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1. Digital orientation - discovering the essence of things from digital differences

In reality, how do we grasp problems from digital relationships? How to conduct assessment? How do we manage our performance? How to promote enterprise growth?

(1) Discover the true value of an enterprise—cash profits

The true value of an enterprise is cash profits, but it is not enough to just create assets, it must also generate profits, but there are Profit is not enough, we should let it generate cash grants. With these cash grants, we can generate value for shareholders. This is the business cycle diagram, as shown below (6-1):

1. Three forms of expression of corporate profits

There are actually three different ways of expressing corporate profits. :

The first is called accounting profit. Accounting profit is revenue minus expenses. It is a profit officially reported by the enterprise to the outside world. In a sense, it is a business tax report based on an accounting system. Accounting profit: Profit = revenue – expenses.

The second type is called return on investment, which is the actual profit generated by corporate investment. Its performance is profit divided by capital. In this regard, shareholders care more about it. Return on investment = profit/capital. EVA (economic value added) = profit after tax – cost of capital.

The third type is actual capital return, also called cash flow contribution, which is the income contribution before fixed costs and capital costs.

2. Cash flow

The cash of a company is divided into two parts. One part is the positive cash flow factor, that is, the total profit produced. Part of the negative cash flow factor is fixed costs and investments.

Figure 6-2 Correct understanding of profit dynamics

Negative cash is the investment of assets by the company to develop the market. If the company wants to retain people, the money must be spent. The company spends this money. It’s for output. The unideal state is that the investment period is too long and the output is too slow or too short. For example, in the health care products industry, once advertising stops, the turnover will suddenly drop. Enterprises like this will have no future. The ideal enterprise is cash flow management (as shown in Figure 6-2 above). Its investment period is very short and it consumes very little cash, but its future growth is sustained and stable. For example, some so-called high-tech products have a large initial consumption, but the product life cycle is very short, and the product life cycle is very large. A project can be completed in just one or two years, or even within a few months. , the turnover can be doubled or increased hundreds of times. It would be great if cash profits can be made quickly.

Zhang Zhongmou is the godfather of Taiwan’s IT industry. A few years ago, I chatted with Zhang Zhongmou in Taiwan. He told me that if I invest in a high-tech enterprise, if I can't get the investment back within two years and I don't have a gross profit of more than 70%, I can't play anymore. Therefore, if you want to jump into this industry, you must do it quickly. From a positive cash profit to a negative cash profit, the ratio in between determines how your profit is generated.

Some bosses have never made any money after working all their lives. They keep making money and investing money, so they have no money. There are two stages in the catering industry. One is those with per capita consumption of more than 200 yuan, selling high-end products, those with per capita consumption of less than 50 yuan, selling affordable products, and those in the middle are the worst, with per capita consumption of 70 or 80 yuan. It must be of high quality, the environment must not be bad, and the food must not be too bad, so the food must be good and the decoration must be good. Its profit model is to renovate every year, so when you make money, you go out, and its rolling The profits are not good.

3. The correct model for profit growth

In fact, there is still a difference between having profits and having cash. A company says it has won. Whether it is worthwhile to win, the criterion for worthiness is the growth of the net cash flow value generated. Starting everything over again is the most expensive.

If your first step is to seize the market, invest various resources in providing services, and directly pay a lot of cash in order to seize major customers, then its output will be the cash profits directly paid to you by these major customers, which should be greater than profit. In other words, the cash value that needs to be generated is the rolling of these large customers. Unlike some health care products industries, if you want to generate new customers, you must advertise again, which is always input-output, endless. For example, it advertised for 1 million yuan at the beginning and generated a turnover of 10 million yuan, and then advertised again. If we advertise for another 500,000 yuan, we can generate 20 million yuan. If we continue to advertise for another 200,000 yuan, we can generate a turnover of 100 million yuan. This kind of investment will be better.

Today, some companies advertise for 1 million yuan to generate a turnover of 10 million yuan, and then they need to advertise for 2 million yuan to raise the price to 20 million yuan. The further they go, the more the price drops. This profit model is terrible. As shown below (6-3).

6-3 The correct model for cash profit growth

Therefore, it is not worth paying a huge price to win, but it will cause the company to consume greater assets. We say that in a war, you cannot kill one thousand enemies and injure nine hundred. That is not cost-effective. If you think about how to escape before going to war and conserve your effective strength so that you can make a comeback, fighting a war of attrition is the worst option.

4. Profit Dynamics

In short, whether it is worth winning or not, a correct profit dynamic model is that the positive cash of the total profit is greater than the negative cash. That is, the investment is greater than fixed costs and continuity. In this case, the cash profit is worthwhile. As shown below.

(2) Three levers to promote company growth

Whether a company’s positive dynamics are worth it or not, a very important question is to look at its input-output ratio. This input-output ratio is called shareholder return. In order to better explain the shareholder return rate, the indicators of some listed companies listed on the A-share market are put together for comparison, as shown in the following table (6-1).

