Four ways to flick a profit switch

How do you lift profits when all around you is doom and gloom? Let me explain how you might do it.

Yesterday a financial services group – serving the business market rather than consumers – said to first tell their customers the truth about the global and local economies. Last night's fall in stock markets would not have surprised them.

But then my task was to show them how to lift their profits in a tough economy.

My guess is that is exactly the question that many financial services corporations are asking themselves.

In the case of banks, the Reserve Bank is warning chief executives not to go looking for profit growth by taking big risks.

The truth about what is happening in the world is well known to Business Spectator readers. I explained to my audience why markets have risen on the back of money printing; why a correction looks around the corner; how Australia's mining construction boom ends in a couple of years; the likelihood of sharply lower interest rates; and the movement of people out of middle income to lower income (but those who keep their jobs in middle income Australia and have mortgages will experience increased prosperity). And so on.

How do you turn that set of scenarios into making money? First, every individual firm in your business customer base is going to be required to completely review their business model. It's not just giants like Myer, David Jones, Fairfax and Harvey Norman that must undertake this task – it affects every business. You have to move closer to each customer and change your services and product offerings to cater for their new model. If you are good enough that provides a raft of new opportunities.

Of course, your opponents both local and overseas will be prowling around your customer base so you could easily turn what is a wonderful opportunity to improve your business and be closer to your customers into a disaster.

So what are some of the changes that will drive customers? I picked four – productivity; greater use of smaller enterprises who are more flexible; sourcing; and technology.

Well let's start with productivity. Boards who have chief executives that are not measuring productivity should stop all bonus payments to their top managers because they are clearly not doing the job.

One way or another your customers will be looking to lift their productivity. You will need to help them or you will lose the business.

One of the ways they are going to lift productivity is to approach technology from entirely different directions. Instead of running vast databases and systems they are going to rent what they require on the cloud and the systems they rent will be world class.

That means smaller and medium sized enterprises will be able to afford systems that match the biggest companies.

The mobile revolution will change product and service marketing and the monitoring of product and service sourcing. And we have the internet that is changing the face of retailing and so many other businesses.

These changes will revolutionise most businesses and they will need different services.

Not all larger companies are going to be able to be flexible enough to cope because smaller enterprises can really come at them. Smaller enterprises have the advantage of much better labour management.

Then we have the China revolution. They are going to want services. But Chinese costs are rising so Australians need to get out there and supply services to them. That's what the Baillieu trade mission was all about.

Australia is moving from a low cost energy country to a high cost one so most enterprises will need to look hard at energy needs. The US is undergoing a major energy revolution, which will see a big revival in American manufacturing.

In some cases you will need transfer goods sourcing to the US. And of course we are already seeing that services are a global business.

As we change the face of our business community to service companies we will need different products. The opportunities are there. It will be a question of how good the service company managers are.