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Profit is not an indication of Growth

July 1, 2015

Engage for Growth

Profits are great! And quite easy to figure out. They are simply the monetary surplus left to a producer after deducting all expenses (wages, materials, rent, etc.) from the total income or revenues. This can be calculated per transaction about as easy as it can be for a given time frame (month, quarter, year).

While this is an important measurement for business professionals to be concerned; it is certainly not the only one. Nor it is the most effective.

When profits are the focus; managers are often pressured towards making decisions to lower expenses. Cutting or off-shoring labor; systematically removing non-vital parts; seeking alternative material suppliers; and the like are common manipulations of those seeking only profits. While these strategies do indeed have short-term results; they often come at the expense of long-term growth.

Growth is an entirely different thing. It is about increasing size or scope, expanding, improving, or progressing. Growth often comes after investments of time, labor, attention, and/or learning. Rather than a straightforward calculation, it is a comparison from where we are today versus where we were – like marks on a doorframe to reflect a child’s change in height. Because it can be applied to nearly everything (not just business); it seems to be a natural measurement of change.

Both the Gallup Organization and Aon Hewitt regularly conduct and compile research that overwhelmingly connects employee engagement to both business growth AND profitability.

One Aon Hewitt report examines employee engagement for companies experiencing double-digit growth (DDG) versus Single-digit Growth (SDG).

“double-digit growth is about execution: getting the right people doing the right things to manage a portfolio of separate, clear, and achievable growth strategies.”

In 2012, Gallup conducted its eighth meta-analysis on the Q12 using 263 research studies across 192 organizations in 49 industries and 34 countries. Within each study, Gallup researchers statistically calculated the work-unit-level relationship between employee engagement and performance outcomes that the organization supplied. Researchers studied 49,928 work units, including nearly 1.4 million employees.

This study confirmed that:

“Employee engagement continues to be an important predictor of company performance even in a tough economy.”

The difference in performance between engaged and actively-disengaged business/work units revealed:

  • 10% increase in Customer Ratings
  • 21% increase in Productivity
  • 22% increase in Profitability
  • 49% decrease in Safety Accidents
  • 28% decrease in Shrinkage
  • 37% decrease in Absenteeism

There will always be doubters; bit I think this makes it pretty clear that through developing and building a culture of engagement, businesses experience more growth in revenue, and do so at higher profit margins.

 

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david r frick is a business artist and founder of SuccessVentures – a consulting firm focused on helping owners and entrepreneurs through a holistic approach to building sustainably-growing companies that meet the needs of contemporary business environments. 

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