The fundamental purpose of every business is to make money. Businesses of every kind make money by producing goods or services that customers are prepared to buy, but everything comes at a cost. In order to make money, something has to be invested, whether it is money, time or other resources.
The responsibility of every commercial manager is to produce a sustainable flow of profitable income for the long term future of the business. They have the responsibility for getting and retaining the custom which produces the necessary income. Thus the subject of investment has a particular importance for commercial managers as they are assessed on their ability to maximise profitable income while minimising costs, investment and the use of assets.
Governments are always encouraging businesses to invest, in order to help develop a country’s economy, but investment does not guarantee an increase in productivity or economic benefit. Every type of investment carries some form of risk, as the outcome of investment initially depends on where it is employed, how it is used and to what purpose.
Before considering any investment, commercial managers should be fully aware of the market and economic situation in which they operate, and understand the strengths and weaknesses of the business operation as well as the opportunities and threats to its future.
Investment in business usually implies the use of finance, but this is not necessarily so, as required investment might simply be the provision of time and energy to get things done and tasks completed
Before deciding on any investment, the following should be considered;
- What is the objective?
- What investment is required, - is it more time, money or other resources?
- If the investment is financial, how much would be required?
- How would the investment be applied and to what purpose?
Investing in additional staff might increase capability, but will also increase costs. However, investment in training with existing staff can help maintain and improve the standards of efficiency and customer service. Spending management time with all employees improves communication and should encourage the contribution of ideas and observations of where change and improvement might be made. Investment in plant, machinery and production may improve efficiency and cut costs, thus improving profitability.
However, investment that increases production, without an increase in customer demand or the ability to satisfy it, is likely to prove wasteful. Although an important contributor to the production of profitable income, investment in advertising and promotion must always be regarded as somewhat speculative, as its potential effects cannot by ascertained with any certainty in advance. In markets where growth is minimal or flat, or where the growth of income is likely to come from increased market share, would an investment designed to gain market share be economically sound?
The commercial manager needs to know what customers want and what they may require in the future. Understanding the market, customer’s requirements and the ability to anticipate and satisfy their demands profitably requires knowledge of all these aspects. Thus the preparation of market research and the making of bids and proposals requires money for which there may or may not be a return – especially if the bid or proposal is ultimately rejected by the potential customer. In such cases, it is a matter of judgement regarding how much time and money would need to be invested in a bid or proposal, together with an estimate of the chance of its success, before a decision is made.
Every type of investment should always contribute to improving profitability, reducing costs and increasing profitable income in some measurable way. Unless investment is carefully targeted to achieve specific objectives, it can often be wasted with disappointing results. Thus money spent on targeted marketing research is seldom wasted, as it will indicate where further investment in time and money may be profitably directed.
The most important questions for any commercial manager contemplating further investment are: How would a proposed investment contribute to increasing profitability? Do you have the evidence?
Throwing money at problems does not solve them. There is no simple answer, and additional investment is not a guarantee of business; a bad investment can make matters worse. The commercial manager must identify problems, analyse them and devise solutions, which may require investment. It may be that financial investment is not the solution required, but that a reorganisation and re-allocation of resources, or by simply doing things differently, would be more beneficial and economic.
Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a fellow of the Chartered Institute of Marketing and a certified management consultant of the Institute of Business Consultancy.