Sometimes, We All Need an Economics 101 Refresher

by David Scott on March 6, 2013

Some days we are so deep in what we are doing that we lose sight of the basics.

I was recently engaged in a conversation with the President of a consulting company who reminded me of one of the most basic tenets of Finance.  He took time to remind me that for every dollar you increase revenue, only 20-30 cents makes it to the bottom line (depending on your margins), yet if you reduce your expenses by that same dollar, the WHOLE dollar drops straight to the bottom line.  It’s so basic, yet such a great reminder.

ID-1007701

Imagine all of the discussions in office meeting rooms as well as the corporate kitchen, or even the smoking court, about how to increase sales.  We all do it.  We all want to sell more, grow the business, and be the best.  Yet, the real key to becoming more profitable is likely driving all unnecessary costs out of your business.

Few of us sit around and envision what we can cut to save the company money, yet the true value is that saving just one dollar is likely 3-4 times more powerful than an equivalent dollar gained on the revenue side.

As I talk to CIOs and others about their PeopleSoft solutions, I often lose sight of the simple value.  I am a techie who too often gets hung up in “the cool,” talking about features and functionality.  “Wouldn’t it be cool if you could {fill in the blank with whatever you think it would be cool if your software did}? “ And frankly, that question can drive some pretty interesting discussions.  At the same time, it is easy to lose focus on the true value that can come from it.

Integration can be such a ubiquitous word.  It sounds good because you are told it should be good.  But can it drive costs out of your company?  Absolutely.  Mobile?  It’s a hot topic, but most of the talk is about the user experience and centers on increasing sales.  But who is embarking on a serious discussion of the potential cost savings?  What about Business Intelligence (BI)?  No doubt there.  People are clamoring for information.  Right now we spend a lot of time gathering data.  The real question is can you convert that data to information and that information into knowledge and then use that knowledge to drive costs out of your business?  Or are you just chasing more revenue?

Today, thanks to this overlooked aspect of value, I have a new perspective on how I might be able to help my customers.  And, while I am not ready to give up talking about the cool stuff, or the latest app that I downloaded, I am fully prepared to change my perspective on just one way that I can make my customers more successful.

Leave a Comment

Previous post:

Next post: