It has been said many times that “offense wins games, but defense wins championships.” Following the football analogy within the business context, we could equate offense to the generation of sales revenues and the defensive component of business could be equated to cost control and profitability. Many businesses can generate top lines sales very well, but may have a hard time turning a profit, which is certainly key to business sustainability. A well respected dealer once told me that: ”sales are for vanity, but profits are for sanity.” How true that is, even in my own business. Profitability is the score that counts.
At this point in your season or business year, and as the “head coach” of your team (or at least one of the key offensive or defensive coaches) it might be a good time to evaluate your team, your plan, your strategy and your team performance to date.
Game plan and strategy – Are you being aggressive?
Great football teams have exceptional capabilities and strengths on both sides of the ball, offense and defense. Well run businesses have the same capabilities, high performing sales levels are usually generated from a sales team that is focused, trained, executing the plan and are on track. On the defensive side of business, the management team should be following a well crafted plan as well, utilizing trained personnel and executing the plan and measuring results as well. The combination of the two, highly trained offensive and defensive squads, executing a well conceived game plan should generate a winning result(profits), the objective of all businesses. Since this is an expense related article, let’s take a look at your defense.
As the head coach or the defensive coach, you have a conscious choice to make. You can create a game-plan that is based on sitting back and adjusting to whatever comes your way, hoping you will stop the opposition, profit erosion, with a detailed game-plan created ahead of time. You might choose an approach that calls for consistent, aggressive blitzing of expenses to enhance your profitability. Some key questions to ask of yourself?
- What are your overall objectives?
- What is our defensive game plan or strategy on expense control?
- Do we have a detailed plan? Is there enough detail in the plan that will ensure success?
- Can our team execute the game plan? Do we have the right players with the right skills and mindset on the field?
- Does my team understand the plan and the objective?
In my experience, most dealerships do a good job at expense control and generating a respectable profit. And interestingly enough, they will frequently tell you how good they are as well. From my perspective however, dealers typically have low expectations and are content with going into the game without a plan and relying on a strategy that calls the plays from the field while the game is on. While that approach may be successful in producing a modest profit, a well crafted plan, based on a detailed understanding of the opposition (expenses) might generate a more aggressive approach and exceptional results.
Assessment and potential adjustments
Your management team is charged with driving new levels of sales and contributing new levels of profitability this year. If your sales are at or above your plan, you have probably put a strong, effective and cohesive offensive minded team on the field. If your profitability is at or above your plan, you probably have a highly effective defensive team on the field as well. If your sales and profitability are below your plan or are barely acceptable, it might be a good time to assess your original objectives, your season and your team.
- What is the score? (your profitability)
- Is our plan working? Do we need to change the plan?
- Is the defensive team executing your plan, or are they executing their own plan?
- Do we have the right players on the field?
- Do we need to make some strategic or tactical adjustments for next season?
If your sales and profitability are meeting your plan, it is probably time to “high five” your team and thank them for a great effort. If on the other hand your expenses are higher than you expected, or profits are not what you planned, it might be a good time to make some adjustments to get things on track for the balance of the season. It might also be the right time to look forward to next season(year) and determine your strategy now.
Do you have high expectations?
As the “head coach,” you ultimately own the results of your team performance. You have picked the team, they are following your game plan, or attempting to anyway, and the results are yours.
By way of comparison most dealers, both public and private, are enjoying increased profits this year versus the same point last year. According to research recently published by the Presidio Group, reasons for these improvements include higher demand, fewer competing dealerships, better margins and improved cost controls. Presidio Group reported that average dealership profits were approximately $600K in 2010 and are tracking to $860K(annualized) in 2011. The profit forecast seems to be improving and could for quite some time if sales forecasts hold up.
While profitability is improving for most dealerships across the board, and no doubt that fact provides a sense of relief, there is both risk and an opportunity facing your organization today.
Risk – “The caretaker approach”: If profitability is improving in your dealership or dealership group, you might be lulled into believing you have maximized your internal efficiencies and have already wrung out all excess costs. Because profitability has improved marginally, you might now be satisfied with profitability levels that are just “good enough,” and in the process, leaving inefficient practices in place and wasting additional profit opportunities. If you aren’t willing to raise the bar, to challenge your team, the team will perform, but just enough to stay in the game and probably nothing more.
Opportunity – “The leadership approach”: Even though profits are improving, this might be a great time to raise the bar, setting new, more aggressive objectives for your team. This might be an opportune time to challenge your team to achieve new levels of profitability with a more aggressive game-plan. If you are not convinced that you have extracted all inefficiencies from your operation, if you believe that a certain amount of waste is still present in your operation, then you have an opportunity to attack expenses from a position of strength. You have an opportunity to drive new levels of profitability because you choose to. That is the essence of leadership isn’t it? Setting aggressive goals, developing a realistic plan, getting the right players on the team, handing out assignments and then stepping back to observe as they execute and win would be the ideal situation.
If you plan to be more aggressive, to raise the bar for improved expense management performance and greatly improved profitability, then you should consider the following steps:
- Review current sales and profitability levels(forecasted through year end).
- Set a new quarterly or annual objective, beating current performance by X%.
- Review your spend benchmarks for the current year. Set reduced spend targets in each of the expense categories to back into your objective.
- You now have your game-plan, now it is time to ensure that you have the players that can and will execute your plan.
- Assign the parts(tasks-categories) of the game-plan to your management team.
- Keep score and coach to achieve the plan.
The choice is yours
Are you satisfied with how your team has played this season? Are they playing up to their potential? What is their potential? Are you satisfied with the “Caretaker approach” which usually leads to just “good enough” results – and profitability? Or, as the key leader of your organization, are you willing to challenge your team, raise the bar and set some aggressive objectives for profitability? The results you achieve this year and next, are dependent upon your objectives, your game plan, your team and your execution. The choice is yours.
If you are interested in a set of dealership benchmarks and the tools to assist in the development of your objectives, please contact me via e-mail at: email@example.com for those tools.