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Organizing For Growth

Written by: Michael Gerber

Article Overview: It has been a long time since I read the most extraordinary business book I have ever read, Organizing For Growth by Theodore Levitt.

Organizing For Growth

It has been a long time since I read the most extraordinary business book I have ever read, Organizing For Growth by Theodore Levitt.

For whatever reason, I find myself revisiting it now (I no longer have a copy of the book, but the theme still lives within me) as I begin to create a more simplified, but more holistic approach to working with organizations to do just that…organize for growth.

There are three components to this newly defined process of mine…The Organizing For Growth Process®

The first component is called Intentional Dreaming®. It is the process I have invented in The Dreaming Room. The form it takes in the creation of a venture worth pursuing comprises four distinct steps: creation and realization of The Dream, The Vision, The Purpose, and The Mission of a meaningful venture. These four steps move the awakening entrepreneur through the four psychological and pragmatic Divisions of the entrepreneurial personality: The Dreamer, The Thinker, The Story Teller, and The Leader. Component One is completed with the creation of a White Paper which clearly articulates the Great Result® the new venture is intended to produce (The Dream, The Vision, The Purpose) and the process by which it is built and realized (The Mission).

The second component is called Intentional Organization®. The Structure or Architecture of the Business Model, what it looks like, how it works, the fluency of performance, and the documentation required so as to produce scalability of its unique, highly differentiated performance. Once Intentional organization is complete, the Venture is ready to grow. One does not organize people, one organizes Work. Projects. Programs. The Work of the Organization. The Projects of the Organization. The Programs of the Organization. The Work of the Organization is that which goes on repeatedly in the Key Functions of the Organization…financial work, marketing work, administrative work, technology work, and so forth. The Projects that go on in the Organization have a beginning, middle and an end. The arise with an objective in mind, and end once that Objective is successfully or not so successfully completed. The Way one Organizes a Project determines the likely success or failure of that Project. The Organization of projects is a critical competency of the Organization. The Programs that go on in the Organization, are best described as repeating Projects. We do a Program again and again and again. A Program is designed to produce long term results. A Program provides the Organization with the potential for scale. The Programs of an organization are essentially the Products of a Company, while Projects are the means to create Programs. And Work is what we do while we are completing Projects and delivering Programs. Once the seminal Intentional Organization initiative is complete, the Organization is ready to grow. The seminal Intentional Organization of an Organization is that which creates the essential components of its Operating System, its ability to be called whatever it’s Dream, Vision, Purpose and Mission have designed itself to be.

The third component is called Intentional Growth®. Intentional Growth is the product of Direct Response Marketing. Direct Response Marketing is the methodology through which the Organization makes its promise to its prospective customer in order to elicit a response from its prospective customer, and converts that response into a sale. The promise is that which the organization has intentionally organized itself to deliver, the Dream, Vision, Purpose and Mission the organization has set itself out in the world to fulfill. The raison d’etre of the Organization, its reason for being. The zeitgeist of the entrepreneurial mindset; the meaning of it all.

So it is that the creation and design of a company worth pursuing is a continuous process of Intentional Dreaming®, Intentional Organization®, and Intentional Growth®.

The Process for proceeding with the development of your Company is straightforward.

Any questions?

Thanks for listening

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Article Tags: administrative work, business book, business model, component one, distinct steps, dreamer, dreaming room, entrepreneur, entrepreneurial personality, fluency, four steps, holistic approach, realization, scalability, story teller, technology work, theodore levitt, thinker, work projects, work technology



