Profit margin is the lifeblood of any successful business. In today’s ultra-competitive, ever-changing global economy, margin is eroding on many fronts. This erosion needs to be countered by new sources of margin increase. In the last few decades, technology and globalization have been the primary sources for increasing profit margin. Advances in technology lead to gains in productivity, and globalization leads both to reduced costs for materials and labor, as well as new market opportunities.
Of course, your competition gobbles up the same sources of margin growth in terms of increased productivity and decreased costs; making them much stronger in the process. Globalization itself also increases competition. Increased competition is a margin killer. Most if not all businesses have felt the sting of increased competition the last several years.
As a business leader, you would prefer to find a new source of margin increase that is more than just incremental and more than keeping up with the competition. It would be even better if that advantage was sustainable and defendable against the competition.
The latest in business research of the real-world, performing, great companies shows that there is one, perhaps last, source of sustainable competitive advantage – organizational health. Well-known business author Patrick Lencioni writes,
“There is one remaining, untapped competitive advantage out there, and it’s more important than all the others ever were. It is simple, reliable and virtually free. What I’m talking about is organizational health. A healthy organization is one that has all but eliminated politics and confusion from its environment. As a result, it will inevitably become smarter and tap into every bit of intelligence, talent and innovation that it has. Productivity and morale will soar and good people will almost never leave.”
Organizational health can be measured on a continuum between toxic on the minus side, and and thriving on the plus side. A recent large-scale employee engagement survey gives a good indicator of where the organizational health needle may fall on this continuum for the average business. According to this recent research, more than 70% of America’s 100 million workers are either not engaged or actively disengaged.
Thriving cultures produce incredible results, and can outperform toxic cultures by a wide margin, in every aspect of the business – including profit margin. Thriving cultures create more innovation – in operations, new product/service development, and even in management. According to business management expert Gary Hamel, “Management innovation is going to be one of the most enduring sources of competitive advantage. There will be lots of rewards for firms in the vanguard.”
Developing a healthy, innovative culture and moving the organization health needle from toxic to thriving is not simple nor is it easy. It requires diligence, tenacity and a commitment to a rigorous system of healthy culture development – a framework of processes that can demonstrate the production of desired results. This well-defined process for developing organizational health through healthy cultures is known as cultural engineering. Utilizing the right techniques, you can engineer your culture to produce lasting competitive advantage and improved profit margin, targeted directly at the sweet spots for your business. Why doesn’t every business tap into this sustainable competitive advantage? According to Lencioni,
“The biggest reason that organizational health remains untapped is that it requires courage and perseverance. Leaders must be willing to confront themselves, their peers, and the dysfunction within their organization with an uncommon level of honesty and persistence. They must be prepared to walk straight into uncomfortable situations and address issues that prevent them from realizing the potential that eludes them.”
The good news is that we know how to get there. The even better news is that most businesses are unwilling and afraid to go there. This is what creates sustainable competitive advantage that cannot be easily copied. Are you willing to tap into this source of margin improvement and sustainable competitive advantage?
