parts of India.
  • News of Nizamuddin Religious Sect gathering which led to large scale spread of virus in different parts of India. This led to massive exercise to track down the Attendees of this gathering.

While analysing above incidents following points need elaboration :

  • Wuhan Incident :

After Wuhan Incident , response time of our system was bit late. Chinese economy is closely linked to Global and Indian Economy. Some one in our System should have been tracking the Wuhan Development much more closely and restrictions on International Travel and Visitors should have taken place much more earlier.

  • Migrant Workers Issue :

Mass Movement of Migrant Workers from Delhi NCR and other parts of country was an eye opener. Agony of Poor Workers was evident from images of these people. These incidents  not only gave a bad press to country but also increased the risk of defeating entire purpose of Lockdown.

It was evident that no one in system has anticipated issues related to Migrant Workers. These incidents could have been avoided with better planning and coordination. Some one in system should have factored issue of migrant workers before taking the Lock down decision. Temporary Shelters with Food and other arrangements could have been made in advance along with better Communication with these labours.This again proves weakness of our Governance System in Terms of Planning and Execution for decisions of such.

  • Nizamuddin Religious Sect Fiasco :

This incident was Shocking and brought out in open Fault lines of our Governance System. Such a large gathering was going in heart of Delhi , foreigners were roaming across India in violation of all Visa Rules and no one raised an alert in our system. The enormity of system failure is reflected from fact that same gathering happened on Malaysia a sometime back , which led to sharp spike in Corona Positive Cases. Yet no one was alerted in our system and visas were given.

KEY LESSONS :

All three points mentioned reflect weakness of our Governance System in terms of at Planning, Execution and Review Levels. Some of suggestions are as below :

  • Alert System :  Our Intelligence and Alert System needs immediate attention.Right Alerts should have gone to right persons to prevent such incidents.Our Intelligence System needs to be more effective. Apart from conventional Intelligence gathering mechanism, we need an Third Party Independent Alert system which can generate Alerts and highlight in a way that it reaches to people who matter. Alerts should also be generated from Public to highlight any such incidents.

Right Information in Right Form at Right Time to Right Persons at Right Platforms is key to a Dynamic Information System. A link to my earlier article on same is given below.

Dynamic MIS : Right Information at Right Place at Right Time & Right Form
  • . Planning & Forecasting : Migrant Workers problem was not factored in this decision. It is evident that Decision Making Process needs improvement. How can such a big factor be ignored ? This is also the issue of Accountability. Responsibility must be fixed and action taken.
  • Central Control Number :  Lack of correct information was evident in past few weeks. Decisions were taken fast at Central and State Levels and people at large had no platform to get right information. From very beginning there should have been a Call Centre with a Central Control Number. This number should have been publicized. Any one could just ring this number and call centre could have connected him to right person at Central and State Level.

This type of Call Centre can be set up at a short notice and can be done even now. It can be a permanent set up which can be used for any future need.

Revenue Maximization – Role of CFO

Revenue Maximization is a major component of Sustainable Profit Growth Framework (SPGF).  Generating Sales is  primary responsibility of Sales & Marketing Heads , however Finance Heads , as a part of Corporate Management has also to play an important part in this. Finance function arranges funds from Banks and Institutions on basis of some Revenue Projections. Hence Finance Head is an important stakeholder in ensuring that Revenue is Maximized.

Revenue Maximization involves following steps :

  1. Realistic Sales Plans : It is observed that Sales Plans are made with optimistic mindset. This is the reason that most of the times Sales Targets are not met. Finance Head should ensure from an independent view that Sales Plans are based on ground realities.
  • Alignment with Production and Supply Chain : Finance Head as a key part of Annual Budget Team has to see that Sales Plan is properly aligned with Production , Manpower and Material availability.
  • Funds Availability : Finance has to ensure that sufficient funds are available for Long Term and Short Term Capital .
  • Control over Discounts, Credits and Price Cuts : Finance Head has to ensure that there is adequate due diligence given to discount and price cuts policy advocated by marketing department.
  • Achievement of Targets :  Finance function has to keep watch on Achievement  of Revenue Targets set for Month and Quarter. Any shortfall on targets has to be escalated by Finance to Top Management.