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"Have we gotten to the point in America that balance-sheet strength is a negative?" Munger asks.Currie argues that Costco could keep LBO operators at bay by launching a more aggressive buyback program and taking on a moderate level of debt. "The best way for Costco to protect its independence is to have a high multiple on its stock," the analyst says, adding that an augmented buyback would help achieve that goal. He believes Costco comfortably can repurchase $2 billion or more of stock annually. The dividend yield on the stock is a low 0.9%. Most income from members' fees Its cooperativelike operation makes the retailer's business model unusual. In its latest fiscal year, Costco generated pretax income of $1.75 billion, about 70% of which came from membership fees. An additional $125 million was kicked in by the interest income on the company's cash. Costco earned just $400 million from its stores, for a retailing operating margin of less than 1%. The low margin is intentional and reflects the company's commitment to low prices. As a matter of corporate policy, Costco refuses to mark up any product by more than 15% above its cost. When the company signed a new contract in 2005 with a supplier for Brooks Bros.-style men's cotton and button-down shirts, and got a significant price reduction for a massive two-year order, it immediately cut the price of the shirts to $12.99 from $17.99, notes Richard Galanti, Costco's chief financial officer. Other retailers might have phased in the reduction and captured added profit, but that's not the Costco way. The shirts now cost $14.99 because they are made with better-quality cotton. One attraction in the eyes of a potential buyer would be the opportunity to lift margins. Costco leads Sam's Club in most financial measurements, including total sales, sales per store, sales per square foot of retail space and sales per employee. But Sam's operating profit margin of 3.5% tops Costco's 2.8%. Some complaints on Wall Street If Costco were to raise its margins to Sam's level, it would translate into an additional 65 cents a share of net income -- a large amount relative to the current-year consensus estimate of $2.60 a share. Sinegal has talked in the past about lifting Costco's margins to 4%, but little progress has been made. This has led to some criticism on Wall Street. An analyst report in December, after Costco reported its fiscal-first-quarter profits, was entitled "Still No Margin." Galanti says management has no interest in going private. "The public model has worked for us. We have no plans to change," he says. Video: Behind the scenes at Costco Many Costco shareholders are also happy with the current situation. "Costco refuses to be undersold and thinks so long term that the company will not even remotely degrade the value it gives customers, even if it would fuel a healthy increase in margins and earnings and very few customers would notice," says Ken Charles Feinberg, a co-manager of the Davis New York Venture Fund (NYVTX) and Selected American Shares (SLADX), both run by Davis Selected Advisors. "That's how a great management builds a great business franchise that's built to last." The Davis funds are Costco's largest shareholder, with a 12% stake. Feinberg says that Costco's effective valuation is lower than its stated price-earnings ratio because of the company's conservative approach to depreciation. He recently calculated that Costco trades for about 16 times his projection of calendar "owner earnings." This profit measure adds to operating earnings depreciation expense in excess of what is needed to maintain the existing store base. Feinberg believes Costco is a "compelling bargain" for long-term investors. Sinegal doesn't talk much to Wall Street and wasn't available to speak with Barron's. Even at 70, he maintains a grueling schedule. He aims to visit each Costco store twice a year and is about 70% successful in that goal, Galanti says. This means he's on the road 40 to 45 weeks a year. Costco executives jokingly refer to Sinegal's weekly travels as a "death march" because he usually begins each day at 7 a.m. and finishes at 10 p.m. Dressed in sneakers, khaki pants and Costco's now-$14.99 button-down shirts, Sinegal asks store managers what's selling, what's not and how Costco prices compare with the competition. He has no set plans to retire, although he has talked casually about holding the job for five more years. Because he hasn't set a retirement date, there is no heir apparent. But Costco has a strong group of managers who share Sinegal's passion and vision. Unlike most CEOs, Sinegal has no severance or golden parachute in his contract, which runs less than a page. He insists on one-year contracts, believing the Costco board should have the opportunity to evaluate him annually to determine if he's still up to the job. Sinegal's view is that the restrained terms of his contract send an important message to employees. In the view of Berkshire's Munger, one of Costco's great strengths is that its two founders, Sinegal and Brotman, are still active. Brotman, 64, focuses on real estate. "There is no better site acquisitor in the retailing industry," Munger says. "I'd like to see Jeff get more credit. He deserves it." Costco has chosen to focus on more affluent coastal markets; California alone is home to 30% of its stores. Finding sites for new outlets in densely populated areas is one of Brotman's specialties. The company features products that offer its members large cost savings over what they would pay at traditional retailers. The chain carries just 10% of the items in a typical supermarket, which might stock 40,000 products.The formula works. Costco sold 1.5 million TVs last year and has successfully built what it calls ancillary businesses such as prescription drugs and eyeglasses, filling 26 million prescriptions in 2006. Hungry Costco members bought 63 million hot-dog-and-soda combinations last year at in-store snack bars -- priced at only $1.50 and with free soda refills. The dogs are even kosher. Costco's customer-focused strategy is apparent in its 87% membership-renewal rate. The retailer allows returns on nearly all items at any time, with no questions asked; computers are the lone exception. It doesn't even need to see receipts. This liberal policy has proved costly in the past year because the company is seeing returns of an unusually large number of big-screen TVs. Analysts suspect that many members are taking advantage of the sharp drop in TV prices to return models bought in the past 12 months so they can buy new ones at lower cost. Costco said it is evaluating its TV-return policy but emphasizes that no change will be retroactive and that it still plans to maintain the industry's most generous return policy on electronics. Low turnover among employees Workers get a relatively good deal at Costco -- a point of emphasis for the company, which contends it's also a matter of good business. Despite fewer stores, Costco's sales are about 50% above those of Sam's Clubs, and sales per employee are about $500,000 a year versus $340,000 at the Wal-Mart unit, UBS' Currie calculates. Sinegal was asked in a recent Bloomberg TV interview about the company's health-care benefits. Costco provides health insurance to its 93,000 domestic employees and pays 90% of the cost, which runs about $6,000 annually per employee. Video: Behind the scenes at Costco "We're 100% committed to maintaining this program," Sinegal said. "It works for us, and our people count on it. We think they're entitled to that security." Costco has one of the lowest turnover rates in retailing. Among employees who have been with the company for at least a year, just 6% leave annually. That may be because store employees such as cashiers can earn more than $40,000 a year after only four years on the job. Costco shares aren't a bargain at current levels, but patient investors could be rewarded because the company is an industry leader with top-notch management, a loyal customer base and solid growth prospects in the U.S. and abroad. In Street-speak, Costco may be "under-earning," meaning its profit margins are lower than they need to be. Management is loath to tinker with a successful formula, but margins probably have only one way to go: up. In time, the shares are likely to follow. This article was reported and written by Andrew Bary for Barron's


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