Some A-share listed companies in China in 2007

Listed companies

ROE

Profit/Sales

Sales Revenue

Sales revenue/total assets

Total assets/net assets

Main business net profit (millions)

Sales revenue

(tens of millions)

Total assets

(tens of millions)

Net assets

(tens of millions)

Bank of China

13.24

31.12

0.0301

14.1150

5623

18067

599555

42477

Vanke Real Estate

16.55

1.36

3.5493

3.4187

484

35527

10009

2928

Huaneng International

13.00

11.89

0.4129

2.6483

600

5043

12214

4612

China Eastern Airlines

20.49

1.35

0.6483

23.4526

4353

6714

286

China Oil

19.87

16.12

0.8400

1.4676

13457

83504

99409

67737

Shanshan Shares

7.21

5.16

0.5572

2.5064

218

392

156

TCL

11.38

1.01

1.8908

5.9419

3906

2066

348

Nanjing-Shanghai Expressway

10.19

30.15

0.2047

1.6512

160

531

2594

1571

Seven Wolves

8.55

10.12

0.6022

1.4022

146

104

Suning Appliance

31.69

3.65

2.4740

3.5102

147

4015

1623

462

Aucma

-129.12

-33.91

0.6235

6.1078

-56

164

263

As can be seen from this table, some shareholders The rate of return is very high, such as Suning Appliance's 31.69. Of course, there are also very low ones, such as Shanshan Shares, which is only 7.21. The worst is Aucma, which is -129.

1. A steering wheel: shareholder return rate

Shareholder return rate is the steering wheel of a company. So what determines shareholder return? Return on shareholders depends first and foremost on competition. The higher the competition in an industry, the shareholder return rate will be lowered. Competition is firstly related to the industry, and secondly, it is related to the means of the company.

Shareholder return also depends on factors such as net profit and market indicators. There are three levers that drive company growth. For example, driving is not difficult, as long as you are trained, you can drive it. But people who don’t know how to drive will find it difficult to drive a car. In fact, driving a car well is the same as driving an airplane. It is not difficult to fly an airplane. They are always determined by three levers. A car is the brake, accelerator, clutch, and then a steering wheel. The steering wheel is called the shareholder return rate, and the other three things are The lever of manipulation.

2. Three major levers

How well the car drives depends on the seamless connection between the operations of these three things. A novice driver is stunned for a while because the clutch and accelerator are not proportional and stalls at every turn. The same is true for flying an airplane and the same is true for running a business. The shareholder return rate is called direction, and the infinite combination of the three levers is the key.

Among these three levers, the first is market leverage, which is the net sales profit margin, also called the accelerator. The greater the accelerator, the greater the momentum. The second lever is called total asset turnover rate, also called clutch. The third lever is called financial leverage, which is to control larger assets with less capital, also called the brake.

A steering wheel is the shareholder return rate. Where you want to go, the purpose is in the hands of the steering wheel. The purpose of driving is in the hands of the steering wheel. The accelerator of driving is the sales profit margin, which is the accelerator of the enterprise. , net profit on sales. The car just clicked on the accelerator and rushed out. This is a good product mix of the company. The same principle applies to driving and running a business. It depends on what kind of road you are driving on and how you are driving. Whether you are driving on ice and snow, gravel or dirt, or climbing mountains and rivers. This is the same as running a business. Whether you know how to manage it or not, the larger the company, the more important the total asset turnover rate is. For example, in the traditional manufacturing industry, the utilization rate of its assets is the key. Whether it can make money depends on whether it can use its assets.

3. Capital turnover rate

The greater the financial leverage of a company, the more attention it should pay to the asset turnover rate (Figure 6-5). For example, in real estate companies, braking skills are very important. Some people step on the accelerator and apply the brakes as hard as they can to stop. But every step is a cost. The brakes are lightly tapped so that people can stop the car without feeling the brakes. That is called leveling. Why do so many companies fail easily? Its temptation lies in the net sales profit, which is above 25, and its vitality is the total asset turnover rate. It takes at least two years for a real estate company to complete a project. If it is commercial real estate, it needs to be mature and have a stage. But the way to death is through financial leverage. It raised a lot of money, and many small real estate companies died because they had no new financing channels.

Figure 6-5

4. The ratio of the three major levers

Therefore, whether a company is managed well or not has a lot to do with the three levers. relationship, and the ratio between these three levers becomes the key. Different companies have different ratios. Some innovative companies, such as the clothing industry, emphasize design, so their first lever is very important. For companies that make gears or large equipment, their second lever is very important.

The third lever for real estate companies is important. Therefore, different business types have different focus. These three levers determine how the company should operate. As a leader, when making decisions, you can see whether these factors can determine the growth of the company.

These three levers are the key to manipulating the corporate profit model and the key to manipulating the corporate model. But unfortunately, most people are unconscious and don't know that companies have a profit model. Nowadays, the profit model of enterprises is like the formation of playing football. The failure of some companies is all related to the poor combination of their profit models. They will not accelerator when it is time to pump the gas, they will not control when it is time to manage, the clutch cannot be pressed well, and the engine often stalls when driving. When running a business, you cannot shut down the engine. You can drive slowly, but you cannot shut down the engine. A considerable number of enterprise products are basically devoid of innovation. In an era of extremely developed large-scale industry, machines and equipment are becoming more and more energy-efficient, and products are becoming more standardized. The management and control capabilities of an enterprise are its operating capabilities, that is, its growth. sex.

