Mark McDonald

Raising revenues is harder than cutting cost, which is one reason executives favor cost cutting.  Most think that raising revenue is hard because it requires turning prospects into customers and having them spend more with you.  That is true.  But.  The quest for revenue is hard because it carries with it greater internal disruption, finger pointing, blame storming, ect.  All the signs of weak management.

You see when you cut cost you view the company as a set of compartmentalized operations.  Each budgeting group is almost its own watertight compartment.  Purchasing, Logistics, Customer Service, IT, HR etc they are all seen by the cost cutter as mostly independent of each other.

It is easy to make across the board cuts with little or no study when you think of the board as a set of independent pieces.  A little off the top Mr. Rook, no everyone is being asked to cut back Mr. Pawn even though your small you have to do your part. You get the idea.  Taking this perspective, executives see cost cutting as a process of doing this or that or the other thing or everything because each part is separate.

Raising revenues is different because in reality it is everyone’s business.  Revenue generation is operationally integrative, as each player must to do their job well get the business.  A weak point in the chain and the whole thing falls apart.  While is possible to claim multiple reasons why we cannot grow revenues:  bad market, lack of customers, wrong product, weak distribution, not enough good people, etc.

Solving the revenue problem requires fixing or at least making significant progress on all of them.  Great products alone will not sell themselves, even over the Internet.   To continue the chess analogy, you cannot call checkmate until everything is right and your opponent has nothing to do but capitulate.  Now sales is not customer capitulation, but a checkmate does require many things to be in place before it happens.

Taking this perspective, revenue generation is a series of conditional questions, if we have the right customers and we have the right products and they are at the right price and they are available ….  In revenue, everything is connected and therefore it is harder.  Consider a three-factor revenue model as a way of explaining the complexity.  The combination of A&B&C only happens one out of out of nine possible times – a little better than 10%.

The reason I am pointing this out is that organizations looking to raise revenues are going to have to look outside, across and into the interactions of the company in order to find and change the things holding back revenue.  That is disruptive, complex and potentially divisive.   It is a reason why people look for revenues either through acquisition or through creating new divisions to ‘focus’ on a market. Both raise revenue but they also mask deeper coordination and execution issues.  The quest for growth can tear apart the organization.

Remember growth, any growth, covers a company’s weaknesses and warts.

Every executive needs to recognize that revenue generation issues have neither single simple cause nor a single simple resolution. You have to take the time to think through all you do – get into everyone else’s business – to find the set of things to do to get revenue.

That can be messy but is necessary because generating revenue is hard.  It is harder than simply cutting costs.

CIOs and IT leaders play an important role in revenue generation activities as they hold the keys to company information, the distribution technologies and the execution of key customer service, sales and operational processes.  Too often the CMO, sales and business unit heads leave the CIO out of the revenue discussion or equation until the very end in the belief that they are operational or tactical.  Its a front office vs back office kind of thing.

Revenue adn other integrative issues are part of the future of the CIO.  They and their team have one of the best views of how things run around here, they have a good understanding of channels and their functionality and besides your are going to need them to act fast in when you make your move to raise revenues.  Leaving them out of the picture contains about as much wisdom as declaring an across the board cost cut.

So recognize the challenges involved in raising revenue generation and rather than thinking its all the other guy, take an enterprise approach and lead across the company as that will be required to realize the rewards of creating new revenues.

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Category: 2011 Leadership Signs of weak management Strategic planning     Tags: 2011 Planning, Business Management, Business Strategy, cost cutting, Economic conditions, growth, revenue, Strategy and Planning

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