Remember the Fundamentals of Business Management

One of our previous posts, The Coming Manufacturing Revolution, has created a very spirited discussion among several of my colleagues.  As the post points out, the next decade will see a manufacturing revolution like never seen before… primarily due to new technologies, lowered economic, geographical, and political barriers, and millions of motivated people who haven’t been able or allowed to compete and collaborate before.

I recall being at a board meeting in 1998 and discussing the dot-com boom.  My colleague, an executive at General Electric, tried to explain to me that it was all an illusion.  He claimed that tried-and-true financial and valuation methods should be applied to those companies, not the bet-on-the-come "new accounting."  I was convinced that times really had changed, and that those new companies were really worth what their stock prices indicated.  Well we know who ended up being right.  That conversation, and that focus on the fundamentals of business management (cost & profit), has stuck with me, deeply, ever since. 

Now take what is happening at GM and Delphi… two companies in serious trouble.  Both have implemented serious lean manufacturing programs, and Delphi has even won several Shingo Awards.  As this post points out, lean manufacturing can only take you so far.  After that it requries gutsy leadership.  And as the dot-com boom and bust reminded us, even gutsy leadership can’t save a company built on a flawed business model.

It always comes back to fundamentals.  Cost and profit.  As my colleague pointed out the other day,

"Jack Welch was far from perfect, he had his limitations, some loved him, some hated him, some loved his business model, others hated it.  But he was indeed a leader, quite a character, and as colorful a personality as few can rival.

He never had a ton of different focuses.  Every 3-4 years he might pick one major new initiative and drive the hell out of it, but generally he stuck to the knitting on what I liked to call his Ten Commandments (maybe there was only 7 or 8).

The biggest one was simple: COST.  His view was that no matter what industry you were in, to survive the ups and downs, the innovative advantages and disadvantages you found yourself in from time to time, you had to always strive to be the cost leader.

I think the biggest problem with the Big Three [automakers] is that for a long time they had no real competition, and simply forgot that "low cost" has got to be a fundamental rule… always."

You can have the slickest, fastest, and highest quality best practice operations… and it can all be for naught.  You can outsource, insource, leverage incredible infrastructure and technologies… but it still comes down to cost and profit.  As many of us have painfully experienced, you can optimize the top line and basically sell yourself out of business.

The revolution is coming.  Whole industries and economies are going to be transformed.  But as you chart the course for your organization, always keep one eye on the fundamentals of good business management.  That will become your anchor in the sea of change.