Digital Dealer - February 2018 - 13

plied across organizations
that become larger. Aberdeen, a few years back
reported that organizations that "centralize" their
procurement functions will
realize 25% cost savings
across that spend, which
we achieve through our
practice. Imagine 25%
reduction in costs, with
those dollars falling to the
bottom line as new profits? Why wouldn't a leader
jump on this opportunity
and get moving yesterday? The decentralized
management philosophy
that is in play is responsible for these wasted
dollars and weaker than
expected profit levels,
yet management in many
cases ignores the problem
and the new profit opportunity.
Based on my data and
experience, a 15% or
20% reduction in spend is
certainly achievable annually if the organization
is centralized. And, if centralized, the demands on
the AP and finance staff
will be greatly diminished
resulting in new "soft costs
savings" from labor.
You would think owners,
investors, shareholders
and executive management would be excited
about the newfound
efficiencies and profits
available with "centralized
management models" so
that they could realize the
economies of scale that
comes with growth. The
reality is that most groups
have not centralized
operations and finance to
any large extent...wasting
significant dollars and
resulting in lost profit opportunities. I suspect this

reality might change if the
economy softens a bit.

HOW TO ACHIEVE
YOUR ECONOMIES OF
SCALE IN OPERATIONS

In business school,
most of us where taught
that effective leadership,
effective management
required us to ensure
that we understood what
our obligations to the
organization are. Quite
simply, leaders and
managers should ensure
the following approach
is accomplished for and
through our teams:

management team
and must be tied to the
company and corporate
objectives to ensure
alignment, focus and
success.

CENTRALIZATION TO
REALIZE ECONOMIES
OF SCALE

Managing for economies of scale is tough to
execute and achieve in
a decentralized environment, where everyone is
in charge. Reliance on
decentralized functions
will sub-optimize results,
cost your organization

RELIANCE ON
DECENTRALIZED
FUNCTIONS WILL
SUB-OPTIMIZE
RESULTS, COST YOUR
ORGANIZATION MONEY
AND REDUCE YOUR
PROFITABILITY."
 PLAN - Executives
create a vision, a plan,
and set stretch objectives
 ORGANIZE - The
Executive team will
organize and provide
resources, remove
obstacles to success,
get the team onboard
with the vision, plan and
objectives
 DIRECT - The
leadership team will
build a team of strong
managers, give them the
direction and then get out
of the way. Getting out of
the way does not mean
abdicating responsibility
however.
 CONTROL - Welldefined and well-aligned
performance metrics are
a staple of any effective

money and reduce your
profitability.
A centralized approach
is absolutely imperative
to organizations hoping to
realize all of the benefits
of scale through acquisitions and mergers. The
economy of scale opportunities are there and the
benefits are significant to
the bottom line. The first
step toward this end is
for senior management
to set that centralization objective in stone
and getting the team on
board.
SUMMARY

Ultimately, diseconomies of scale are allowed
to occur by executive
management who have
not made the decision to

centralize functions. Realizing complete economies
of scale across a growing
organization can provide
significant, sustainable
profit improvement opportunities to an organization frequently providing
millions of dollars in new
profits. The first step for
executive management is
to examine current profitability levels in light of the
organization structure. If
the organization is decentralized, particularly the
purchasing, HR, and IT
functions, then management needs to set new,
challenging expectations
and objectives to centralize those functions across
the organization quickly.
Once centralization has
occurred and is managed
effectively, new efficiencies will occur which will
be visible with new bottom-line profitability, the
ultimate objective driving
growth to begin with.
DOUG AUSTIN is the
founder and President
of StrategicSource, Inc.,
the leading provider of
Spend Management
Services (strategy, spend
mapping, sourcing, process
improvement and audit) for
the automotive and truck
dealerships, and various
other vertical markets. Doug
is a veteran of the U.S.
Marine Corps, a graduate
of the University of St.
Thomas, and a speaker at
various conferences and 20
Groups. Doug has acquired
over 30 years of line, staff
and executive experience
in Spend Management and
Supply Chain Management
in various vertical markets.
Doug is also a trainer,
speaker, consultant and
business owner. EMAIL:
daustin@strategicsource.
com.

D I G I TA L D E A L E R . C O M

FEBRUARY 2018

13
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Table of Contents for the Digital Edition of Digital Dealer - February 2018
