Waste Not, Want Not: An Executives Digs Out Big Profits by Turning "Waste" into Valuable Products

Many people look only to gain 5 or 10 percent higher performance. When they focus on such small opportunities, vastly bigger profit sources will often be ignored. Based on working with executives around the world, I've come to realize that seeking breakthroughs needs to balance incremental improvements.

By a breakthrough, I mean a 2,000 percent solution, any method of accomplishing what your organization does now with zero-to-four percent of the current time and resources, or accomplishing an increase of 20 times in results while employing the same or fewer resources. A combination of those results can also be a 2,000 percent solution.

When first creating a 2,000 percent solution, many people report discovering that their solution could have been implemented at any time during the prior 50 years. But no one had. Why is that?

Here's a story that helps explain such delays. An executive works in a business where 95 percent of the ingredients were once discarded at the end of the production process. That's like taking a piece or two of a large wedding cake and then throwing the rest of the cake away. The organization first called the unused ingredients "waste" and dumped that material into the ocean. A new treaty in the 1970s prohibited this kind of dumping, and the "waste" went into landfills. Environmental laws were later enacted that made it more attractive to do something else with the "waste," and the leftover ingredients were turned into "by-products" that didn't have much value. The executive redefined those used ingredients as "products" and discovered that with a little upgrading they became valuable forms of organic fertilizer that many were anxious to buy. Soon the executive had developed a large fertilizer business and was successfully making similar upgrades of waste into valuable products for other manufacturers.

From this experience, the executive learned that people only pay a lot of attention to "products," seldom focus on "by-products," and hardly ever examine their "waste." Similarly, people pay a lot more attention to 2,000 percent solutions than to efforts to meet the annual budget increase of 10 percent. Why? It's more exciting and rewarding to develop 2,000 percent solutions. When you accomplish that first 2,000 percent solution, your self-esteem reaches a higher level than you ever thought possible. You've done it once and you know you can do it again.

A parallel observation to Pareto's Law (referred to by many as Pareto's Principle, or the 80/20 principle, meaning that 80 percent of the results can be observed to come from 20 percent of the people doing an activity) states that 80 percent of the results of any economic activity come from 20 percent or less of the efforts. Let's look at an example.

Imagine that a business has 100 salespeople selling 100,000 units a year. Consistent with the parallel observation to Pareto's Law, 20 of those salespeople produce total sales of 80,000 units per year (an average of 4,000 units per year) while the remaining 80 salespeople produce total sales of only 20,000 units per year (an average of 250 units per year. The 20 most productive salespeople create on average 16 times (4,000/250) more than the average of the 80 remaining sales people. Matching the performance of the remaining 80 sales people to what the most productive 20 salespeople accomplish is a 1,500 percent solution.

Within the group of 20, some are more productive than the others. Let's assume that the most productive salesperson produces annual sales of 7,000 units. That amount is 28 times what the 80 less productive salespeople average. If the less productive people can move up to the productivity of the most productive salesperson, that's a 2,700 percent solution.

Within the group of 80, some are less productive than others. Let's assume that the least productive salesperson who won't be fired sells merely 100 units per year. If that person could match the most productive salesperson, that would be a 6,900 percent solution.

The nature of which customers are served may have something to do with why these two salespeople vary so much in productivity. But if the least productive salesperson can increase performance to even half the average of the most productive group, that's still more than a 2,000 percent solution

Let's also assume that the company has a more effective competitor where the most productive salespeople sell on average 10,000 units per year. Within that group, let's also assume that the most productive person sells 18,000 units per year. If some of this success is based on selling methods that the least productive salesperson in the first company can emulate but doesn't use now, that relatively low performing salesperson would only have to capture one-eighth of the results of this most productive competitor's salesperson to achieve a 2,000 percent solution.

In addition, there are probably better performing salespeople in other industries who could also show the lowest producing salesperson in the original company how to improve. By drawing on those examples, the least productive salespeople can expand their productivity further.

From the first company's management perspective, notice that the challenge is different. Only if the salespeople in total improve their productivity by 20 times does the company enjoy a 2,000 percent solution. Even if the methods and personal qualities of the best salesperson can be duplicated in the rest of the sales force, such a 2,000 percent solution cannot be achieved. That's because the company would still need eight salespeople to equal the 100 current salespeople in performance. Only by dropping the sales force to four people and keeping the same sales level could the company achieve a 2,000 percent solution. Reaching that level of performance would mean exceeding the productivity of the competitors' best performer. What's the solution?

The odds for creating a 2,000 percent solution for the whole sales force are improved by another factor we haven't discussed. Few of the top performing salespeople will be using identical methods. As a result, you can combine highly productive techniques to exceed the performance of even the most effective salesperson.

Likewise, 20 percent of the customers will produce 80 percent of the earnings. So it's as important whom you sell to as it is how efficiently you perform. Some organizations will find that their highest volume salespeople are mostly bringing in business from relatively unprofitable customers. As a result the most profitable best practice may be found among a so-called average performer who only produces high margin sales. Cross-fertilize the methods of the high volume salesperson with the high-margin one, and you should increase the profit-productivity of sales efforts by much more than 2,000 percent.

For a given organization, simply determining who are most productive and what they do differently that may account for their success is a very powerful starting point for expanding effectiveness. That's why the few organizations that do such benchmarking within their company are quick to find ways to make enormous improvements.

Here's an important lesson: Pick the highest payoff opportunities first! We all know that each activity varies in its significance. For instance, developing new medicines at a pharmaceutical company is much more valuable than most other activities. If your company is below average in such an important activity, the company-wide benefits of either improving to become above average or outsourcing to an organization that is above average can result in a 2,000 percent solution for the entire company's profits. As a result, those who are wise in selecting the activities to improve first can make much faster progress than those who focus in less significant activities.

You should consider an even more important lesson: Some companies are making tremendous strides by developing skill throughout their organizations in designing and implementing 2,000 percent solutions. Such organizations will have vast advantages over those who simply look at the internal best practice or the industry best practice, or outsource to a highly effective outside organization. Such 2,000 percent solution expert companies will be able, instead, to advance to 5,000 and 10,000 percent solutions.

From that perspective, you can see that achieving a 2,000 percent solution is often a modest target ... even though at first blush a 2,000 percent solution would seem to be the opposite, a stretch goal.

How much time and effort is involved? People who have worked on creating 2,000 percent solutions were often able to reach 20 times higher performance levels within six months of implementing this solution development process. Rarely does it take longer than two years. Individuals who have developed 2,000 percent solutions usually report being able to create the plan for one solution with less than 60 hours of effort over a few weeks. Hardly anyone ever requires more than 120 hours of personal effort.

What are you waiting for?

About The Author-- Donald Mitchell is coauthor of six books including The 2,000 Percent Squared Solution, The 2,000 Percent Solution, and The 2,000 Percent Solution Workbook. You can read about his work on creating 2,000 percent solutions by registering for free at http://www.2000percentsolution.com .

Article Source: Articles island - Free article submission and free reprint articles