Building profit

The most important goal for any business is to make profit. That is the basis for their existence. There are many challenges facing companies so making profit isn’t self-evident. The globally insecure economic situation makes overall growth difficult for businesses. Markets change and develop fast and businesses need to react fast in the changing needs of the markets and consumers. The market expectations are getting higher and shareholders expect to get more profit on their investments faster. That creates a lot of pressure on companies to exceed the market expectations and keep the shareholders satisfied.

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The changing markets and technological development make it more difficult to make sustainable plans and strategies for the future. A good strategy is realistic and achievable. It should be based on the core idea of the company and develop around it. Some businesses however get lost in their grand plans of development and expansion. They expand so far they get too complicated. They might end up losing their original market share and not gain enough for their new segment. In the end their profit can decrease considerably. A good strategy is also sensitive to market changes and it can transform e.g. with the changes in consumer needs. A good strategy will work most efficiently when the whole management and staff are aware of the company’s strategy and goals.

 

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The problem with efficient growth is the pressure from the market expectations and shareholders to make more profit. Companies do it at any cost by downsizing their staff and pressuring their management with even unrealistic targets. All this creates is a non-functional management and deteriorates the team sprit among leaders and employees. Currently it is also difficult to get good leaders and employees to stay in the same company. The trend today in the fast-paced markets is to change jobs frequently so qualified staff is difficult to keep.

A clear and transparent management structure is the basis for a working corporation. A big part in the successes of a business is in good management and leadership. “One recent Conference Board study found that only 54 percent of companies surveyed felt they had the leadership necessary to respond to change, and only 8 percent of executives rated overall leadership as excellent.” (Smallwood & Ulrich & Zenger 1999, 1.) A good leadership is difficult to establish and it is challenging to find competent leaders that fulfill the company’s requirements. It is very important that the expectations for leaders are realistic and achievable. The most important qualities for a good leader are understanding you employees, communication skills and empowerment. In addition to these important attributes a very important quality for a successful leader is getting results.

 

Kuva johtajuusyhtälöThe equation above shows that effective leaders must strive for excellence in both terms: they need to demonstrate attributes and achieve results (Smallwood & Ulrich & Zenger 1999, 3).

 

When a business has achieved growth and profit it is not easy to sustain it because markets change rapidly and businesses have to adapt with it. The most important thing is to remember the core idea of the business. Businesses can sometimes panic when a change takes place too fast and they might want to expand too rapidly with the changing markets. That will in most cases lead to a too complex business model and end up losing in all market segments. The second important thing is to remember your target segment. The trend today is more and more people want custom services aimed at the consumer’s particular needs. If a business can make the consumers feel like their individual needs are met that will ensure that the customer will come back and secure income in the future.

 

References

Allen, James & Zook, Chris 2001. Profit from the core. Growth strategy in an era of turbulence. Harvard Business School Press, Boston, Massachusetts.

Kasanoff, Bruce 2014. How to stop your profit margins from shrinking. Forbes. Updated 16.9.2014. http://www.forbes.com/sites/brucekasanoff/2014/09/16/why-your-profit-margins-are-shrinking/. Read 6.10.2014.

Smallwood, Norm & Ulrich, Dave & Zenger, Jack 1999. Result-based leadership. Harvard Business School Press, Boston, Massachusetts.

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