HOW TO IMPROVE COMPANY VALUE: ASSET PRODUCTIVITY
Posted on February 2, 2011
If you want to drive large, sustainable growth in value, you need to understand Asset Productivity and aggressively manage it. Since Asset Productivity can be measured in a hundred different ways, let me start with my very specific definition.
Asset productivity tells you how much revenue you generate from your assets (i.e. Revenue/Assets). You can either increase Revenue from your current asset base or reduce your assets to better align to your revenue. In reality, you'll probably do some of both.
Consider Atmel, the semiconductor company who makes chips for your washing machine and your car. Their stock has been doing very well because they've reduced their assets from five factories down to just one, selling off unproductive assets. They also refocused their business around their core strengths to ensure they got the most revenue and profit from their remaining assets. Improving Asset Productivity also improved profitability and cash flow. Now, that you are feeling warm and fuzzy about Asset Productivity, how do you go about improving it?
First of all, find out what you are doing well and where you can improve. FinMint breaks asset productivity into 3 components and compares your performance against other companys' in your industry, so you know where to focus your efforts.
Another helpful approach is to look separately at assets that are directly involved in generating revenue (like factories or delivery trucks) and those that are not (like office buildings). For revenue generating assets, look for opportunities to increase output. You may be able to stagger employee break time to keep equipment running; identify your bottleneck assets and improve their availability; or start running a facility 24 hrs a day. There are probably hundreds of ways to improve here, so think of this as continuous improvement rather than a one-time effort. If you cannot get profitable revenue from some assets, you may need to look at selling them or just shutting them down to avoid costs.
For assets that don't directly drive revenue, look for ways to eliminate waste. For example, what would it take to consolidate from three buildings to two? Does every employee need their own desk, or can frequent travelers share a few community desks? What if employees worked from home once per week? Can you use cubicles instead of offices? What about outsourcing some services to save cost and reduce assets? Again, there are probably hundreds of options to look at.
Now that you are bubbling with excitement about Asset Productivity, we're ready to move on to the final value driver, sure to take your company value to new heights: Growth.
