EBITDA and Cash Are the Results, Manage the Drivers

When margins compress and cash gets tight, most companies manage the numbers. Durable gains come from fixing what drives them.

Stand at the stern of a boat and watch the wake. It tells you exactly where you have been, in precise detail. It tells you nothing about what lies ahead, and staring at it harder will not change the course. That is how most companies manage performance. EBITDA and cash are the wake: the trace of operational decisions already made, weeks or months earlier, somewhere upstream in the business.

Every leadership team knows the meeting. EBITDA is below plan, cash is tighter than it should be, and the room goes looking for remedies: a hiring freeze, a travel ban, a push on collections before month end, a challenge to every budget line. These moves are not wrong. They are just temporary. Ninety days later the same meeting happens again, because nothing changed in the machinery that produces the margin and consumes the cash.

EBITDA and cash are results. They sit at the end of a long chain of operational events: how prices are set and defended, how orders become invoices and invoices become cash, how inventory is planned, how costs are committed, how performance becomes visible in time to act. Companies that manage only the results are steering by the wake. Companies that manage the drivers change the trajectory.

Cash Problems Rarely Start in Finance

I worked as an operating CFO at a retail company where inventory had been rising sharply. Too much cash was tied up in stock, but “reduce inventory” was an objective, not an operating plan.

The company carried approximately 12,000 SKUs with repeat customer purchases, so demand could be modeled, but the purchasing and inventory processes weren’t using that information. So we first built a dynamic demand forecast, then a dynamic stock model recalculated regularly to set a target inventory level per SKU.

We also changed sourcing: shifting purchases from wholesalers to OEMs where it made sense, placing smaller orders that arrived faster, and buying across countries to exploit OEM price differences between markets. That reduced how much stock we needed to hold. It also improved the gross margin.

Inside the warehouse, picking still ran on paper sheets, and inventory data was unreliable enough that the company sometimes bought an item again because it couldn’t find the units it already owned. We reorganized the warehouse for consistent picking, introduced handheld devices, and ran full inventory counts twice a year. Inventory was eventually cut in half, releasing millions of euros in working capital.

There was no single dramatic action. The cash came from fixing the drivers one by one: forecasting, sourcing, warehouse organization, picking discipline, inventory accuracy. Finance measured the result. Operations created it.

Pricing, the Lever Everyone Underuses

Of all the value creation levers, pricing has the greatest leverage on EBITDA. If your EBITDA margin is 10%, a 1% increase in realized price increases EBITDA by about 10%. Few other levers come close. Yet most companies govern costs tightly through budgets and reviews, while pricing runs on habit, exceptions, and individual judgment.

In one GE business doing fleet management, we produced hundreds of thousands of customer quotes a year. Pricing could not depend on managers approving exceptions one at a time, so we set clear rules and delegation levels: what sales teams could approve, when a discount needed escalation, who had final authority. That created control, but control alone can still lose business that should have been won.

We added an approach called “What We Win, What We Lose.” Quotes were created in the ERP, giving us a full history of quoted prices and outcomes. We used statistical analysis on comparable transactions to suggest a price, not the highest one a customer might accept, but one that avoided two mistakes: too high, and the company loses business it could have won; too low, and it gives away margin for nothing.

This also made pricing more consistent. Customers compare quotes across transactions and suppliers, and information travels when fleet managers change jobs. Pricing discipline is not a discount matrix. It requires authority, transaction data, visibility into wins and losses, and a process that helps sales make better decisions before the quote goes out.

Productivity, Built on Discipline, Not a Freeze Memo

The reflex under cost pressure is a headcount freeze. It produces a number for the board and nothing durable, because the work itself hasn’t changed.

At GE, I trained as a Lean Six Sigma Black Belt, then Master Black Belt, in a company where the methodology generated billions in productivity gains across the business. I led projects built on the same logic: map how work actually happens, strip out rework and steps that add no value, and digitize or automate what’s left of the process.

The gains came from redesigning the work, not asking people to do the same job faster. Less rework, fewer non-value-added steps, more of the process running without manual intervention. Cost came down because the work required less effort, not because headcount was cut and the same volume got pushed onto fewer people.

Procurement, the Same Dollar Paid Differently

Procurement is usually treated as a negotiation exercise: push harder at contract renewal. That misses where the value sits. In many companies, the same input is paid for at different prices across business units, for no reason other than history. Each unit negotiated on its own, with its own leverage.

