How I understand the business?

Welcome to the fourth edition of our newsletter, aimed at those who aspire to contribute to business success through effective HR strategies and those who want to manage the organization more effectively.

In this edition, I'd like to delve into how I understand business and its intricacies.

For those who haven't read the first three editions yet, you can find them here.

Why I start this newsletter? | LinkedIn

How I understand organization and identify challenges？ | LinkedIn

How I understand HR Mechanisms? | LinkedIn

Understanding the Flow of Products and Services:

To comprehend business, it's crucial to first understand the flow of products or services. When it comes to products, I make efforts to grasp how they are conceived, manufactured, and delivered to customers. This involves understanding customer segments, typical needs, how ideas for products that meet those needs are generated, how these ideas are prototyped, how prototypes are mass-produced in factories, how raw materials are sourced, how production is managed in factories, and the logistics involved in delivering the final product to customers.

The same applies to services. While there might not be production in factories, I seek to understand how services are created and delivered to customers.

Furthermore, I then try to understand what employees involved in the products or services understand about what customer needs their products or services meet (what value they provide). In terms of the diagram I created inspired by what I learned from Dave Ulrich and other gurus, which I shared last time, it is one element of 'Business Success' at the top. Additionally, I ensure an understanding of points of differentiation from competitors and areas where they align with competitors' appeals.

Understanding the flow of products/services and the value provided to customers leads to imagining what actions employees need to take. This corresponds to the "Behavior" aspect in the previous diagram. Clarity on this behavior leads to the establishment of HR mechanisms to ensure these actions are taken.

Understanding the Flow of Money:

Next, I focus on understanding the flow of money. This involves comprehending how money received from customers flows within the company and eventually leaves the organization. Understanding financial statements also aids in this process. It encompasses understanding both the financial flow of the company as a whole and how allocated funds within the HR department, which I manage, are utilized. While employee salaries constitute a significant portion, I also delve into understanding other expenditure streams.

Here, I would like to share a concept that I hold dear. It is that "the existence of HR is a cost in itself, but the results of HR do and should contribute to profits". While the HR presence itself primarily translates into personnel expenses, the outcomes of HR activities contribute not only to revenue growth but also to increasing gross profit and reducing costs, ultimately contributing to profit growth. Conversely, if HR outcomes do not contribute to revenue growth, gross profit increase, or cost reduction, then I believe that the HR department should be subject to cost reductions.

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Ideally, we should be able to talk about HR performance in terms of financial statement figures, but on the other hand, I believe that realistically, there is a limit to measuring all HR performance in terms of financial statement figures. So, it is important that people on the business side feel that HR is contributing to increased sales and gross margins and cost reductions, and that HR is contributing to increased profits. To do this, I communicate with people on the business side to understand, for example, what they are working on to increase sales, what their priorities are, and where they feel the challenges lie in achieving this. I then analyze the HR structure to identify the causes of these challenges, make proposals to people on the business side to get them involved, and lead the implementation. On the other hand, I also try to understand the business environment and business strategy, and then make proposals from my side based on the analysis of the HR structure. At the very least, I approach HR daily work with an awareness of where the current activities affect the financial statements.

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Methods for Understanding Concretely:

As for understanding the flow of products/services, the flow of money, and the value provided to customers, I find that asking knowledgeable individuals is efficient. I often inquire during one-on-one sessions with internal stakeholders or seize opportunities during encounters.

For deeper understanding, I recommend "seeing and experiencing it firsthand." For instance, accompanying sales personnel on customer visits, visiting factories, or spending time at retail stores. During sales visits, I ask the customers. I ask them what they want from their suppliers, what they are and are not satisfied with at other companies, and what they are and are not satisfied with our company, to the extent that I can ask.

It's essential to confirm with business leaders beforehand about the appropriateness of such visits, as some may have reservations about HR personnel visiting customers. In such cases, it's crucial to clarify the visit's intent beforehand and determine acceptable boundaries. Similarly, when accompanying sales personnel, I ensure to communicate my intentions clearly and understand the extent to which I can engage in questioning. Naturally, I familiarize myself with the purpose of the visit and the client's background beforehand. My previous experience in sales has proven beneficial in this regard, despite differences in industries and sales approaches, enabling me to anticipate the dynamics of such interactions.

In cases of factory visits, observing how products are manufactured firsthand deepens my understanding. I strive to comprehend the production processes involved in creating goods fully. If possible, I even engage in tasks within the factory to gain practical experience. There's a significant difference between merely hearing explanations and experiencing the process firsthand, which enhances understanding, including the challenges involved in operations.

For retail stores, standing in the store provides insights into customer preferences and behavior, invaluable for understanding the customer experience. Additionally, I gain insights into non-customer-facing tasks at retail outlets and how they are managed. Whenever possible, I seek firsthand experiences in these environments.

Through these activities, I understand the value provided to customers and how they perceive it.

During sales visits, factory tours, and retail experiences, I engage in casual conversations with accompanying employees to learn about their enjoyable aspects of work, challenges, and areas where they seek support.

While the primary aim is to leverage business understanding for HR strategies and initiatives, sometimes insights from these experiences spark ideas for new products or services. Despite not directly dealing with product-related tasks in HR, I find it easier to think from a customer perspective, potentially contributing to objective considerations. Notably, I've had experiences where products I proposed were actualized and significantly contributed to the company's revenue.

This edition shed light on how I understand business. I hope it provides some value to you. Please note that this newsletter reflects my personal views and is not affiliated with any organization.

Stay tuned for the next edition, where I'll delve into my perspectives on understanding various HR mechanisms. Don't miss it!