Productivity, a Key Driver of Sustained Profits

Productivity,KeytoSustainedProfitability

Copyright @ 2016 Value Consulting Asia

Ramesh Narasimhan, Principal

Introducingthe3‘P’Grid

Profitability• Drivenbywhatyoudoandimportantly“how”youdoit.

Productivity• Ensuresbusinessremainscompetitive&sustainable

Process• Fundamentaltodoingbusinesseffectively


‘Quality of Processes’

drives Quality of

‘Productivity

Management’ which in

turn drives ‘Profitability’

Why‘Process’?A robust set of processeshelps:

improve financial control &governancepreventerrors,misrepresentations,disputespreventrevenueleaks,costindisciplineandfraudsfromtakingplace.

Great companies deliveringsustained value to‘customers’ are built upon‘Best-In-Class’ processes


Foolproof processes are the foundation for establishing a successful ‘Productivity’ management framework

WhyProductivity?


In most business models, profitability is a

function of productivity, price, and

volume. Productivity represents how

efficiently, i.e. with minimal or no waste, a

business uses its resources to produce its

product or service.

When comparing companies within a sector,

it is very important for investors to

understand the relative productivity

comparisons between companies producing

the same products.

Pricing• Marketdriven• Partlycontrollable

Volumes • Demand,Supplydriven

Productivity • Controllable

Productivity, when managed well, ensures resources work efficiently, thereby delivering increasing value per dollar spent

Profitability

Productivity = Output / Input

Output is expressed generally in physical quantity / units or financialvalueInput is expressed in terms of labour and capital measures, units orfinancial value


MeasuringProductivity

Industry Metric/Units P&L lineimpacted

Manufacturing Productionunitsper manhour

Cost,Revenue

F&B Customers perEmployee

StaffCost

Banking(CallCentre)

Callspermanhour,SalesperEmployeeperday

Staff Cost,Revenue

Ratio Description

CosttoIncomeRatio Measures howmuchcostisincurredinrelationtoincomeearnedinthesameperiod

IncrementalRatio(Jaws) RevenueGrowth(minus)CostGrowth

RevenuetoStaffCost Measures howmuchRevenueisearnedperdollarofstaffcostincurred

SomeBasicMetrics(Illustrativeonly)

Let us keep it simple!

MetricsbasedonValueAdded(illustrativeonly)


LabourProductivity

CapitalProductivity

Value Added / Number of Employees

Value Added / Fixed Assets

(Sales – Cost of Materials ) / Number of Employees

(Sales – Cost of Materials ) / Fixed Assets

Further drill down to operational level to understand Customers / Staff, Sales per customer etc.

Further drill down to operational level to understand Customers / Staff, Sales per customer etc.

ValueAdded=Sales(–)Costofmaterials& servicespurchased

Process-Productivity-ProfitChain


RobustProcesses

ProductivityMeasured&Managed

SustainedProfitabilityGains Establishbest-in-class

managementtoolsto

measure&manage

profitability,acrossall

products&services,

towardsdelivering

significantlygreater

valuetoshareholders

Takeaways


Ø Profitability is directly impacted by Productivity.

Ø A framework for measuring and managing Productivity needs to beestablished to enhance efficiencies and reduce cost

Ø The foundation for Productivity is a robust set of processes across thevalue chain. Without sound processes, productivity cannot be measuredeasily.

Ø Start measuring productivity with simple metrics NOW

Questionforyou:Howproductiveisyourorganization?


Mail me @ [email protected] a complimentary copy of “Productivity Self-Assessment Checklist”, which you can use to gauge how productive

your business is.

Let’sconnect:ramesh.narasimhan@valueconsultingasia.com.sgwww.valueconsultingasia.com.sgHandphone:+6590677851Facebook:@ValueCFOTwitter:ValueConsultin9

Ramesh Narasimhan, Principal


v We are dedicated to serving businesses in their mission to become more productive and more profitable

v We conduct workshops for corporates striving to significantly enhance internal efficiencies

v We provide advisory services on matters to do with profitability management but we do not just stopthere. We also work with businesses to implement the identified initiatives & action plans

Business

Productivity, a Key Driver of Sustained Profits