Saturday, December 9, 2006

PPG - A management tool for Predictable Profitable Growth

Predictability. Profitability. Growth. You need all three to achieve maximum results and stakeholder value.

  1. If you have profitable growth but actual results are out of line with forecasts then you inevitably have many operational inefficiencies to handle the variances.
  2. If you have predictable profits but no growth then you're most likely missing out on many opportunities to leverage a solid foundation for growth. In a public company, the stock price multiple will lag far behind competitors that have all three attributes.
  3. If you have predictable growth without profits then you need to take a good hard look at the core business and strategy.
What I love about PPG is that you can use it as a management tool to guide a company and management team. If you identify one or two areas of strength, then you can focus on the other areas. You can develop specific projects and tactics to help develop the model and you can rally a management team around the whole philosophy.

At PL Developments, we had strong profitable growth but limited predictability. The company had grown from a small family-owned business where it was easy to react to variations in demand, supply, and production. As the company grew, it became harder and harder to react without accurate predictions. We put in place initiatives to improve predictability throughout the organization, including:
  • sales forecasting and tracking (we could predict what, when, and how much would sell)
  • purchasing and scheduling (improved our processes to plan what, when, and how much to make and what, when, and how much to buy)
  • production metrics and forecasting (we could predict what, when, and how much to make and it's associated costs!)
Of course there were many facets to these initiatives and they all required technology and systems support, business process change, and most importantly - a change in culture.

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