How to create high profitability: The four foundations of profitability

By Ingemar Fredriksson

“Profitability development” could just as well be the title of this book. It takes a completely new perspective on economics, focusing on how the four foundations of profitability can be utilized to increase the profitability in a company. The primary advantage of the model introduced is its simplicity, making it easy to involve everyone in the company when using it. This is important since the author has a profound conviction, based on decades in management, that the most important factor for creating success is to involve your entire staff. To do so, you need to be able to discuss complicated economic terminology (like leverage, NPV, WACC etc.) in a simple way. The book provides that simplicity and it contains plenty of practical, real life examples of how significantly increased profitability can be achieved with simple measures. This is explained with reference to different industries where the model has been used. In today’s business with global competition, it is high time for a new profession, “profitability developers”, to replace business developers. This book offers all the tools necessary to succeed in that profession.

 

 

INGEMAR FREDRIKSSON has 30+ years’ experience in top management, business development, profitability development and marketing. He has worked with plenty of SMEs in different industries and also with Fnatic, IKEA, Invest Sweden, Miss Sweden and the Swedish government. He has also been vice chairman of The Swedish Federation of Business Owners. Since a few years back, he lives and works in the UAE. All four books by Ingemar Fredriksson, in their original Swedish edition, have featured on top lists together with names like Steve Jobs, Daniel Kahneman, Thomas Piketty, Sun Tzu and even the Fifty shades-series. Search on YouTube for “Ingemar Fredriksson’s books – Bestsellers for 15 years!” for a full video of random list positions over the years.

 

• Language: English
• Publisher: Ingemar Fredriksson
• Release date: Oct 1, 2020
• ISBN: 9789198436648

Book preview

Profitability development could just as well be the title of this book. It takes a completely new perspective on economics, focusing on how the four foundations of profitability can be utilized to increase the profitability in a company. The primary advantage of the model introduced is its simplicity, making it easy to involve everyone in the company when using it. This is important since the author has a profound conviction, based on decades in management, that the most important factor for creating success is to involve your entire staff. To do so, you need to be able to discuss complicated economic terminology (like leverage, NPV, WACC etc.) in a simple way. The book provides that simplicity and it contains plenty of practical, real life examples of how significantly increased profitability can be achieved with simple measures. This is explained with reference to different industries where the model has been used. In today’s business with global competition, it is high time for a new profession, profitability developers, to replace business developers. This book offers all the tools necessary to succeed in that profession.

INGEMAR FREDRIKSSON has 30+ years’ experience in top management, business development, profitability development and marketing. He has worked with plenty of SMEs in different industries and also with Fnatic, IKEA, Invest Sweden, Miss Sweden and the Swedish government. He has also been vice chairman of The Swedish Federation of Business Owners. Since a few years back, he lives and works in the UAE. All four books by Ingemar Fredriksson, in their original Swedish edition, have featured on top lists together with names like Steve Jobs, Daniel Kahneman, Thomas Piketty, Sun Tzu and even the Fifty shades-series. Search on YouTube for Ingemar Fredriksson’s books – Bestsellers for 15 years! for a full video of random list positions over the years.

Other books by Ingemar Fredriksson in English:

Trouble with staff attitudes and commitment?

A handbook for how you get everyone to contribute towards good results.

Chinese Tourists – What do they want?

Facts, ideas, and succesful examples.

Make me not me

Product stories as sales driver and identity builder

All four books, including the one you are holding, by Ingemar Fredriksson, in their original Swedish edition, have featured on top lists together with names like Steve Jobs, Daniel Kahneman, Thomas Pi-ketty, Sun Tzu and even the Fifty shades-series. Search on YouTube for Ingemar Fredriksson’s books – Bestsellers for 15 years! for full video of random list positions over the years.

First edition

Design cover: Senti AB

Copyright Ingemar Fredriksson www.procentforlaget.se

Translation: Deane Goltermann

ISBN: 978-91-984366-4-8

Excerpt article EconomicInfo 2012

Review of the management book How to create high profitability? by Ingemar Fredriksson.

