Balancing size and profitability
Size is a an advantage in any business. It gives you the economies of scale in a highly competitive world. It makes you a dominant force and player in any field. Size has always been an obsession with almost all well managed, well organized and ambitious companies from time immemorial. The bigger the company, bigger are the pay packet the CEO and other members of the TMT carry home. Empire building is a human trait. It started with Alexander the Great or even before him in some older civilizations.
Having said about the advantages of size, now we come to the problems with size. It builds complacency and arrogance. It builds layers of fat. It builds bureaucracy. It reduces innovation. It reduces speed and agility. It reduces risk taking ability. It makes an organization a lumbering giant with poor reflexes or an 800 pound centipede with thousands of legs, each not knowing what the other is up to. It requires a lot more communication, cooperation and coordination. With too many people around, it is difficult. Lilliputs can attack a Gulliver from all directions. The result of all these factors makes an organization lose its competitive edge and focus in the market place and hence profit or may lead to heavy losses with continuous poor performance. When the profit is reduced or at a loss, the organization can do two things. One - expand the market pie. Two - reduce the expenses. There is a third element of diversification, but that should be done when one is doing well and cash rich and not when one is deep loss and struggling for survival. That move will lead to greater disaster. The first two can be done simultaneously, but large organizations will find it difficult to do both at the same time because everyone will try to protect his or her turf.
Expanding the market is not easy, as the organization may not have been innovative in introducing new and exciting products or services. It needs a lot of money to launch new products or services and enter new markets. The existing products may not be good enough. Reduction in costs is not possible beyond a point because it will affect efficiency and effectiveness. The organizations will get into a trap from which it is not easy to get out of its pincer grip.
Much has been said about Japanese Quality Management and Toyota Production Management Systems. You have 5S, Kanban and Kaizen. They are all based on common sense and nothing exotic about them. How did Sony bungle with its laptop batteries in the same environment? Nintendo has its problems now with its game console where its wrist straps are flying off causing external damages. Toshiba has reported some problems with its laptops recently. There are some chinks developing in the quality armor of Japan Inc., Quality and everything else just boils down to the attitudes of your managers and staff. If Japanese can do it, anybody can do it. It needs a will and a fighting spirit.
There was a survey by a leading auto market survey agency a few years ago. It found out that average defects in a car made by GM were around 32 per thousand as against 22 for a Toyota. Ford was at 28. It means that even Toyota is not infallible. Any organization can adopt the six sigma and still be a laggard, if the attitudes of people are not right. In business, it is important to run faster than the nearest competitor. That is performance management in a nutshell. Let me tell you a tale I read somewhere.
Two friends were out camping in the Rockies. While they were relaxing outside their tent, they saw a Grizzly bear making a charge for them. One of the friends saw the other stop to put on his track shoes. He said to his friend Run. You are losing valuable time. Don't you know that a grizzly can run faster than a human?" To that his friend replied I know that, but I have to just run faster than you".
The statement of Toyota after they became number one caught my attention. They said that it did not matter to them whether they are number 1 or 2 or 3 because they were primarily interested in making good cars and satisfying the customers. Becoming number 1 was purely incidental for them. That is the crux of the matter. They are more focused. They did not diversify into unrelated fields. They did not go on an acquisition spree. They stuck to their knitting. They understood what the customers wanted. They worked hard while the competition was relaxing. They were not obsessed with size or ranking.
Now what is the moral of the story? It is simple. "Get better before becoming bigger'. Learn to run faster than the competition. Always aim to be the best in a particular field. Focus on the market and its changing demands. Look at it globally, even if you are a small local player. Look at every market niche. Try for a share in a niche that is most suited and matching your strengths. Expand slowly. Do not try to be all things to all people. When you try to satisfy everybody, you end up satisfying nobody. At the end of the day, profit is more important than size or volumes. What is the point of being in business, being the biggest or selling the largest numbers, if you are bleeding to death? Who is going to donate blood and put you on life support systems? You may as well close shop, sell it at the best available price, before it is beyond salvage, and go home.
Copyright. August 2007. www.madgopes.com. All rights reserved.
Balancing size and profitability - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name
/mtg.html;
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
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