World-class organizations understand the fundamental value of the fuel efficiency or profitability of growth.
Fuel efficiency, in its traditional meaning, is thermal efficiency—of a process that converts chemical potential energy contained in a fuel into kinetic energy or work. In the context of transport, fuel efficiency more commonly refers to the energy efficiency of a particular vehicle model, where its total output—in this case, range, or mileage in the United States—is given as a ratio of range units per unit amount of input fuel (miles per gallon of gasoline, or MPG).
So, a logical question would be: What influences that MPG? What gives my car a better MPG versus, say, my wife’s sport utility vehicle (SUV)? This ratio is based on a number of factors, such as the engines in our respective vehicles, body drag, weight, and rolling resistance. Her SUV is bigger, is heavier, and has larger tires. It takes her SUV more power to slow down and stop and to start again from a stop.
Fuel efficiency of growth works very similarly in organizations. The ratio is often measured in terms of profitability of growth—your price minus the costs of bringing your products or services to market: in other words, sales revenues less the cost of goods sold; research and development (R&D); selling, general, and administrative expenses (SG&A); interest expenses; taxes; and extraordinary items.
Thinking in terms of MPG when it comes to the fuel efficiency of your company can help put things in perspective and keep you focused on finding even greater efficiencies.
To learn more, read the revised and updated Relationship Economics paperback edition with 40 percent new content, including an all-new chapter 10 on social media and business relationships (Wiley, Feb. 2011).