The book is unique, as it has a completely new approach to how these issues are created. It differs from the large number of management books that are characterized by a complicated terminology, where the reader gets caught up in various concepts that are difficult to use in practice. This book is written for action people, who want direct answers to what should be done, what has been done wrong and can be corrected, with reality as a background.

The book that I had the opportunity to review will be published this spring and is written by Ingemar Fredriksson who, in addition to a management consultant and author of more books, is also the second vice chairman of The Swedish Federation of Business Owners. The publisher is ProcentFörlaget.

The most important thing is that he has practical experience from many leading positions in the business world. He describes directly from everyday life how these thoughts have developed. I have read a lot of management books, but few have appealed to me in the simplicity of being able to use the advice, here we now have one of the few exceptions.

Lage Wikstrand, Authorised Accounting Consultant

Are there entertaining books about economics?!

One does not expect an economics book to give rise to delighted smiles or pure laughter - but here it is! Between painting examples from reality, complicated economic concepts that the author manages to bring to life with simpler words and economic models that everyone can understand and use in their own companies, small and large, you get an insight into how fun it can be with numbers. The visualizations are like a charm! The book is hard to put down; easy to read, sometimes a bit philosophical and so wonderfully liberating written without cues. A book to return to to remind oneself to think new. I have recommended the book to other business acquaintances and they are as delighted and overwhelmed as I am. There were many laughs, so sure there is now an entertaining book about economics!

Leila Wallén, Owner, Bookkeeping company

Thank you for the model!

A useful book that explains terms and has simple applicable models that are very useful in everyday life. This book will be on the desk for a long time.

Rolf Borås, Owner, Construction company

Spot on!

An extremely valuable insight explained in a simple way. I will buy this book for everyone at the company so that we can all have common goals and an understanding of why you should get up in the morning and go to work.

Raymond Victorin, Sales manager, International media conglomerate

Low investment - high return.

In my job as CEO of a small company (35 employees), I have had many aha experiences from reading this book. The fact that the author often goes outside the box and at the same time explains in a pedagogical way makes the information understandable and applicable in your own business. I highly recommend it because it is so useful to constantly remind yourself of these obvious things as well as activities that you have not thought of.

Mårtan Glas, CEO, Manufacturing company

Medicine for the recession

Right now, almost all companies, small and large, are struggling to cope with the recession. Too many people stare blindly at staff reductions and relocation of production abroad before examining the possibilities of increasing profitability here at home. Here, Ingemar Fredriksson’s book How high profitability is created can really come in handy, both in the boardroom and on the floor. The book has both a unique structure for profitability work and contains a number of concrete tips. Ingemar generously shares his own experiences, both successes and setbacks. The language is simple (sometimes almost too simple) and difficult things are explained in an easily accessible way. My assessment is that there are few companies that could NOT increase their profitability by reading and applying this book. Buy it! Use it! Make your business (even more) profitable!

Per Florén, Economic developer, public sector

TABLE OF CONTENTS

How to create high profitability

Foreword

A new perspective on business administration

The four foundations of profitability

Profitability, Return on investment, yield, profit, results

The first Foundation 1.0 Revenues

1.1 Are we charging for everything we should?

1.1.1 A half million added to the bottom line

1.1.2 We make good money on service!

1.1.3 Dare to raise prices

1.2 Are we charging for everything we ought to?

1.2.1 Simply add a million to your bottom line

1.3 Can we charge more for anything?

1.3.1 Product costing to the extreme

1.3.2 Handicap aides or toy?

1.3.3 The classical loo company

1.3.4 Can we sell more of anything with high margins?

1.4 Can we charge for anything more?

Upselling and returns?

Should you always try to get paid more?

