The Concept of Insight-Based Management

The Classic Use of Insight in Management

Executives have long used the insights they derive from tearing apart their latest financials to steer their businesses. Everyone in an executive role is good at that, or they wouldn’t be in the job.

We’re not proposing to improve on that process. Instead, we’re advocating a new one: using insight to find the best ways to boost results, going forward, in your unique business.

Using Insight to Boost Results

The concept is simple: first understand the best thing(s) you can do to boost results; then do those.

Instead of doing the first things that come to mind (aka winging it), and being frustrated (or worse) when the outcome doesn’t meet expectations.

There are several ways to use insight to boost future results:

• finding your best shots at increasing profits and growing near-term revenue,
• finding the best ways to grow your business and your revenue long term,
• finding lasting competitive advantage(s), and
• understanding the wealth-creation potential of the fully improved business and deciding what to do about it (keep, sell or close).

We’ll illustrate with the first of these…

Boosting Profits and Near-Term Revenue

Current Practice…

One of management’s most enduring traditions has been the way CEOs and those who lead large business units get their direct reports to improve profits and boost revenue. You could call it “heat-based management.” The heat comes in the form of tough profit and revenue-growth targets assigned to the general managers and other executives who run the company’s businesses.

This is not to fault senior management: their Job 1 is to boost results, and heat’s the only tool they’ve had, up ‘til now…

Most executives who’ve had P&L responsibility, particularly in public companies, have experienced heat-based management at the gut level. Their challenge is clear; how to meet it, anything but. There are the usual options: cut costs, squeeze suppliers (again), exhort the sales force to still higher heights, etc. But they did that last time, too.

The Problems Heat-Based Management Creates

There are two (beyond the obvious—unwanted turnover):

• The first is “numbers stress”—the chronic, nagging, “Will I make my numbers? What if I don’t?” worries. Numbers stress suppresses both creativity and clear thinking; not helpful in figuring out what to do. It can also cause powerful possibilities to be overlooked or underappreciated.
• The bigger problem is that the results it produces can be below all they can be (to hit the target; not go beyond it). And the subconcious weighs in with, “we hit the target, so we’re done, for now.”

In other words, the very management approach intended to boost results can cause shareholder value to go unrealized.

We believe that heat-based management represents a yawning gap management practice that shortchanges both investors and executives.

Well, We Could Use… Insight

There are better ways to boost results and shareholder value. Their effectiveness stems from insights into two key questions:

1. For a public-company, will it contribute more to shareholder value for the enterprise to boost its profits or to grow its revenues?
2. For all types of companies, what are the best actions an executive can take to boost the profits and grow the revenue of the business he or she runs? (There are more than 60, and counting, honest ways to do this:  improving customers’ experience, irresistibly communicating customer value, modern cost management, product or service design, optimizing prices, etc. Which handful are the executive’s “best shots” for hitting or exceeding her or his targets?)

Both of these questions have answers. And now there are tools that executives can use to find them. The answers are different for every business, because every business has unique financial characteristics, opportunities, talents and constraints.

Is it worth an executive’s time to find the answers? Let’s look at actual results.

Question 1 above is well addressed in “The Relative Value of Growth” by the late Nathaniel Mass, in the Harvard Business Review’s April 2005 issue. It shows how to determine whether, in an enterprise, more shareholder value will be created by increasing profits or by boosting revenue. The article shows that the stated results goals of several major companies (Merrill Lynch: revenue growth and Office Depot: profits) appear to be in conflict with what will best boost their shareholder value, whereas General Electric and Proctor & Gamble: both revenue growth, are right on.

To address whether question 2 really matters, we worked with the $22 million US division of a booming international marketing and distribution company. It was growing at 30% per year, with an operating profit margin of 16%.

They used one of our insight tools, The Fortune Finder ^SM, to identify 6 specific actions that together would boost their 30% annual revenue growth rate by another 14.5% over the next 36 months, while raising profits by 147% and increasing their operating profit margin from 16 to 23%, as shown here.

Interestingly, 60% of the profit gain and 62% of the increased revenue growth came from actions that the division’s well-regarded president had not considered pursuing.

The relative-value-of-growth insight that Mr. Mass’ work provides can and should be used in concert with The Fortune Finder, to maximize the value of an enterprise’s individual businesses. Specifically, it should guide whether growth or profits should be weighed more heavily in picking an executive’s best shots.

The Point

For the first time, executives have a choice when faced with challenging results targets: stress out, wing it and hope that what they do works, or knowingly execute their best ways to hit them.

This new form of Insight-Based Management simply requires the tools for finding what’s best, and the skills needed to use them.

Implications…

• It’s now possible to boost the profits and grow the revenue of a business substantially—without monkey business, and to set a company’s profit versus growth direction wisely.
• Executives who become skilled at doing this will tend to rise faster in their companies.
• The fortunes of the business-unit executives and CEOs who can then report the improved aggregate results will improve, as well.
• From a shareholder-returns perspective, investors will now be able to put their money into companies whose executives understand and can skillfully use this new insight-based approach.

Arguably, a new era in management.

Using Insight-Based Management To Boost Your Results

If you’re interested in putting these new tools to work, it’s best to start with The Fortune Finder ^SM, our tool for boosting profits and near-term revenue. You’ll need to learn how the technique works, and how to use the supporting tools. There are two ways to do that:

• Sign up for our free (public) overview teleclass: Finding Your Best Shots for increasing near-term revenue and profits. You can see the list of upcoming classes and sign up here.
• The other way is to bring that same presentation in-house, to your company’s executives, which can be arranged, depending on geography and people’s availability.

Questions? Please call (732) 671-6660 weekdays between 9 AM and 5:30 PM Eastern (US) time or send an email to LetsTalk@greatnumbers.com.

Help Spread the Word About Insight-Based Management

We’re trying to make as many executives as we can aware of the power of Insight-Based Management to boost their results. We invite you to forward this to your friends and fellow executives.

Finally, we’d be grateful to know about other work that’s relevant to finding the best things executives can do to boost their results. Please feel free to email me about it.

Drew Morris, CEO, drew.morris@greatnumbers.com