Business Survival Depends on Three Critical Success Factors
About two years ago I took a graduate-level class – jammed into four days – on business operations. Drilled into our minds were the critical success factors for any business – service, quality and cost.
Since a co-worker is taking the same class this week, and a post I recently read on SigForum by author JALLEN deals with the same subject, I thought it timely to post here.
Provide service, on time all the time; at the lowest justifiable cost; at the highest justifiable quality. It’s a balanced triangle you see, and JALLEN sums it up quite well.
Every day the gazelle wakes up knowing that it must eat enough, and drink enough, and exercise enough so it can be faster than the fastest lion, or at least not be the slowest gazelle. If the gazelle doesn’t spend the time grazing, or going to the watering hole when it is supposed to, and spends too much time grab-assing in the meadow with its buddies, it risks spraining a leg, running out of hydration, not get enough to eat, and ends up a lion’s dinner.
By the same token, a lion wakes up every morning knowing that it has to be faster than the slowest gazelle or it will starve to death. It has to do its wind sprints, stay in top shape, get plenty of water, etc. If the lions spent too much time grab-assing in the meadow with the other lions, they might get hurt, bitten, etc, and be unable to run fast enough to catch dinner.
In other words, survival depends on doing things efficiently, wasting neither time nor resources, nor opportunities unduly. To the extent that businesses do this, they prosper and grow. A business that has too high a payroll for what it produces, exorbitant occupancy costs, too few or too many employees, too little capital, too many over-paid, fat cigar smoking Mercedes-leasing unproductive salesmen, etc., runs the increased risk of failure. If the managers fail to take note of changes in the marketplace, new developments, and therefore make stupid decisions, like investing in a new photo processing plant when the world is going digital, or a new buggy whip plant just as Henry Ford rolls out the automobile, etc. failure looms large, disaster, losses to the shareholder(s). To the extent the management anticipates change, plans for it accurately, gauges the demands of it’s customers and meets those needs efficiently, it prospers and grows.
Every one of the factors of production has to be present in proper proportion for the industry. Some industries are capital intensive, some are labor intensive. Too much capital and not enough labor is inefficient in a labor intensive industry. Insufficient capital for the needs of the business, too much labor, too costly labor, are just as deadly. Entrepreneurial ability, allocating the various ingredients in proper proportion, is critical to efficiency.
Wailing about some companies thriving while others do not is silly. Where is it written that one company has to operate less efficiently so that its competitors have an easier time of it? Where does it say that the Cowboys have to use a slower, smaller left tackle so the Packers can have a better chance of sacks, or that the Red Sox pitchers can’t use left-handed curveballs, because the Royals can’t hit them well?
Part of entrepreneurial ability is assessing the market, to figure out how many widgets can be sold, and at what price, and figuring out what widgets can be produced at what cost. Decisions have to be made about three main issues…. price, service and quality.
Is the business a Nordstroms? Very high cost high quality lots of service in sales, returns, customer satisfaction? Or a Costco, low cost, minimal quality and service, no salesmen, no credit cards, all cash, no carry out, etc. Some combination? If you try high cost and no service, that might not be optimum. The opposite might be just as disastrous for the return on investment.
This subject also fits well with current events, specifically the discussions about NAFTA, tariffs and “job security” between the Democrat candidates. I think they can learn quite a bit from the gazelle and lion, so can we.