The Second Foundation 2.0 Costs

Reduce or eliminate

2.1 Reduce costs

2.1.1 A story with many lessons

2.1.2 Dare to compare

2.1.3 There is something wrong with the racket

2.1.4 Be strong enough to cut costs

2.1.5 Better bottom line by daring to dare

2.1.6 Borlänge vs Bangalore

2.1.7 Cost control = controlling costs

Should you always chase after the lowest price?

2.2 Eliminate costs

2.2.1 Kaizen

2.2.2 Can we do less of something?

Let the customer do the work

The Third Foundation 3.0 The business assets

3.1 Reduce volumes

3.1.1 Question the existing

3.1.2 Be critical of new purchases

3.2 Increase utilisation

The Fourth Foundation 4.0 Financing operations

4.1 With others’ money

4.1.1 Subsidies and support

4.1.2 Employees

4.1.3 Suppliers

4.1.4 Customer

4.1.5 Rent or lease

4.1.6 Borrowing or credit

4.1.7 Soft loans (Public financing)

4.1.8 Mezzanine

4.1.9 Venture capital

4.2 With own money

4.2.1 Cash management

4.2.2 Cash flow and liquidity

Summary

Graphic – The four foundations to profitability

Start to build high profitability

Three good tools to help profitability development

Economies of scale

Accumulated effects

Comparisons

How to create high profitability

The four foundations of profitability

Foreword

How do you know?

Do you have any experience from our industry?

This is by far the most common question I get when first arriving at a company as a consultant. It always reminds me of an early assignment I had undertaken for a contracting business that asked me for help to go over their QM system. Certainly, I had been involved in introducing ISO 9000, but then my role was in higher management, so I therefore did not really have experience with the details of what to do with a quality management system. I did not disclose this to my new customer, and instead told them the assignment would not be a problem for me. I had no problem with it either, because as I started digging into the details of their problems with the system, I quickly found that many of their difficulties were the usual suspects – poor internal communication, lack of discipline in reporting nonconformities, and so on. Almost everyone has seen these same issues, whether they have ever set foot in a contracting firm or not. This is not about my own capabilities, but it is a good illustration of what I have experienced in company after company – they are all unique, and you have to respect every new industry. However, many times they still show greater similarities than differences.

I relate this here to encourage you, as a reader of this book, not to place too much weight on whether you see the examples we discuss here as relevant to your company or industry. See them for what they are; examples. Accept that it would be practically impossible (and particularly tedious) to have examples from every single industry. Instead, try to keep from dismissing any of these examples, thinking you cannot use them in just your industry. Rather, look for anything in these examples that you can use, and earn greater returns on your investment in buying this book. Learning from others’ experiences constructively is very much like solving problems. You can do this best by staying more open and creative – as in this little story:

A ship was passing through the Panama Canal during WW2 when they came across something particularly unwelcome. Luckily, ships pass through the canal at low speeds, so they caught sight of this problem well in advance. There was a mine blocking their path ahead. The crew knew they could not stop the ship in time, and they were quickly discussing intensely what they could do to handle the threat. Someone suggested the entire crew should stand along the railing to blow on the mine and move it to the side. The canal was pretty narrow, but there should be space. This kind of offthe -wall idea is easy to dismiss as crazy, but in this case, it led to another idea. Everyone understood that blowing on the mine would not do, but someone figured out you could actually move the mine carefully by spraying water at it. Fire hoses were quickly deployed, and with great care and precision, the crew succeed in pushing the mine into the narrow space between the ship’s hull, and the side of the canal. After passing the mine, they notified the authorities who could disarm it.

This is a very good example of how one idea can lead to another. Even if that idea or solution will not work for you in a specific situation, it can still lead to another that does actually work. All you need is to keep an open mind, tinged with a touch of creativity.

The hope here is that you, the reader, will understand the book in this way. The examples we provide are not the solution for every company, but the aim is to provide inspiration and ideas that readers can work with, and use to find a few percent more that contributes to your company’s long-term survival and its ability to grow.

