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Why Business Profits Can Hide Operational Dysfunction

Barjunaid Cadir

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Why Business Profits Can Hide Operational Dysfunction

By Rick Cottrell, BizResults.com

 

Working with entrepreneurs and leadership teams throughout the Midwest, I am finding a common trend between businesses both large and small. When sales and revenues are going good to great, a gradual loss of focus, discipline, and accountability takes place.

These businesses become content, satisfied and less motivated to maintain optimal health in their organizations. Our research indicates that over 80 percent of businesses suffer from this condition. In most cases, it is costing them significant profitability and cash flow opportunities.

Here is a strong example: In many industries, business today is really good. Profits are up and company performance indicators are solid. In fact, those with a product or service that someone will buy, and with an organizational act somewhat together, should be highly profitable. These are exciting times, and opportunities are both abundant and readily accessible for business growth.

So why is that cause for concern?

Unfortunately, our research consistently shows that bottom-line success comes the creep of organizational dysfunction. This seems to rear its ugly head when entrepreneurs and their leadership teams reach a self-defined level of success. In essence, they become content, they take their eyes off the ball, and their businesses become less efficient and highly less effective.

Perhaps your company need not worry. Your industry could be one that can withstand any economic craziness. However, most companies are not insulated from the rise and fall of the marketplace. They must maintain a laser focus on where they are going, and how they are going to get there, to be strong no matter the economic condition. It becomes critically important for companies to wake up from today’s “economic euphoria” and start getting serious about their businesses — again.

A clear point of reference we are seeing is that fewer than 20 percent of businesses have defined core values. They lack a core focus that is culturally embedded in their organizations and shared by all stakeholders. In fact, fewer than 30 percent have a defined long-term plan. Additionally, fewer than 25 percent of businesses are structured to be scalable, and fewer than 20 percent have adequate/actionable performance metrics.

There is a lot more to this list. However, it points to the significant opportunity that exists today for businesses to be more profitable, add more cash flow, be scalable and create more value if — and only if — entrepreneurial leaders and their teams get serious about working on their businesses.

Our firm has conducted extensive research and has compiled a list of characteristics that we see repeatedly in healthy, strong and successful companies. These include…

  1. Entrepreneurial leaders and their teams that have developed a company-wide culture that is honest, open and transparent.
  2. Businesses that have consistently applied processes to ensure the right people are in the right seats.
  3. Firms that measure and track performance with hard, fact-based data. One that is not based on egos, emotions, subjective opinions or what I call hopes, dreams, and wishes.
  4. Companies that create organizational optimization and efficiency through the documentation of key processes that meet the 20/80 rule — formalizing the 20 percent of the business that contributes to 80 percent of organizational success.
  5. Leaders who have an organization-wide culture of effective root cause analysis and problem resolution. This includes a culture of accountability that is shared by all employees.

In most cases, these characteristics are effectively implemented as part of a single, holistic business operating system. Several exist, but as a business owner myself, I have found the Entrepreneurial Operating System, or EOS, to be the most effective. Simply put, EOS gets everyone in an organization to be laser-focused on executing the company vision; operating as a cohesive, functional and healthy team of people, and gaining organizational traction. This thereby creates increased profitability, scalability and value.

In summary, our research illustrates that as companies become more profitable and satisfied, organizational inefficiency and waste start creeping in. Those who are not committed to increasing the strength of their businesses will either fail or continue to be mediocre, not reaching their full financial potential. And that could end up being a costly mistake.

 

 

By Rick Cottrell, CEO, BizResults.com. Rick is a Certified Professional Entrepreneurial Operating System® (EOS®) Implementer whose firm delivers proven systems and technologies to help companies become more profitable and scalable, create more value and deliver unrivaled entrepreneurial balance. http://bizresults.com

Barjunaid Cadir is a Content Writer in The Weekly Trends, Web Developer, SEO Content Manager, LinkedIn Specialist, Social Media Manager, and a University Researcher at Anadolu University in Eskisehir, Turkey.

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