Article

Think Profit Hunt

There's some irony in the fact that, even in economically trying times, so many companies still do not focus directly on improving profit.

By Arie-Willem van Doorne

First published on Οκτωβρίου 01, 2002
min read


There's some irony in the fact that, even in economically trying times, so many companies still do not focus directly on improving profit. The need for improving profits quickly may be clear, but how does one go about it? The answer can be disarmingly simple: it's called profit hunt. Profit hunt is a short-term, highly focused effort to effecting long-lasting improvements on profits. It relies on a systematic approach to identifying revenue enhancement and cost reduction opportunities. And a profit hunt rallies the entire team around profit, rather than around functional, product or geography-specific issues. DATA & CREATIVITY Managers who launch a profit hunt typically combine a systematic top-down data driven approach with a bottom-up creative process. Witness the example of a major FMCG company, which realised that a key profit lever was the manufacturing cost of one of its core products. Management gave a multi-functional group of employees a challenging cost target and the team soon found creative ways of meeting it. There are other examples of management sitting down with customers, suppliers and employees to brainstorm innovative ways of improving the bottom line. FASTER GREATER SOONER Technological advances have affected how, when, and how fast companies roll out a profit improvement program. Today's profit hunt can yield faster and greater savings than ever before, making it an offensive weapon rather than a defensive tool. Bain's study of 30 recent profit hunts reveals that revenue enhancements accounted for over 50% of total profits created, while 22% of total profits resulted from externally focused actions, i.e. customer self-service innovations, procurement efforts, supplier value-added relationships, etc. Layoffs and plant closures (and other rash forms of internal cost cutting) accounted for only 20%. There's a lot management can accomplish in a short time, if it really focuses on profit improvement. In the profit hunts observed, 80% of total annual profit improvements made it into the books within the first 2 years, with 43% in the first year alone. KEY CONSIDERATIONS Successful profit hunts are not easy; they require substantial time and resource investment. Consider the following when you gear up for a profit hunt A new way of slicing the bread: sustainable profit improvements come when you find new ways of doing things—some combination of fewer people, less time, less equipment—that reap more revenue for less. Forego long shots: 80% of new profits should materialise in the first 2 years. According to our study, the 3 to 5year profit hunt does not work. In good times and bad: profit hunts can also be undertaken in economically sound times, and are in fact ideal for leading companies seeking to widen the gap with their competitors. Dig deeper: finding greater profits requires detailed analysis and sophisticated information technologies to understand, among other things, your asset utilisation or your products' and plants cost structure, so remain realistic about the resources you will commit to achieving your goal. NEXT PROFIT HUNT? The challenge for any organisation hinges on management's ability to sift systematically through layers of ever-increasing complexity with undiluted focus. Our experience teaches us that profit hunts involving a systematic approach, coupled with the right mix of analysis and creative involvement, can yield surprisingly quick results. When will you unleash your next profit hunt?

There's some irony in the fact that, even in economically trying times, so many companies still do not focus directly on improving profit. The need for improving profits quickly may be clear, but how does one go about it? The answer can be disarmingly simple: it's called profit hunt.

Profit hunt is a short-term, highly focused effort to effecting long-lasting improvements on profits. It relies on a systematic approach to identifying revenue enhancement and cost reduction opportunities. And a profit hunt rallies the entire team around profit, rather than around functional, product or geography-specific issues.

DATA & CREATIVITY
Managers who launch a profit hunt typically combine a systematic top-down data driven approach with a bottom-up creative process. Witness the example of a major FMCG company, which realised that a key profit lever was the manufacturing cost of one of its core products. Management gave a multi-functional group of employees a challenging cost target and the team soon found creative ways of meeting it. There are other examples of management sitting down with customers, suppliers and employees to brainstorm innovative ways of improving the bottom line.

FASTER GREATER SOONER
Technological advances have affected how, when, and how fast companies roll out a profit improvement program. Today's profit hunt can yield faster and greater savings than ever before, making it an offensive weapon rather than a defensive tool.

Bain's study of 30 recent profit hunts reveals that revenue enhancements accounted for over 50% of total profits created, while 22% of total profits resulted from externally focused actions, i.e. customer self-service innovations, procurement efforts, supplier value-added relationships, etc. Layoffs and plant closures (and other rash forms of internal cost cutting) accounted for only 20%.

There's a lot management can accomplish in a short time, if it really focuses on profit improvement. In the profit hunts observed, 80% of total annual profit improvements made it into the books within the first 2 years, with 43% in the first year alone.

KEY CONSIDERATIONS
Successful profit hunts are not easy; they require substantial time and resource investment. Consider the following when you gear up for a profit hunt

A new way of slicing the bread: sustainable profit improvements come when you find new ways of doing things—some combination of fewer people, less time, less equipment—that reap more revenue for less.

Forego long shots: 80% of new profits should materialise in the first 2 years. According to our study, the 3 to 5year profit hunt does not work.

In good times and bad: profit hunts can also be undertaken in economically sound times, and are in fact ideal for leading companies seeking to widen the gap with their competitors.

Dig deeper: finding greater profits requires detailed analysis and sophisticated information technologies to understand, among other things, your asset utilisation or your products' and plants cost structure, so remain realistic about the resources you will commit to achieving your goal.

NEXT PROFIT HUNT?
The challenge for any organisation hinges on management's ability to sift systematically through layers of ever-increasing complexity with undiluted focus. Our experience teaches us that profit hunts involving a systematic approach, coupled with the right mix of analysis and creative involvement, can yield surprisingly quick results. When will you unleash your next profit hunt?