When you hear the words “McDonald’s hamburger”, what do you think in terms of the product itself? Is it the best hamburger you can get? Is it difficult to make a better hamburger? The answer is probably not—most people don’t think that McDonald’s Hamburgers are great.
When you hear the words “Lamborghini car”, what do you think when you compare it to other luxury cars? You probably think of it as one of the most prestigious luxury car brands for which customers are prepared to pay between US$200,000 for the cheapest 2020 model to over US$5 million.
The funny thing is that Mcdonald’s, which produces a not-so-great hamburger is one of the most successful and profitable companies of all time. Lamborghini on the other hand has been selling cars for 57 years which people are willing to pay more than they are for just about every other car. However, they have a history of financial problems—they were sold 5 times and went bankrupt once before being bought by Volkswagen in 1998.
The moral of the story is: Even if your product sucks, you can still make megabucks.
But why is that? Why is it that a company that sells one of the world’s most desirable products can be so much less profitable than a company that sells something as average as a Mcdonald’s hamburger?
Why are some companies more profitable than others?
There are many reasons, but one of the most important is that world-class companies (like McDonald’s) spend an enormous amount of time, effort, and money on their operations, i.e. their processes and systems and the way the two interrelate. Well-developed, customized processes and systems give companies continuity, consistency and predictability.
What does continuity, consistency and predictability mean? It means that:
What is meant by “process” and “system”?
Process is the things a company does to create value and for which the customer is willing to pay money. It involves taking the input (raw material, customer order, etc.), converting it into an output and supplying it to the customer. The overall process is made up of numerous sub-processes, e.g. purchasing process, ordering process, production process. The output could be a finished good such as a car, a hamburger or an item of clothing—these are tangible outputs. Outputs could also be intangible products or services, e.g. an auditor gathers data and information, processes it and produces an audit for which his client pays him.
System means the management operating system (MOS). The MOS is how the company manages the Process and sub-processes. It has two elements that interact with each other:
How Does the MOS leverage corporate profitability?
The MOS not only drives and controls operations, but it also helps to regulate organizational behaviour. It covers the Drawing-Board-to-Scoreboard cycle and includes all the planning, organizing, directing, controlling and analyzing of the Process. A well-designed MOS highlights unused capacity and identifies improvement opportunities—it is instrumental in driving productivity and cost efficiencies. In most cases, the MOS has more leverage on the company’s profitability than do the purely engineering functions such as product design and process design.
For example, when Engineering designs a new product or process or modifies an existing one, the change or addition will be profitable only if the resulting increase in sales exceeds the corresponding increase in the cost of sales. The MOS is the vehicle for predicting and quantifying such changes and for ensuring that the expected profit is realized once the change decision is made. The more the MOS is aligned with the company’s processes and ways of doing business, the more accurate and reliable will be such profitability-related decisions.
Most companies purchase off-the-shelf management software applications. These generic systems are designed for commercial viability and target a range of different companies and industries. They rarely meet the company’s business and process requirements and tend to weaken their operational strengths and neutralize their competitive advantage. Unfortunately, software systems custom-built by IT or software companies are too expensive for most companies. A third management tool and MOS solution, affordable to most and used by many large and small businesses, is Excel.
Excel-Based Management Systems
Since most companies already have Excel, there is no additional capital expenditure or ongoing licensing fees. Excel has all the features and formulas needed to develop secure, user-friendly tools and systems. A well-designed Excel system is flexible enough to accommodate processes as they evolve and change and is scalable as the company grows.
TWO GLOBAL EYES has developed and installed customized, low-cost MOS and management tools for companies of all sizes for over 25 years. For more information and examples of systems, contact us, (905)-630-1005.
Brentt Bugler is the founder of Two Global Eyes. He has successfully developed and installed cost-effective customized corporate solutions on four continents covering a broad spectrum of industries for the past 25 years. He is a process improvement specialist with extensive experience in the manufacturing, construction, and project management industries.