Implementation Steps :

Key Implementation Steps :

1. Development of Sales & Revenue Plan

2. Production & Resources Alignment Plan

3. Development of Discounts & Rebates Policy

4. Monthly Sales MIS

5. Integration with ERP

Strategic Career Management

CSM Approach to Career & Financial Success
CSM Career & Life Management Program.

Career and Financial success are core to happiness of any individual. Any Life Management System should ensure that career & financial Life is not only smooth and growing but also gives a sense of satisfaction and security. Further financial success should not be at cost of physical health and family life. It should form basis of a balanced life. A successful career at the end should service purpose of meeting wider social and national objectives. At one stage every successful career should convert into a mission for human welfare and divine manifestation.

However in present times there are few persons whose careers have shaped on above lines. The plans and means adopted often do not lead to desired results. Unemployment due to slow down and lack of opportunities are most important issues of present day discourse. Stability of jobs can no longer be guaranteed while business models are failing at faster rates.

Further success of one individual is often associated with tensions and conflicts in society. Quite often success also extracts a price in other areas of life. Thus, success in career may lead to losing of opportunities for growth in family and social life. Another very important trend of modern times is growing long term insecurity among employees as well as organizations. Employees fear chances of redundancy due to arrival of better professionals or technology or fundamental changes in nature of profession. Thus success does not always provide sense of security which is very essential for happiness.

Defects of Job Oriented Approach :

A large majority of people are tuned to think about Career as Job Management. This approach focuses on getting a right education to get a good job and working to hold the job or getting another job. This job centric approach has severe limitations. Firstly depending on a job has a high risk factor due to inherent instability in private sector organizations. Companies and often entire sector gets sick due to many macro environment Factors or weak business models. This problem is more acute for employees at senior Levels or those in higher age brackets.

As regarding Government Jobs, they give a semblance of stability but suffer with under utilization of capabilities and resultant lack of merit based growth. Thus Government Jobs are not in harmony wider social and national Objectives of optimum productivity, creativity and utilization of human capabilities.

The first step to dynamic Career Management is to substitute the Job Oriented Approach with Product Approach. This involves considering oneself as a Product and Opportunities Available as prospective Customers. One needs to learn to Develop and Adopt this Product to Customer requirements. This involves understanding the Self Marketing techniques for Career Management.

CSM Approach to Career Management

Career Management for an employee or a firm is purely a question of Right Strategy. Every person can a achieve peak excellence and success in his Career & Life, irrespective of his resources, education, contacts or personality.

CSM i.e. Core Strategy Manifestation is a program to develop right strategies for
individuals as well as organizations to unleash a spiral of growth and peak success in harmony with society and environment. CSM is based on some very simple but highly effective natural laws. Almost all of successful people have acted and behaved in a common pattern. CSM attempts to articulate it simply for every individual and firm.

CSM states that success does not depend upon education level or hard work. It depends upon using one’s resources in accordance with laws of nature.

Success  in   work automatically leads  to  dynamic changes in personality like dynamism, confidence, attractiveness and  happiness. Further CSM approach  to Career Management leads to overall Integration with Company, Family, and Society as a whole. This leads to harmony and cohesiveness. This type of success extends from oneself to family  and society  as whole. It leads to best of social contribution.

Finally starting  from success in own material needs and social needs , it leads to that  levels of divine manifestation and happiness when one enjoys this life effortlessly. This is the  equivalent of Karma Yoga which we are all aware of.

CSM Approach  to  Career Management is summarized on  following lines:

  1. Existing Profile Analysis  
  2. Market Analysis
  3. Improving the Profile
  4. Marketing Improved Profile
  • Market Your  Product or Service /Create Your  Position                                               
  • Content Of Application /Advertisement
  • Create Your Own Vacancy

5. Customer Orientation

Anyone  can achieve a peak success level in all aspects of life by adopting a correct strategy based on natural laws. The earlier  one  starts  the better  are chances  Especially in case of children , we can make Peak Performers  out of them.

Career Management is a vast subject. CSM method of Career Management is based on common sense and practical examples. Almost all the success stories of past are based on these powerful principals.

There may be long list of questions on implementation of CSM model of Career Management which we shall attempt to discuss in this column in coming days.

