Delivering products and services to meet customer demand is important, but managers must focus on management and leave the creativity to others, says Nicholas Watkis.
Every commercial business started as an idea for the purpose of making money. Successful entrepreneurs are good at identifying problems of society and individuals; seeing opportunities to make money by finding solutions which induce customers to buy, in order to relieve their discomfort.
Seeing and recognising an opportunity may be the spark of an idea that creates a business, but in order to start, every business needs some initial capital. Income is not produced without the investment of labour or money, and usually requires both. Getting business costs money, and maintaining that business also costs money - you don't get something for nothing.
Businesses exist to make money, which is produced as a result of satisfying customer demand. Satisfying customer demand requires knowledge of the customer and their problems, the production of a solution to those problems and the ability to convey that solution to the customer so that they are willing to accept and pay for it. The procedure described may seem simple enough, but on examination it is frequently more complex, because it requires the use of many resources and activities, even for a small business.
Areas of responsibility
If a business is to make money, it requires the effective management of all those resources and the necessary assets involved in producing and delivering a product or service to a customer. But what are these resources and assets? Generally, those resources are defined in financial terms as the money allocated to budgets for the specific activities involved directly or indirectly with producing income. Tangible assets involved in getting and maintaining income are usually limited to wholly owned and dedicated IT hardware related to the administration of selling, and wholly owned business vehicles dedicated to customer liaison and delivery.
Businesses are traditionally organised into separate areas of responsibility. In manufacturing businesses, organisations tend to be formed on the basis of finance, personnel, production and sales, while retail and service businesses tend to organise around finance, personnel, and sales functions. While this sort of organisation is understandable it tends to encourage blinkered and protective thinking amongst those who manage these separate areas, rather than integrated management for the benefit of the whole business.
Business activities can be divided into those which support the delivery of the product or service to the customer, and those which provide the necessary resources for the business.
The centre of the business?
In recent years it has become fashionable to declare that the customer is at the "centre of the business" without really defining what this means. Customers provide the income on which the business survives. However, every activity which directly or indirectly helps to satisfy the customer's requirement creates a cost that is necessary for the production of income. Customer-related activities include research, product or service development, advertising, sales, promotion, delivery, as well as credit control, amongst others. Those activities that provide the necessary resources to enable the satisfaction of customer requirements include finance, personnel, and purchasing.
Logically, it follows that rather than the traditional organisation previously described, business functions ought to be organised according to whether they are parts of the business operations that are involved in producing income, or supportive functions that are involved in the provision of necessary resources. Business organisations could then be organised into two distinct areas; operations, which are customer related, and support, involved in resource provision. Being responsible for those activities which ultimately generate income, the function of business operations ought to be seen the driving force of every business, and should be managed accordingly. Thus all the activities of business operations ought to be managed as a single area with one manager having overall responsibility for the getting and maintaining the necessary level of financial income.
While producing suitable products and services to meet customer demand always requires creativity and imagination, managers of business operations need primarily to be effective and efficient managers, rather than being creative themselves. As effective managers they have a responsibility to encourage, direct and manage those with the necessary creative talents who are often less suited to management tasks. Financially literacy is also essential for efficient management, in order to understand the costs of income generation. As executives responsible for generating income, managers of business operations should be judged on the amount of money produced and their financial efficiency in its production. While brand awareness and market share may have their importance, only sustainable profitable income provides businesses with long-term viability, and their employees and shareholders with a future.
Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a fellow of the Chartered Institute of Marketing and a certified management consultant of the Institute of Business Consultancy. For more articles from Nicholas, click here.