Why C-Suite is (and/or should be) Interested in "Needed Profits"?

Two of the most important reasons for an evaluation of “needed profits” by the C-Suite are (1) knowing the lender’s mindset and (2) framing an appropriate sense of urgency for the C-Suite. 

#1. Why do C-Suites wait for lenders to blow the whistle before the C-Suite will take, for example, the consolidation of delivery routes seriously? An evaluation of needed profits by the C-Suite is the best forecast of its lender’s mindset over time. It is only a matter of time before the solid company burns up its solvency and/or liquidity if profit deficits are chronic. The lender’s grip will grow as solvency and liquidity diminish. If the C-Suite is willing to act then – when the lender’s grip has grown in strength – then it is also in the C-Suite’s interest to act much earlier before the lender’s grip has strengthened. It is difficult to understand the seeming desire of some C-Suites to resist change until the lender’s grip is potentially fatal for the C-Suite, most particularly the CEO.

Important: The C-Suite should not delude itself into thinking that its lender is OK with the C-Suite generating a third of needed profits just because the lender is not blowing the whistle. A little bit of profit could stave off the development of an aggressive lender attitude toward the C-Suite. The C-Suite should still see evidence of discomfort in lender correspondence to C-Suite (importantly, including correspondence addressed to the board of directors), but the lender’s aggressiveness may be passive until small profits turn into losses. The point, again, is that the C-Suite must avoid deluding itself. 

#2. How do C-Suites come to work each day without a thorough appreciation of the organization’s “needed profits”? Another benefit of regularly evaluating “needed profits” is to help frame the sense of urgency the C-Suite should have toward the company’s business model. A high service focus at the expense of economies of scale may not be sustainable. A business model requiring twice the number of delivery units, for example, compared to industry benchmarks cannot generate needed profits to sustain the business. If the C-Suite is not serious about bridging the distance between the profits it has and the profits it needs, the worry then falls directly on the shoulders of the Board of Directors.

For next time: the what and why of C-Suite competency?  i.e. Flashing the Badge of Needed Profits Can be Dangerous to the C-Suite!