This specific Management Insight explains a Phenomenon called “Double Trouble or Double Benefit” from Business Management Point of View. As we Know any Business Organization has Two Specific Objectives:
1) To Increase Revenue; 2) To Reduce Costs;
Some people consider these two aspects, as Two different Opportunities to Excel; Some others Treat these two aspects as Two Different Troubles or Challenges to Pass Trough. However, If we Look at these two aspects together in a Consolidated way, What We get is the Double Benefit. I will explain you What is the Phenomena here. That is If we do both the things at a time, that is, increasing revenue and reducing costs, what we get is the Double Profits or Double Benefit. This is Because if We focus on Increasing Revenue alone, we end up in either increased Profit, no Profit or no loss, or even we may end up in Loss as well. This is Because We focused only on Increasing Revenue alone; we Did not focussed on Costs/Expenditure aspect. If we focus on both at a time, we can ensure guaranteed profit. Lets see the case, Where we focused only of Expenditure, that guarantees Reduced costs to the firm; however we may or may not end up in profit, this is because, We focused on Cost Reduction only, Ignored Revenues/inflow; if revenue reduces, we may end up in loss or no profit no loss, or even profit as well, despite reduced sales, this is because we drastically reduced costs. We reduced costs and also increased profits, that means, we get double benefit, ensuring guaranteed profit to the Organization. Thus, for any Business Organization, we need to focus on both Increasing Revenues and Reducing Costs at the same time. If we focus on Only One Thing Ignoring Other Aspect, It can have unpredicted profits/outcomes. That’s why these two became Double Trouble or Double Benefit. Independently these two may be two different Challenges to the Business Managers, however when we look at in a consolidated way, we can definitely achieve Organizational Objective of Profit Maximization. We can do Profit Maximization by Increasing Revenues and By Reducing Costs.
Now, Lets look at these two Aspects Independently. First:
How to Increase Revenues: revenue or Income to Firm can be increased in following ways:
- With the Existing Products, Enter into New Market Regions; that is market Expansion.
- Increase Sales by Innovating Commission based Sales, Distribution Channels
- Increase Channel Networking, Carry out “Word of Mouth” Marketing
- Timely Collect Debts, Advances Given to Customers; Give Provide Interest based Product Loans/Sales, like Car Loans; Provide EMI (Equal Monthly Installments) based Product Sales to Customers.
- Get rid of Inventory; Long Term Goods
- If Surplus Money is There, Focus on Investing on Innovation and Developing New Products, Services, and Diversify Product Portfolio
- Every Month, Keep 20% of Profit on Saving for Future, In the form of Investing in Equity, Mutual Funds, Startups, and Provide Private Equity
- Spend Some Percentage of Profit on Innovation and New Product Development. This Ensures Organizational Future Revenue Pipeline
- Focus on Key Competency, Core competency, and Develop Products in Core Business Area which gives Competitive Advantage in Market. Do Unique Things, Unique Products. “Innovate…… It is a Continuous Process……..”.
- Try to Develop Common Platforms, Common Components, Common Frameworks this reduces Portfolio Development Expenditure; Time to Develop Product Variants Reduces. Different Buckets of Income Follows.
How to Reduce Costs: Costs or Expenditure of firm can be reduced in following ways:
- Identify Duplicate Efforts, Redundant Developments, Duplicate Roles in Organization, and Try to Remove the Redundancy in Organization; Also Find out Commonality in Product Development Process for Different Products. Here costs can be Reduced.
- Time Bound, Opportunity Bound Procurements can get Raw Material at Low Cost; Here We may have to Spend Surplus Sometimes in Order to Get Low Cost High Quality Raw Material; When Cost is Low, Procure Surplus; but don’t waste time on waiting for Opportunity.
- For this Locational Surveys will be useful; Get the Goods from Places where it is Abundantly Available at Low costs; also keep Logistics in Mind
- Head Count reduction Should be Last Resort; not the First Resort;
- Replace Outdated or Low Performance Machinery
- “Where we need to Spend, We need to Spend”. This is in order to Avoid Unnecessary wastages, to avoid Loss in Production, or to avoid Production Down Time, to Avoid Machine Servicing and Failures.
- Particularly in case of Manufacturing, Machine Servicing is Key in order to get Quality Product; hence, it should be made as Organizational Key competency.
- Avoid Unwanted Travels and Administrative Expenditure.
- It is Better to Withdraw Investments in One Area; and Increase Investments in Another area of Organization based on Growth Rates, Organizational Priority Areas, and Economic and Industrial growth rates, conditions and situations.
- Cost Reduction Should not be the “Talk of the Town”; Because this effects Employee Morale; and it distracts and deviates the Focused and Task Oriented people as well in the Organization.
If we focus on these two aspects at the same time; on One End focus on Reducing Costs; on the other end keep investing on new Products, services, operations, that balances the Employee Morale, retains employee confidence, and Organization also can achieve Organizational Objective. That is, By Increasing Revenue and By Reducing Costs, we can get Double Profits or Double Benefit. Focusing on One aspect alone ignoring Other aspect won’t yield positive outcomes for any business organization; or it can win the Investor confidence, or shareholder sentiments.
All the best. This is Simple Concept only. But When we Look at it in depth, Several Business Management Aspects will come out.
Right…… Thank you……….
Dr.Goparaju Purna Sudhakar, PhD, PMP