Seven Core Fundamentals of a Business

Seven Core Fundamentals of a Business

                  Organizations strive to identify and perfect those core fundamental elements that should be the bedrock foundation of their business. These principles manifest themselves as a core set of elements that every stakeholder must internalize and live daily. These seven core fundamentals, when managed simultaneously, create a great business.

Creation and Satisfaction of Customers:

                  Whether supplying goods or services, all organizations are sales organizations. This means that there is no business without customers. Regardless the organization’s product attributes, benefits, or costs, the purpose of a business is to create a customer. The customer determines what is of value, and the customer determines whether the organization will prosper.

                  Both in your market and globally, there are more non-customers for your goods or service than there are customers for your organization, even if you are the sector leader. The organization’s first function is identifying who are not your customers and converting them. This can be determined by asking these key questions:

• Who is the potential customer?
• How does he/she buy?
• When does he/she buy?
• What does he/she buy?
• What keeps he/she from buying from us?            

                  The organizations responsibility is filling, or creating, a desire from a customer. This desire may be created by a marketing campaign, through direct sales, or through innovation of new products and services that create or expand a new market. Great companies’ measure success by the new customer business generated each year. This may be grown organically through targeted sales or product introductions and improvements, or by acquisitions. The continuing lifeblood of any organization is the total number of new sale closings: this ensures existence in the future and is identifiable as the revenue (growth) constraint.

                We have a boss, and it is our customer. Management’s second function is to satisfy the customer. It is very easy to be fired by your customer and not realize it. For instance instead of complaining, inquiries or purchases may slow or stop. Neglect is one root cause. When is the last time you hosted your customer at your facility? Do you ask your customer, “What can we do to improve our service to you?” Do you visit your customers throughout the year, not selling or responding to a complaint, but just to visit and let them know they are valued? Satisfaction is delivering what the customer expects. The basic expectation is delivery on time, at agreed prices, in the number of units ordered and fit for the purpose for which it was purchased. Great companies provide a little more than expected, such as notification of shipment, expected arrival date, identification of transport carrier, follow-ups with a note or call to say thank you, satisfaction checks, and valued added services like application engineering, discussing market trends, and providing sales leads or value stream assistance.

People:

                Great people are the only advantage an organization has in today’s business climate. Leaders and organizations must be talent-obsessed. Management’s function is optimizing human talent. Internally, the most important action a leader can do is attracting and retaining world class talent.

This requires constant diligence in identifying, mentoring, inspiring, and retaining the organizational team to accomplish what was thought unobtainable. This is a process that never stops, which means improvement every day.

                Great organizations seek out a newer wave of people with great attitude, intelligence, and enthusiasm. Markets, processes, and product attributes can be quickly taught. More important is the willingness to employ inherent characteristics in pursuit of excellence.

               The greatest companies are always adding top talent. The best time to add talent is in down markets. If sales are slow, hire the best salesman in the market: there is a difference between who is on the market and who is in the market. The best talents are top performers who are not actively looking (in the market) and who will move to aggressive organizations.

                Organizations with vision employ a style of mentoring that evokes trust, loyalty, and motivation serving as a catalyst for instilling confidence in employees. Leaders must mentor team members to be participative and communicative by introducing ideas up and down the organization, measuring change, and fostering a synergistic, trustworthy interaction in an unmatched fashion. A positive teaching style promotes pro-active, high-impact supervisors, managers, and team members. Leaders should encourage ownership at all levels of the organization. Creating a management and leadership image that invites input, encourages participation, promotes decision-making, projects compassion and understanding, and rewards achievement is essential.

Safety:

                Safety seems obvious as a core principle; however, as one thinks of it in depth, it has larger implications. Of course organizations must provide a safe workplace so all stakeholders go home intact. Yet, applied across the business, it takes on factors such as risk mitigation, product safety, environmental safety, financial safety, consumer safety, and social safety.

                It is the organization’s responsibility through its operational practices to safeguard the economic viability of the company by limiting the risks of operating the business. It also must operate to protect the community socially by providing a tax base for supporting social services such as fire and police protection. Environmentally, the company must operate while limiting detrimental impact, thus reducing health and economic impact on land and animals.

Design and delivery of goods and services must be constantly reviewed and improved, safeguarding the use and misuse of goods that would prove harmful to the consumer or bystanders.

Safety must become ingrained in the culture and prioritized with as much effort and importance as margins and profit.

Quality:

                Excellent product or service quality in today’s economy is expected as the minimum barrier to entry. Substandard quality practices literally mean a quick death for the organization. An organization may not be able to charge a premium for high quality, but quality can be a differentiator. An organization with exceptional quality may get last look at a bid, secure repeat business or obtain preferred status vs. competitors.