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Strategic Production MIS

Developing Strategic Production MIS Framework
Developing Strategic Production MIS Framework

Production Management deals with entire gamut of operational controls at the level of production. It involves a complex coordination of production resources like machines, manpower, material, sales orders, maintenance , quality routine etc. This also requires coordination with funds managers, vendors and dealers. Production Management function is part of wider Factory Management function and also includes Quality , Engineering and Maintenance function. The key MIS reports which should be generated as part of Production MIS are as below :

  • Capacity Utilization Report : This report analyzes Capacity Utilization of different machines and production system as a whole. Reasons for variance are analyzed.
  • New Technology Report : This report analyzes New Technology which have come in market – local as well as global. This report also lists Technologies which are in trial stage and likely to come in future. Cost – Benefit analysis is done for all new technologies and decision if any to be taken for introduction.
  • Plant Performance Report : This report reviews performance of plant as it stands in present. Future revenues and costs are estimated. This is compared with Gains from replacement of new equipment.
  • Process Improvement Report : This report compares Standard and Actuals performance in terms of Time spent and Cost incurred in different processes and sub processes.
  • Production Planning & Control MIS : This report analyzes gaps in resource availability in terms of man, machine and material for a specific Production Plan.
  • Production Bottlenecks Report : This report analyzes Production Bottlenecks in terms of man, machine, material, utilities and others issues. Reasons of same are analyzed and action decided.
  • Standards Review MIS : This report reviews standards of Machine Hours, Labor Hours, Material Consumption Rate, Consumables Consumption Rate, Power Consumption etc. Present standards are compared with national and global standards. Target Improvements are listed and action decided upon.
  • Shop Floor Rejections Report : This report analyzes Shop Floor Rejections in different processes. Cost of such rejections are estimated. Reasons are analyzed and actions decided upon.
  • Production Loss Report – Reason Wise: This report analyzes Reasons of Production Losses. Frequency of reasons are analyzed and corrective actions taken.
  • Machine Productivity Report : This report analyzed productivity of machines in terms of hours run as well as production units per hour. Comparison is made between standard and actuals.
  • Power Losses MIS : This report analyzes power utilization and compares with standards.
  • Boiler Efficiency Report : This report analyzes efficiency of Boiler in terms of cost per unit of steam.
  • Generator Efficiency Report : This report analyzes efficiency of generator in terms of cost per unit of power generated.
  • Machine Hour Rate MIS : This reports computes Machine Hour Rates for a period and compares with Standards. This report is also useful for Job and Process Costing purposes.
  • Labour Hour Rate MIS : This report computes Cost of Labour per hour and compares with Standards.
  • Process Costing MIS: This report analyzes Standard and Actuals costing of different processes in terms of material, machining, labor, power and overheads
  • Job Costing MIS : This report analyzes Standard and Actuals costing of different jobs in terms of material, machining, labor, power and overheads.
  • Safety Management MIS : This report lists compliance of safety measures in different segments. Levels of compliance are indicated. Reasons of noncompliance are analyzed and corrective actions decided upon.
  • Accident Control MIS : This report analyzes incidents of accidents, their frequency & costs. Reasons of same should be analyzes and corrective actions taken.
  • Maintenance Analysis MIS: This report analyzes Preventive & Breakdown Maintenance incidents.
  • Maintenance Efficiency Reports : This report compares actual hours spent on maintenance jobs with standard hours for same.
  • Maintenance Effectiveness Report : This report indicates effectiveness of maintenance in terms of saving in lost production time. The purpose of maintenance is to prevent loss in production time due to breakdown of equipment.
  • Production Loss Report – Incident Wise : This report analyzes incidents of Production Losses. Reasons are analyzed and corrective actions taken.
  • Maintenance Man Power Report : This report indicates utilization of maintenance man power. Comparison can be made over a period of time. This shall indicate any underutilization & can help to avoid wide fluctuations by shifting peak man hour time slot to those with less load time slots.
  • Repairs MIS : This report lists incidents of Repair of equipment. It analyzes frequency, reasons and costs involved.
  • Rework Cost MIS : This report analyzes Cost of Rework of rejected material. This shall help to decide whether rejections needed to be reworked or sold as scrap.
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Please watch this space for regular articles on Strategy, MIS , Systems, Costing & Audit.

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