“If you are not in business for profit or fun why are you here?”

“Up the Organization” written in 1970 by Robert Townshend the then chairman of Avis Rental cars, was a worldwide best seller. Townshend analysed and commented on the structure and organization of businesses and its operation in a humorous and anarchic manner, but also showed how he had organized and managed Avis in ways that appeared radically different from the accepted business norm.

Re reading the book shows how much in business is the same, despite computerization,
e-mail and the internet, and much of his observations and maxims are still valid. Why? Because business is run by and for people, and people do not change in their motivations, habits, prejudices ambitions and fears.

The structure and organization of most businesses probably may not have changed much in more than a century. The organizations of Small and Medium sized Enterprises (SMEs) are probably the most efficient, because they have to be flexible to adapt to circumstance and they have no “slack” in the system. While people in SMEs have specific job responsibilities, they also work closely together to get the job done. In SMEs, people tend to be more aware of the need to get and retain customers to produce the income for the business which pays their wages.

As company workforces increase, so there is a tendency towards a bureaucracy of little empires, with all that that entails. But bureaucracies create inefficiencies, increase cost, reduce profits, and cause employees to lose sight of the purpose of the business which is to produce money. This in turn leads to the workforce becoming more remote from the customer who provides the money on which the organization survives.

Since the early 1970s, probably the most important person in a company next to the chief executive has been, and generally still is, the financial director. While financial management is vitally important, balancing the books does not make income. Finance is simply a resource that enables business and income production to take place.

Next to them in recent years, thanks to layers of employment and health and safety legislation, have been the company secretary and the director of personnel, now called human resources. Yet none of these executives is responsible for producing the income on which the business and ultimately their jobs survive.

If businesses are about making money, then the process of producing income should be central to those organizations. Instead, many businesses give the impression of being organized as a series of largely unrelated activities with the purpose of producing a product and retaining a structure, rather than producing profitable income efficiently. Many companies could still be considered to be product orientated while others might claim that they are customer oriented, in order as Tom Peters said, to “Delight the customer”. Such sentiment is all very commendable and quite important, but does not in itself produce the continuous profitable income for the long term future of the company

Businesses are there to make money, which is why they were set up. They are not there to make products or, strangely enough, to satisfy customers. Satisfying customers is only a means to an end to produce profitable income for the benefit of shareholders and employees.

In nearly every business organization, the management structure illustrates what they do, but not what they contribute. Thus businesses have separate departments of production, finance, purchasing, personnel and sales. Each department tends to develop a silo mentality where it relates to its own limited objectives. Production seeks to maximize production, sales seek to maximize the volume sold finance seeks to balance the books, but who is responsible for producing profitable income?

If businesses want to become more efficient at producing profitable income, then producing sustainable profitable income for the long term, must be the foundation of their organization and management.. One option would be to reorganize the business structure into two management areas, Business Operations and Business Support. All the activities that directly and indirectly produce income – production, research, development, and sales, would be subsumed into a Business Operations area. Finance, purchasing and personnel and all the other activities which provide the necessary resources for the Business Operations area, would be subsumed into a Business Support area. Dividing a business organization into management areas of operations and support, would enable better integration of those activities which directly and indirectly contribute to producing profitable income by satisfying customer requirements. At the same time, by integrating finance, purchasing and personnel under one management area of Business Support, employees would have a clearer role in supporting the Business Operations area, which produces the income on which the future of the business and their employment depends.

If maximizing profitable income is the primary purpose of every business, then businesses ought to be organised, structured and managed, accordingly.

© N.C.Watkis, Contract Marketing Service 31 Mar 11
Contract Marketing Service, (Profit Development Specialists)

April 7, 2011   Posted in: marketing management

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