                Quality is free and process driven. If an organization can produce one good or service with no defects, then it can be repeated if institutionalized. Any number of methodologies may be employed such as ISO, Six Sigma, Total Quality Management, or a myriad of trade or governmental standards that are appropriate. Commitment is the key to superior quality, an organization must train and empower all stakeholders to own the product and process, and demand the process be halted if an upset condition exists. One need only reflect on numerous industries regarding adverse effects of quality issues (sticking accelerators, falsifying emission reports, dangerous placement of gas tanks, contaminated food) to understand the cost of nonconformance. I have been asked several times throughout my career if the company utilizes Six Sigma methodology. The answer is “Yes, but Six Sigma is not good enough for our customers.” Our end users state, “If one of your products fail; someone is hurt, the environment is contaminated, and critical customers are without electric power or heating fuel.” There is no question that quality is an essential core function of an organization.

Process & Product Improvement:

                Continuous improvement never ceases. Processes and products must improve every day. In manufacturing and service, process improvement results in increased revenue. As the process is improved, the key metrics of waste, speed and delay are optimized. This means the process gets faster and reduces time and material required to deliver the good or service it provides. Conversion costs are reduced, as throughput increases driving margins. Regardless of techniques employed, the process must be brought to design capacity, repeatable, and then revisited. Entire industries of books, tools, and consultancy have sprung up to define, analyze, measure, improve, and control processes. The true key to process improvement is exceeding customer expectations. Customers really do not care if you have the latest Water Cooled, Air Injected, Turbo- Charged Spacely Sprocket Holographic 3D Laser Cutting Machine. What is important is if the process offers capacity and repeatability to provide the good or service as promised, as sold, and as expected at the value perceived.

                Product improvement renders a product or service more fit for service, moreover: value added attributes can make the product desirable and sellable. Additionally, improvements can expand current market offerings and penetrate new markets. Innovation tools may include the following: employing new materials, application of new technologies to enhance product characteristics: increased strength, longevity of product, lighter weight, more capacity, user friendliness, aesthetic appeal , multi-use applications. Improvement comes from field application experience, co-opting technologies from disparate industries, or combining technologies into current product.

Cost:

                All activities within an organization are costs. Therefore, all activities must be analyzed as to necessity within the process. Standard techniques within an organization are related to cost accounting principles and consist of such items: Negotiating pricing with vendors, limiting overtime, recycling raw materials, tracking inventory, optimizing utility costs, repairing facilities, purchasing energy efficient equipment, etc. These actions, of course, should be visited and optimized thoroughly.

                When providing goods or services, the entire system cost is carried by the throughput constraint. The throughput constraint limits the actual sales, as the organization can only sell what it can provide. Cost analysis should rightly focus on the sales limiting constraint; this does not mean cutting spending. Conversely it means spending on the constraint to make it more efficient and more effective. This change in paradigm is called throughput accounting.

                Critical “spend dollars” should be utilized to increase throughput of the constraint. This means elevating the constraint in importance, subordinating all to the constraint to make it efficient. Reaching maximum monetary results, the constraint must produce at or above design capacity. Costs will be reduced as the constraint approaches design capacity. As the costs are reduced, sales may be increased since prices may be lowered if desired. Margins will increase as costs are reduced. The ability to reduce pricing drives increased sales. Increased sales exert even more pressure on constraint, resulting in need for additional cost and operational focus on constraint. Equally as important is making the constraint more effective. This requires utilizing the constraint for the highest margin good or service. The constraint can be 100% efficient but highly ineffective if the improper good or service is routed through the constraint. Throughput accounting dictates the sequence, priority and volume of product mix introduced to the constraint.

                The upstream effects of constraint utilization will also reflect in reduced costs. The efficiency and effectiveness of processes and labor supplying the constraint is maximized as the constraint pulls product from the supply stream to supply the ever increasing appetite of the constraint.

Profit:

                The goal and responsibility of a business is to make a profit. One may notice it is the last on the list of core fundamentals. To make a profit, the organization must: create and satisfy a customer, hire and retain the best talent, produce goods of the highest quality, improve the process and products, and reduce costs.

Profit is necessary and is a result of execution excellence within your market by providing your goods or services for more than it costs to provide it. Profit is the insurance that ensures operating funds for the organization to operate into the future. Profit determines what the business is and what it should be into the future. Profit influences administrative decisions that dictate who, what, where and how the organization will function. Profit determines if new product offerings may be added to a line? If new capital plans may be proposed? And does the organization grow organically or through acquisitions?

Profit is the resultive essence of application of the seven core fundamentals.

Charles Lamb has constructed and operated Manufacturing Facilities Globally, and is President of Mill Machinery specializing in operational excellence and brokering and marketing of industrial equipment and facilities.