ATLANTA. Jerry Osteryoung, professor of finance at Florida State University and head of its Jim Moran Institute, stressed here in a speech at Waste Expo that cost controls and workforce productivity are keys to profitability.
“Profitability is critical to your business, and it is not tied to revenues,” Osteryoung said. “The two are not connected. Maximizing revenues by itself does not generate profits--businesses need to realize that.
“Let’s say you want to improve profits by $10,000. With a 5% profit margin, you need to generate $200,000 worth of sales to gain that $10,000. Or, you can cut your costs by $10,000. You need to look at and evaluate every single cost within your business and ask, is it reasonable? Because every dollar saved goes to the bottom line– that’s why nothing can be sacrosanct.”
However, cutting costs does not mean companies should be stingy with salaries. Far from it, said Osteryoung– this is actually where businesses need to spend more– using cost savings from other areas to fund pay increases, incentive plans, etc.
“Over the next five years, the U.S. is going to be short 5-million to 10-million workers, because the baby boom generation is going to start retiring,” he said. “Not only is there going to be a shortage of available workers, you need to hire the right ones that will help your business grow– highly motivated ones with character and people skills. So you need to pay employees as much as you can and set up incentives so they get economic rewards for their efforts; efforts in turn that help your business generate more profits.”
He pointed to Moran’s Toyota parts distribution center in Jacksonville, FL, which is half the size of General Motor’s facility in the area, employs half the number of workers, yet generates twice the revenue – processing $30 million worth of parts per month.
“How does he achieve that productivity? By paying his [part] pickers $29 an hour,” said Osteryoung. “Add in incentives, and you can really make a difference– bonuses for accident free miles, etc. Higher pay and incentives change behavior and build congruence between the company’s and worker’s goals. If the company wants to make money, the employees need to make money, too.”
