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ResourcesAchieve greater profits by breaking out of legacy thinkingLike water, we move around the things that resist our natural talents and inclinations. When businesses are threatened, owners tend to seek solutions that fit their predispositions. If you are a senior manager who has come up through the sales ranks, you will be inclined to seek solutions to your business problems from a sales perspective. Those who have come up through the finance and accounting ranks will try to solve problems by working on the numbers.Surprisingly, many business managers never consider strategies that would dramatically improve their market position and profitability because of this legacy thinking. Legacies are created by behavior that we repeat again and again. But that which has worked in the past might not be appropriate for building a strong legacy for the future. In the movie, Working Girl, the CEO of a large conglomerate tells a story to illustrate the point that there are often elegantly simple solutions to what may appear to be overwhelming challenges. Often these solutions come from neglected and overlooked sources. The scene takes place in New York City near the Holland Tunnel. An unusually long line of traffic is backed up outside the entrance. People are getting out of their cars and stretching their necks trying to get a glimpse of the cause of the problem. Soon it becomes obvious - a crowd gathers around a truck whose driver has accidentally wedged his oversized vehicle into the ceiling of the tunnel and cannot move it forward or backward. The scene around the truck is charged with intense emotion as commuters gather, and a policeman tries desperately to control the mob and clear the obstruction. Appearing out of this chaos is a ten-year-old girl standing next to her daddy. She walks up to the overwhelmed police officer and makes a suggestion that saves the day - reduce the air pressure in the truck's tires, thus lowering the truck and freeing it from the tunnel. Let's take a look at how some other (hypothetical) people in the crowd may have proposed to solve this problem based on their experience. A tow truck driver may have considered how he could attach his tow truck to the vehicle and yank it out of the tunnel. A welder losing patience as the scene unfolds might want to grab a torch and start cutting the top off the truck. A chemical salesperson observing the scene from a few cars back could be thinking of some type of lubricant that could be sprayed on the top of the truck and tunnel so they could slide the vehicle out from its close embrace by the tunnel entrance. The most powerful thing the little girl brought to the table was that she had no preconceived ways of looking at the problem. The Big Picture Each of us looks at our world through patterns or schemas that help perpetuate legacy thinking. These patterns are the way we train our mind and perceptions to see our surroundings. They are created by our personalities and experiences. Once formed, they are like little engines working in our subconscious. They determine what information is going to register as important or relevant to our world and what is not. Schemas or patterns reinforce legacy thinking. That is why it is challenging for us to break out and try new ways of solving old problems. There is something implied in the word legacy that brings about noble feelings. Legacies are typically spoken of in a positive sense, and certainly, there are many positive things you have established through hard work and experience that should not be abandoned. For example, you might have created a wonderful legacy in the area of service and sales. Challenging legacy thinking does not mean that we throw away the things that are fundamentally sound and proven. The danger is when we allow our habits to hide opportunities for change that would permit greater financial growth. In his book, The Profit Zone, Adrian Slywotsky says that we need to redesign our businesses every five years. Few of us will change our businesses without extreme outside pressures. One of the positive aspects of the economic downturn is that it has presented many staffing company executives with an opportunity to get out of the rut. When there is sufficient pain, we are more willing to explore different solutions and strategies than we would during busier times. Understandably, staffing executives have been scrambling for ways to improve sales during this fallow time. Mr. Slywotsky suggests that a breakthrough way of looking at your business would be to consider your profit model. As important as it is to focus on sales, a more prudent approach is to include sales into a broader strategy. The best strategy is one that is sustained by permanently improving the operating ratios of the business. Ideally, you want ratios that produce a better profitability model, one that is scalable into the future. Here is just an example of why you should try looking at your staffing business from a new perspective. The following is a mathematical business case for looking at processes as well as sales as a source of financial growth: If asked if you would like to grow your business by 18% during the current economy, you would probably be very suspicious of such a proposition, and rightly so. What many staffing executives do not appreciate is that improving net profit as a percentage of sales by 0.25% is the financial equivalent of growing sales by 18% percent. Here's the math In 2001, the mean net profit for a $10 million staffing firm was 1.5% of revenue, or $150,000*. If the company grew its sales by 18% ($1,800,000), the impact to the net profit would be 1.5% of $1,800,000 or $27,000, which represents 0.25% improvement in net profit as a percentage of sales. That means if you improve your net profit as a percentage of sales by 0.25%, it is the equivalent of growing your sales by 18%. Here is the question that staffing executives should ask themselves: What is more achievable in the current economy, improving sales by 18% or finding ways to improve efficiencies and productivity so that you can improve your net profit as a percentage of sales by 0.25%? I think the answer is obvious. *According to the ASA 2002 Staffing Company Operations Survey. This is a good time to break out of legacy thinking by considering other options to make your business financially viable. Ask yourself these questions: Are there more efficient and productive ways to conduct business? How can we streamline processes and business transactions? Are we getting the most out of our existing technology? Are there new ways that we can use technology to help leverage our business in the current marketplace? Can we build an organization that is more productive and scalable as the economy changes? By asking yourself these questions, you can help eliminate the legacies that are preventing you from thinking in a way that can dramatically improve both profitability and growth for your staffing business. David Reiss is President and CEO of Applied Systems Technology. In addition to being the senior manager of a software technology company that services the staffing industry, Mr. Reiss has been a senior consultant specializing in organizational behavior and leadership issues that impact successful IT projects |
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