Organization Components

Compare your business to a pie (choice of flavor is optional!).

Business Development, through the marketing & selling functions, is the slice responsible for identifying and landing new revenue, whether from existing customers or from new accounts. This organization component is critical because it contributes to the top line of the income statement (sales/revenue), which many financial measures use as the base for calculations. Is your organization paying enough attention to Business Development on a consistent, full-time basis?

Operations, through the production or manufacturing function, is the slice that contains what the organization actually does to create products and services. This organization component is where the money is actually earned. It subtracts from gross sales/revenue as cost of goods sold to create gross margin or gross operating profit, and sometimes subtracts in the middle lines of the income statement as relevant fixed expenses. Is your organization paying enough attention to efficiency and productivity on a consistent, full-time basis?

Support consists of all the background functions required to keep the organization running. This slice is not what the business does; rather it's usually the organization measurement and reporting arm. (One might think of the obvious exception of companies which do accounting or personnel, for example. However, even those companies need Support functions.) Functions typically included in Support are Finance, Personnel (Human Resources), and Administration. However, there’s an important Support function that’s frequently overlooked, and that's all kinds of Planning (Business, Strategic, Facilities, etc). So Support can also serve as the look-ahead arm in an organization. These functions subtract from gross margin or gross operating profit, so they need to be managed carefully. Even though some of these functions are necessary by law or regulation, with proper oversight each can help the organization improve its business performance in some way. Is your organization paying enough attention to planning, measuring and reporting on a consistent, full-time basis?

The reality is that, in most organizations, these three major functions are not equal. They usually fall into some kind of priority order or ranking. The most common reason is that the senior person tends to be stronger in one or two of the functions—which usually defines what the organization tends to pay most attention to.

Example 1: A senior manager with a sales background likely would be most interested in sales. In that organization, Operations and Support may tend to suffer from lack of attention and funding.

Case Study
A business owner started alone and built a company to a very successful level. The owner was the major salesperson. The Operations manager had little organizational or decision-making power. The Support position was weak, and turnover was higher than desirable. Result: The record-keeping was atrocious, and created real problems.

Example 2: A senior manager who tends to be a hands-on type will probably give Operations prime consideration—and will most likely be found working in the "shop". How much attention will Business Development and Support get in that company?

Case Study
A business owner insisted that the ratio of cost-of-labor to sales was too high, and proposed that any intervention must be aimed at lowering the cost-of-labor. The reality was that the labor efficiency could have used some improvement, but that alone would never have brought the ratio into line. What the owner failed to see, even after having it brought to his attention, was that the sales effort was virtually non-existent. There was a part-time person who answered the phone when it rang, and went to two trade shows a year. That was it! Result: No changes were made.

Example 3: If the senior person has a strong Support background (planning, financial or administrative), it's very possible that Business Development and Operations will suffer. The manager may always be looking ahead and not at the organization. That person may measure everything by the numbers—hewhat's called a “bean counter”?

Case Study
A very high-tech organization hired a finance/admin type from a meat-packing company. It took the new senior manager literally three months to destroy the fabric of the high-tech operation, because he dealt with it "by the numbers", and never understood the fragile processes that made up the operation.

Case Study
A bean-counting manufacturing manager became president of a company that should have been investing up to 20% in research and development, but was then spending 11%. One of the new senior manager’s first actions was to reduce the development budget to 9%. As a result, this company had flat sales for five years, in an industry that was rapidly growing.

It’s important to understand that each of the people in these case studies was not a bad person, or that they didn’t have any consideration for their organization. The critical point is that each of the three major business functions requires a certain kind of person—with a different temperament and a different language. The culture that each of these senior managers creates is very different, not only in the day-to-day running of the business, but in their interests, the way they treat their people, deal with customers, and so on.

The result of one functional type running an organization is unbalanced management. If the main focus is Business Development, the organization may be generating more business than it can deliver on time or profitably. If the main focus is Operations, the Organization may be working very hard on daily efficiencies, but may not be growing its business. And if the main focus is Finance & Admin, the organization may be managing its business by the numbers or by the (procedures) book, thereby missing an understanding of its customers or internal workings, and failing to spot trends and problems before they affect the bottom line.

The main idea here is simple. Managing an organization will always be challenging. But managing it with only one or two components is like trying to sit on a one or two legged milking stool. You’re constantly having to shift your weight, or attention, to maintain balance or stability.

So what can be done? Though the answer isn’t complicated, the implementation will probably require changes and will take some effort .

Structure the organization so that there’s a roughly equal balance among Business Development, Operations and Support

The job of a business owner or a general manager is to oversee and manage in balance all three functions, even though that person may not be comfortable with one or two functions or may, in fact, be filling one or more of the functional positions. This can be done by installing business systems and training personnel to strengthen a specific organization component.

Adding to the pie analogy, imagine the pie on its side, as a wheel representing the organization, rolling along with one or more pieces (components) missing. The sound is likely to be whir, clunk, whir, clunk, etc. With balanced management, the sound will be a consistent whir, which will likely show up positively on the organization's income statement.

If you don't get better, you'll probably get beaten.