26 October 2009

Getting more of what you want - Part 2

So, what is happening when successful entrepreneurial organizations find increasing challenges in what used to be intuitively easy for them -- namely, making more money tomorrow than they are making today?

Consider this: When the organization was purely entrepreneurial, likely it was small, had few employees, and operated in a relatively simple (unsophisticated) way. There were fewer things to touch and change -- fewer levers to push or pull -- to reach the desired result. Whatever management did produced nearly immediate reactions -- either good or bad. Feedback was frequently direct to the entrepreneurial leadership -- few or no layers of management or complexity, and fewer "dependencies" in the customer-to-cash stream.

In short, the entrepreneurial leadership was managing the organization as a single integrated "system" with a single goal -- to make more money tomorrow than it is making today!

However, with growth and (possibly) geographical expansion, the organization evolved from being integrated and homogeneous to being composed of departments -- the accounts payable department, the accounts receivable department, the production department, the shipping department, the receiving department, the sales department, ad infinitum. Of course, with departments came also department managers and maybe even layers of middle management.

More significantly, however, came a creeping mindset -- a mindset in executives and other managers that the sensible way to manage this growing organization is "by department." Instead of continuing to see the whole organization as one integrated "system" with a singular goal -- i.e., making more money tomorrow than it made today -- management began to set differing goals for different parts of the organization.

The production department's goals were all about quantities and quality; the sales department's goals were all about prospects, customers and orders; the accounting department's goals were tied to profits and cash flow; and so forth. Everyone was concentrating on managing their individual functions, but the "system" view that had brought early entrepreneurial success had almost entirely vanished from sight and memory.

Management had come to the (wrong) conclusion: That the way to optimize the "system" is to make sure the each individual part (department or function) is optimized. Unfortunately, without seeing this in the context of the "system" as a whole, this conclusion led to spending precious time, energy, and money on portions of the enterprise that did not add new profits and, in many cases, add operating expenses rather than decreasing them.

[To be continued...]

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