Our growth hungry business commentators & governments are forever trumpeting the virtues of growth. Whether GDP growth, sales growth, population growth or investment growth. Understandably, many large corporations are focused on store roll outs, merger and acquisitions, and vertical integration. Growth is king.
Within the organisational hierarchy, often Sales teams are championed as the backbone of the business, and paid substantial bonuses for exceeding targets. The archetypal Sales executive is considered smooth talking and enigmatic, whilst conversely, savings conjures up images of redundancy, pasty accountants, & instant coffee.
So it is worth considering, which is more valuable to a business, a 10% increase in sales, or a 5% decrease in expenses?
To illustrate this point, let us examine the two leading Australian supermarkets. Both reported operating profit margins of ~5% in 2015-16. Therefore,
An additional $100 million of revenue, would generate an incremental $5 million of earnings.
An additional $50 million of savings*, would generate an incremental $50 million of earnings.
A 10x improvement for the shareholders.
[*Note, that $50 million represents less than 0.2% of the total annual operating expenses for each of the two major supermarket chains]
Effective savings do not lead to a reduction in quality. Nor does it rely on aggressive restructuring and redundancy programs. It is a combination of creativity and systematic elimination of waste.
However, savings do not present themselves easily. They are the product of thoughtful investigation and a dedicated pursuit of best practice. Hacen is here is to help.