Post

A Penny for Your Thoughts – or an Enviable P/E Ratio for Your Actions

Posted by: Cara on Thursday, 29 December 2011

You know that doing the same thing, the same way, year after year, can spell doom in this economy. Stagnant companies simply cannot compete; the true profit-makers are those boldly innovative companies that continually seek new ways to re-invent themselves. These organizations gain competitive advantage through the introspective review of their indirect administrative and other back-office operational expenses.

PRP works with and examines some of the most innovative profit-making clients in America. From them, we’ve learned that leading companies with enviable P/E ratios share some important characteristics. The true profit-makers:

  • Invite competition. Vendors will go to great lengths to convince you that they alone possess your single-source solution, or that you’ll always get the “best buddies” platinum service plan because of a personal relationship. The reality, however, is that a sole supplier will isolate you from the competition and prevent your organization from achieving a more efficient cost structure.
  • Dig in to find hidden profit buried in the way things have always been done. Imagine adding 12, 15 or even 30 percent more profit to your bottom line by selling more or adding another person. You wouldn’t hesitate. It’s also possible if you’re willing to reinvent how you approach indirect administrative and other back-office operational expenses.
  • Look outside for guidance. Companies with low P/E ratios expect their employees to know everything and assume that those who work with outside resources are not doing their jobs. The reality is that there is only so much one person or department can know or perform; there simply isn’t enough time to know or do it all. Introspective innovation is the hallmark of a high-performing firm that looks for the appropriate outside resource to help them speed ahead. Companies with high P/E ratios reward employees for finding the best answers to solve their organizations’ most pressing challenges.

How many of these characteristics do you share?

It’s innovation that keeps a business competitive, and introspection that fuels re-invention. For some companies, this can be a difficult exercise. Yet for the true profit-makers, the reward is a P/E ratio that will make your CFO colleagues envious.

What can you learn from profit-leading companies? What best practice from your organization could you add? Let us know in the comments section below.