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After the publication of my article on “How to ruin a firm?, I received many comments. The prevailing sentiment was: “I am sure it is easy to ruin a firm, but how would you go about trying to bring a company to the top?”
The following article is my attempt to answer this really hard question:
I think if an enterprise can combine the following goals (alphabetically listed, since it is hard to give any of them priority) in a sensible way, then we are going in the right direction!
Agility, flexibility and staying young!
Everything moves. The intervals between changes get shorter and shorter, so that we have to learn and understand more and more in ever shorter periods of time. What is true today might already be wrong tomorrow. We can no longer rely on what used to be firm law, because was yesterday’s rules may no longer be accepted by the majority today.
Planning an enterprise does not happen on the blackboard or in the sandbox, neither is it something you can synthesize in a laboratory, even though these days the mushrooming initiatives for promoting enterprises might suggest so. Being myself a mentor in the UnternehmerTUM (Technical University Munich), I know quite a few business plans that have been written but never realized. On the other hand, I know many flourishing enterprises that have never been synthetically generated.
Successful enterprises develop from visions, events and chance. A strong personality with special talents promotes success. Just read the biographies of companies like Ebay or Google, or the “Steve Jobs” book. Many smaller enterprises, too, have developed in the same way. Setting goals for a company – quantitative or qualitative, material or immaterial – makes sense, because you can achieve goals. However, trying to stick to a three-year plan word by word is absurd, which is why I find Scrum so attractive. The enterprise is the product owner and the method is very agile.
“Branding” – focus brand and profile, cultivate tradition!
Like people, companies define themselves by their “Branding”. Generating a “brand” is a time-consuming process, it takes years. I know a software company that was really innovative throughout many years. Now, even though it has been a long time since they last came up with something really innovative, they still benefit from this early stage. However, unwise policy can quickly destroy an enterprise. What an enterprise needs is clarity of profile and an intelligible supply of products and services.
Tradition is a central aspect of the “brand”. Without a Yesterday, there is no Today, and without a Today, there is no Tomorrow. The customers have had years or even decades to familiarize themselves with the company’s appearance. Mentally, they associate certain characteristics and qualities with the company. To them, the company has a certain “meaning”. There is a tendency among customers to turn the other way when their preconceived ideas get jumbled up. If your company has a long tradition, you should be very careful with it.
Conserve expertise!
Time and again, I have criticized how carelessly some managers treat the knowledge and expertise in the firm. In our knowledge-based society, know-how is what makes the difference in competition. Before abandoning it, you should reconsider carefully. To believe you can re-acquire or add lost expertise easily at any time is mistaken. The surrounding conditions change fast and many managers have had to learn the hard way.
Cost-awareness and calculation!
As a matter of principle, one would assume that a detailed and transparent cost calculation goes without saying. However, this is not always the case. Especially enterprises of long standing often use the cost calculation more as a camouflage than anything else. Transparency is not desired. In my personal opinion, a cost calculation should consider the smallest units of an enterprise. Every single cost position should be writing black numbers, exceptions only permitted where agreed beforehand. Cross-subsidization should be forbidden, even on a small scale.
Cost awareness is harder to achieve. More often than not, you do not know beforehand which investment will really be beneficial. The wrong kind of economizing can quickly have negative effects; cost-awareness should not be confused with miserliness.
Market relevance!
Market relevance cannot be defined in absolute terms. A strategically well-placed street vendor can have absolute market relevance. Communal suppliers can have tremendous relevance in their township. As German medium-size business shows, market relevance can be regional or happen in niches. Some companies owe their world-wide top positions in the market to excellent products and a prudent expansion strategy. However, this special form of market relevance has its drawbacks!
Striving to be the number one world-wide as a “conditio sine qua non” is counterproductive for a company’s long-term success. To me, this is a fiction of globalization. As a general rule, this is a sure way to waste resources and eventually not get the desired results.
Market relevance is paramount for the success and survival of an enterprise. Since it is subject to wear and tear, permanent support is necessary. However, even market relevance has to be carefully balanced with other issues.
Nurturing a code of conduct and supporting values!
Since I have published a lot on this subject in the past, let it suffice to say: we on the managerial level have a special responsibility, which is why we should – like everybody else – subject our values, expectations, interests and needs to regular self-testing. Even people “at the top” must not hide in the ivory tower. Rather, they have to remain at the pulse of time and among the people. You cannot preach water and drink wine. In a leading position, you should not be a system agent who simply acts according to design without giving it a second thought. Nothing should be considered self-evident. In order to develop into something permanent, an enterprise needs leadership and not system agents.
Above all, you should avoid doing anything that might be detrimental to the code of conduct in the firm. If you distinguish between under-performers and over-performers and threaten to make the former redundant, then you create fear. Fear undermines trust, and without trust, there is no company culture. Systematically firing people must remain the “ultima ratio“, the last resort if nothing else helps. It is no standard tool in the interest of economic success. Leaders should be aware of this and constantly work towards creating trust!
Sales promotion!
Of course, without sales, we cannot succeed. However, success in sales does not mean trying to force products into the market through channels. Here, too, we want to create a climate of trust. So we are back to what I said above about a company’s code of conduct. Rather than being “sales agents”, we want to be useful partners to our customers. What we want is not “the best from our customers – their money”, but additional value for them and us.
Summary
Seen like this, our activities as an enterprise consist “only” of prudent multi-goal decisions (often with conflicting interests) and their appropriate application. But then, decisions are always subject to uncertain factors. We all tend to give too much weight to fresh impressions and let ourselves get carried away with quick success. That, too, can minimize consistency.
Now, this all was easy to write down. Unfortunately, however, it took my quite a few years to learn what I wrote, and I am still learning every day. Looking at the history of companies I know, I do believe that their success is based on the aforesaid. However: It is easy to come up with theories, the real art is to apply them in practice.
RMD
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