Healthy Systems Create Healthy Companies

“Do some exercise,” the doctor tells her patient. “It’s good for you.” The number one reason people exercise is so they can stay healthy. And how does physical exercise contribute to your health? Now I am no doctor but I have come to learn that physical inactivity is a major risk factor for developing coronary artery disease. It also contributes to other risk factors including obesity, high blood pressure, and diabetes. Physical exercise, on the other hand, improves the performance of your body system. There is that word again- systems.

Businesses, just like our bodies, function as systems of interrelated parts. A company’s health is as good as the system that runs it. A company may have enormous cash flow but without an efficient system, it won’t be long before the cash flow disappears. Systems ensure continuity, stability and reliability.

When you look at the most successful businesses in the world, you will find a common secret behind them all. They have perfected the system that delivers their products or services. It’s this kind of businesses that have survived for years.

One would think that a company with a very good product will surely succeed. Much as each company needs a great product to start, the company must go beyond just the provision of a glittering product. This company must learn how to perfect the system that delivers the product. All great businesses deliver their products through an efficient system. This partly explains why franchises are still successful up to this day. Your favorite drink may not be the healthiest drink, especially because of all that sugar in it. But it still sells more than your healthy orange juice. Why? Because of the efficient system that delivers the drink. Yes the money is in the system.

Determining a Company's Health

How much money do you make? Try asking any man and you will get all kinds of excuses. For some reason people don’t delight in talking about their salaries. But corporations do. Why? Because corporations are not people. Yes, corporations love to brag about their financial performance. Even the most private companies will jump to the opportunity of being mentioned in Forbes, Inc. 500, or anything that helps them to show-and-tell.

I do not blame those companies who enjoy being mentioned as “one of the fastest growing company” or “the most profitable company”, etc. The problem with such mentions is that they mostly consider a company’s financial performance without regard to other measures of performance. Just how are you supposed to judge a company’s health? The shortest cut is, of course, to look at its P&L. But if you buy a company based on the beauty of its P&L alone, you are in for some shocking experiences.

Though a company’s profit-and-loss statement tells a lot about its cash flow, it tells little about its overall health.

Just what should you look for in order to determine whether you should buy or invest in a particular company? Four things come to mind. Next time.

Processes vs Departments

The marketing manager wants to mail a marketing piece to help the sales team with new leads. To do this, he needs the prospect list from the sales manager. And, oh, by the way, the finance manager has to approve the budget. And since the piece will be delivered over the internet, IT needs to come in. IT will only code what the design team has submitted. And it goes on and on. By the time a simple marketing piece is sent, more than six departments have worked on it. My question is, “who is really in charge of marketing?”

If you manage projects in any capacity, you know that it takes a host of tasks to complete a single project. On the other side of this same coin is the fact that these tasks are performed by, not machines, but by people.

One of the challenges of managing people is that people, unlike machines, are territorial. In a large corporation for example, you have directors, managers, and heads of departments. If one employee belongs to department A, for example, she will go an extra mile to please the head of that department. If a director from another department wants something to be done by this same employee, hesitations will be observed.

Most employees (and employers alike) think of their company tasks in terms of departments. What they fail to realize though is that tasks do not necessarily obey protocol. Sometimes tasks will create conflicts and hostilities among department heads. Deadlines will not be met, quality will be compromised, and deliverables will be half-baked.

One of the ways to solve this problem is to look at a company as a sum total of process and not departments. Processes are more flexible than departments. A process looks at a particular project as having a beginning and an end. Processes actually deliver value to clients, not departments. Processes remove bottlenecks created by departments.

There are several tools that could help you to design your company as a system of processes rather than departments. A simple good search will bring up several. One of my favorite ones is the Balanced Performance Indicator (BPI). Why is it my favorite? Because I created it:)
Stay tuned for more about the BPI.