Reader's Column : Profitable growth

Mike, you’ve been hammering the profitable growth theme at CGI for quite a long time but would you care to explain to us mortals what it is?

I’ll be happy to answer this one, as profitable growth has been and will always be a theme very dear to me. The short answer as to what profitable growth is “high profitability and sustainable profit growth”, in order words a fat mark-up that’s getting bigger everyday with no end in sight.

One could argue that it is a totally delusional perspective because, well anything that is highly profitable is bound to enter a situation where more competitors join the fray, prices get lower due competition, and that fat mark-up becomes unsustainable. The recent mortgage meltdown is another example where high-profitability could not be maintained forever.

So if you’re in an industry whose capital is entirely human like CGI, the first thing you must tackle is cost. Humans are insanely expensive, you need to be fiercely control salaries, bonuses and profit-sharing. But – humans are a renewable resource – so if you must loose someone because of salary issues, just do it and never negotiate. There will be always others, and some of them will ask for less. Less money for them means higher profit for the company.

The second thing is focus, meaning not diversify into markets or fields where you have no expertise. For CGI, it means focus on service, not on frivolous things such as software or hardware. Those require regular investments in R&D and maintenance, and such expense is a direct hit to the bottom line.

And there’s the question of bias. Once you paint yourself with a specific color, customers expect you to use that color every time. I mean, it’s like the sex market. If you advertise yourself as a BDSM expert, people won’t call you because they have a foot fetish or they want to wear a diaper. You want to offer the larger broader array of service without locking yourself in a niche that may prove to be too narrow on the long term. So focus while being wide open, this sounds kind of weird but this is the philosophy.

The 3^rd element is almost a secret ingredient, although others unfortunately know about it. It’s called the government. This is where your fat profits can live on forever. You see, when a company does all the wrong things, it eventually runs out of money and disappears in a puff of Chapter 11. When a political party does a bunch of crazy actions that undermine the country, the voters will realize (it may take a while though) that the stupid bastards need to be thrown out of the office.

But government? That bottomless barrel of bureaucracy never runs out of money because they take yours, and history proves that it is an infinite cycle (well almost, like the French said in 1789). If one agency blows a hundred million dollars on a doomed project, no public servant will of course lose their job since no one is really accountable for anything, and they’ll get a budget increase the next year. Why? Because failure brought them more experience, meaning they can handle bigger things. It’s all bull of course and they will repeat the same flawed behaviour with the same dubious technology and the next project will also go down the drain. Failure is definitely sustainable.

But you know what? It doesn’t matter from the IT service company perspective. For CGI and its competitors, it means a bigger contract and bigger profits in the end. If you do the right thing in a project and the project goes to hell due to forces outside your control, the customer will still like you. And love saves the day. Once the doomed project has been folded and new budgets have been voted, who will the customer call? Someone unknown? Of course not, the customer will call you because you did a half-decent job. And he likes your face. Success – or failure – is irrelevant, what matters is the relationship. Once you’re in the circle of trust, all you have to do is show up at work the rest will take care of itself.

So my thinking is that profitable growth is something we can build on indefinitely as long we maintain tight control on cost, focus on service and open ourselves to more government projects. This, dear members, is the ground on which CGI is built.