Stability – Profitability – Growth. Reliable profitability should be built from the ground up, and this all starts with stability. Stability is about creating an environment with a good ability to predict company development in the near future. Without this ability, it is difficult to reverse a company’s negative profitability. This is why accurate forecasts for sales and EBITA are important parameters to follow. Good leadership and a clear business plan are also crucial.
We can only begin to focus on profitability once stability has been achieved. Favourable profitability is the cornerstone of growth. Company strategy must be based on a clear insight into what drives the company’s profitability. This is partly about improving gross margins and reducing the amount of fixed costs. A good result is when a company outperforms other companies in the same sector in terms of profitability and achieves a growth rate that is higher than market growth.
Profitability is the cornerstone of growth. An exception can be made, however, for companies that need to build a market position quickly. Growth is often a natural result of focusing on those products or services that are most profitable. This is a question of focusing on sales, correct pricing and profitable acquisitions.
Line managers in the management group. To establish a healthy dynamic in the management group and to keep the management group close to the business and the customers, at least half of the management group is to be comprised of line managers. This creates a good balance between support services and those responsible for the customer’s earnings.
What gets measured gets done – but don’t measure everything. A strong drive to accomplish positive results is within all of us. This is why the things that get measured improve. However, it is crucial not to measure too many parameters, since this can lead to a decrease in clarity. As such, it is important to limit the amount of measuring points.
Pricing can always be improved. Pricing is an important measure for improving profitability in every company. With a good understanding of the customer value that can be created, there are often opportunities to adjust prices in both directions.
Customers talk – we listen. It is the customers who pay the salaries of a company’s employees. Listening to the customer allows us to understand problems and opportunities, market trends and the value that the company can provide. Armed with this understanding, we can develop product offerings and internal processes. Customer satisfaction is therefore a crucial parameter to keep a track of in our companies.
Focus on our strengths. There is always a risk of devoting too much focus and resources to trying to find ways of fixing things that are not working. Our experience has taught us that it is simpler to turn something that is working well into something that can work better, rather than turning something that is not working into something that works well. The company must focus its resources on its strengths and develop them even further.
Costs can always be lowered. We have an obligation to our customers and owners to always scrutinise our costs and make sure that the company’s operations provide customer value every step of the way. Constantly finding ways to improve operational efficiency is a continuous job. Our experience has taught us that companies that lower their costs are often surprised by just how much costs can be reduced without having a negative impact on the operations.
Benchmarking for measuring and comparison. The key to deciding whether or not something is good is finding relevant common benchmarks for comparison. By compiling benchmarks between different units in the company and between companies in the same industry and by making use of external data, the company can challenge itself to further develop and find out about other companies who have performed even better.
Organic growth prioritised, while acquired growth with synergies also boosts value. Organic profit growth is unparalleled when it comes to creating value for a company and, for this reason, is always a top priority for Ratos. Acquired growth can generate considerable value when combined with real synergies in terms of expenses and revenue.