As explained in my first books, I believe the best way to create many percentage points of profitability is to increase it a few percent here and a few more there. You rarely find a large control handwheel you can turn to create high profitability. Sure, some companies can get good profitability from a single individual’s single -minded focus on cost consciousness. This is not always possible, and as a professional profitability developer, it is more important to be able to access the whole toolbox for growing profitability, and to know how each tool can be used. After all, in most companies this does involve diligently turning many small knobs to improve profitability by:

A few percent lower (buying) costs;

A few percent in better prices;

A few percent in selling products or services with better margins;

A few percent in improved efficiency; and much more.

We provide many examples in the book of how this can be done while introducing the four foundations of profitability and a new perspective on managerial economics. Quite simply, this is a book for inspiration that you can use in any industry or in any position you hold in your company. This book can also provide inspiration for consultants in their work on a variety of assignments. Often, hiring a consultant is a good way to drive change processes.

One effect of continually increasing competition, mostly from globalisation, is the huge importance that everyone on the team, more than ever, contributes to profitability. It is no longer enough that only managers understand how this can be done. Now, every employee in the company needs to know this. With simple and easily understandable models, this book can become a powerful tool in helping everybody in the organisation. Then, with the examples discussed, the book and its models can involve everyone in contributing to improving profitability.

The book is also appropriate for anyone wanting to learn how to improve profitability in any business and does not require significant academic understanding in the subject of economics.

This is because the book provides a simple model as reference for anyone working to increase company profitability. The reader will also learn from many practical examples on how to accomplish this. In addition to these more concrete examples, the readers will gain an understanding of many basic concepts that economists often use. However, we will explain them from a slightly new perspective which everyone in the company, not just those in the finance department, can use in their daily work activities.

Economics is extremely useful as a form of employment for economists...

J.K. Galbraith

A new perspective on business administration

This is not a book about business administration. It is a book about how to create a sound economic basis in a company. In practice though, this means how you create high profitability. You could also say this book is about profitability economics rather than managerial economics, but that could easily become an entirely too complicated approach. Instead, we can simply discuss various perspectives on running a business. This is the first book to systematically go through how you can increase profitability based on its four foundations.

I was struck by the thought that standard business administration literature and schooling most often did not look at how to create high profitability when I was taking a course at the Stockholm School of Economics called The company’s economy. I took the course because I had always felt slightly unsure about the field of business finance, despite a solid background in being able to generate positive results in a variety of businesses. Sure, I had studied university level business administration, and it was part of my degree program for Market Economy. I had also worked in a practical capacity with this for many years. Still, I had this sense that I had not completely understood the business finance aspects of the field. As the course progressed, I came to understand that this was not really the case. This insight provided the basis for this book – it all revolves around the perspective you take in approaching the subject.

After several lectures in the course, I realised you could take three different perspectives to approach the subject of business finance: the accounting perspective, the analytic, and the profitability developing perspectives.

The likely, most common approach is the accounting perspective, which is also the approach that involves traditional finance functions at every company. This involves recording revenues and costs and also preparing income statements and balance sheets in compliance with applicable regulatory frameworks. Within the concept of this perspective, you will also find an element of the analytical perspective.

The analytical perspective involves learning how to value a company in various ways. Professions with the most use of this perspective include business brokers, stockbrokers, market analysts, and specific banking staff, as well as other financial market analysts, stakeholders, and private investors. The analytical perspective is used in attempting to interpret a company’s financial reports and the company’s operations to gain an understanding of its value (which in turn, relates to share value and other similarities). Often this involves concentrating on trying to assess the company’s future value. The analytical perspective can also be used to assess the company’s value for acquisition or merger. However, it was the profitability developing perspective that I thought was missing almost entirely from this course in managerial economics, and in all the courses I had previously taken. When I raised this issue during that course, several others agreed. These were people like me, in company roles involving business development, rather than in finance – one was a CEO, some were sales or marketing managers, and so on. The common denominator for all these people was they held more operative responsibility in maintaining or improving their companies’ profitability.