5. Factors that determine the three levers

The factor that determines the three levers is the net sales profit margin. In fact, it is related to its product mix, revenue gross profit margin, market, and total asset turnover. Rates, including inventory turnover rate, inventory turnover rate, account period of accounts receivable, and cash flow, such as (Figure 6-6). Financial leverage is related to accounts payable, liability assets, current liabilities and net cash liabilities.

Figure 6-6

Therefore, leaders must turn these three levers into actions to control the enterprise model. As we all know, in a car, these three levers are actually interlocked with the entire car's operating system. The three levers must be connected to all systems of the company. The figure below shows the complete company-level performance indication structure diagram (6-7).

Figure 6-7

Enterprises must use such a management and control system to become the performance management and control body of the entire company. Many companies do wrong in performance management. They write down what the position should do, and then find the corresponding indicators. We have too many professional managers today who cut the management of the entire enterprise into pieces, and too many experts turn a certain part of the enterprise into a very sharp one. Qingdao factory for sale, experts can be found, but the problem is An enterprise does not operate each structure independently, but operates as a system. The key to the operation of this system is to connect three levers in one direction, and to put these three levers together in each position.

6. The assessment of employees should be linked to the shareholder return rate

Since the shareholder return rate is our direction, then the three levers are the results of our manipulation, and we must go deeper. When each department and each position is evaluated, it is not about what is being done, but what should be done. What should be done is the most important direction of the company. For example, a cashier should keep good accounts. This is the most basic requirement.

Case 1

A cashier from a company put four checks in a drawer instead of putting them in the bank. He said he was too tired and didn’t want to go, and he wouldn’t go tomorrow. The genius went to cash it, but the company could not pay the 200,000 yuan that day, which caused strong dissatisfaction from the customer.

Then this cashier’s job is very important and is the key to improving the company’s cash operation. In fact, it is linked to the final shareholder return rate. So some people are not very clear about what he should do and what he is doing. Most of the indicators written by the cashier are that the accounts must be recorded clearly in a timely manner. This is actually the minimum requirement for him. What he should do is ensure the effectiveness of the entire company's funds. So what is being done and what should be done are different. Only by starting from the idea of ??what should be done can the managers of an enterprise better assess and control employees. Assessment is not the purpose. The most important thing is for control. The operation of the steering wheel and the operation of the three levers must be extended to all parts of the enterprise, so that the entire enterprise can be controlled.

Today we have too many professionals and experts who have cut the entire enterprise into pieces. One part is done well, but another part is often sacrificed.

Whether an enterprise is running well or not depends on how well its entire system is running, not just one specific part. For example, excessive marketing occurs in some companies and industries.

Case 2

In China's pharmaceutical industry, the gross profit margin of sales is not low, more than 40%, but its net profit is very low, less than 10%. With such a low net profit, there is no way to support the development of new drugs by pharmaceutical companies. As a result, most Chinese pharmaceutical companies use generic drugs. They change the batch number, name, and packaging to create a new product. This is very bad. This is related to the profit orientation of the industry. The average sales gross profit margin of the US pharmaceutical industry is below 25, so that it can support the long-term development of a new drug. Their new drug development takes 10 to 15 years to develop. There are problems with the model of our enterprise today, and the problem of the model determines the management and control mechanism of the enterprise.

7. Establish the idea of ??profit management for all employees

In short, the performance indicators at the company level range from shareholder return rate to total capital return rate, then to net sales profit, and then It extends to the ability to make and manage money, and the turnover rate of total assets determines the overall operation ability of the enterprise. The turnover rate of receivables, inventory turnover, fixed assets turnover, operating income growth, and fund backlog period have begun to become indicators again. Another financial lever becomes the quick ratio. With these indicators in place, these indicators can be extended to the functions of various departments.

Today’s department managers like to fight with each other. The intersection of two departments often becomes the focus of conflicts in various companies. The intersection of two departments must be a difficulty in management. Everyone’s butt determines their head. Why this happens is because we are all assessing what employees are doing, and everyone has their own sphere of influence. If an enterprise wants to do well, it must not have this kind of sphere of influence, it must break up functions and strengthen processes. The core orientation of the process is the customer. So there are two problems that need to be solved in today's enterprises: the first is superiority and power-only, because it is always right to listen to the superiors, so private enterprises are too servile; the second problem is self-centeredness, that is, one's own power scope. To break these two, a key issue is to break functional management and establish process management. The core of establishing process management is customer orientation. All company processes must break through departments, and the way to break them is to have everyone sit on the same stool.

How can you put all your buttocks on one stool? The most important thing is to instill the idea of ??comprehensive benefit management and establish the idea of ??profit management, so that this thread can be connected. This is called the idea of ??overall benefit management.