I’ve seen consolidated purchasing data reveal 10 to 15% price variance on the same item, bought by two business units of the same company from two different suppliers, sometimes the same one. That’s already a large gap for something as simple as combining volume. Nobody had looked, because nobody owned the view across the business.

The fix is rarely a dramatic renegotiation. It’s consolidating spend across business units and using the combined volume in the next negotiation. In several cases, showing a supplier the company’s total volume instead of one unit’s can be enough to reopen the price conversation without changing suppliers.

Leakage Often Sits Between Functions

Many margin and cash problems survive because the decision is made in one part of the organization while the financial consequence appears somewhere else. Sales may be rewarded for bookings, so it grants a discount or accepts longer payment terms. Procurement may be measured on unit cost, so it buys larger quantities. Operations may protect product availability by increasing safety stock. Customer service may resolve a dispute quickly by issuing a credit note. Finance may improve quarter-end cash by pushing collections harder.

Each function may be acting rationally against its own objectives. The company can still lose margin and absorb cash.

This is why naming a process owner is not enough. The owner must be able to see the problem and influence the decisions creating it. An order-to-cash owner who cannot challenge customer terms, billing requirements, dispute management, or sales handoffs does not really own the process. That person is simply responsible for explaining the result.

The same applies to inventory. A finance team can report that inventory is too high. It cannot fix inaccurate demand forecasts, excessive minimum order quantities, poor warehouse records, obsolete safety stocks, or purchasing incentives by itself. The financial measure and the operating authority must be connected.

Margin and Cash Can Pull in Different Directions

Companies also need to manage drivers because the drivers do not always move neatly together. A larger purchase may reduce unit cost and improve gross margin while consuming more cash. Lower inventory may release working capital but increase freight costs or stockout risk. Longer supplier terms may improve short-term cash while damaging an important supplier relationship. A price increase may improve unit margin but affect volume, customer retention, or product mix.

The answer is not to maximize every functional measure. It is to make the trade-offs visible and decide them at company level.

That requires management to see operating measures beside financial results. Realized price should sit beside revenue and margin. Billing lag and disputes should sit beside receivables. Forecast accuracy and stock parameters should sit beside inventory. Utilization, rework, and cycle time should sit beside labor cost. Service levels should sit beside working-capital reductions.

The point is not to create a larger reporting pack. It is to identify the small number of measures that explain why the financial result is moving.

Late Information Is Expensive

Companies under pressure often have a data problem they have learned to tolerate. The month closes late. Product profitability depends on disputed allocations. Functions maintain separate spreadsheets. Definitions change between meetings. Leadership receives numbers that are too late, too aggregated, or too contested to act on.

This is not an IT complaint. It is a performance problem. If a pricing issue becomes visible six weeks after the quote was approved, the next several hundred quotes may already contain the same mistake. If billing delays appear only at month end, the cash has already been lost for another cycle. If excess inventory is visible only in aggregate, nobody can identify which reorder points or purchasing decisions created it.

The remedy is rarely a new system first. It starts with common definitions, a disciplined close, clear ownership, and a short set of measures that connect the financial result to the operating decision behind it.

When those drivers appear beside the results, management meetings change. The discussion moves away from explaining what happened and toward deciding what to change.

Make the Improvement Part of the Operating Rhythm

Durable improvement requires more than a diagnosis. The process, the owner, and the control must change together. A pricing rule without an owner is only a suggestion. An owner without decision rights is only an observer. A dashboard without a management routine becomes another report.

The drivers must become part of the operating cadence. Fast-moving processes may need weekly review, while leadership reviews the larger financial and operational trade-offs monthly. What matters is that the measures remain on the agenda after the immediate pressure has passed.

Most of this work is unglamorous and boring. It means shortening billing lag, enforcing approval rules, resolving disputes faster, resetting stock parameters, improving warehouse accuracy, and closing the month sooner. None of these changes may look dramatic on its own. Sustained together, they compound into higher margins, less cash absorbed by growth, and problems identified early enough to act.

Financial results matter because they tell management whether the business is creating value. But by the time the result appears, the decision behind it is often already old. The work is to trace the number back to the operating choice that created it, give someone the authority to change that choice, and verify that the improvement reaches EBITDA or cash.

Otherwise, the company is not managing performance. It is explaining history.