Framework for Increased Profits – An Understanding

This post was a long time coming. Better late than never though.

Inspite of all the jargon that floats around the Web and Business schools today, there were, are and will be three fundamental drivers to increased profits in any company (considering it is a for-profit company) – product/service.

1) Increase Revenues

2) Decrease Costs

3) Improved Customer experience

The framework below explains my understanding of these three fit in any business -

The framework is what it should be – a 10000 feet level view. But what does this mean operationally and how exactly would this framework add value. To explain this, I would choose an example I am familiar with – Cards (Credit cards, Debit cards, Prepaid – you name it!), although similar explanations can be given for a product company like Gillette or Intel or a service company like Google or Walmart.

Some of the financial drivers (Increase Revenue, Decrease costs) for a Credit Card are (for some reason, I am not able to paste an excel sheet, had to convert it into an image!!) -

In this day of multiple but same products across companies, engaging the customer has become the key to increased profitability and sustainability. Not only engaging the customer, every effort of business has to be geared towards engaging the customer in a way to increase their spend either by influencing them through Marketing or through various Customer experience initiatives.

An example, Credit cards again -

Although there are a million other variables for the profitability of a company like people management (employees), operations, logistics, legal and compliance issues – these three basic rules must be followed for even an iota of sustainability and future profitability for the company.

P.S – I had a doubt while writing this post. Isn’t the entire post just common sense? Should we have a ‘framework’ for it? But then, even the Big Bang theory was common sense, ain’t it? Unless there is a clear understanding of what drives a business at a strategic level and subsequently convert these strategic goals into operational goals across teams, we would not be able to nail down onto a problem of decreased profitability or even a loss. A framework is a necessary evil to achieve this focus.