In a world of mass disruption and ‘game changing innovation’, it appears that the eye of the CEO has been caught by the big, transformational play.
Innovation and transformation are very de riguer.
But what about the modest 1% improvements?
Alan Weiss has something called the 1% solution. In essence, if you are able to improve by 1% everyday then in 70 days you are twice as good. Imagine being twice as good as you are now in little over 2 months just by making modest 1% gains every day? and then apply that to your organisation…starts to look quite sexy doesn’t it…?
Let’s look at pricing as another example.
If we assume that volume of sales and variable and fixed costs remain steady, in a typical organisation of significant scale, a 1% increase in price of goods/services sold can have a 6-8% improvement in profit. Thats pretty nice. See figure 1.
But let’s look at what happens during tough economic times (which may be coming). As revenue contracts, and discounting becomes the norm, senior leaders look to trim costs to maintain profitability. But is that the best move?
Figure 2, takes our company through this scenario. Volume of sales has remained constant, along with other costs, but discounting has reduced the average sales price from 960 to 855.
But take note of what happens when a 1% increase in price is applied versus a 1% cutting of variable costs…a staggering 18% increase in profit vs a 14% increase from traditional cost cutting.
You see, the 1% may not appear to be mighty but it all depends on how you use it…