Productivity, a Key Driver of Sustained Profits
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Transcript of Productivity, a Key Driver of Sustained Profits
Productivity,KeytoSustainedProfitability
Copyright @ 2016 Value Consulting Asia
Ramesh Narasimhan, Principal
Introducingthe3‘P’Grid
Profitability• Drivenbywhatyoudoandimportantly“how”youdoit.
Productivity• Ensuresbusinessremainscompetitive&sustainable
Process• Fundamentaltodoingbusinesseffectively
Copyright @ 2016 Value Consulting Asia
‘Quality of Processes’
drives Quality of
‘Productivity
Management’ which in
turn drives ‘Profitability’
Why‘Process’?A robust set of processeshelps:
improve financial control &governancepreventerrors,misrepresentations,disputespreventrevenueleaks,costindisciplineandfraudsfromtakingplace.
Great companies deliveringsustained value to‘customers’ are built upon‘Best-In-Class’ processes
Copyright @ 2016 Value Consulting Asia
Foolproof processes are the foundation for establishing a successful ‘Productivity’ management framework
WhyProductivity?
Copyright @ 2016 Value Consulting Asia
In most business models, profitability is a
function of productivity, price, and
volume. Productivity represents how
efficiently, i.e. with minimal or no waste, a
business uses its resources to produce its
product or service.
When comparing companies within a sector,
it is very important for investors to
understand the relative productivity
comparisons between companies producing
the same products.
Pricing• Marketdriven• Partlycontrollable
Volumes • Demand,Supplydriven
Productivity • Controllable
Productivity, when managed well, ensures resources work efficiently, thereby delivering increasing value per dollar spent
Profitability
Productivity = Output / Input
Output is expressed generally in physical quantity / units or financialvalueInput is expressed in terms of labour and capital measures, units orfinancial value
Copyright @ 2016 Value Consulting Asia
MeasuringProductivity
Industry Metric/Units P&L lineimpacted
Manufacturing Productionunitsper manhour
Cost,Revenue
F&B Customers perEmployee
StaffCost
Banking(CallCentre)
Callspermanhour,SalesperEmployeeperday
Staff Cost,Revenue
Ratio Description
CosttoIncomeRatio Measures howmuchcostisincurredinrelationtoincomeearnedinthesameperiod
IncrementalRatio(Jaws) RevenueGrowth(minus)CostGrowth
RevenuetoStaffCost Measures howmuchRevenueisearnedperdollarofstaffcostincurred
SomeBasicMetrics(Illustrativeonly)
Let us keep it simple!
MetricsbasedonValueAdded(illustrativeonly)
Copyright @ 2016 Value Consulting Asia
LabourProductivity
CapitalProductivity
Value Added / Number of Employees
Value Added / Fixed Assets
(Sales – Cost of Materials ) / Number of Employees
(Sales – Cost of Materials ) / Fixed Assets
Further drill down to operational level to understand Customers / Staff, Sales per customer etc.
Further drill down to operational level to understand Customers / Staff, Sales per customer etc.
ValueAdded=Sales(–)Costofmaterials& servicespurchased
Process-Productivity-ProfitChain
Copyright @ 2016 Value Consulting Asia
RobustProcesses
ProductivityMeasured&Managed
SustainedProfitabilityGains Establishbest-in-class
managementtoolsto
measure&manage
profitability,acrossall
products&services,
towardsdelivering
significantlygreater
valuetoshareholders
Takeaways
Copyright @ 2016 Value Consulting Asia
Ø Profitability is directly impacted by Productivity.
Ø A framework for measuring and managing Productivity needs to beestablished to enhance efficiencies and reduce cost
Ø The foundation for Productivity is a robust set of processes across thevalue chain. Without sound processes, productivity cannot be measuredeasily.
Ø Start measuring productivity with simple metrics NOW
Questionforyou:Howproductiveisyourorganization?
Copyright @ 2016 Value Consulting Asia
Mail me @ [email protected] a complimentary copy of “Productivity Self-Assessment Checklist”, which you can use to gauge how productive
your business is.
Let’sconnect:ramesh.narasimhan@valueconsultingasia.com.sgwww.valueconsultingasia.com.sgHandphone:+6590677851Facebook:@ValueCFOTwitter:ValueConsultin9
Ramesh Narasimhan, Principal
Copyright @ 2016 Value Consulting Asia
v We are dedicated to serving businesses in their mission to become more productive and more profitable
v We conduct workshops for corporates striving to significantly enhance internal efficiencies
v We provide advisory services on matters to do with profitability management but we do not just stopthere. We also work with businesses to implement the identified initiatives & action plans