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.

Welcome to Economics 2.0

Too bad Adam Smith is nolonger alive. He would be so shocked to discover that his world of economics has been turned upside down. In The Theory of Moral Sentiments, Smith critically examined the moral thinking of the time and suggested that conscience arises from social relationships. His aim in the work is to explain the source of mankind's ability to form moral judgments, in spite of man's natural inclinations toward self-interest. Smith proposes a theory of sympathy in which the act of observing others makes people aware of themselves and the morality of their own behavior.

Ah!!! and then comes Facebook, Myspace, Twitter, and all those faceless enablers. What would Adam Smith say about our relationships in the cyberspace? Would these relationships still produce positive moral judgment in the manner and fashion that Adam Smith imagined?

Then comes Karl Marx. Marx argued for a systemic understanding of socio-economic change. He argued that the structural contradictions within capitalism necessitate its end, giving way to socialism. He believed that socio-economic change occurred through organized revolutionary action. He argued that capitalism will end through the organized actions of an international working class. He writes "Communism is for us not a state of affairs which is to be established, an ideal to which reality will have to adjust itself. We call communism the real movement which abolishes the present state of things".

Ah!!! Another painful experience. Poor Karl Marx. He never imagined that the working class of today would have no bosses to speak of, no factories to work at, no offices to go to, and no unions to join. He did not dream of stay-home moms making millions on the internet, sixteen-year-old kids creating billion-dollar companies and employing sixteen thousand programmers from sixteen different countries. Karl Marx did not imagine Economics 2.0.

And they keep coming. My favorite one is John Maynard Keynes, the proponent of the famous Keynesian Economics. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector (read Government) including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.

Ah!! and then comes online stores with no governments to control them. Today I can buy my cereal online from a store in Kentucky (USA), Lancaster (UK), Sidney (Australia) or Tokyo (Japan). And I can do this with the almighty credit card with no exchange rates to speak of. Where is Keynesian genius?

Welcome to Economics 2.0



Some Excerpts from Wikipedia

Why we Do not Drive a Flying Car Today

Manufacturers are famous for wasting money. If you doubt me check out the millions of prototypes that never saw the light of day. Go, for example, to the Smithsonian Institution's National Air and Space Museum. This place maintains the largest collection of historic air and spacecraft in the world. Here you will find the failed dreams of amazing engineers, including the various failures to bring a flying car to market.

Why don't we fly our cars today?

I think the answer lies in our inability to match creativity with human need. Whoever came up with the brilliant idea of a flying car never took into account why and how humans would like to fly. So many inventors out there are busy creating stuff that no body really needs. Just because you are a genius and can write complicated code does not necessarily mean that you should be creating stuff. I call that Creation Without a Cause. What a waste of money and time!

Everything we do should be directed towards solving problems and meeting human needs. Money is only made when businesses solve people's problems. Of course businesses exist to make money, don't get me wrong. But every business' success or failure depends on how well it executes on its goal of satisfying a human need.

So next time you sit down to program another widget, think about the problem you are trying to solve. If you can't come up with a problem you are trying to solve, don't burn energy.

Aquisitions, Lemons, and Cash Cows

Okay so if you did not know, I grew up on a farm. Not your typical farm, mind you. An open space where cattle graze free and the milk was as close to milk as it could get. That was long before milk started being manufactured in factories. And the cows have not complained since then. Oh, well. The cows don't really care. It's your life you are destroying. And plus, they will always be waiting for you to come to your senses.

my father had an obsession with buying cows. He had them all, mostly long-horned ones. "A cow's pride is found in its horns," my father used to say. So he acquired more cows. More cows with longer horns. Until one day it dawned on him. That raising cows was really not a business for him. It was a hobby.

A few days ago I was helping a friend of mine to structure his acquisition deal. I did not find out the truth until the end. He thinks of himself as a Moses of some sort. His mission is to save dying businesses. And with that, he has acquired more lemons than cash cows. Every time you enter into an aquisition negotiation with sentiments, you will end up picking up some long-horned lemons for yourself. Keep hobbies and business in sync. Notice I didn't say keep them separate.