The profitability of many companies in mature markets and industries is increasingly under threat due to various competitive factors. Competitors are passing cost savings (gained through moving supply bases and entire functions to lower cost environments) through to customers, depressing prices; top line revenue growth is stagnant as customers have wider choice and become more demanding in what they buy at which price; increasing levels of product/service substitution is driving a continuous need to understand market and impacts on operations strategy and its impact on profitability; and customers are restricting their spending in uncertain economic and political times.

Likewise, companies in emerging and growth markets and industries are faced with the challenge of nurturing the growth of their revenue line without eroding their profitability by aggressively expanding their cost base.

In both mature and emerging environments most major companies have tried to preserve profitability through headcount reduction which by itself has time and again shown paltry correlation to value creation and fails to address the underlying drivers of profitability.

The concept of Profit Management dictates all functions and processes within an organization and, extending from the organization into its suppliers and customers, impacts profitability and continuously needs measurement and review to optimize performance and results. Profit Management includes the strategy and decision of how to deliver activities that support the delivery of value to the customer, the cost of channel engagement and product/customer profitability and the assets required to deliver value.

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This article is part of Axon's Profit Management and Cost Reduction Process.  To view other articles in this process please visit the Profit Management and Cost Reduction page.