You have pushed your cost cutting measures to
limit. Competitive pricing still keeps a full-court press on every move you make. You have launched new products, but this initiative barely keeps you in game. Clearly explosive, seemingly easy, growth-rates of 90's have drawn to a close. Finding more ways to drive profit appears daunting. Remember that capitalism requires two things - growth and profits from any business wishing to remain viable. As you enter 21st century, how will your firm cope with financial expectations of your stakeholders? Improving asset productivity may be part of answer.
Enhancing stakeholder value is tougher in a growth-restricted economy, however strong management of asset productivity will give most organizations more financial options. When many companies are pulling in their horns, seeking ways to protect profits, and basically trying to survive, finding ways to make idle or under-utilized assets work harder will strengthen company's financial health.
Total asset productivity is basically sales divided by average difference between operating assets and operating liabilities during a given period of time expressed as a percentage. Financial people understand this concept well, but somehow it doesn't easily translate into line management - very people responsible for effective use of corporate assets. Global Marketing finds that many companies work hard at portions of asset management such as inventory control, but this is more of a piece-meal approach. Asset management including improvements, timetables and expected results should be a key part of any company's on-going business strategy.
Case in point...
A mid-size industrial instrumentation company benefited from a new strategy that focused on increasing asset productivity. After a number of years of explosive growth, sluggish economy significantly reduced growth-rate of firm. Profits came under pressure, cost-cutting measures were implemented, but shareholder value continued to decline. Together with senior management, Global Marketing benchmarked present asset productivity. The results yielded a stunner! Barely 40% of company's assets contributed to 100% of profits. Basically, 60% of their assets were idle or significantly under performing.
There is a strong reason to pay attention to, and better manage all corporate assets. Improving asset productivity infuses more financial flexibility into any organization. Stakeholder value improves, but many less obvious benefits occur. Can you imagine that an increase in customer service level will result and drive renewed growth-rates? It's all connected.
