‘Profit bludging’ is where leaders (typically) will seek to extract value for their organisation at the expense of others. Using economic power to force others within the supply chain to acquiesce to their demands.
‘Profit bludgers’ do not add value to the system, they decrease value. This is how Dr Lindy Edwards defines the term in her book, Corporate Power in Australia (2020).
Let’s examine how value is created and what profit bludging is. And so armed with this distinction we can make greater contributions to our organisations, community and the economy.
When we understand value for our customers, we can then ensure our organisations are aligned to become ‘value deliver systems’. Focusing on enhancing the two-way value exchange.
This is at the heart of Profit by Design, the book has the framework and the templates so that you can design and make progress towards greater value creation. From a business or organisational perspective, the focus is on creating more value from the customer portfolio.
Value in your customer portfolio is the collective sum of customers. Their pecuniary value to the organisation and their collective voice for advocacy. Often measured by customer lifetime value and net promoter score (and the numbers behind the score).
The goal is to have a customer portfolio full of profitable promoters.
A customer portfolio where customers are profitable and where they are providing you with positive word of mouth, and the only way to get to that point is by delivering meaningful value for your customers.
Most organisations embody the 80/20 principle. 20% of customer contribute 80% of the value and a similar ratio of customers that provide positive word of mouth. The primary cause of this failure is a mismatch between what the organisation delivers and the value received by the customers in their portfolio.
Dr Lindy Edwards in her book, Corporate Power in Australia (2020, Monash University Publishing) has introduced me to this term, “profit bludging”.
“Where businesses have found new products or new ways of doing things that enhance people’s live, those profits should be celebrated as having made contribution to our community.” (page 206)
Spot on. Value creation for customers and businesses.
“However, where profits have been secured by redistributing money from the weak, this should be derided for the exploitation that it is. Popular vernacular needs to distinguish between productive profits, and this profit-bludging behaviour which does social harm.” (page 206)
Profit bludging is where organisations seek to increase their own profits at the expense of others. Think of your local supermarket that offers some half-price product promotions. Most likely it is the supplier that is taking the hit, not the supermarket. And let’s not talk about cheap milk and the squeeze put on dairy farmers. Or the waste producers have to bear because their, bananas for example, are a little odd looking.
We must be about seeking value creation.
For our customers, and for our organisations.
When we mindfully create value for customers, we can also create value for our businesses.
This also applies to how we collaborate with others. If we supply services to others, or if others supply to us, then it is still about a two-way value exchange. Not making the other business less profitable. Not being a profit bludger.
Seeking value creation also applies across and through supply chains.
It is not squeezing supply partners, but collaborating to achieve the optimal value.
It is seeking the optimal value across the whole system, across the economy where everyone wins and no losers.
“Once we have made this distinction we can reform our economy to reduce profit-bludging.” (Edwards, page 206)
Seeking to create value means focusing what customers value – not the product or service we provide. Organisations can get locked into what they do, rather than focus on the value they create.
Customers often describe value in a completely different ways than organisations think they do. For example, customers will evaluate the value of a product or service by how well it helps them achieve their goal or result. The experience is more then about how it was to again the outcome. Was it easy, frustration, lots of effort? Customers will often seek value from feeling part of a community. (You can read more on how customers define value here).
A tool we use within the Profit by Design framework is:
The Customer Value Map.
It allows you to unpack the complexity of customer value for specific customer groups.
Starting from the right we can look at the functions or features of a products and services, but then move (left) into what outcomes the customer gets. Their value from these functions or features.
The cumulative perception of Customer Value comes from the trade-off between the perceived value and the perceived costs or sacrifices. Note that cost is not just price, it is also effort and experience.
Once we have built the Customer Value Map we can measure what elements of value are more highly rated, what elements of sacrifice are most disliked. When we have learnt this, we can then fine-tune our value delivery to enhance value for customers. While concurrently, not investing resources into parts of the business that do not add value.
Knowing where and how to create value is through measurement.
For the last 70 years performance improvement practitioners have used measurement to find the clues and evidence of where additional value can be produced, and where waste can be reduced.
Profit bludging and leadership
The model below is from Stacey Barr’s successful book, Prove it!
The leader’s conundrum with ‘profit bludging’.
“The fact that executives are rewarded with bonuses and heralded as societal leaders for such abuses of power and exploitation points to a society that has lost its moral compass.” (Edwards, pg205)
“…they are bound by the demand to deliver short-term profits that maximise shareholder returns. And they themselves face the constant threat of tightly framed performance indicators.” (Edwards, pg206)
A mindset change is required for Boards and executive leaders.
‘Success’ cannot be seen as the achievement of some ill-defined performance indicators. In that case the incentive is aligned with gaming the measure of the indicator, manipulating the system that produces it, or profit bludging.
Mindsets of Evidence-based Leadership
With reference to the model from Prove it! above, the mindset shift for leaders becomes:
- Setting the direction in terms of clearly worded result statements not actions, and ruthlessly prioritising where the focus should be. In this way leaders unleash the potential of the people within the organisation
- Measurement then becomes the evidence people use to learn about where their efforts are making improvements.
- Execution then is about finding the leverage points in the process and systems that produce the results. To maximise value by focusing on what matters and reducing waste.
This is the leader’s role in finding and creating additional value.
Improving the alignment of resources that delivers optimal outcomes.
On finding and eliminating waste. Not profit bludging.
Call to action
Whilst we are all examining how to redesign our customer offerings and considering what the ‘new normal’ should be for businesses, and for the economy – both local and global – let us ensure we do not lose sight of our moral compass.
We must be about creating value.
Let us seek new ways of working and collaborating to increase value for all.
Our businesses, organisations, economies, people and communities are an interdependent system.
Create value with no ‘profit bludging’.
You can download the Profit by Design templates (such as the Customer Value Map) for free on this page.
Find out more about the Nine Imperatives for Leaders here.
And in terms of learning more about this measurement approach, The Eight Steps to a High Performance Organisation here.