Total Profitability Management: a powerful framework.

• Author: Collins, Kevin
• Position: Business Performance

In today's economic climate, many companies are throwing an abundance of resources at profitability, or "value capture," initiatives. While the intention of these initiatives is good, the reality is that companies are correcting a flaw that should have been noticed earlier and without the added resources.

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Ideally, businesses would identify these value capture items in real time and then identify the potential strategic advantages that can be created from them. The concept of Total Profitability Management is a process in which every company should be regularly engaging, so that one-time initiatives become a thing of the past.

When engaging in this concept, there are three questions that every company needs to answer:

* How do we create the shift from value capture "events" to profitability as a constant, pervasive mind-set of the entire organization?

* How do we ensure that the data provided is acted on, rather than just being received?

* How can we use the data to create a strategic advantage that keeps competitors playing catch up?

Creating the Shift from Value Capture Events to Profitability

Value capture initiatives take place when companies dedicate time and resources toward identifying areas in the business where there can be large profitability improvements. These consist of product rationalization, customer rationalization, product de-featuring and changes in manufacturing processes, among others. However, what they represent is a flaw in a company's organizational structure.

Usually, those performing value captures make presentations to executive teams that illustrate how many millions of dollars have been saved, which is often met with congratulations and applause. Rarely do companies ask, "Why didn't we catch these in our regular job functions?"

In fact, value captures are really a reactive event that has left real dollars on the table. Saving money from a value capture means companies were already losing because of inefficiency. Instead of considering a value capture as a profitability enhancement it should be thought of as the end of an unprofitable, wasteful process.

How can the reliance on value captures being eradicated and integrated into the daily work approach? The most significant need is highly accurate data delivered at a granular detail level. Many companies use an activity-based costing system that constructs costs on what is actually driving them.

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While activity-based costing is considered unnecessary at many companies, it is undoubtedly the best system of detailing the concept of Total Profitability Management The reason this data...