In many enterprises there is, and has been, the view that to achieve
profitability there needs to be a strong focus on expense reduction, "Right
Sizing". This focus on "Right Sizing" and expense reduction neglects to
recognize that, outside of short-term cash management, the goal of the business is not to
save money but to make money. Making money comes from satisfying customers, getting more
orders, and increasing throughput (sales of goods and services). If you are not selling
enough, you can continue to cut your expenses and save money, but how will that ever
reverse the trend? An enterprise must focus on increasing throughput. Yes, cost control is
critical too. In actuality the right actions from an enterprise perspective to increase
throughput will almost naturally lead to lower operating expenses and reduced inventories
and investments. But, in general, a focus on only expense reduction and not throughput
enhancement wont work. |
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