What is Your Economic Unit of One?

What is Your Economic Unit of One?

Our new business year is just around the corner.  Is your company on track to be as valuable as you want it to be in 2024?  Is your strategy set?  Is it simple and focused?

Author Jim Collins states a company can go from “Good to Great” if it determines and understands the intersection of three elements: 1) What it is deeply passionate about, 2) What it can be best at in its industry, and 3) What drives its economic engine.

Your Economic Engine

I want to focus on your economic engine as a driver for your strategy in 2024.  Your economic engine is measured by one key metric that defines the essence of your business model and is tied to your company’s Big Hairy Audacious Goal (BHAG concept developed by Jim Collins). And that metric is your profit (or revenue or gross margin) per “x”.

If you could focus on one and only one ratio – revenue per “x” – to systematically increase over time, what “x” factor would have the greatest and most sustainable impact on your economic engine?

Is it profit/customer, profit/per product line, profit/per project? Which “x” factor, by focusing on it and improving the ratio over time, would provide the highest and most sustainable economic growth?

AND. Let’s ask this question from another perspective: What is your economic unit of one? (1) Your answer determines not only your profit/x, but provides the unit measure of an effective BHAG for your company.

Examples (1)

Chick-fil-A obsesses on one thing, “profit per store” with their corporate teams aligned to deliver on this focus. Their BHAG therefore is number of stores.

Southwest Airlines is not focused on the customer or seat mile but maximizing the “profit per plane” for which all their differentiating activities align. Their BHAG therefore is number of planes.

Loblaws, a Canadian supermarket chain, focuses on maximizing the “profit per city” (rather than sq meter of store space) even if it means siphoning profit from some of their other stores. Their BHAG therefore is number of cities.

At Walgreens, “profit per customer visit” keeps them focused on the right impulse purchases displayed near the checkout counter. Their BHAG therefore is number of customer visits.

What is your economic unit of one and BHAG?

Go ahead and pick the one with most impact for your company! Then measure it and focus on ways you can increase it over the next year. And if you’re not sure which measure to choose, or what its effect might be, contact me today.

All the best
David

Copyright 2023 David Paul Carter. All rights reserved.
Photo Credit: peterschreiber.media | iStock
(1) Verne’s Insights, Verne Harnish 10/17/2023.


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